CHUNG MEI INDUSTRIES LTD v. SO KWOK KEUNG

HCMP 961/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 961 OF 2011

(ON AN INTENDED APPEAL FROM HCA NO. 2604 OF 2005)

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J U D G M E N T

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Hon. Yuen JA:

1.  This is an application for extension of time to appeal a judgment of Deputy Judge Carlson which was handed down on 9 March 2011. The order was sealed on 18 March 2011 and was served on the Defendant’s solicitors on the same day. The time for appealing expired on 6 April 2011 (28 days after 9 March 2011). The application for extension was filed on 25 May 2011.

Background

2.  The Plaintiff is a manufacturer of electrical household products.  It is part of a group of companies controlled by a Mr Sebastian Man.  The Defendant is a qualified accountant and had been very successful as managing director of Durable Electric (“DE”), another company manufacturing and selling household appliances.

The Agreement

3.  The Defendant was approached to join the Plaintiff but he was initially unwilling to do so unless he was remunerated at the same level ($300,000 per month) as that at DE.  Eventually a written Agreement between the Plaintiff and the Defendant was made.  The terms of remuneration were drafted in fine detail but in summary, the Defendant’s monthly remuneration package would comprise:

(1) $75,000 basic salary payable in any event;

(2) an “advance commission” of $225,000 based on performance as reflected by the Plaintiff’s profit and sales turnover.  However if the Plaintiff’s audited net profit was less than $10m. a year, the Defendant would be required to return part or all of the “advance commission” depending on the level of net profit.  On the other hand, if the Plaintiff achieved sales of $350m. in the first year, then regardless of net profit, the Defendant would be entitled to keep his “advance commission”.

The claim

4.  For the first 13 months of the Defendant’s employment (1 December 2003 to 31 December 2004), he was paid “advance commission” of $2,925,000.  However the Plaintiff’s audited accounts showed that for the year ending 31 December 2004, it suffered a loss of $19 m.  Accordingly the Plaintiff sought the return from the Defendant of the entirety of the “advance commission” paid to him.

The defence

5.  The first point taken by the defence was that, contrary to the written terms of the Agreement which defined the party to the Agreement “Chung Mei” as the Plaintiff only, Mr Man had represented to the Defendant that the “advance commission” would be based on the profits of not only the Plaintiff but also its subsidiaries (which were Hong Kong and BVI companies holding real property for rental income and securities for dividends: see para. 3(b) Re-Amended Defence).  The second point taken by the defence was that the audited accounts were qualified. 

Judgment

6.  The judge rejected the first defence (which was only added by amendment a year after the original Defence was filed) after a 4-day trial in which both Mr Man and the Defendant gave evidence.  The judge found as a fact that no representation had been made by Mr Man to the Defendant.  He held that the Agreement “could not be clearer”.  It was signed between the Plaintiff only and the Defendant, and the latter was an experienced businessman who had suggested a number of redrafts to the Agreement before signing it. 

7.  As for the second defence based on the qualification of the audited accounts, the judge accepted expert evidence that, irrespective of the issues causing the qualification, it would not in any event result in the Plaintiff achieving a financial position whereby the “advance commission” could be retained in whole or in part.

8.  Accordingly judgment was given in favour of the Plaintiff on 9 March 2011 with an order nisi on costs.  As I have said, the order was sealed on 18 March 2011 and it is now accepted that the Plaintiff’s solicitors served it on the Defendant’s solicitors the same day. 

Post-judgment events

9.  On 22 March 2011 the Plaintiff’s solicitors issued a summons to vary the costs order nisi. 

10.  By way of execution of the judgment, (a) on 29 March 2011 the Plaintiff obtained a Garnishee Order nisi against the Defendant and (b) on 6 April 2011 the Plaintiff obtained a Charging Order nisi on the Defendant’s shares in a company called All Faith Investments Ltd which is the registered owner of a residential property in the Mid-Levels.  In the event, on 3 May 2011 the Defendant’s solicitors informed the Plaintiff’s solicitors that he would not contest either order. 

Application to appeal out of time

11.  Under the Rules of the High Court [O.59 r.4(1)( c)], the deadline for lodging an appeal from a final judgment is 28 days from the date of the judgment (in this case, 6 April 2011, the 5^th being a public holiday). 

12.  It was however not until 25 May 2011 (11 weeks after the judgment was given and 7 weeks after the deadline for appealing) that the Defendant issued a summons to extend time to appeal.   

Reasons for delay

13.  In an affirmation of the Defendant’s solicitor Mr Sham filed on 25 May 2011 in support of the application, it was said that:

(1)     the Defendant had given him instructions to lodge an appeal 2 days after the judgment was handed down in March 2011; 

(2)     however he (Mr Sham) was under the impression that the deadline for appealing was 28 days after the order was sealed (as it had been before the Civil Justice Reform which was implemented in April 2009) and he thought time had not yet expired as his firm had not been served with a copy of the sealed order; 

(3)     it was not until he had a conference with counsel (newly instructed for the Defendant) on 29 April 2011 that he was made aware of the period of appeal;

(4)     he then arranged a conference with the Defendant on 17 May 2011 which culminated in the application for extension of time filed on 25 May 2011.

14.  This affirmation was followed by an affirmation from the Plaintiff’s process-server Mr Lam and its solicitor Miss Lam, deposing to service of the sealed order on Mr Sham’s firm on 18 March 2011, confirmed by a receipt stamp.

15.  In a subsequent affirmation filed in reply, Mr Sham accepted that his firm had in fact been served with the order on 18 March 2011 but he surmised that it had been misplaced as it did not find its way to the case file.  He was not aware that the order had been sealed until he had carried out a search of the Court file on 29 April 2011 after the conference with counsel.  

Proposed grounds of appeal

16.  The proposed grounds of appeal in the draft Notice of Appeal are that:

(1)     the judge erred in admitting the pre-contractual negotiations of the parties, their declarations of subjective intent and evidence of draft agreements as the factual matrix in interpreting the Agreement in question;

(2)     the judge erred in his approach to the interpretation of the Agreement by asking rhetorically why the Defendant signed the same which did not express the meaning contended for by the Defendant;

(3)     if the judge applied the correct principles of interpretation of contract, the judge ought to have reached the conclusion that the references to “Chung Mei” in clause 2 of the Agreement included the Plaintiff and its subsidiaries;

(4)     the judge misdirected himself or has failed to direct himself on the proper principles by which the Agreement in question was to be interpreted and thereby occasioning substantial wrong or miscarriage.

Principles

17.  Mr Kwan, counsel for the Defendant (who did not appear before the trial judge) has relied heavily on the judgment of the English Court of Appeal in Sayers v Clarke Walker [2002] 1 WLR 3095 where the appellant’s solicitors also mistook the time for appeal to run from the sealing of the order, neglecting the change effected by the CPR 2 years earlier.   

18.  The English Court of Appeal held that in cases of complexity, the court should consider the guidelines expressly provided in CPR R.3.9(1), briefly:

(a) the interests of the administration of justice;

(b) whether the application for extension had been made promptly;

(c) whether the delay was intentional;

(d) whether there is a good explanation for the delay;   

(e) the applicant’s “track record” of compliance during the proceedings;

(f) whether the delay was due to the client or his legal advisers;

(g) whether a court date could still be met;

(h) the effect of the delay on each party;

(i) the effect of an extension on each party.

These rules have been adopted in O.2 r.5(1) in Hong Kong.  However it seems to me that they are no more than a structured refinement of the principles which have guided the exercise of the court’s discretion when applications for extension are considered.

19.  In Sayers the Plaintiff sued his accountants for professional negligence in a case of some complexity.  The Decision of the trial judge had been given in a piecemeal fashion, eventually in favour of the Plaintiff.  The Defendants wished to appeal and would have been well in time under the old rules as the Notice of Appeal was filed within 10 days of the order being sealed.  There were apparently also conflicting indications given by the staff of the Civil Appeals Office to the appellant’s solicitors.  It was in those rather unusual circumstances that the Court of Appeal gave an extension of time.

Discussion

20.  In my view, it is clear that considering all the circumstances of the present case, the application for an extension must be refused.

21.  The delay is a substantial one.  The application for extension was made 7 weeks after the deadline for appealing had lapsed.  Whilst I am prepared to accept that the inactivity in the initial period (from 6 April to 29 April) was due to Mr Sham’s ignorance of the change in rules effected by the CJR, there was really no excuse at all for the further period of inertia after 29 April 2011.

22.  Once Mr Sham became aware on 29 April 2011 that the date of sealing had no relevance to the deadline for appealing – and therefore that the Defendant was already more than 3 weeks out of time, he should have moved with alacrity to contact the Defendant and to file papers for an extension, since the Defendant had already indicated a couple of days after the judgment was handed down that he wished to appeal. 

23.  Instead it took another 4 weeks before papers were filed.  In his affirmation made on 2 June 2011 Mr Sham said:

“After discovery of my mistake on 29^th April 2011, I did not instantly inform the Defendant of the same but arranged a conference with him and the newly engaged counsel on 17^th May 2011 at counsel’s chambers. It was my poor handling of work schedules which resulted in the delay in informing the Defendant of the lapse of the deadline and in taking instructions from him”.

I regret to have to say that the further delay was completely unjustifiable and bordered on the unprofessional.

24.  Further it would also appear that the Defendant’s “track record” does not assist him. I have been referred to a number of letters from the Plaintiff’s solicitors to the Defendant’s solicitors during the course of the proceedings chasing up for compliance with rules and orders, including two Unless Orders.

25.  Also important are the merits of the proposed appeal.  It seems to me that the trial judge was clearly entitled to find that only the net profit of the Plaintiff (and not its subsidiaries) was relevant to the Defendant’s remuneration.

26.  In relation to grounds (1) and (2) of the proposed appeal, it is clear from the Judgment that the judge was not referring to the contents of negotiations or previous drafts, but to the fact that the Defendant had caused the draft Agreement to be redrafted on various aspects, showing the care with which he had examined the contents before signing the final version. Further the judge was clearly entitled to take into account the fact that the “representation” defence appeared to be an after-thought when he assessed the Defendant’s credibility when testifying about the alleged representations. 

27.  As for ground (3), the Agreement shows that in clause 2 (dealing with Payment Obligations comprising Remuneration and Repayment) there is explicit reference to only the Plaintiff, whereas clause 3 (dealing with Obligations and Entitlements relating to a Bonus and Incentive Scheme) explicitly defines the term “the Group” as referring to the Plaintiff, its subsidiaries and associated companies.  The distinction drawn is clear, not only in terms of the meaning of the words, but also in terms of the meaning of the agreement.

28.  Further, as a matter of substance, clause 2 contains many references relating to “sales performance”, “sales”, and “sales turnover”, language consistent with the Plaintiff’s business as a manufacturer, but not with its subsidiaries’ businesses (as pleaded by the Defendant) of holding real property for rental income or securities for dividends.

29.  It seems to me that on top of the unjustifiable delay (and I say no more as between the Defendant and his solicitors), there are no real prospects of success on appeal. 

Order

30.  Accordingly the application must be dismissed.

[Submissions on costs]

31.  I have heard both counsel on costs.  I have to order costs against the Defendant, to be paid by his solicitors personally, to be taxed on an indemnity basis.