BRAND, FARRAR, BUXBAUM LLP. v. SAMUEL-ROZENBAUM DIAMOND LTD. AND ANOTHER

HCA5191/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5191 OF 1998

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REASONS FOR DECISION

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The application before the court

1. The application before the court is for the continuation of an interim stay of execution granted to the claimant ex parte by Hartmann J on 16 April 2002, pending the hearing on 23 May 2002 of both a substantive appeal (from the decision of Master Stewart Wong dated 9 April 2002 in which he held against the claimant, Samuel-Rozenbaum HK Limited, on an interpleader summons) and another appeal (again from the decision of Master Wong on that day whereby he refused the claimant's application for a stay of execution on the substantive decision). In other words, by the present application, the claimant seeks a stay of execution pending the hearing of an appeal against Master Wong's refusal to grant a stay of execution until the hearing of the substantive appeal. It is necessary to go into the procedural background of this case in some detail in order fully to appreciate the nature of the rather unusual application before the court.

2. On 1 April 1998, the plaintiff issued a writ against the defendants, Samuel-Rozenbaum Diamond Limited and Samuel-Rozenbaum Diamond (1992) Limited, claiming the sum of US$102,278.40 and interest, being the amount due for legal services rendered. On 18 March 2000, the plaintiff obtained default judgment against the defendants in that sum together with interest and costs.

3. On 14 January 2002, a writ of fieri facias was issued directing the Bailiff to seize the defendants' goods, chattels and other property in execution of the said judgment. On 27 February 2002, the Bailiff seized a quantity of diamonds ("the Diamonds") at a jewellery show held at the Hong Kong Convention and Exhibition Centre. The Diamonds, numbering in total about 48 pieces, are said to be worth in the region of US$132,000. The judgment debt as at the end of February 2002, together with accrued interest and costs, is said to be about US$231,000, thus exceeding the value of the Diamonds.

4. The claimant contends that the Diamonds belong to it and not the defendants and therefore the Bailiff should not have seized them. In view of the rival claims to the Diamonds, on 4 March 2002, the Bailiff issued an interpleader summons, serving it on the plaintiff and the claimant. At a directions hearing on 22 March 2002, it was ordered that the claimant be made the 2nd defendant in the proceedings. For convenience, however, I will continue to refer to Samuel-Rozenbaum HK Limited as "the claimant".

5. The substantive hearing of the interpleader summons took place on 9 April 2002 before Master Stewart Wong. The claimant's witnesses were cross-examined by the plaintiff on their affidavits. After hearing argument and testimony from the claimant's witnesses, the learned Master dismissed the claimant's claim to the Diamonds and further ordered that the said writ of fieri facias and the sale of the Diamonds be proceeded with.

6. After the learned Master's decision was announced, counsel for the claimant (who was not Ms Teresa Wu who now appears for the first time on behalf of the claimant before me) asked for a stay of execution on his order, it being his client's intention to appeal. This was opposed by the plaintiff's counsel, Ms Yvonne Cheng (who appears for the plaintiff). After hearing argument on this aspect, Master Wong dismissed the application for a stay (and this is recorded in the learned Master's notes of the proceedings that day and also reflects Ms Cheng's recollection of the matter).

7. At this stage, some confusion arose on the part of the claimant's legal representatives. The solicitor in charge of the case for the claimant has deposed in an affirmation that both he and counsel believed that Master Wong had not dealt with the application for a stay.

8. On 10 April 2002, a notice of appeal against Master Wong's decision on the interpleader summons was filed (and the appeal is stated in the summons to be returnable on 23 May 2002). On 11 April 2002, upon the claimant's instructions, an application was made ex parte before Mr Registrar Chan for an interim stay of execution. The solicitor in charge deposes in his affirmation that both he and counsel acted in good faith believing that Master Wong had not dealt with the claimant's application for a stay of execution. In my view, the application made ex parte before Mr Registrar Chan constituted a clear abuse of process by the claimant. I shall have more to say about this first ex parte application later.

9. Following this ex parte order, the claimant issued an inter partes summons on 12 April 2002 returnable on 17 April 2002 to continue the interim stay of execution. This was served on the plaintiff. Upon receipt of this summons, the plaintiff's solicitors wrote to the claimant's solicitors demanding clarification as to why the claimant had proceeded ex parte and further stating that the question of stay of execution had already been determined by Master Wong on 9 April 2002. It was not until 15 April 2002 that the claimant's solicitors contacted Master Wong's clerk for the first time to inquire whether or not the learned Master had dealt with the claimant's application for a stay. At about 4:30 pm that day, the claimant's solicitors were informed by Master Wong's clerk that the learned Master had in fact dismissed the application for a stay, whereupon the claimant withdrew the said summons returnable on 17 April 2002 and also wrote to the clerk to Mr Registrar Chan seeking to have the order for interim stay of execution discharged.

10. On the next day (16 April 2002), the claimant issued a notice of appeal against Master Wong's refusal to stay execution. I would just observe here that this was the correct procedure to adopt. In the case of appeals from the Court of First Instance to the Court of Appeal, there is concurrent jurisdiction to grant stays of execution, so that if a judge at First Instance refuses a stay, an application can be made to a judge in the Court of Appeal without the need to appeal (see Hong Kong Civil Procedure 2002 at paragraph 59/13/7). This concurrent jurisdiction exists on appeals to the Court of Appeal by reason of the wording of Order 59 rule 13(1). The same wording does not exist, however, in relation to appeals from masters to the Court of First Instance. Here, the applicable rule is Order 58 rule 1(4), which differs in wording to Order 59 rule 13(1).

11. Regarding this second notice of appeal, quite extraordinarily, the appeal was stated to be heard also on 23 May 2002, at which time of course, it would be academic. In my view, the better course for the claimant was to ask for an expedited hearing date for the appeal rather than ask for an interim stay of execution pending this appeal.

12. Even more startling was that on the same day, the claimant again applied ex parte for an interim stay of execution. This was granted by Hartmann J. It is the claimant's application for a continuation of that interim stay that was before me on 26 April 2002. I also regard that ex parte application before Hartmann J as an abuse of the ex parte procedure, for reasons that I shall explain presently.

13. Finally, I should record the fact that on 17 April 2002, Master Rimsky Yuen awarded costs against the claimant in respect of the said summons dated 12 April 2002 returnable before him on that day. Although the plaintiff had asked for costs on an indemnity basis and the learned master accepted that there was no justification for the claimant to have obtained ex parte relief before Mr Registrar Chan, he only gave costs on the normal basis. The learned Master also awarded the costs of the hearing before him to the plaintiff, remarking that it was reasonable for the plaintiff to have asked for costs on an indemnity basis.

The orders made on 26 April 2002

14. At the hearing on 26 April 2002, I invited the parties to consider having the appeal from Master Wong's refusal to grant a stay of execution heard that day. It seemed to me somewhat pointless for this appeal to be heard on 23 May 2002. However, Ms Cheng, who appeared for the plaintiff, said that she was not prepared to argue the appeal proper, since the plaintiff was considering the need to put in evidence in relation principally to the question of the appropriate mode of sale of the Diamonds. Accordingly, the application before the court that day was only whether the interim stay granted by Hartmann J should be continued or a fresh order granted.

15. After hearing argument from Ms Cheng and Ms Wu (who, it must be said, was instructed late and made the best out of the near impossible situation she found herself in), I set aside Hartmann J's order and dismissed the claimant's application for an interim stay of execution. As for costs, I ordered that the costs of and occasioned by Hartmann J's order and of the hearing on 26 April 2002 be to the plaintiff to be paid by the claimant on an indemnity basis, such costs to be taxed forthwith if not agreed.

16. After making the said order, I briefly indicated that there were essentially two reasons for these orders :

(1) There was insufficient material before me to exercise my discretion in favour of granting an interim stay of execution.

(2) The conduct of the claimant, in particular in twice obtaining ex parte relief in circumstances when it was clearly an abuse of the court's process to have done so, was such as to debar the claimant from continuing to benefit from the order granted by Hartmann J and from obtaining a fresh order, and also was such as to attract a stringent order as to costs.

17. I now set out in fuller form these reasons.

No good reason to grant an interim stay of execution

18. An appeal from a master to a judge in chambers does not operate to stay the proceedings in which the appeal is brought : see RHC Order 58 rule 1(4). This is the same as an appeal from the Court of First Instance to the Court of Appeal : see Order 59 rule 13(1)(a).

19. It is equally important to bear in mind that stays are not readily granted either. Good reasons have to exist before the court grants a stay of execution, the rationale being that the court will not deprive a successful litigant of the fruits of his success : see Hong Kong Civil Procedure 2002 at paragraph 59/13/1.

20. A good reason exists to order a stay of execution where the appellant can demonstrate that serious prejudice will be caused to him, such as where an appeal would be rendered nugatory or if there was a realistic prospect of the appellant being ruined if a stay were not granted. The passage I have referred to above provides a number of examples in this regard.

21. The present application is of course not for a stay proper, for the appeal from Master Wong's refusal to grant a stay is due to be heard only on 23 May 2002. Rather, as I have said, the present application is for an interim stay pending the appeal against the refusal of a stay. The court is therefore one stage removed. What then is the approach to be adopted in such applications?

22. In my judgment, in situations where the court is faced with multiple applications (and possible multiple appeals which may even go to the point of absurdity) which in essence involve the same or a similar point, the proper approach of the court must be simply to deal with the point in issue and not be intimidated by the possibility that the same point may arise in another application not yet before the court or before another court. The present application for an interim stay of execution pending the hearing of the appeal against the Master's refusal to grant a stay is an illustration of this. The court must deal with the main question whether or not as a matter of justice between the parties a stay of execution should be granted on the evidence available at this stage and not simply postpone dealing with this question until the appeal proper and grant, as the claimant urges, a stay in the meantime. This is not to say that the court is then somehow pre-empting the appeal because technically the two matters are different. The court is simply dealing with the matter before it on the available evidence and circumstances prevailing at the time of the application.

23. In the present application, the main question before me is whether a stay of execution should be granted pending the appeal on 23 May 2002. The starting point must be that a stay is not automatic on account of there being an extant appeal. Good reasons therefore need to be demonstrated by the claimant. The fact that there is an existing appeal against Master Wong's refusal to grant a stay of execution cannot by itself be a good reason. Were it to be so, the granting of a stay effectively ensures that the appeal is successful without any other reasons being shown. In my view, some other good reasons must independently exist. In the present case, the claimant has failed to discharge the burden on it in this regard :

(1) The claimant's main contention is that if a stay were not granted, the subject matter of the interpleader summons (that is, the Diamonds) would be liable to be sold by the Bailiff before its appeal against Master Wong's decision was resolved. Ms Wu's argument was not that the Diamonds were in any sense unique (although she did say that they were valuable gems, which I accept) so that they were somehow irreplaceable nor was it suggested that they were required by the claimant for its personal use or enjoyment. Afterall, the claimant is a diamond dealer and the Diamonds were just, as Ms Cheng puts it, trading stock. Rather, the claimant's fear was their being sold at an undervalue. In support of this, Ms Wu asked me to take judicial notice of the fact that if the Diamonds were sold by the Bailiff possibly by public auction, this would inevitably fetch a lower price than otherwise would be the case, say, if the Diamonds were sold privately. The point was essentially that, through the Bailiff, the Diamonds would be sold in a "forced sale" or "liquidation sale" situation. I am unable to accept this contention. There is no evidence before me to suggest that a sale by the Bailiff would fetch less than otherwise would be the case. There is, moreover, no certainty that in fact the Bailiff would sell the Diamonds at a public auction anyway because, as I have already said, one of the reasons for Ms Cheng being unable to deal with the stay of execution appeal proper was that the plaintiff needed more time to consider putting in evidence with regard to the ideal mode of sale of the Diamonds. In this context, I would also add that in view of the fact that the amount of the judgment debt exceeds the value of the Diamonds, it would not be in the plaintiff's interest to have the Diamonds sold at anything less than their true worth. In any event, the claimant has not put in any evidence to suggest what other mode of sale it had in mind that would ensure that the Diamonds would be sold at a higher price that what the Bailiff would be able to obtain for them.

(2) Ms Wu also submits that the claimant has a good chance of succeeding in its substantive appeal against Master Wong's decision. At first, it was argued that the claimant's appeal had a strong probability of success. However, given that the learned Master had serious misgivings about the credibility of the claimant's witnesses (or at least one of them) and on the evidence before me, I can only accept that the claimant has an arguable appeal, as indeed Ms Cheng accepts. I emphasise though that nothing I have said should be taken as anything more than a tentative view of the merits and should not in any sense bind or influence the court that hears the substantive appeal.

(3) Finally, Ms Wu submitted that since the two appeals were to be heard on 23 May 2002, a stay would not prejudice the plaintiff. With respect, I agree with Ms Cheng's submission here that this is the wrong way of looking at the matter. The burden is on the claimant to show good reasons why a stay should be granted; the burden is not on the plaintiff to demonstrate why a stay should not be granted. Of course, once good reason or reasons are shown to exist by the party seeking the stay, it will then be relevant to consider any particular prejudice that the other side may suffer if a stay were granted. But until good reasons are shown, the court does not even begin to embark on a balancing exercise for there is nothing to balance.

The claimant's conduct in obtaining ex parte relief

24. I start with the applicable legal principles. One of the facets of equality before the law (a fundamental right guaranteed under Article 25 of the Basic Law) is that no order ought to be made by a court against anyone without his first being given a reasonable opportunity of being heard. An exception to this fundamental rule is where ex parte orders are made by the court. At the risk of repeating the obvious, ex parte orders are only made "where the situation is of such extreme urgency that there is literally no time to warn the defendant of what is proposed or where the purpose of the injunction will or may be frustrated if the defendant is informed of what is proposed or where the defendant simply cannot be found" : see TRP Limited v. Thorley, unreported, 13 July 1993, English Court of Appeal, per Bingham LJ. I should perhaps out of completeness add that this salutary rule does not apply where express provisions are made in the Rules for the ex parte procedure to be used : see Hong Kong Civil Procedure at paragraph 32/6/5.

25. It is of course well-known that it is incumbent on an applicant for ex parte relief to disclose to the court all material facts going to the exercise of the court's power. And where there been material non-disclosure, the court can and often will set aside the ex parte order. A lack of candour may also justify the court in refusing to make a new order, although it is within the court's discretion to make a fresh order notwithstanding the material non-disclosure : see for example Brink's Mat Limited v. Elcombe [1988] 1 WLR 1350, at 1357E-G. The discretion to make a fresh grant also carries with it the discretion not to make one. One of the factors which a court can legitimately take into account is whether the original material non-disclosure was innocent : see Lloyds Bowmaker Limited v. Britannia Arrow Holdings Limited [1988] 1 WLR 1337, at 1343H-1344A. In order to enable the court to decide whether or not the original material non-disclosure was innocent, it is imperative for the party who has prima facie abused the process of the court to explain fully its actions. I am of the view that these principles apply generally in all cases of abuse in obtaining ex parte relief.

26. Afterall, material non-disclosure provides but one species of an abuse of process in ex parte applications. Any sanctions imposed by the court in such circumstances are to ensure that abuses of its process do not occur. Which of these sanctions (whether the setting aside of the ex parte order, the refusal to make a fresh order or a punitive order as to costs, among others) that the court will impose, depends on the circumstances and the seriousness with which the court regards the abuse.

27. In the present case, there have been two instances where an abuse of the ex parte procedure has taken place :

(1) First, there was no justification for the claimant to have gone ex parte to Mr Registrar Chan on 11 April 2002 to obtain an interim stay of execution. If the claimant and its legal advisers had any doubts as to how Master Wong dealt or intended to deal with the claimant's application for a stay pending appeal, they should have clarified the matter with the learned Master himself or sought a further hearing before him. The claimant did neither. Instead, the claimant's legal advisers went to another master (Mr Registrar Chan) ex parte. The only explanation given for going ex parte was that there was urgency. This is not made out on the evidence. In the affirmation of Mr Yosef Hadad (the manager of the claimant), made on 10 April 2002 in support of the application for ex parte relief, it was said only that "the Bailiff will sell the ... [Diamonds] in a matter of days unless an Order for a stay of execution is granted" (emphasis added). This is repeated in the affirmation of the claimant's solicitor. If only a matter of days was involved, there was no justification not to have notified the plaintiff of this application. Accordingly, no acceptable explanation was provided to the court as to why the claimant proceeded ex parte. As to why the matter was not referred back to Master Wong in the first place, Ms Wu informed me (although this was not in any affidavit before the court) that the reason was that it was felt by the claimant's legal advisers that it would be appropriate to apply for an interim stay of execution before Mr Registrar Chan because he was the Practice Master on the relevant day. Again, I find this explanation unacceptable.

(2) Secondly, having already in my view abused the process of the court by obtaining ex parte relief on 11 April 2002, this error was exacerbated by the application for ex parte relief before Hartmann J. Again, there was no justification for not first contacting the plaintiff. The supposed urgency was again stated to involve "a matter of days". At no stage would it appear that the claimant even attempted to contact the plaintiff to see whether any agreement could be reached as regards a stay of execution. In the absence of any explanation for this conduct, I am driven to the conclusion that the claimant saw more benefit by proceeding stealthily than by proceeding by conventional means.

28. In my judgment, such abuses of the ex parte procedure are to be deplored. Even if there was genuine urgency (and I do not accept that there was), the proper course was for the claimant to take out an inter partes application, if necessary with time abridged, or if that was somehow not possible, to make an ex parte application on notice to the plaintiff. The claimant chose to adopt neither of these courses.

29. I have also found unsatisfactory the lack of any proper explanation given (even now) for the claimant's conduct in seeking ex parte relief on both the said occasions. By itself, this conduct was sufficient in my view to deprive the claimant of the interim relief which it sought, whether by way of the continuation of Hartmann J's order or by way of a fresh order.

Costs

30. As stated earlier, I awarded costs to the plaintiff on an indemnity basis. This reflects the view taken by the court of the claimant's conduct which I have described in some detail. It is hoped that this type of conduct will not recur again.