THE INCORPORATED OWNERS OF YUE SUN MANSION v. LAKE SIDE ELDERLY CENTRE LTD

HCMP 556/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 556 OF 2017

(ON AN INTENDED APPEAL FROM LDBM NO 26 of 2015)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  By an unless order of 11 July 2017, it was directed that unless Lake Side (the respondent in the proceedings below who obtained conditional leave from this Court to appeal on 15 May 2017) shall pay into court the sum of $500,000 by 17 July 2017 and another sum of $500,000 by 30 July 2017, the conditional leave shall be revoked.

2.  Lake Side defaulted in making the payment on 17 July 2017.  Instead, on 20 July 2017, its solicitors wrote to the Court seeking further indulgence to vary the time limit for the first payment of $500,000. By then, it had a cashier order of 19 July 2017 ready. 

3.  However, due to the fact that the unless order had already taken effect, the Court indicated on 21 July 2017 leave had already been revoked.  The Court further intimated that if relief from sanction is sought, a proper application under Order 2 Rule 5 had to be made.

4.  By a summons of 27 July 2017, Lake Side applied under Order 2 Rule 5 for relief and asked for leave to pay into court the 2 sums of $500,000 on a date to be determined by the Court.

5.  The application was supported by the 2^nd, 3^rd and 4^th Affidavits of Tong Lau Fung, a director and shareholder of Lake Side.  In the 2^nd Affidavit, she explained that the failure on the part of Lake Side to make the first payment on 17 July 2017 was not intentional.  She said the management of Lake Side managed to find a new investor agreeing to inject funds and the funds would become available by the end of July.  After notification of the unless order, she tried to persuade the new investor to make $500,000 available before 17 July 2017.  Doing her best, the new investor was only able to deposit $730,000 to Lake Side’s bank account on 18 July 2017.  Due to the bank’s policy, the cashier order was only procured on 19 July 2017 at 3:00 pm.  After the cashier order was available, she delivered it to the solicitors for Lake Side and the letter of 20 July 2017 was written accordingly. 

6.  She further said they found a further investor. A cashier order was also issued on 28 July 2017 for payment into court of the second sum of $500,000.  Thus, the $1 million as ordered is ready to be paid into court.

7.  She apologized to the Court for the delay but she said Lake Side had tried its best to comply with the order.

8.  The application is opposed by the IO, the Applicant.  The affirmation of the IO was regurgitated in the submissions of Mr Leung.  Mr Leung on behalf of the IO submitted that there had been a total disregard of the court orders and the rules of the High Court by Lake Side.  In this regard, counsel referred to the following matters:

(1)  Non-compliance with the order of Kwan JA of 23 May 2017 in terms of payment of $1 million into court by 6 June 2017;

(2)  Failure to reach agreement on costs with the IO despite the order of Kwan JA;

(3)  Non-compliance with the order of the Court of 20 June 2017 for payment of the $1 million in two instalments, the first instalment of $500,000 should be paid by 30 June 2017;

(4)  Non-compliance with the unless order of 11 July 2017;

(5)  Failing to lodge an application for leave to appeal within time;

(6)  Non-compliance with PD 4.1 in respect of the preparation of application bundle and written statement in support of application for leave to appeal;

(7)  The draft notice of appeal attached to the summons for leave to appeal only contained 2 grounds of appeal and it was substantially amended one week afterwards;

(8)  Filing of supplemental bundle with additional documents before the hearing of the application for leave;

(9)  Relying on fresh evidence without leave. 

9.  Counsel further argued that the failure to comply with the unless order was intentional and contumelious and Lake Side was adopting a delay tactics.  He drew attention to the Court that Lake Side always waited until the expiry of the deadline imposed by the Court before writing to seek further indulgence.  He submitted that Lake Side should not wait for funds from new investors as its shareholders had earlier intimated that they would contribute additional capital to pay for the security.  He also referred to the profit generated from the operation of Lake Side.

10.  Mr Leung submitted that the IO is prejudiced as there is still no protection against the costs it had incurred.  In addition, the IO had to incur costs in dealing with Lake Side’s repeated requests for indulgence and to resist this application. 

11.  He said Lake Side only had itself to blame for not being able to pursue the appeal in light of its repeated defaults.

12.  Order 2 Rule 5 directs the court to have regard to all the circumstances of the case including the matters set out at Rule 5(1) in an application for relief.  Those matters, though helpful as a checklist of relevant factors, are not meant to be exhaustive.  They serve to highlight the grant of relief is discretionary and one must have regard to the facts and circumstances of the case in the exercise of discretion bearing in mind the different interests and different factors involved.  It is a multi-facet balancing exercise with no single factor being conclusive.  Counsel referred us to several cases in which the courts had to consider the operation of Order 2 Rule 5.  We derive some guidance from the judgments of Fok J (as he then was) in Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606, Kwan JA in Tso Yuk Yin v Yiu Ngai Interior Design & Decoration Co Ltd CACV 245 of 2009, 12 Sept 2011 and Chu JA in Schindler Lifts (Hong Kong) Ltd v Nikko Services Ltd CACV 250 of 2010, 3 August 2012.  However, as we said, much depends on the facts and circumstances of the case in question.    

13.  Thus, though Rule 5(1)(e) refers to the extent to which the defaulting party has complied with other rules and court orders, in the context of the present application we do not attach much weight to instances of non-compliance prior to the grant of conditional leave on 15 May 2017.  Hence, factors (5) to (9) outlined at [8] above (relied on by Mr Leung) are of little moment as they had all been taken into account when we made our determination on 15 May 2017.

14.  Whilst Mr Leung was correct in highlighting that Lake Side always waited till the expiry of the deadlines before it came back to seek further indulgence, we do not agree that Lake Side had completely disregarded the relevant court orders and the default on 17 July was contumelious.  Looking the evidence as a whole, Lake Side did make efforts in trying to comply with the conditions imposed by the Court.  Whilst criticism can be levelled at the original shareholders’ failure to make additional capital contribution instead of seeking new funds from new investor occasioning the delay in coming up with funds, we should not close our eyes to the fact that in the end Lake Side did come up with the $1 million security.

15.  Further, it is fair to say that a very tight time frame was given to Lake Side to make the payment of $500,000 by 17 July 2017 since the unless order was communicated to the parties by a letter of 11 July 2017.  Before that, the request by Lake Side was to pay $1 million by the end of July (see letter of 30 June 2017).  With the benefit of hindsight, when it was apparent that it would take one or two more days to comply with the order of 11 July the proper course for Lake Side to take was to seek an extension of time of 2 days to make the payment by 19 July supported by some evidence that funds were actually coming in.

16.  Though there is some delay on the part of Lake Side, we are unable to conclude that Lake Side was simply playing on delay tactics.

17.  In our judgment of 15 May 2017, we concluded that Lake Side had reasonable grounds of appeal though, for reasons explained in that judgment, it had to pay the costs incurred up to that stage.  Lake Side accepted the condition and in addition it is now prepared to pay $1 million as security for payment of such costs.  The interests of the administration of justice will be served by permitting the appeal to go ahead.

18.  On the overall scheme of things, whilst taking account of the delay of the appeal process attributable to Lake Side’s repeated requests for indulgence from June to July, we are still of the view that it is appropriate to grant relief in the present case.  The application for relief was made promptly, within the 14 days prescribed under Order 2 Rule 4.  The evidence indicated that if the application was not opposed, the full amount of $1 million would have been deposited into court by the end of July as originally envisaged by the order of 11 July 2017.  In this regard, there is no merit in Mr Leung’s submission on prejudice occasioned to the IO. 

19.  We would therefore grant the relief and give leave to Lake Side to pay the $1 million into court within 3 working days from the handing down of this judgment.  Lake Side can serve the notice of appeal within 7 days after the payment into court.

20.  As for the costs of the application, as noted, but for the IO’s opposition, the whole $1 million would have already been paid into court and the appeal could have proceeded.  The IO had previously indicated through its solicitors by a letter of 28 April 2017 that it would not want to be further embroiled by this piece of litigation.  This had led to Ms Tang’s submission that the IO’s spending $204,370 on legal costs in opposing the present application was an outrageous volte-face. 

21.  Whilst we would not go so far as holding that it was unreasonable for the IO to withhold consent to the application before seeing the evidence supporting the explanation of Lake Side for the default (see Asgain Co Ltd v Cheng Ka Yan HCMP 1019 of 2017, 31 Aug 2017), we are of the view that the opposition to the application was ill-advised and Lake Side should not be responsible for the whole of the costs of the IO.  In the circumstances, we would make a costs order nisi giving the IO only half of its costs, and having regard to the statement of costs (some of the items we regard as excessive) provisionally fix the quantum of costs payable by Lake Side to the IO at $70,000.