MUTUTAL BRILLIANT LTD v. SHIN HO CABLE (HOLDINGS) CO LTD AND ANOTHER

HCA 2361/2017

[2021] HKCFI 2198

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2361 OF 2017

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BETWEEN

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JUDGMENT

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INTRODUCTION

1.  Before this court is an appeal lodged by the defendants (collectively “Ds” and respectively “D1” and “D2”) from the decision of Master Norman Nip (“Master”).  The Master dismissed Ds’ summons for relief from sanctions imposed under the Unless Order (defined below) and for leave to Ds to file and serve a re-re-amended defence (“Relief Summons”).  The decision was delivered orally by the Master on 26 February 2021 and a transcript of which has been produced[1].

2.  The order against which Ds sought relief from sanction was made on 22 June 2020 by way of paper disposal by Master Dick Ho (“Master Ho”) who ordered, amongst other things, that the case management summons hearing be adjourned to 23 December 2020 and imposed a deadline of 4 pm on 6 July 2020 (“Deadline”) for Ds to (i) take out an application to further amend their pleadings and (ii) take out an application for expert directions, and that unless Ds do so by the deadline, they will be debarred from taking out such applications (“Unless Order”)[2].

BRIEF BACKGROUND OF THE PARTIES’ DISPUTE

3.  The plaintiff (“P”) is a limited company in Hong Kong with only one issued share of HKD 1 and its director is one Lai Ka Fa (“Mr Lai”).  P is a member of the Polytec Group, a corporate group which engages in property development with core business in Hong Kong, Macau and Mainland China (“Polytec Group”). 

4.  D1 and D2 are limited companies in Hong Kong. D1 is a 90% shareholder of D2 which in turn is the wholly owned parent company of a Mainland Chinese company 信電實業(深圳)有限公司 (“Shin Din Shenzhen”). 

5.  At all material times, a Mr Jonathan Ka Ming Chan (“Mr Chan”) and his mother Madam Chen Shau Enig, Liza (“Madam Chen”) were directors of D1 and D2, and Mrs Chen was the legal representative and authorized signatory of D1 and D2 in Mainland China (“PRC”). Prior to January 2015, Mr Chan’s late father Mr Peter Chan Wing Hon was the legal representative and authorized signatory of Ds in PRC.

6.  The 3 companies D1, D2 and Shin Din Shenzhen are collectively referred to as the “Shin Ho Group” by P in the amended statement of claim (“ASoC”).

7.  It is P’s pleaded case in the ASoC that in the 1990s, the Shin Ho Group acquired from a Shenzhen company 深圳市百旺實業股份有限公司 (“Baiwang”) the land use and occupation rights in respect of various collective land situated in Nan Shan District of Shenzhen of around 160,160 sq m (“Nan Shan Land”)[3].  

8.  On or around 5 January 2012, Shin Din Shenzhen and Baiwang entered into two cooperative development agreements.  According to P’s pleaded case, this was for the purpose of the urban renewal project to turn the Nan Shan Land from collective land into a residential and commercial land and to develop residential and commercial properties thereon (“Nan Shan Project”) and that pursuant to the two cooperative development agreements, Shin Din Shenzhen holds Ds’ substantive interests in the Nan Shan Project[4].

9.  What is not disputed that D1 and a Shenzhen company 深圳市大世界集團有限公司 (formerly深圳市大世界投資集團有限公司)(“Dashijie”) entered into an agreement dated 24 July 2014 (“Compensation Agreement”)[5].  As seen in the recital of the Compensation Agreement, D1 agreed to hand over 深圳市南山區西麗街道辦百旺工業片區/“Baiwang Industrial Site” to Dashijie for Dashijie to proceed to demolition and rebuilding, and to pay to D1 compensation.  The Baiwang Industrial Site was situated on the Nan Shan Land, and the area of the land area was stated to be about 132,700 sq m and the factory building area was stated to be about 160,160 sq m[6].  The compensation was RMB 600m to be paid by 6 instalments as set out in the agreement with the 1^st instalment to be paid within 10 working days upon signing of the agreement.

10.  Dashijie subsequently defaulted on the agreement with D1.  According to P, Dashijie made a partial payment of around RMB 110.36m as of January 2016 but according to Ds, the partial payment made by Dashijie to D1 was only RMB 107.2m.

11.  It is P’s pleaded case that as a result of Dashijie’s default under the Compensation Agreement, Ds then invited P to acquire Shin Ho’s Group’s interests in the Nan Shan Project in lieu of Dashijie.  However, according to Ds, it was Mr Xu Jingui (“Mr Xu”), a director of Dashijie, who was seeking out investors to perform the Dashijie’s obligations under the Compensation Agreement and that for this purpose Mr Chan was invited by Dashijie to attend several meetings with various potential investors including the Polytec Group. 

12.  It is P’s further pleaded case that in January 2016, P, the Shin Ho Group and Dashijie reached an understanding that P would pay RMB 600m to D1 to replace Dashijie as purchaser of Shin Ho Group’s interests in the Nan Shan Project[7], and that out of the total consideration of RMB 600m, RMB 110m would be paid by P to Dashijie ( representing the partly paid sum by Dashijie to D1 under the Compensation Agreement) and that the remaining RMB 490m would be paid to D1 to acquire Shin Ho Group’s interests in the Nan Shan Project (“Tripartite Understanding”). 

13.  P’s case was that in reliance on the Tripartite Understanding, and at the request of Mr Chan on behalf of D1, P had advanced a loan of RMB 6m (‘Loan”), via P’s agent Mr Feng Mao (“Mr Feng”), to Shin Din Shenzhen under a loan agreement dated 14 January 2016 for a term of one month from that date to 13 February 2016 (“Loan Agreement”) and that the Loan was provided to Shin Din Shenzhen to settle fees and expenses (including government fees) associated with the Nan Shan Project.

14.  As seen in the Loan Agreement, one of the terms was that during the period commencing from the date of the Loan being advanced to Shin Din Shenzhen until full repayment plus interest by Shin Dina Shenzhen, Mr Feng or his nominated third party had a priorty right over the transfer of the interests or cooperation in relation to the Nan Shan Project owned by Shin Din Shenzhen (“Priority Right”)[8].  Mr Xu of Dashijie and Mr Chan of Ds were guarantors of the Loan.

15.  It is P’s case in the ASoC that the Tripartite Understanding was recorded and documented by a number of documents as pleaded therein.

16.  First, by a draft tripartite agreement to be signed between P, Ds and Dashijie sent by P to Ds and Dashijie on or around 15 January 2016 (“Tripartite Agreement”)[9], P alleges that it confirmed with D1 and Dashijie that the parties agreed for Dashijie’s rights and interests under the Compensation Agreement to be transferred to P for RMB 600m.

17.  Thereafter, on 26 January 2016, P and Dashijie signed a cooperation development agreement (“Bilateral Agreement”)[10].

18.  Then, there were 3 drafts of a transfer agreement sent by Mr Chan to P stating that D1 and Dashijie agreed to transfer to P 100% shareholding in Shin Din Shenzhen and the land use and property rights of the Nan Shan Land (“Transfer Agreement”), one on around 2 February 2016, a revised draft on 16 April 2016 and a further revised draft on around 25 April 2016 and thereafter, P sent to D1 an email on 20 May 2016 with a further revised draft Tripartite Agreement.

19.  On the other hand, according to Ds, as a result of Dashijie’s default, on 10 March 2016, D1 terminated the Compensation Agreement with Dashijie.  Ds deny in their re-amended defence (“RAD”) that there was any Tripartite Understanding as alleged by P.  Further Ds’ case in the RAD is that the Loan was unrelated to the present case and that it was a personal loan between Mr Feng to Shin Din Shenzhen with Mr Xu and Mr Chan as guarantors.

20.  The Transfer Agreement and the Tripartite Agreement failed to be signed.  In the meantime, the Loan failed to be repaid on the due date.  On about 4 August 2016, Mr Feng commenced an action in the Foshan Intermediate People’s Court in Guangdong (“Foshan Court”) against Shin Din Shenzhen, Mr Xu and Mr Chan to claim repayment of the Loan plus penalties, compound interests and for a confirmation of the Priority Right.

21.  It is P’s pleaded case that on or around 2 September 2016, Mr Chan contacted a Mr Zou Xuebing of P (“Mr Zou”) by telephone and suggested that Ds were willing to sell their interests in the Nan Shan Project to P without the involvement of Dashijie under similar terms as the draft Tripartite Agreement and that P agreed in good faith at Mr Chan’s invitation to purchase Ds’ interests in the Nan Shan Project and that P and Ds entered into a cooperation agreement on or around 26 September 2016 (“Cooperation Agreement”) whereby P agreed to buy and Ds agreed to sell all of Ds’ interests in the Nan Shan Project and D’s entire shareholding in Shin Din Shenzhen for a consideration of RMB 489.64m subject to warranties and due diligence[11].  The Cooperation Agreement was alleged by P to be partly orally and partly evidenced in writing.

22.  The particulars of the oral terms of the Cooperation Agreement have been set out  in P’s ASoC[12] (“Essential Terms”).  Insofar as the part of the Cooperation Agreement which was alleged to be evidenced in writing, P relies on a draft written agreement “深圳市南山區西麗街道百旺工業區城市更新項目合作協議”prepared by Jianwei (Shenzhen) Law Firm on or about 6 October 2016 (“Written Agreement”)[13].

23.  It is further P’s case that at all material times, it was ready and willing to fulfil its obligations under the Cooperation Agreement, but despite repeated requests and demands, Ds failed and continue to fail to execute the Written Agreement and/or to perform the Cooperation Agreement.

24.  On the other hand, Ds’ case in their RAD is that it was Mr Zou who initiated the telephone call to Mr Chan and that Mr Chan met with Mr Lai in about September 2016 and there was no meeting of minds between Mr Lai and Mr Chan and no oral terms of the alleged Cooperation Agreement were ever agreed.  Further, Mr Lai was given notice orally by Mr Chan that Madam Chen is and was at all material times the final decision maker of Ds and that Mr Chan must report back to Madam Chen.

25.  The draft Written Agreement sent to Mr Chan on 13 October 2016 was not signed by Madam Chen.  Further, according to Ds, it was only at the time of the draft Written Agreement that Mr Chan was informed about the existence of P and that P was then found by Mr Chan, after a company search, to be a company holding one share at a value of HKD1.  Further, it is Ds’ pleaded case that if Ds were to sell the Nan Shan Project to another buyer, it should be at market price.

26.  On 13 January 2017, P commenced an action in the Shenzhen Intermediate Peoples’ Court (“Shenzhen Court”) against 7 defendants, namely Mr Xu, Daishijie and 2 other Daishijie companies, D1, Shin Din Shenzhen and Mr Chan (“Shenzhen Proceedings”). 

27.  In the meantime, Mr Feng proceeded with his claim in the Fo Shan Court.  Shin Din Shenzhen, Mr Xu and Mr Chan did not file any defence or evidence and were absent at the hearing.  By a judgment handed down on 21 March 2017, the Foshan Court ordered Shin Din Shenzhen to repay the Loan to Mr Feng plus interests and legal costs, but declined to grant other reliefs claimed by Mr Feng including its claim for a confirmation of the Priority Right (“Foshan Judgment”)[14]. 

28.  P’s pleaded case is that it was upon reliance on the Cooperation Agreement, P withheld the enforcement of the Foshan Judgment until around September 2017. 

29.  On the other hand, Ds’ case in the RAD is that the Loan was repaid to Mr Feng by payment into the Foshan Court directly by Mr Xu in early 2017[15].  This is however denied by P in its re-amended reply (“RAR”)[16] and that upon Mr Feng’s application in November 2017, Shin Din Shenzhan, Mr Chan and Mr Xu were all declared by the Foshan Court to be “失信被執行人”.

30.  On 12 October 2017, P issued the writ in the present action.

31.  On 27 April 2018, P applied to the Shenzhen Court to withdraw its claim against D1,  Shin Din Shenzhen, and Mr Chan and proceeded only against Mr Xu and the Dashijie and its other companies over the breach of the Bilateral Agreement.

32.  On 21 May 2018,  the Shenzhen Court ordered Daishijie and Mr Xu to repay P  RMB 150,000,000 plus interests  but dismissed P’s other claims (“Shenzhen Judgment”)[17].

WHAT LED TO THE UNLESS ORDER BEING GRANTED

33.  It would appear that the 1^st round of pleadings were closed and the parties’ respective 1^st Timetabling Questionnaires were filed in about May/Jun 2018.  P had issued a case management summons on 31 May 2018.  Following that, lists and/or supplemental lists of documents were filed.

34.  There was subsequent amendment of pleadings. P’s ASoC was filed on 29 January 2019, Ds’ RAD was filed on 5 March 2019 and P’s RAR was filed on 23 April 2019.  Witness statements were first exchanged at end of 2018/early 2019 and supplemental witness statements were later exchanged and filed on about 25 June 2019.  The parties’ 2^nd Timetabling Questionnaires were filed in early August 2019 and at a case management summons hearing on 6 August 2019, Master Ho ordered, amongst other things that Ds to take out any application to re-re-amend the defence and to seek further security of costs on or before 6 September 2019 and a further case management summons hearing was then fixed on 13 February 2020.

35.  Ds issued a summons on 6 September 2019 to file and serve a re-re-amended defence (“1^st RRAD Summons”). Attached to that summons was the 1^st version (“Version 1”) of the draft re-re-amended defence (“RRAD”).  Subsequent thereto, Ds filed a summons to amend the 1^st RRAD Summons and then there seemed to be another summons to amend.  Suffice to say, on 4 December 2019, there was a consent summons for Ds to withdraw the 1^st RRAD Summons and/or the amendment summons and Ds agreed to pay P’s costs agreed at HKD 51,000.

36.  The parties filed their respective 3^rd Timetabling questionnaires, but the case management summons hearing originally fixed on 13 February 2020 was adjourned, probably because of the Covid-19 pandemic and refixed on 21 July 2020.

37.  Mediation took place on 3 June 2020 but was unsuccessful.  Ds’ solicitors then wrote to P’s solicitors on 16 June 2020 with proposed directions for the upcoming case management summons hearing fixed on 21 July 2020 and proposing directions to file the RRAD and to file a summons for expert directions.  This was objected to by P. 

38.  On 19 June 2020, Ds issued a summons to file and serve a re-re-amended defence with Version 1 attached (“2^nd RRAD Summons”).  On the same day, Ds’ solicitors wrote a letter to Master Ho and, amongst other things, explained that Ds did not proceed with their 1^st RRAD Summons at the time due to the parties contemplating mediation and Ds intending to show a gesture of goodwill and for the sake of saving costs[18]. 

39.  On 22 June 2020, Master Ho then made the Unless Order on paper probably due to the Covid-19 pandemic, and directing the case management summons hearing on 21 July 2020 be vacated and adjourned to 23 December 2020[19].

40.  Thereafter, Ds filed their summons for expert directions on 6 July 2020 (“Expert Summons”), ie within the deadline in the Unless Order.

41.  It was submitted by P’s Counsel Mr Wong that the Unless Order was granted due to Ds’ “approbation and reprobation” as set out in his Skeleton Arguments and that P did not accept Ds’ explanation that their 1^st RRAD Summons was withdrawn due to mediation, as mediation was only scheduled 6 months later.

42.  However, it can be seen in Ds’ 2^nd Timetabling Questionnaire, Ds did indicate amongst other things their intention to mediate and under section M1, they informed the court that the parties required longer time for mediation as the parties had attempted in vain to nominate a suitable mediator and were attempting to make a joint application for the appointment of mediator by HKIAC and also that Ds’ directors were working in PRC and one of the directors had a recent health problem.  In their proposed directions, Ds had requested 60 days for mediation and 30 days thereafter for counsel advice, and further under section C1, they indicated their intention to apply to amend the RAD should mediation fail.  They also indicated their intention to apply for security for costs from P.

43.  In Ds’ 3^rd Timetabling Questionnaire[20], Ds had confirmed again that they had intention to settle the case by mediation.  However, they indicated therein that they did not intend to amend their pleadings nor did they intend to adduce any expert evidence and requested for a trial date at the next case management summons hearing.  Notwithstanding these indications, Ds did also attach proposed directions[21] proposing that the parties to take out all interlocutory applications (if any) within 21 days after the conclusion of the mediation.  Thus, although it seems that Ds were ready for trial, they had also proposed a further deadline be imposed after mediation for taking out interlocutory applications.

44.  Mr Li submitted that Ds’ explanation that their withdrawal of the 1^st RRAD Summons was not inconsistent with what was stated in their 3^rd Timetabling Questionnaire.  However, if it was only for mediation and for showing goodwill, what Ds’ solicitors could have done was to write to P’s solicitors to make this clear at the time of their withdrawal and/or they could also have applied for their 1^st RRAD Summons/summons to amend the 1^st RRAD Summons to be adjourned sine die with liberty to restore after mediation.  There was no evidence that there had been any such explanation from Ds to P for their withdrawal of the 1^st RRAD Summons at the time of the withdrawal.

45.  Anyway, as mentioned earlier after unsuccessful mediation on 3 June 2020, Ds then took out the 2^nd RRAD Summons on 19 June 2020.   

46.  As the 2^nd RRAD Summons was in fact taken out shortly before the Unless Order, it would appear that Master Ho might not be aware of this when making the Unless Order on paper, as otherwise he would not have imposed a deadline in the Unless Order for Ds to take out any application to amend the RAD.  However, Ds did not alert Master Ho to their having already filed the 2^nd RRAD Summons prior to the Unless Order, nor did they seek any variation of the Unless Order thereafter.

47.  In any event, whether the reason for the withdrawal of the 1^st RRAD Summons was for mediation or not, it seems clear that it was Ds’ acts of issuing, amending, withdrawing and then issuing again the summons to for leave to file the RRAD and to seek expert directions which led Master Ho to make the Unless Order as part of case management.

THE RELIEF SUMMONS 

48.  As there was objection by P to Ds’ 2^nd RRAD Summons and the Expert Summons, these summonses were eventually adjourned to a 3 hour hearing for substantive arguments on 5 November 2020 (“Substantive Hearing”), before Master Winnie Tsui, as she then was (“Master Tsui”).  Both the 2^nd RRAD Summons and the Expert Summons were dismissed, amongst other orders made by Master Tsui at the Substantive Hearing.  Thereafter, the Relief Summons was issued on 27 November 2020.  The Relief Summons was supported by Mr Chan’s affirmation filed on the same date.

49.  It is Mr Chan’s evidence in his affirmation that after P commenced the present action against Ds, he was referred by his PRC lawyer to consult a Hong Kong solicitor Mr Zhang Yuanhong (“Mr Zhang”) who was at that time with the solicitors firm Messrs Fongs and whom Ds instructed formally to act for them in the present action on 7 December 2017.  Mr Zhang instructed a barrister Mr Moses Kong (“Mr Kong”) for Ds.  Mr Zhang later set up his own firm (“Zhang Lawyers”) which replaced Messrs Fongs as Ds’ solicitors on 9 January 2019.

50.  Ds’ defence was settled by Mr Kong, so was the amended defence and the RAD which was filed on 5 March 2019.  According to Mr Chan, thereafter he was advised that the RAD would need to be further amended as Shin Din Shenzhen is a PRC company and the joint developer of the Nan Shan Land ie Baiwang is a “中國對口單位”, and as P in this action is seeking a specific performance of D2’s transfer of its shares in Shin Din Shenzhen to P, and the registration of the shares is in PRC, the disputed issue should be decided in accordance with PRC laws.  In the circumstances, Mr Kong then prepared a draft RRAD to plead those issues and his solicitors issued a summons to file the RRAD and for expert directions[22].

51.  What Mr Chan did not mention in his affirmation was that there was in fact the earlier 1^st RRAD Summons[23].

52.  Anyway, according to Mr Chan’s affirmation, Mr Kong had advised Mr Zhang and recommended that counsel Mr Jeremy Cheung (“Mr Cheung”) be instructed to join Ds’ legal team and that on 29 June 2020, Mr Cheung agreed to join his legal team.

53.  Mr Chan had said in his affirmation as follows:

(1) Although Mr Zhang had sent to him copies of the 2^nd RRAD Summons issued on 19 June 2020 and the Expert Summons issued on 6 July 2020, and also a copy of the Unless Order made on 22 June 2020, Mr Zhang had not explained to him the connection in law between the two summonses and the Unless Order, in particular the importance of the Unless Order in relation to any subsequent application/s for amendment of the RAD and/or for expert directions.

(2) He only found out during a conference on 28 October 2020 which he attended with his mother Madam Chen with Mr Cheung, Mr Kong and his then solicitors that there was a query from Master Ho on 8 July 2020 (“Query”) in relation to the relevance of the expert evidence and that he was not informed of the Query by Mr Zhang or by Mr Kong at the time.

(3) It was only during the conference on 28 October 2020 that he learnt that Mr Zhang all along did not inform Mr Cheung of the Unless Order, nor the Query, nor did his then solicitors send Mr Cheung any papers in this action until 22 October 2020.

(4) Further, at the conference on 28 October 2020, he learnt that there was an earlier meeting on 7 October 2020 between Mr Cheung, Mr Kong and Ds’ then solicitors during which Mr Chan was not present.  At this meeting, according to Mr Chan, Mr Cheung had expressed that Version 1 of the RRAD “有嚴重不足之處”, or was “woefully inadequate”[24] and he advised on the issue of a summons to withdraw the 2^nd RRAD Summons and the Expert Summons (“Withdrawal Summons”) and that Mr Cheung was to prepare a fresh draft of the RRAD and then to issue fresh summonses for leave to file and serve the RRAD and expert directions.

(5) It was under the above advice that Ds’ then solicitors issued the Withdrawal Summons on 23 October 2020;

(6) It was only during the conference on 28 October 2020 that Mr Cheung discovered the Unless Order among the set of papers which sent to him by Ds’ then solicitors only on 22 October 2020.  When Mr Cheung questioned the solicitors, they had no response.

(7) In light of the discovery, Mr Cheung then advised on (i) the issue of a summons to withdraw the Withdrawal Summons; (ii) the issue of a summons to amend the 2^nd RRAD Summons and by replacing Version 1 with a version to be drafted by Mr Cheung; and (iii) to make submissions to the Court at the Substantive Hearing that the Unless Order should not apply to the Amendment Summons as the 2^nd RRAD Summons was issued prior to the Unless Order.

54.  On 30 October 2020, D1 issued the summons in (i) above as advised by Mr Cheung, ie to withdraw the Withdrawal Summons.

55.  According to Mr Chan’s affirmation, Mr Kong declined to continue to act for him for personal reasons in October 2020.  Mr Chan decided to change solicitors on 1 November 2020, but to retain Mr Cheung and his then junior counsel Ms Wong as counsel.

56.  Ds’ present solicitors came on record on 2 November 2020.  It was only on 3 November 2020 that Ds’ solicitors issued a summons to amend the 2^nd RRAD and to replace Version 1 with the draft prepared by Mr Cheung (“Version 2”) and to amend the Expert Summons (“Amendment Summons”). 

57.  According to Mr Chan, he was later advised that during the Substantive Hearing, the 2^nd RRAD Summons, the Expert Summons and the Amendment Summons were all dismissed by Master Tsui as Ds had not obtained relief from sanction of the Unless Order.

58.  The above led to the issue of the Relief Summons. 

59.  Mr Chan had further produced a letter dated 9 November 2020 prepared but appeared to be unsigned by Mr Cheung (“Cheung Letter”)[25] in which Mr Cheung set out amongst other things that (i) he was of the view that Version 1 of the RRAD was “woefully inadequate”; (ii) he was not briefed or alerted to the Unless Order; and (iii) he had advised on the issue of a summons to seek relief from sanction prior to the hearing before the Master Tsui[26].  A copy of the Cheung Letter had been sent to Ds’ former solicitors Zhang Lawyers and Mr Kong but there was no response, save that there was an email from Zhang Lawyers to Ds’ present solicitors confirming that (i) they did not explain to Mr Chan the contents of the Unless Order when they sent him a copy on 22 June 2020; (ii) they did send a copy of the Unless Order to Mr Kong on 23 June 2020; (iii) they attached a chronology to explain what took place between June and August 2020.

60.  To summarise, the reason given by Mr Chan for the delay in seeking relief from sanction was that the delay was caused by errors of his former legal representatives.

REASONS FOR MASTER’S DECISION

61.  As seen in the Transcript, the Master’s reasons for dismissing the Relief Summons included the following:

(1) The Master found the explanation in the Cheung Letter was unsatisfactory in that there was no explanation why there was a delay between July and October 2020 and why it had taken up to 27 November 2020 to issue the Relief Summons, and the Master concluded that Ds had been dragging their feet;

(2) Master considered that the proposed amendments lacked merits.  In particular, he relied on the “choice of Hong Kong law clause” in the draft Written Agreement and found that the crux of P’s claim was for specific performance of the Cooperation Agreement as a Hong Kong law governed agreement, and that since the Cooperation Agreement contemplated further agreements to be reached in respect of the Nan Shan Land, the issue of the Mainland law as framed by Ds would not be one that the Hong Kong courts would have to determine in the present action.

THE LEGAL PRINCIPLES

Appeal from a master to a judge in chambers

62.  It is trite that an appeal from a master’s decision to the judge in chambers is by way of an actual rehearing of the application which led to the order under appeal, as though the application came before the judge for the first time.  However, as submitted by Senior Counsel Mr Li SC who appeared on behalf of Ds for this appeal, the judge will give weight as appropriate to the master’s decision, but the judge is in no way bound by it, or fettered by the previous exercise of the master’s discretion[27].

Relief from sanction

63.  An application for relief from sanction imposed by an unless order is governed by Order 2, rules 4 and 5 of the Rules of the High Court (RHC) and they state:

“4. Sanctions have effect unless defaulting party obtains relief (O. 2, r. 4)

Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.

5. Relief from sanctions (O. 2, r. 5)

(1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including —

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.

(2)  An application for relief must be supported by evidence.”

64.  In Bruce James Stinson v Gu Ming Gao [2019] HKCFI 43, M Ng DHCJ, as she then was, had referred to her earlier decision in Lee Sai Nam v Lee Shu Chung (No 2), HCA 1711/2009, unrep, 31.05.13 in which she had summarized the legal principles in relation to extension of time to comply with an unless order .

65.  In paragraph 76 of her decision in Lee Sai Nam (No 2), the then DHCJ had referred to Top One International (China) Property Group Co Ltd v Top One Property Group Ltd,[28] and quoted the following passage as set out by Fok J ,as he then was, in his judgment in Top One on the approach on relief from sanction:

“… That is to say, although intentional and contumelious disregard of a court’s peremptory order may be the most usual circumstance leading to the refusal of an extension of time to comply with a peremptory order, the exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default. As directed by O.2 r.5 of the [RHC], the court should consider all the individual circumstances including those listed in r.5(1) at subparas.(a)-(j). Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted. Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (O.1A r.3 of the [RHC]) and on the court to do so by actively managing cases (O.1A r.4(1) of the [RHC]).”

66.  As later said by Fok JA, as he then was, in Daimler AG v Leiduck [2012] 3 HKLRD 119, Order 2 Rule 5 enjoins the Court to consider all the circumstances including the matters listed in (a)-(j) thereunder and in the weighing exercise to be undertaken by the Court on a fresh exercise of the discretion, a weighty factor is the question of proportionality of the sanction in the circumstances of the case[29].  

67.  There was no dispute in relation to the above general legal principles.

68.  On whether the delay or default was caused by the defaulting party or by his legal representative, Mr Li had referred to what M Ng J had said in paragraph 151 of her judgment in Bruce James Stinson, referring to paragraphs 129-132 of Lee Sai Nam (No 2), “whether the delay or default was caused by the defaulting party or the legal representative is a relevant factor to be considered not just for the application to extend time to issue application for relief from sanction, but also for the substantive application for relief from sanction if time extension is granted.  There is, of course, the need to consider all the circumstances, and the court has discretion to refuse relief even if blame can be laid at the door of the legal representative.”

DELAY IN APPLYING FOR RELIEF FROM SANCTION

69.  It appears from the Cheung Letter that during the Substantive Hearing before Master Tsui, there were arguments in relation to whether the Amendment Summons should be subject to the Unless Order as the 2^nd RRAD Summons and the Expert Summons were filed before the deadline in the Unless Order[30].  According to the Cheung Letter, Master Tsui at the outset of the Substantive Hearing took the view that unless there was relief from sanction of the Unless Order, she would not deal with the Amendment Summons and that Master Tsui further ruled that the Amendment Summons was subject to the Unless Order. According to the Cheung Letter, the 2^nd RRAD Summons, the Expert Summons and the Amendment Summons were dismissed by Master Tsui on “mere procedural ground”[31].

70.  Even if the Amendment Summons was held to be subject to the Unless Order, the 2^nd RRAD Summons and the Expert Summons were both issued within time stipulated in the Unless Order.  In fact in Version 1 which was attached to the 2^nd RRAD Summons, Ds were already proposing to amend their RAD to aver that PRC law should apply to the alleged Cooperation Agreement and that the oral agreement would be unenforceable in PRC [32].  It is not clear why Mr Cheung said the 2^nd RRAD Summons and the Expert Summons were dismissed on “procedural ground”. The parties have not produced before this Court a transcript of the proceedings of the Substantive Hearing before Master Tsui. 

71.  In any event, there was no appeal against the order made by Master Tsui dismissing the 2^nd RRAD Summons and the Expert Summons[33].

72.  It was Mr Li’s submission that the time to apply for relief from sanction, namely the 14 days of the failure to comply under Order 2 r 4 of RHC, should only start to run from 3 November 2020 and the 14 days ended on about 17 November 2020.  At the hearing before this Court, P’s Counsel Mr Wong accepted this for the purpose of this appeal.  Hence, according to Mr Li, the Relief Summons being issued on 27 November 2020 was only about 9 days late. 

73.  However, as seen in the Cheung Letter, Mr Cheung had advised on the issue of a summons to seek relief when he noted from Mr Wong’s skeleton submissions the day before the Substantive Hearing that P was going to take the issue that there was no relief sought by Ds and that the Court ought not entertain the Amendment Summons.  As further stated therein, Mr Cheung was then told by the solicitors that they did try to file the summons seeking relief but Master Tsui refused to allow the summons to be listed for hearing on 5 November 2020 and that the solicitors were not able to file the summons.  Mr Cheung stated that for reasons unbeknown to him, Ds’ solicitors then did not proceed to file the relief summons at all, which could be listed to be heard on a later date but he noted that in any event there was no affirmation in support of such relief summons at that time.

74.  In light of what Mr Cheung said, it is not clear as to why D’s solicitors did not file the Relief Summons promptly after the Substantive Hearing.  Although the delay was not a substantial delay, there was no explanation at all in Mr Chan’s affirmation or from his solicitors for such delay.  Mr Li submitted that there was a change of solicitors and that the time taken for the present solicitors to issue the Relief Summons was not unreasonable.  However, according to Mr Chan, Ds’ present solicitors were instructed on 1 November 2020 and in any event they came on record on 2 November 2020, and they were able to issue the Amendment Summons on 3 November 2020 and they were able to prepare for the Substantive Hearing on 5 November 2020. 

75.  Mr Wong had further pointed out that according to Mr Chan’s evidence and the Cheung Letter, although Mr Cheung had agreed to take up the case on 29 June 2020, he only held a conference with Mr Kong and the solicitors on 7 October 2020 and there was no explanation why the conference was held some 4 months later and also there was no explanation as to why Mr Cheung had not requested for a full set of papers prior to that conference, nor was there any no explanation as to why Mr Cheung was only provided with full set of papers by Zhang Lawyers only after that conference on about 22 October 2020. 

76.  Mr Li on the other hand argued the 2^nd RRAD Summons and the Expert Summons were issued prior to the deadline in the Unless Order and that any delay during the period thereafter and pending the Substantive Hearing on 5 November 2020 could not be attributed to Ds.  

77.  Even so, there was a conference held with Mr Cheung on 7 October 2020 which was attended by Mr Kong and Ds’ then solicitors.  This was about a month prior to the Substantive Hearing.  There was no explanation as to why Mr Cheung was not sent a full set of papers prior to the conference, nor was there any explanation as to why Mr Cheung himself did not request for a full set of papers prior to the conference.

78.  I accept that, having considered the procedural history and the evidence, there was no sufficient evidence that Ds had failed to comply with any other rules and court orders except the Unless Order.  I am also prepared to accept that there was no sufficient evidence of any intentional (or contumelious) non compliance of the Unless Order on the part of Ds.  However, as said earlier, there was no evidence of any explanation by Ds for their withdrawal of the 1^st RRAD at the time of the withdrawal, and further there was no good explanation as to why no prompt action was taken even after the Substantive Hearing to apply for relief from sanction.

WHETHER THE PROPOSED RRAD IS MERITORIOUS

79.  In the Relief Summons, what Ds are seeking relief and/or extension of time to file is yet another new version of the RRAD drafted/settled by Mr Cheung (“Version 3”)[34] which Ds now rely on.

80.  It is submitted by Mr Li on behalf of Ds that their application to file and serve the RRAD is meritorious and goes to the crucial issue of whether the alleged Cooperation Agreement, even if found by the Court to have been reached between the parties, would be invalid under the PRC law which is arguably the proper law of that agreement.  Also there are other legal defences which would render P’s claim unsustainable.

81.  Mr Li further submits that many of the proposed amendments in the RRAD are unlikely to be controversial and are only amendments to clarify the position or to more clearly plead Ds’ case or semantic changes.

82.  On the other hand, Mr Wong submits that apart from the impugned amendments, the other amendments are embellishments of matters already pleaded and unnecessary.

83.  Anyway, the major controversial proposed amendments or the “impugned amendments” in Version 3 of the RRAD are as follows[35]:

(1) Those amendments relating to Ds’ case that the PRC law is the proper law of the alleged Cooperation Agreement and/or other alleged agreement(s) with specific PRC law provisions (paragraphs 17(6A)-(6B) & 17(7B)) and the alleged Cooperation Agreement is invalid, ineffective and/or unenforceable under the PRC law (paras 17 (6C)-(6G) ) – “Group 1 Amendments”

(2) Those amendments relating to Ds’ defence of estoppel arising from the previous PRC proceedings (paragraphs 17(7A) & (7C)) – “Group 2 Amendments”

(3) Those amendments that relating to Ds’ defence(s) of the alleged Cooperation Agreement and/or other alleged agreement(s) being void for consideration and void for uncertainty (paragraphs 25A, 25C) – “Group 3 Amendments”)

Group 1 Amendments - paragraphs 17(6A)-(6B) & 17(7B), paras 17 (6C)-(6G) – re PRC law

84.  Paragraphs 15 to 21 of the ASoC are in relation to the alleged Cooperation Agreement between P and Ds.  In the RAD, Ds have denied paragraph 15 of the ASoC and in relation to paragraphs 16-21, save as averred by them, those paragraphs have also been denied.  Ds have further averred that there was no meeting of minds at the meeting in September 2016 between Mr Chan and Mr Lai.  In short, Ds deny there was the Cooperation Agreement as pleaded by P and that there was no Cooperation Agreement concluded on the terms as alleged by P.

85.  By those proposed extensive proposed amendments in paragraphs 17(6A), (6B), and (7B), Ds have set out the specific provisions in the PRC law relied by them for their case that the proper law of the alleged Cooperation Agreement and/or other alleged agreements is the PRC law and that the alleged Cooperation Agreement is invalid, ineffective and/or unenforceable under the PRC law.

86.  It is submitted by Mr Wong on behalf of P that the present case involves the resolution of whether the Cooperation Agreement (on terms alleged by P) was concluded and that the dispute is only whether an agreement was reached and that the PRC law sought to be introduced by Ds is irrelevant. 

87.  What has been averred by P in their ASoC is that the Cooperation Agreement will be subject to warranties and due diligence. P has relied on the Cooperation Agreement being evidenced by the Written Agreement, and the relief of specific performance sought by P is subject to Ds doing all things necessary to assist P to conduct due diligence as per clause 9 of the Written Agreement.  Under clause 9, if certain provisions of clause 9 cannot be complied with, P has an option to elect not to proceed with the terms of the agreement[36]. 

88.  It is thus Mr Wong’s submission that at this stage, the PRC law is not relevant. 

89.  Having considered P’s pleaded case, I agree with Mr Wong.  It is only if P decides to proceed with the terms of the Cooperation Agreement (if such agreement is held to have been concluded between the parties), after due diligence provided in clause 9 of the Written Agreement, then PRC law may become relevant.  The issue of PRC law is not one which the Court needs to determine for the purpose of the present action.

Group 2 Amendments - paragraphs 17(7A) & (7C), in relation to estoppel

90.  In their proposed amendments, Ds are now raising a new defence of estoppel relying on the Foshan Judgement and also relying on the Shenzhen Proceedings.

91.  In paragraph 17 (7A) of the RRAD, Ds aver that in the proceedings concerning the Loan Agreement and the Loan, the Foshan Court had already adjudicated on the Priority Right.

92.  As seen in the Foshan Judgment, the Foshan Court declined to grant the confirmation of the Priority Right sought by Mr Feng because firstly, the party (or subject matter) of the Priority Right was not clear, and secondly, the nature of the right was not clear from the Loan Agreement, and thirdly, there was no supporting evidence for Mr Feng’s clarification during the trial that such right was in the nature of a debt[37].

93.  P’s pleaded case is that the Loan was advanced to Shin Din Shenzhen in reliance of the Tripartite Understanding and at the request of Mr Chan and further in reliance of the Cooperation Agreement, P withheld the enforcement of the Foshan Judgment until around September 2017.

94.  It is not P’s pleaded case that the Loan was advanced for the purpose of acquiring the Priority Right and all P has pleaded is that it was in reliance of the Tripartite Understanding and at the request of Mr Chan that P advanced the Loan via its agent Mr Feng.

95.  In paragraph 16 of the RAD, Ds deny what was pleaded by P in paragraph 13 of the ASoC, and this would include denying that it was in reliance of the Tripartite Understanding that the Loan was advanced to Shin Din Shenzhen for settling fees and expenses associated with the Nan Shan Project and that Mr Feng was P’s agent.  In the RAD, Ds’ case is that the Loan was a personal loan advanced by Mr Feng to Shin Din Shenzhen and is unrelated to the present case and irrelevant, and further there was no Tripartite Understanding.  In other words, Ds deny there was any connection between the Loan and the alleged Tripartite Understanding[38]. 

96.  In the RRAD, Ds are proposing amendments to aver circumstances under which the Loan Agreement was executed, namely it appears to be now Ds’ case that the Loan was in fact borrowed for Mr Xu and Dashijie and upon receipt of the Loan from Mr Feng, the sum was transferred to an account designated by Mr Xu, and that it was repaid by Mr Xu.  Nevertheless, in the RRAD, Ds maintained that Mr Feng was at no time P’s agent.  

97.  Shin Din Shenzhen, Mr Xu and Mr Chan did not contest the Foshan proceedings.  They did not even appear.  In any event, there was no adjudication as to whether there was the Priority Right in favour of Mr Feng or whether the Loan was advanced pursuant to the Priority Right.

98.  In light of the above and Ds’ own case, I do not see why P should be estopped from relying on the alleged relevance between the Loan and the Nan Shan Project.

99.  As for the alleged abuse of process under Henderson v Henderson (1843) 3 HRE 100, apart from submitting that P had commenced the Shenzhen Proceedings against D1, Shin Din Shenzhen and Mr Chan and then withdrew the same, Mr Li did not put forward any submissions. 

100.  As seen in P’s original complaint in the Shenzhen Proceedings issued on 1 August 2016 in which D1, Shin Din Shenzhen, and Mr Chan were named as 5^th, 6^th and 7^th defendants respectively[39].  As further seen therein, P’s claims against Mr Xu, Dashijie and its 2 related companies were, amongst other things, for (1) return of the sum of RMB 150,000,000 for the transfer of projects under the Bilateral Agreement and (2) for actual damages suffered by P plus interests, and P claimed that D1, Shin Din Shenzhen, and Mr Chan were jointly liable under P’s claims (1) and (2) against Dashijie. 

101.  In its complaint, P had referred to the Compensation Agreement and the Tripartite Understanding and the draft Tripartite Agreement and the Loan and that it was in anticipation of the Tripartite Agreement being signed shortly that the Loan was made available to Shin Din Shenzhen and that upon signing of the Tripartite Agreement, the Loan would be treated as part of the compensation amount.  It was P’s case that it was under the joint arrangement of Mr Xu and Mr Chan that on 26 January 2016, P and Mr Xu, Dashijie and 2 related Dashijie’s companies entered into the Bilateral Agreement, which was in fact in relation to 3 projects including the Nan Shan Project.

102.  Thus, the Shenzhen Proceedings were essentially against Mr Xu, Dashijie and its related companies in relation to the Bilateral Agreement, and were further in relation to matters prior to on or around 2 September 2016 when the Cooperation Agreement was alleged by P to be formed. 

103.  In any event, P withdrew its claims against D1, Shin Din Shenzhen, and Mr Chan.  In the RRAD, Ds aver that the withdrawal and/or discontinuance was primarily due to the cause of action was not PRC law compliant and/or facts not sustainable or alternatively not sufficiently established by evidence.

104.  However, there is no sufficient evidence or documents to support what is averred by Ds.  It is not clear as to whether D1, Shin Din Shenzhen and Mr Chan had filed any defence in the Shenzhen Proceedings or what actions were taken by them prior to P’s withdrawal of its claims against them.  What is clear is that, after withdrawal its claim against D1, Shin Din Shenzhen, and Mr Chan, P had proceeded against Mr Xu, Dashijie and others and obtained the Shenzhen Judgment, which was largely in their favour.

105.  In any event, the claim against Mr Xu and Dashijie was in relation to breach of the Bilateral Agreement which was prior to the Cooperation Agreement alleged by P.  I do not see how any abuse of process or estoppel can be argued to arise by reason of the Shenzhen Proceedings.

Group 3 Amendments – want of consideration and void for uncertainty  

106.  Mr Li made no submissions on want of consideration in Ds’ Skeleton Arguments[40].

107.  It is submitted by Mr Li that P itself has difficulty identifying the terms of the alleged Cooperation Agreement as it is pleaded that the agreement “shall be subject to conditions in usual commercial transaction” with the terms “where necessary [supplemented] with ancillary terms” and that the Essential Terms “supplemented by ancillary terms which were not controversial”, and that it is not clear what P means by “not controversial” and that had those terms been agreed by Ds orally, they should have been pleaded as part of the alleged Essential Terms.  Otherwise, those were not agreed terms.  Thus, it is submitted by Mr Li that P’s own pleadings render the alleged Cooperative Agreement are void for uncertainty.

108.  The main issue at trial will be to determine whether there was the Cooperation Agreement which was concluded on the terms alleged by P.  If the Court were to so find, it is not clear how the pleas of want of consideration or void for uncertainty are sustainable.

Conclusion on the merits of the proposed amendments in Version 3 of the draft RRAD

109.  As for the other amendments, even on Mr Li’s own submissions, they are merely to clarify the position of Ds or to more clearly plead Ds’ case or semantic changes.  I agree they are merely embellishments and those other amendments are not necessary for the just resolution of the parties’ disputes.  As for those 3 groups of major (or impugned) amendments, I have come to the view that there are no merits in those amendments.

WHETHER RELIEF SHOULD BE GRANTED

110.  The present action was started on 12 October 2017, which was some 3 years and 8 months ago, and up to now, the action has not been set down, and no trial dates have been fixed.  To allow Ds relief from sanction would mean a fresh round of pleadings, and introduction of expert evidence which means that the action will not be ready for trial yet.  There will be substantial delay to trial and P will no doubt be prejudiced by such delay if relief were granted.  On the other hand, in light of my views that the proposed amendments are not necessary and/or not relevant and/or not meritorious, Ds cannot be said to suffer any prejudice by this Court not allowing them relief from sanction and extension of time to file the RRAD.  In any event, having considered all the circumstances of this case, I have come to the view that it cannot be said to be in the interests of the administration of justice to grant Ds relief.

CONCLUSION 

111.  In light of all above said, the appeal is dismissed.  Ds were ordered by the Master to pay P’s costs of the Relief Summons on indemnity basis.  As Ds have failed in their appeal, Ds should jointly and severally pay P’s costs of the appeal on indemnity basis, such costs to be summarily assessed, and be paid by Ds within 14 days of summary assessment.  P is to submit its statement of costs within 7 days, and Ds to submit their list of objections within 7 days thereafter.