DEACONS (a firm) v. WHITE & CASE LTD LIABILITY PARTNERSHIP AND OTHERS

HCA 2433/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2433 OF 2002

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J U D G M E N T

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1. This is an application by the defendants for a stay of all further proceedings in this action and specifically the assessment of quantum until after the Court of Appeal has delivered judgment in the appeal and cross-appeal on the issue of liability.

2. At a pre-trial directions hearing it was ordered that the action be split with liability to be tried first. That was dealt with when I handed down judgment on 24 October 2003 finding in favour of the plaintiff in damages against all defendants, to be assessed, with a right to elect an account of profits against the 3rd and 4th defendants. By supplementary judgment of 13 November I gave the same right of election as against the 1st and 2nd defendants. On the same date I ordered discovery in respect of the plaintiff's right to elect its relief in damages or equity, to be complied with within 56 days, that is by 8 January 2004.

3. Since then, the following activity has taken place:-

1. On 18 December the defendants filed notice of appeal against the order of 13 November;

2. On 31 December the defendants filed notice of appeal against some of the orders on liability made in the judgment of 24 October;

3. On 15 January the plaintiff filed notice of cross-appeal in respect of some of the orders on liability.

Meanwhile, on the issue of discovery, there was correspondence between Johnson, Stokes & Master (JSM) for the defendants and Clifford Chance (CC) for the plaintiff.

4. By letter of 18 December, being the date upon which an appeal against, inter alia, the discovery order was filed, JSM wrote seeking an agreement to a stay of discovery pending the appeal.

5. By letter of 22 December CC wrote that the plaintiff would not agree to a stay.

6. By letter of 6 January JSM wrote that whilst the defendants regarded the discovery order to be wrong in principle they had decided not to seek a stay of it and would comply with it as best they could, but sought an extension to 15 January.

7. By letter of 7 January CC responded that the plaintiff agreed to that extension because the defendants were not seeking a stay.

8. In the event there was compliance but not until 28 January, following two further applications and orders amending the timetable.

9. On 2 March CC wrote pointing out various deficiencies in the discovery and followed this up with a summons for further discovery.

10. This prompted a response from JSM of 3 April 2004 which said in part:

"The difficulty we have with your request for further discovery is that you are, in effect, expecting our clients to provide a full account (with all the consequential costs and time) as part of your clients' decision on election of remedy. This is clearly inappropriate. Your clients have sufficient information from the discovery provided to make an informed election.

If it be your clients' intention to continue with this discovery application, our clients intend to seek a stay of the quantum proceedings pending our clients' appeal on liability......"

11. When CC gave notice that the plaintiff would not be dissuaded from pursing the additional discovery the defendants took out this stay application, filed on 14 April. In support is an affidavit of Mr. Hunsworth who has conduct of the case on behalf of all defendants. In it he states that the discovery sought by the plaintiff relevant to its election as to remedy is extremely far-reaching and, if granted, will involve the defendants in an enormous amount of time and money in producing the material asked for. Further, whatever the election, the actual assessment as to quantum will be a substantial and complex exercise with forensic experts likely to be called by both sides. His estimate, based on counsel's advice, is that the whole exercise will involve many hearings of several weeks spanning a year or more. In the circumstances a considerable amount of expense would be wasted if the Court of Appeal allows the appeal or otherwise varies the nature of the remedies the plaintiff is entitled to. Because the issues of liability and quantum had been split he put the proposition that liability should be finally disposed of before quantum is further to proceed.

12. This reasoning was the subject of Mr. Burns' submission in support. He highlighted that given the various claims and findings at first instance there are numerous possibilities in the outcome of the appeal which will dictate future conduct of the action, and those possibilities include significantly and substantially different orders from those at first instance. He submitted there is clearly no prospect of the issue of assessment of damages or equitable relief being dealt with prior to the appeals. So, the delay in pursuing discovery if, after all, the Court of Appeal does not disturb the orders I made would be no more than about 6 months, balanced against enormous wasted costs incurred in the event that discovery as sought is no longer appropriate.

13. The plaintiff's opposition to the stay is based on two grounds: the first that no good reason had been demonstrated to grant a stay; the second that the defendants by their conduct have waived their right at this stage to pursue a stay.

14. Mr. Chow mounted his waiver argument on the defendants' stated decision not to pursue a stay pending appeal as set out in JSM's letter of 6 January, and then their proceeding to comply with the order for discovery, albeit belatedly and inadequately. As a consequence the plaintiff has acted to its detriment because it took no steps to seek an expedited hearing of the appeal against the order for discovery, raising no objection to it being set down in November to be dealt with with the other appeals.

15. His argument that there are no good grounds is primarily that whatever the outcome of the appeals no massive expenditure will have been incurred before that outcome is known.

16. The power to make an application for a stay derives from Order 59 rule 13 RHC which states that an appeal shall not operate as a stay unless the court below or the Court of Appeal or a single judge directs. In the proper exercise of that discretion a stay will not be granted unless the appellant can demonstrate there are good reasons for doing so; this is because of the principle that a successful litigant should not be denied the fruits of his litigation.

17. Historically, appellants have been granted a stay if the appeal would otherwise be rendered nugatory; similarly where enforcement of the judgment could result in irreparable hardship or difficulty. These are extreme situations in respect of which commonsense and justice warrant a stay. Otherwise the current approach would seem to promote the premise that provided there are arguable grounds for a successful appeal the court will likely weigh the impact upon the appellant if no stay is allowed and he wins his appeal against prejudice the respondent may suffer if a stay is granted and the appeal fails.

18. As Ma J. (as he then was) wrote in his judgment in the unreported case of Star Play Development Limited and Bess Fashion Management Co. Ltd. HCA 4726/2001:-

"Ultimately, the court embarks on a balancing exercise and uses its commonsense, but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of its success ...."

19. Although the stay sought is in respect of all activity and in particular the assessment of quantum, the practical reality is that there is no prospect that the parties will be ready to proceed to trial on the assessment of quantum or that an adequate time slot will be available in the Court's diary before the scheduled Court of Appeal hearing. The consequence is that the only matter that will be affected, were there to be a stay, is the plaintiff's summons for further discovery. That has been set down for hearing on 23rd June. Insofar as discovery, albeit the subject of an appeal, is already under way no stay having been sought at the outset, it seems to me that the defendants would have to present strong grounds as to why an application for further and better discovery than that so far produced should now be forestalled.

20. It is argued that there will be wasted costs in the event that the discovery proceeds and then the appeal succeeds. It is argued that if the plaintiff's pending application for extensive additional discovery succeeds, the resultant task of compliance will be extremely time consuming and expensive. In my view these are not compelling reasons for a stay. Wasted costs can be recovered. And the issues of additional discovery have yet to be argued. I do not see why in the balancing exercise the plaintiff's pursuit of discovery should be cut off for six months, perhaps for longer if the appellate rulings are reserved.

21. The defendants, as I find, have failed to demonstrate there is good reason for granting a stay. Their application is dismissed, with costs to the plaintiff in any event. (the costs order is nisi at first instance).