ASIAM HOLDINGS LTD v. SHIN KAI LOK AND ANOTHER

HCA 771/2020

[2024] HKCFI 375

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 771 OF 2020

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DECISION

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INTRODUCTION

1.  At the Pre-Trial Review today, the plaintiff made an application by way of summons filed on 23 January 2024 (“the Summons”), and asked for, among other things, an order that unless the 1^st and 2^nd defendants inform the court and the plaintiff’s solicitors in writing within 7 days of the service of the court order whether they or any of them intends to defend the plaintiff’s claim, their Amended Defence be struck out, and the plaintiff be at liberty to enter Judgment against them.

2.  In a gist, it was submitted that this order should be made because the defendants had, by their conduct, demonstrated that they were not minded to defend the plaintiff’s claim further, and therefore, it would be a waste of time and costs if the plaintiff is forced to prove its case in the defendants’ absence at the trial which has been scheduled to commence on 27 May 2024 (with 3 days reserved).

3.  The defendants were absent from the hearing today. However, since I am satisfied that they have been duly informed of the hearing today as well as the Summons, the proceedings could be conducted in their absence.

THE PARTIES’ RESPECTIVE CASES

4.  Before I go into the plaintiff’s application, it is worthwhile to set out the parties’ respective cases briefly.

5.  The plaintiff’s case may be summarised as follows:

(1)  On 27 August 2018, the plaintiff, a number of the plaintiff’s shareholders and the 2^nd defendant entered into a Shareholders’ Agreement and a Subscription Agreement, whereby the 2^nd defendant agreed to subscribe 10,000 shares in the plaintiff at the total subscription price of $20,000,000;

(2)  At the time, the 2^nd defendant was acting as a trustee and/or agent of International Resources (TSC) PTE Ltd. (“International Resources Ltd”);

(3)  On around 29 – 30 September 2019, it was agreed that the 1^st defendant (i.e. the 2^nd defendant’s husband) would replace International Resources Ltd and that the 1^st defendant shall invest in the plaintiff in his personal capacity;

(4)  As a result, the 2^nd defendant had become the agent, nominee or trustee of the 1^st defendant in relation to the aforesaid Shareholders’ Agreement and the Subscription Agreement;

(5)  However, despite repeated requests, the 1^st and/or the 2^nd defendant had failed to perform the obligations under the Shareholders’ Agreement and the Subscription Agreement;

(6)  On 20 December 2019, the plaintiff, the 2^nd defendant and the other shareholders of the plaintiff entered into a Deed of Settlement (“the Deed of Settlement”), whereby the 2^nd defendant agreed that in exchange for the release of all the obligations and liabilities arising from and/or incidental to the Shareholders’ Agreement and the Subscription Agreement, she should pay the plaintiff a sum of $5 million by way of 3 instalments;

(7)  The 2^nd defendant entered into the Deed of Settlement for and on behalf of the 1^st defendant;

(8)  Despite repeated requests, the 1^st and/or 2^nd defendants have failed to pay the sum of $5 million or any part thereof;

(9)  The plaintiff therefore claims for payment of $5 million primarily against the 1^st defendant. Alternatively, in the event it is held that the 2^nd defendant was not the 1^st defendant’s agent, the plaintiff claims against the 2^nd defendant for the said sum.

6.  On the other hand, the defendants pleaded that:

(1)  The 2^nd defendant was an employee of Roadshow Media Group Limited, of which Mr Loh Chan Stephens (“Mr Loh”) was the Managing Director and Executive Director;

(2)  In around mid-2018, Mr Loh informed the 2^nd defendant of an information technology project (“the Project”) of which Mr Loh was an interested party, and directed her to look for investors;

(3)  The 1^st and 2^nd defendants then introduced Mr Sato Yoshio (owner of International Resources Ltd) (“Mr Sato”), a business friend of the 1^st defendant, to Mr Loh as a potential investor;

(4)  It was subsequently agreed that Mr Sato would inject an initial capital of $20 million (“the Initial Capital”) into the Project;

(5)  The 2^nd defendant then entered into the Shareholders’ Agreement and the Subscription Agreement on behalf of Mr Sato;

(6)  However, in breach of the said agreements, Mr Sato failed to inject the Initial Capital;

(7)  On around 25 November 2019, pursuant to a settlement agreement, Mr Loh and Mr Sato agreed that Mr Sato shall pay $5 million to Mr Loh personally in order for Mr Loh to procure the plaintiff to discharge Mr Sato from his obligations under the Shareholders’ Agreement and the Subscription Agreement, upon Mr Sato’s agreement to pay an additional $5 million to the plaintiff;

(8)  Prior to entering into the Deed of Settlement, Mr Loh had represented to the 2^nd defendant, among other things, that the said Deed was a mere formality to effect the said settlement agreement, and that the plaintiff would not hold the 1^st or the 2^nd defendant liable thereunder;

(9)  The 2^nd defendant was induced by and did rely on the said representation when entering into the Deed of Settlement;

(10)  Such representations were false;

(11)  The said representations were also express terms of a collateral agreement entered into by the 2^nd defendant, the plaintiff and the other shareholders of the plaintiff, pursuant to which the defendants are not liable for the alleged breaches of the Deed of Settlement;

(12)  The plaintiff is also estopped from claiming against the defendants for the alleged breaches of the Deed of Settlement.

7.  The defendants had also made counterclaims against the plaintiff. However, those counterclaims had been struck out by Master Phoebe Man provisionally on 30 May 2023 by reason of the defendants’ absence at the Case Management Conference. As no application has been made by the defendants to restore their counterclaims within 3 months thereafter, their counterclaims had been dismissed.

THE LEGAL PRINCIPLES

8.  Mr Lau for the plaintiff submitted that this application is founded upon HH Judge Winnie Tsui’s decision in Kristen Lee v Santa Fe Transport International Limited [2020] HKDC 79, in which a similar application was made at the pre-trial review by the defendant therein (the claim of the plaintiff therein had been struck out provisionally because of her absence at the PTR pursuant to Order 25 rule 4(1) of the Rules of the District Court (Cap.336H, Laws of Hong Kong) (“RDC”)). The learned Judge, having taken the view that the plaintiff’s litigation conduct was entirely inconsistent with what a reasonable litigant would do, but more consistent with a lack of intention to further pursue her case, held that the Court should, pursuant to Order 1A rules 1 and 2 of the RDC, consider its case management options and proactively strive to take such steps to achieve the goal of having the proceedings concluded cost-effectively and efficiently, while bearing in mind that the aim is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

9.  Regarding the Court’s jurisdiction to make the order sought, Her Honour had the following to say:

“29. Order 25, rule 9(6) provides:-

‘If the Court at the determination of the case management summons requires a party to the action or his solicitor or counsel to give any information or produce any document and that information or document is not given or produced, then, subject to paragraph (7) below, the Court may –

(a) …

(b) if it appears to the Court to be just so to do –

(i) order the whole or any part of the pleadings of the party concerned to be struck out; or …’

30. I acknowledge that the rule applies to the determination of case management summonses only, not pre-trial reviews. As such, it does not squarely cover the present situation. However, there is no immediately apparent reason why such power should only be exercisable at a CMS hearing, but not at a pre-trial review. Technically, I can adjourn today’s pre-trial review to a CMS hearing so that I can exercise the express power under Order 25, rule 9(6) on the next occasion. But that would be a wholly artificial and tortuous exercise. I take the view that within my case management options, I am entitled to exercise an analogous power similar to that rule in today’s pre-trial review.

31. In summary, in light of the strong inference that the plaintiff no longer wishes to take part in this action and the counterclaim, it is proper and in line with the underlying objectives of the civil procedure rules that the plaintiff be compelled to make clear her stance to the court, failing which, she would face judgment in the full sum sought by the defendant on the counterclaim.”

10.  My attention has also been brought to the case of Air Charter Service (HK) Limited v 美拓国际物流(上海)有限公司 [2020] HKCFI 2863 in which a similar application had been made. In this case, while K Yeung J refused to exercise his case management power and discretion in favour of the applicant therein, it appears that his Lordship accepted that he had the power to make the order sought.

11.  On my part, I too accept that it is within the Court’s case management power to accede to an application of this sort.

12.  In this regard, the following underlying objectives as provided in Order 1A rule 1 of the Rules of the High Court (Cap.4A, Laws of Hong Kong) (“RHC”) should be borne in mind:

(1)  to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court (Order 1A, rule 1(a));

(2)  to ensure that a case is dealt with as expeditiously as is reasonably practicable (Order 1A, rule 1(b));

(3)  to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings (Order 1A, rule 1(c));

(4)  to ensure fairness between the parties (Order 1A, rule 1(d)); and

(5)  to ensure that the resources of the Court are distributed fairly (Order 1A, rule 1(f)).

13.  The Court can take any step or make any order for the purpose of managing the case and furthering the underlying objectives set out in Order 1A (Order 1B, rule 1(2)(l) of the RHC). Moreover, when the Court makes an order, it may specify the consequences of failure to comply with the order (Order 1B, rule 1(3)(b) of the RHC).

14.  Having said that, I am of the view that the Court should take note of the followings when exercising its discretion:

(1)  it is a draconian measure to take away a defendant’s right to defend the plaintiff’s claim at the trial. Therefore, the discretion should be exercised carefully;

(2)  there should be at least prima facie evidence in support of the assertion that the defendant is no longer interested in contesting the claim;

(3)  the Court should take into account the nature of the plaintiff’s claim. For example, whether the plaintiff has made any declaratory claim;

(4)  the Court should consider the pleaded case and the evidence adduced by the plaintiff, so as to decide whether it is likely that the plaintiff will be able to prove his case successfully at the trial in the absence of the defendant thereat;

(5)  the Court should also consider all the circumstances before coming to the conclusion as to what should the appropriate period be for the defendant to indicate whether he is still minded to contest the plaintiff’s claim. In this regard, it is noted that, pursuant to Order 25 rule 1C of the RHC, if it is the plaintiff who has not appeared at the case management conference or pre-trial review, the Court shall provisionally strike out the plaintiff’s claim, and in such circumstances, the plaintiff may apply to the Court for restoration of his claim before the expiry of 3 months from the date of the case management conference or the pre-trial review, as the case may be[1]. That being the case, I am of the view that, even if the defendant is required to confirm whether he is still minded to contest the plaintiff’s claim, the time limit imposed should not be too short.

15.  I have just mentioned about Order 25 rule 1C of the RHC. This rule provides that the Court shall provisionally strike out a plaintiff’s claim upon his absence at the case management conference or pre-trial review. However, there is no provision in the RHC providing for striking out a defendant’s Defence upon his absence at the said hearings. I have considered whether that is an indication that the legislature considered it inappropriate for the Court to make the sort of order as sought by the plaintiff herein. On this matter, reference may be made to the Civil Justice Reform Final Report. The relevant part thereof reads:

“395. In many cases, after an initial flurry of activity, steps in the action cease and the case is said to have “gone to sleep”. This may, for example, be because the plaintiff has lost his resolve to pursue the claim, or has run out of funds to finance it or because the parties have come to a settlement without telling the court that this has happened. Where there has not been a settlement but no progress is made by the plaintiff, the defendant is often content to let sleeping dogs lie. The defendant may hope that the case will be allowed to die a natural death or, if not, that a build up of a period of inordinate and inexcusable delay, coupled with prejudice to the defendant, may lead to the action, if revived later, being dismissed for want of prosecution.

396. What should the court’s attitude be to cases going to sleep in the framework of milestone dates and court-supervised timetables? In the Working Party’s view, a balance should be struck between (i) not forcing parties who are not minded to continue the litigation to fight it against their will or better judgment; and (ii) maintaining the discipline of the timetable set by the court.

397. A difference should be drawn between cases which go to sleep prior to the parties filing the questionnaire, so that no milestone dates have been set by the court, and cases where milestone dates have been set. In the former category, the court should not take the initiative to compel the setting of a timetable in order to avoid forcing litigation upon the parties.

398. Where the parties have obtained a timetable set by the court, the milestone dates should be enforced. With reference to milestone dates prior to trial, the court’s computer system should automatically send out a notice reminding the parties of its approach, asking to be informed if the case has settled, and warning that the action will be struck out if the milestone is ignored. Thereafter, if, at the time reserved for the hearing, no one appears, the case should be ordered to be struck out provisionally, allowing the plaintiff a grace period of say, 3 months from the missed milestone to apply to reinstate the action for good reason. In default of such an application, the action should stand dismissed and the defendant automatically entitled to the costs […]”

16.  It can be seen that the reform was dealing with the situation where the case has “gone to sleep”. Apparently, the case has not “gone to sleep” by reason of the mere fact that the defendant (the receiving end of a claim) is not participating in the litigation process any further. In my view, that is the reason why the new rules enacted under the CJR have not specifically covered this aspect of the situation. That does not mean that it is inappropriate for the order sought herein to be made as a matter of principle.

DISCUSSION

17.  In my view, the Court should exercise its case management power and order the defendants to confirm whether they are still minded to attend the trial and contest the plaintiff’s claim, failing which judgment should be granted against them. My reasons are as follows.

18.  First, it appears that the defendants are no longer minded to contest the plaintiff’s claim:

(1)  They have not appeared in the Case Management Summons hearing on 20 December 2022, the Case Management Conference on 30 May 2023, nor in the Pre-Trial Review today;

(2)  They did not file any witness statement pursuant to Master K W Wong’s order dated 6 July 2022;

(3)  While their counterclaims have been provisionally struck out on 30 May 2023, they did not make any application to restore such counterclaims. It is important to note that the issues raised in their counterclaim in fact cover those which they relied on in defence of the plaintiff’s claim.

19.  Second, by reason of their failure to file any witness statement, they simply are not in a position to prove their defence (misrepresentation, collateral agreement, etc.) to the plaintiff’s claims. What remains is for the plaintiff to prove its claim. In this regard, it is noted that the defendants in fact do not dispute that the 2^nd defendant had indeed signed the Deed of Settlement. They only disputed that the 2^nd defendant was doing it for and on behalf of the 1^st defendant. However, as explained, the defendants will not be able to adduce any oral evidence in this regard.

20.  Third, in the event the defendants are not going to attend the trial, it is highly likely that the Court will accept the plaintiff’s case. On this matter, it is noted that the plaintiff has adduced WhatsApp messages of the 1^st defendant which show that:

(1)  The 1^st defendant did request Mr Loh for his permission for the 1^st defendant to invest in his personal capacity, which was accepted by Mr Loh. This contradicts the defendants’ case that the 1^st defendant had nothing to do in the investment apart from introducing Mr Sato to Mr Loh and other shareholders;

(2)  The 1^st defendant did propose to Mr Loh that the 2^nd defendant shall pay the plaintiff a total sum of $5 million by instalments;

(3)  The 1^st defendant did mention that it was he himself who was unable to make payment to the plaintiff as promised.

21.  Fourth, the plaintiff is not claiming for any declaratory relief.

22.  In my view, it is a waste of cost and time for the Court to insist that the plaintiff should prove its case in the circumstances of the present case if the defendants are not going to appear at the trial.

23.  I will therefore accede to the plaintiff’s application in principle.

24.  However, I take the view that the defendants should be given much more than 7 days for considering whether or not they shall continue to contest the plaintiff’s claims. Having taken into account the fact that the trial will not start until 27 May 2024, and that the plaintiff’s claim is straight-forward and it should not take too long for the plaintiff’s legal team to prepare for the trial, I am prepared to give the defendants 3 months to consider the matter and reply to the Court.

25.  I am also of the view it is more prudent to ask the defendants whether they are going to attend the trial and contest the plaintiff’s claim, rather than simply whether they still intend to defend the plaintiff’s claim. In my view, that is a more important question to ask, because, no matter what they say about their intention to defend, we will be back to square one if they are not going to appear at the trial.

ORDER

26.  I make the following orders:

(1)  The 1^st and 2^nd defendants shall confirm with the Court and the plaintiff’s solicitors in writing by 4pm on 30 April 2024 that they or any of them shall attend the trial on 27 May 2024 and contest the plaintiff’s claim, failing which:

(a)  the Amended Defence filed on 12 January 2021 shall be struck out;

(b)  the plaintiff be at liberty to enter Judgment against the 1^st defendant with costs of the action (with all costs reserved), and there be no order as to the costs of the action between the plaintiff and the 2^nd defendant;

(c)  the trial dates from 27 May 2024 to 29 May 2024 be vacated.

(2)  The plaintiff’s solicitors do, on or before 2 February 2024, effect service of this Order on the defendants.

COSTS

27.  I order that the defendants shall bear the costs of the Summons, which is summarily assessed at $33,000, and shall be paid on or before 14 February 2024.