CHINA SHANSHUI CEMENT GROUP LTD AND OTHERS v. ZHANG CAIKUI AND OTHERS

HCA 2880/2015

[2018] HKCFI 1630

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2880 OF 2015

____________

____________

____________________

D E C I S I O N

____________________

Introduction

1.  This is an application by the first 3 Plaintiffs1 for an order that they be discharged from an undertaking which required them to issue an inter partes summons for continuation of injunction orders.

2.  On 24 December 2015, Lok J made an injunction order against the Zhangs (“the December Injunction Order”).  

3.  On the return date of 8 January 2016, this court made an injunction order against the Zhangs and continued the December Injunction Order on ex parte basis as against Zhang junior (“the January Injunction Order”):

“UPON the Plaintiffs’ undertaking through Senior Counsel and their solicitors to issue an inter partes summons against the 2^nd Defendant within 14 days of the service of the Amended Writ of Summons in this Action for the continuation of the Order to be made herein ….” (“the undertaking”)

4.  The inter partes summons contemplated by the undertaking (“the fresh summons”) was never served.  A pre-existing summons dated 28 December 2015 (already heard on 8 January 2016) was served instead, together with other documents on the Zhangs, pursuant to a substituted service order; the effective date of service was 15 February 2016.

5.  The Zhangs did not comply with the December or January Injunction Order.  The Plaintiffs took out committal proceedings with leave of this court. 

6.  On 28 September 2017, in the course of the committal proceedings in HCMP 1574/2016 (“the Committal Proceedings”), the Zhangs raised the issue as to service of the fresh summons as part of their defence.  The Committal Proceedings were adjourned on 15 November 2017 with judgment reserved.

7.  On 17 November 2017, Deacons demanded Wilkinson & Grist (“WG”) to take immediate steps to purge the contempt in failing to issue the fresh summons.  Deacons threatened WG with contempt proceedings.

8.  The Plaintiffs issued the present summons on 24 November 2017, seeking release from the undertaking:

“2. Alternatively, an order that the Plaintiffs be released from their Undertaking to the extent that their 15 February 2016 service upon the 2^nd Defendant of both the Amended Writ of Summons herein and the Plaintiffs’ 28 December 2015 inter partes summons herein did not constitute full compliance with the terms of their Undertaking.”

9.  The Plaintiffs do not ask for retrospective release from the undertaking, but only release as from the date of a court order. 

Grounds for the application

10.  The explanation given for failing to issue the fresh summons was that around 15 February 2016 was a very busy time for everyone in WG who handled the litigation involving the Zhangs.  The impression of Mr Keith Ho of WG was that because Zhang junior was served with the amended writ plus the 28 December 2015 Summons, it was not necessary to issue the fresh summons.

11.  Mr Keith Ho deposed that WG had missed “merely a rather technical procedural step”; that their breach at best might constitute an irregularity which had no effect upon these proceedings; and that Zhang junior had suffered no prejudice.  These were all denied by the Zhangs and hence form the issues in the present case.

12.  As there may be further proceedings arising out of this summons, the court wished to know exactly who it was releasing or who it should punish. This court posed 3 questions at the call-over hearing:

(1)   The Plaintiffs’ application was made on the basis of an admission of breach.  Who was the wrongdoer?

(2)   If this Court grants the relief that the Plaintiffs now seek, does that mean that the wrongdoer can go ‘Scott free’?

(3)   If this Court does not grant the relief that the Plaintiffs now seeks, can this Court deal with the wrongdoer based on his own admission and impose the appropriate penalty or are contempt proceedings required if penalties are to be imposed?

13.  With regard to question (1), Mr Barlow SC, rightly in my view, took responsibility as he gave the express undertaking on behalf of the Plaintiffs. Mr Keith Ho, rightly in my view, took responsibility as senior partner overseeing this litigation.  There was dispute disclosed in the WG’s affidavits as to whether or not another solicitor C and her assistant T (both having left WG) should take responsibility as handling the day to day conduct of the Plaintiffs’ case. 

14.  Mr Cheung Kwok Kit of Deacons deposed that the Plaintiffs should also take responsibility. 

15.  With regard to question (2), all parties answered it with a “no”.  Mr Cheung also pointed out that if the court is minded to grant the release, the order should take effect only from the date of the court order.  For the breach prevailing from 29 February 2016 (ie 14 days from 15 February 2016) to the date of the release, the court would still have power to impose appropriate sanction on the wrongdoer(s).  I agree to these answers.

16.  With regard to question (3), both parties answered it with a “yes” but suggest that committal proceedings are necessary.  Mr Cheung further suggested that there may be other proceedings like issuing a writ of sequestration against the wrongdoer.  I agree to these answers.

Legal principles for granting release

17.  An undertaking may be discharged by the court if it is just to do so, but good grounds have to be shown by the applicant: Hong Kong Civil Procedure 2018, Vol 1, §29/1/36.

Analyses

18.  I accept that counsel and WG had been working hard at the material time as Mr Keith Ho deposed.  There was a lapse of 38 days between the giving of the undertaking and the service on the Zhangs.  I give counsel and WG the benefit of the doubt that it was not a deliberate omission to issue the fresh summons but probably an oversight.

19.  I would say in passing that it is not necessary to resolve whether C and/or T were also guilty of breach.  Given the dispute, it can only be resolved by proper contempt proceedings. 

20.  However, there are several problems with this application.

21.  Firstly, the affidavits in support were all filed by WG’s solicitors, as it was considered a lawyer’s job to issue the fresh summons. 

22.  However, the principal (ie the Plaintiffs) may vicariously commit a contempt for its agent’s breach of an undertaking: Halsbury’s Laws of Hong Kong, 2^nd ed, Vol 16, §110.67, at p.805.  In substance, it was the principal giving the undertaking, although through the agent, and receiving the benefit of the Injunction Orders.

23.  The matter can be tested this way: if the court were to discharge the Injunction Orders, it would be a discharge against the Plaintiffs, not WG.

24.  The Plaintiffs have not tendered an apology to the court although they knew about the undertaking, as evidenced by the issue of public announcements pursuant to Listing Rules. An apology could not be tendered by another on the wrongdoer’s behalf: China Shanshui Cement Group Ltd & ors v Zhang Caikui & anor, HCMP 1574/2016, 6 January 2017, §12. 

25.  Secondly, I am unable to accept Mr Keith Ho’s explanation set out in paragraph 11 above.  I have already ruled that without service of the fresh summons, there was procedural unfairness and Zhang junior should not be held liable for breach of the January Injunction Order.  See the judgment dated 28 February 2018 in the Committal Proceedings (“the Committal Judgment”), §§59-72.

26.  Mr Keith Ho cannot say that there was no prejudice to Zhang junior because, apart from recovery of costs in the Committal Proceedings, Zhang junior may recover damages for breach of undertaking.

27.  Mr Wou further submits that failure to issue the fresh summons also meant that the hearing on 8 January 2016 proceeded wrongly against Zhang senior on inter partes basis.  I have already ruled on this issue in the Committal Judgment (§75).  I cannot see how this submission would affect the question of release from undertaking here.

28.  Thirdly, Mr Barlow SC submits that if I were to make an order in terms of §2 of the summons, the effect would be that the ex parte injunction orders (ie the December and January Injunction Orders) would continue until Zhang junior applies to set it aside. 

29.  I find this submission disingenuous as it meant that by breaching the undertaking, the Plaintiffs gained an advantage (for over 2 years) which they never could had they been compliant. 

30.  At the hearing on 8 January 2016, this court specifically asked whether an inter partes hearing ought to be fixed for Zhang junior within 14 days after service and the undertaking was expressly given through Mr Barlow SC in that context: transcript of hearing, at page 28I.  It was thus clear that the January Injunction Order was intended to be short-lived. 

31.  That Zhang junior could have applied for discharge of the ex parte orders or that the January Injunction Order did not contain the mechanism for automatic expiry could not exonerate the Plaintiffs from their obligation.

32.  Fourthly, if what Mr Barlow SC submits in the previous paragraph is correct, the Plaintiffs should have purged the contempt by issuing the fresh summons as soon as their default was pointed out to them.  And yet they ignored Deacons’ reminders:

(a)   When they brushed off Deacon’s proper enquiries during the Committal Proceedings: Committal Judgment, §63. 

(b)   After the hearing of Committal Proceedings when Deacons invited WG to purge their contempt and threatened contempt proceedings against WG.

33.  In this context, the failure to identify the Plaintiffs as “wrongdoers” who have breached the undertaking was material.  There is nothing in the evidence to show that Mr Barlow SC or WG had advised the Plaintiffs to comply with the undertaking, or taken steps pursuant to JSM’s advice to C “to take restorative steps to put matters right”.

34.  Fifthly, Mr Barlow SC does request for extension of time to issue the fresh summons as a condition for the release.  He proposes that the December and January Injunction Orders be discharged if the Plaintiffs fail to do so. 

35.  I consider extension of time to be the more appropriate course, given Mr Barlow SC’s submission in paragraph 28 above. The sanction for failure to do so needs more consideration.

Conclusion

36.  In summary, the breach of the undertaking was not remedied. There are no good reasons and it is not just to release the Plaintiffs from the undertaking. I dismiss the Summons but grant extension of time for the Plaintiffs to issue the fresh summons by 4pm on 20 July 2018.

Costs

37.  Costs should in principle follow the event and be paid by the Plaintiffs to the Zhangs.  Mr Barlow SC queried why the Zhangs ought to have costs since it was for the Plaintiffs/the lawyers to explain the breach to the court and seek discharge, and most of the arguments were attacks on him.  The 3 questions posed by the court were for the Plaintiffs to answer.  Mr Barlow SC also reminds the court not to order costs against the lawyers as there is no application by the Zhangs and the procedure under section 52A of the High Court Ordinance, Cap 4, to join the lawyers as parties has not been followed.

38.  I am of the view that the Zhangs do have an interest in appearing as the undertaking and its discharge affects their rights.  The 3 questions posed by the court were for the parties and not just the Plaintiffs.  The Plaintiffs abandoned half of their summons after the call-over hearing.

39.  Although the Plaintiffs were in breach of the undertaking, it was quite clear that it was, as Mr Barlow SC submitted, the job of the lawyers to issue the fresh summons and to advise the Plaintiffs what to do upon breach of the undertaking.  Who in WG should bear the responsibility was an internal matter for WG.

40.  Accordingly, I make an order nisi that the Plaintiffs do bear the costs of the Zhangs.  There being no complication in law and no justification for 2 fee earners, the costs are summarily assessed at $350,000.

41.  On the court’s volition, I direct Mr Barlow SC and WG to show cause in writing within 14 days as to why each should not be joined as a party under s.52A of the High Court Ordinance, why each should not personally bear 50% of those costs and indicate if an oral hearing is required.

42.  I thank counsel for their assistance.