SPEED SOURCING LTD AND OTHERS v. RAINBOW STATE INVESTMENTS LTD AND OTHERS

HCA 2298/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2298 OF 2013

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D E C I S I O N
(Leave to Appeal)

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Introduction

1.  This is an application by the defendants (“Ds”) to appeal against an order made by this court on 18 May 2015 (“Order”). In this decision, for easy reference, I shall adopt the same abbreviations in my judgment handed down on the same day (“Judgment”), unless otherwise indicated.

2.  As set out in the Judgment, the main action by Ps was originally against the three defendants D1, D2, D3 in relation to (i) the Po San Road Property, (ii) the shares in D3, and (iii) the Workshops.  Ps’ case was a simple one, namely that these three assets were held by Ds on trust for P3, alternatively, P1 and P2.

3.  Under the 05.06.14 Order, Ps’ claims against D2 and D3 in respect of the Workshops were struck out by DHCJ Wilson Chan, who made the Costs Order.  There was no appeal therefrom.

4.  There were 4 applications before the court which led to the Judgment, as follows:

(i) Ps’ Strike Out Application, seeking to have parts of the Defence and Counterclaim struck out due to D1’s non compliance with the Consent Order and the 08.09.14 Order, in relation to certain answers to Ps’ requests/s for further and better particulars;

(ii) Ps’ Stay Application, seeking to defer the taxation of costs awarded to D2 and D3 under the Costs Order, until after the conclusion of Ps’ claim against D1;

(iii) D2’s and D3’s Amendment Application, seeking to amend the Amended Writ of Summons to strike out the claims against them so as to carry into effect the 05.06.14 Order

(iv) D1’s Interim Payment Application, seeking an order for interim payment.

5.  The effect of the Order made by this court were:

(i) D1’s Interim Payment Application be dismissed;

(ii) As for Ps’ Striking Out Application, an “Unless Order” was made, and failing compliance with which, certain paragraphs of D1’s D&C be struck out;

(iii) Ps’ Stay Application be dismissed;

(iv) D2’s and D3’s Amendment Application be dismissed.

6.  Ds issued a summons for leave to appeal on 29 May 2015 in respect of the orders in above (i) and (iv) (“Leave Application”).  A draft notice of appeal was annexed thereto (“Draft Notice”).

7.  There had been a direction sought by Ds that this court to deal with the Leave Application, on paper instead of the oral hearing, and on the basis of written submissions, and in this connection, Ds had lodged  written submissions by their Counsel Mr Edward Chan SC and Mr Michael Yin dated 29 May 2015 (“May Submissions”).  This was, however, not agreed to by Ps, and the parties then proceeded with the oral hearing.  As before, Mr Bartlett SC appeared for Ps.  Mr Norman Nip appeared on behalf of Ds, but relied on the May Submissions in addition to his own.

D2’s and D3’s Amendment Application

8.  So far as (iv) is concerned, Ps had indicated through correspondence that they were agreeable to D2 and D3 being granted leave to amend the Amended Writ of Summons to remove the reference to those parties, ie to remove them as parties to the action.  Unfortunately, as the parties were not able to agree to the matter of costs, D2 and D3 had proceeded with this part of the Leave Application.

9.  As there was clearly no objection to the amendment on Ps’ part, quite sensibly, after taking instructions, Mr Nip on behalf of D2 and D3 agreed to withdraw this part of the Leave Application, and simply sought costs of the Amendment Application issued on 12 December 2014 and also costs of the Leave Application to be paid by Ps. 

10.  The Amendment Applications was said to be taken out by D2 and D3 to “pre-empt” any argument on the part of Ps that notwithstanding the decision made by DHCJ Wilson Chan, the claims against D2 and D3 had not formally concluded for the purposes of RHC Order 62 rule 9D[1], and also for the sake of good order and for the avoidance of doubt to remove from the record all references to D2 and D3[2].  It was quite clear from Mr Yin’s Skeleton Submissions for the hearing on 4 March 2015 (“04.03.15 Hearing”) that the purpose of the Amendment Application was in relation to the Stay Application.

11.  From the chronology of events as set out by Mr Nip in paragraph 6 of his Reply Submissions, after Ps issued the Stay Application issued on 10 October 2014, Ds’ solicitors wrote on 28 November 2014 to the clerk to DHCJ W Chan to seek a direction/clarification from the learned Judge for the names of D2 and D3 to be struck out as parties to the action under Order 15 rule 8(1).  Ps’ solicitors responded to the clerk to DHCJ Chan indicating that they opposed Ds’ application as neither Order 15 rule 6(2)(a) nor Order 15 rule 8(1) of RHC was relevant, and they had informed DHCJ Chan about their Stay Application fixed before this court.  The learned Judge then directed D2 and D3 to issue a summons returnable before this court, which they did on 12 December 2014.

12.  Thereafter, there seemed to be no further communication between the parties on this issue. 

13.  The main objection by Mr Bartlett at the 04.03.15 Hearing was a technical one, namely that the Amendment Application should not have been made under Order 15 rules 6(2)(a) and/or 8(1).  Most of Mr Yin’s then submissions in relation to the Stay Application and Order 62 rule 9D(1), and the Amendment Application was only mentioned in relation thereto.  This could also be seen from Mr Bartlett’s then Reply Submissions that the Amendment Application did not appear to be seriously pursued, and that prior to the issue of the Amendment Application, Ps had never been asked by Ds to agree to any amendment.

14.  So far as I could recollect, Mr Yin had made very few submissions at the 04.03.15 Hearing in relation to the Amendment Application, and did not really make any submissions in relation to inherent jurisdiction.  As Mr Bartlett had said, it was not a “big issue” at the 04.03.15 Hearing.

15.  Anyway, the court ultimately agreed with Mr Bartlett’s submissions that Order 15 rules 6(2)(a) and/or 8(1) were not applicable to the Amendment Application, and it was for this reason the court dismissed the application.

16.  In my view, D2 and D3 knew prior to the issue of their Amendment Summons that Ps were mainly opposing on procedural grounds, and they should have written to clarify with Ps as to whether apart from the procedural grounds, they would oppose the proposed amendment if under inherent jurisdiction.  On the other hand, Ps should also have made their position clear in the correspondence, in that they were only opposing on procedural grounds, and would not oppose to the amendment.  Even though Ds’ solicitors did not write again before issuing the Amendment Summons to seek Ps’ consent, Ps could have indicated or clarified immediately that they were only opposing on procedural grounds and not on the substance of the application, upon being served with the Amendment Summons.

17.  As I have said at the hearing, the matter was really a “storm in a tea cup” and there was simply a lack of communication between the parties or their respective solicitors.  Having considered the matter, in my view, a fairer costs order for the Amendment Summons would be no order as to costs.  I regard myself as having the power to vary the costs order nisi, since the Leave Application was taken out before the expiration of 21 days of the costs order nisi, and no one had raised any objection during their submission on the costs of the Amendment Application.

18.  In the Judgement, the court dismissed Ps’ Stay Application, and stated clearly that that the action so far as D2 and D3 were concerned was concluded.  After the Judgment, D2 and D3 could have written to Ps to invite them to agree to their names being removed as parties to the action before seeking leave to appeal on this issue. It seemed that they did not do so.

19.  After the court directed the oral hearing for the Leave Application to go ahead as fixed, Ps’ solicitors had written to Ds’ solicitors on 23 June 2015 to indicate the Ps would be prepared to agree to D2 and D3 to have leave to amend the Amended Writ to remove the references to those parties, and that there be no order as to costs for that part of the Leave Application[3].

20.  On 2 July 2015, Ds’ solicitors, however, replied that although they would agree to no order as to costs on the withdrawal of the relevant part of the Leave Application, but they asked for costs of the Amendment Application to be paid by Ps to Ds[4].

21.  Ps’ solicitors did not agree to pay the costs of the Amendment Application[5]. Thereafter, there appeared to be no response to this letter from Ds’ solicitors.

22.  As a result of this, the parties’ respective Counsel had to appear at the hearing.

23.  A lot of time had been wasted on this issue which could have resolved without coming to court.  However, in light of the fact that D2 and D3 were willing to withdraw the relevant part of the Leave Application at the hearing, to prevent further unnecessary costs being incurred, I am of the view that a fair order would be there be no order as to costs of the relevant part of the Leave Application.

24.  I therefore grant leave to D2 and D3 to withdraw the part of the Leave Application in relation to the Amendment Application, with no order as to costs to both the Amendment Application and the relevant part of the Leave Application.

25.  This leaves only that part of the Leave Application in respect of the Interim Payment Application.

D1’s Interim Payment Application

26.  There was no dispute about the general principles applicable on applications for leave to appeal.  The burden would be on Ds to satisfy this court that, under s 14 AA (4) of the High Court Ordinance, they have a reasonable prospect of success or that there is some other reason in the interests of justice why the appeal should be heard.

27.  So far as the part of the Leave Application in relation to the Interim Payment Application, it was said that this court erred in two main aspects:

(i) In refusing D1’s application on the ground that P1 had prayed for an order “for all necessary and consequential accounts inquiries and directories and further and/or alternatively, equitable compensation and/or damages to be assessed” when on the clear evidence and on P1’s case, there was no question of P1 suffering from or being entitled to claim any sum on taking of account or as equitable compensation or equitable damages;

(ii) That to get interim payment D1 would have to establish “hardship needing alleviation so as to justify the interim payment” and further erred in considering the fact that D1 had stated that “it was able and willing to keep up the Mortgage Payments until trial of the action” was a ground or sufficient ground to justify the refusal of interim payment.

28.  D1’s Interim Payment Application was for an order that P2 and P3 do pay to D1 by way of interim payment the sum of HK$1,920,000 and also a sum of HK$120,000 per month until final judgment or further order.

29.  The Interim Payment Application was made under Order 29 rule 10, 11(1)(c) and 12 (b)(c) of RHC. 

30.  As seen from KL’s 4^th affirmation filed in support of the Interim Payment Application, the sum of HK$1,920,000 was based on alleged 16 months of arrears of rent of HK$120,000 under the Tenancy Agreements between D1 and P2, for the letting of the Po Shan Road Property.  

31.  Thus, it was clear D1’s Interim Payment Application was for interim payment based on its counterclaim in D&C to cover claimed arrears of rent and mesne profits going forward of the Po Shan Road Property, and this was on the basis that there was no trust arrangement as asserted by Ps and that D1 was/is the true beneficial owner of the Po Shan Road Property, and there was the Loan Arrangement, and the Buy-to-Let Scheme.

32.  However, at the hearing of the Interim Payment Application, Mr Yin advanced and indeed centred on an alternative position, namely the argument that even if D1 was wholly unsuccessful in its D&C and found to be a mere trustee, then it would still have a claim for indemnity as trustee for sums paid out on Ps’ behalf, and that even if Ps were to succeed on their case, the sums owed to D1 would be about HK$2.875 m (namely HK$18,145,996.66-HK$15,270,632.74), which D1 had claimed far exceeded the sums claimed by D1 in its counterclaim. 

33.  The amounts stated by D1 as to what he said he paid and what he said Ps had paid were strongly disputed.

34.  As pointed out by Mr Bartlett, D1’s alternative case, namely  that even if D1 were to be held to be a mere trustee, D1 would have been entitled to indemnity for its expenses, had not in fact been pleaded, as there was no alternative case pleaded by D1 in the D &C.

35.  I have said in the Judgment that under Order 29 rule 11 (1)(c), D1 must establish that if its claim were to go to trial, then on the material before the court, D1 would succeed in its claim and would obtain a substantial amount of damages.  I have said in the Judgment that the features of the alleged “tenancy” were a “far cry” from a normal commercial rental arrangement, and I further indicated that from the evidence then before this court, the facts were more consistent with Ps’ case than D1’s case.

36.  That the above conclusion was reached was set out in paragraph 180 of the Judgment, and it was clear from what I said in that paragraph that I was of the view that D1 had not been able to meet the requirement under Order 29 rule 11(1)(c), nor under Order 29 rule 12 (b)&(c), even though this was not specifically spelt out in that paragraph.   

37.  So far as Order 29 rule 12 (b) was concerned, the claim was not really in respect of possession of land to which D1 was/is undisputedly the owner.  The main dispute here in relation to the Po Shan Road Property was in fact whether D1 was the beneficial owner, or Ps.

38.  After I came to my view in paragraph 180 of the Judgment, in paragraphs 181-182, I made brief comments on D1’s alternative case and in paragraph 184, I touched on the “hardship” factor.  It seems that the comments in these paragraphs now become the substance of D1’s Leave Application, which D1 claimed to be the court’s 2 reasons for the dismissal of the Interim Payment Application.

39.  The court was entitled to take into account all circumstances in the overall exercise discretion was only one of the circumstances.  The main reason was clear, as I have pointed out in paragraph 180, that the then evidence indicated that the facts were more consistent with Ps’ case than D1’s case, and I was not satisfied that on the material before the court D1 would succeed in its claim and would obtain a substantial amount of damages.

40.  Having considered the above, and Ds’ Draft Notice, I am   not satisfied that the intended appeal has a reasonable prospect of success.

41.  It has also been submitted that this is a case where there is a good reason in the interest of justice that the appeal should be heard, in that the Court of Appeal will be asked to clarify the law, as to whether financial hardship is an essential element for the court’s exercise of its discretion to grant interim payment, having regard to what appears to be conflicting authorities in Hong Kong on this issue.

42.  As this court never said that to in order to get interim payment, the D1 must show that it would suffer from financial hardship if no interim payment was awarded, nor did this court say that financial hardship was an essential element for the court’s exercise of its discretion to grant interim payment, in my view, this is not an appropriate case for the Court of Appeal to clarify the law.  I am thus of the view that D1 has not been able to satisfy this court that there is some other reason in the interests of justice that the appeal should be heard.

43.  In light of what I have said, I decline to grant D1 leave to appeal against the Interim Payment Application.  D1 is to pay Ps’ costs of the relevant part of the Leave Application.  However, D1’s Leave Application was not complicated, and although the May Submissions were signed by both Senior Counsel and Junior Counsel, only Mr Nip appeared at the hearing.  Having considered the matter, I only grant certificate for one Counsel.