FALCON INSURANCE CO (HONG KONG) LTD v. FLAGSHIP UNDERWRITING MANAGEMENT LTD

HCA 312/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 312 OF 2010

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REASONS FOR DECISION

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1. After a hearing before me on 20 May 2013, I dismissed an application made by the plaintiff by summons dated 7 February 2012 (“the Summons”). I set out below the reasons for my decision.

Background

2. By my Judgment dated 25 May 2012, I allowed an appeal from the judgment of Master de Souza dated 14 October 2010 in which the learned Master had granted summary judgment against the defendant in the sum of US$624,005.52.  I further ordered that the defendant to pay the plaintiff the sum of US$331,366.65 or the Hong Kong dollar equivalent at the time of payment with interest and that the defendant do have unconditional leave to defend to the extent of US$292,638.87.

3. US$292,638.87 represented one of the two amounts for which the defendant had contended that it had a counterclaim against the plaintiff and which it had sought to raise by way of a defence of set-off against the plaintiff’s claim of US$624,005.52.  In my Judgment, I had referred to the two claims which the defendant had sought to raise by way of a defence of set-off as the “Chin Hsing Claim” (a claim for the said sum of US$292,638.87) and the “Shun De Claim” (a claim for the sum of US$443,919.66) respectively.  I shall, in this Decision, adopt the same nomenclature.

4. I allowed the appeal and made the orders referred to above as I found, on the evidence before me, and in the context of the plaintiff’s application for summary judgment, that it was arguable that the defendant’s counterclaim under the Chin Hsing Claim constitutes a legal set off against the plaintiff’s claim. Conversely, I found, on the evidence before me, and in the same context, that the defendant did not have a triable claim against the plaintiff for recovery of the payment allegedly made in respect of the Shun De Claim.

5. After I had handed down my Judgment, the plaintiff’s solicitors submitted a draft order for my approval which I duly approved and which became my Order dated 25 May 2012.

The Present Application

6. By the Summons, the plaintiff applied under O.20 r.11 of the Rules of the High Court and/or the inherent jurisdiction of the Court to amend my Order dated 25 May 2012 by inserting a new paragraph as follows :-

“the counterclaim as defined as the “Shun De Claim” in the Judgment dated 25 May 2012 be dismissed”.

7. Mr Jat Sew Tong, SC, who appears with Mr Paul Lam, SC on behalf of the plaintiff in this application, drew my attention to the judgment of the Court of Final Appeal in Man Ping Nam v Man Fong Hang (No2) (2007) 10 HKCFAR 140 in which the Court of Final Appeal reaffirmed the following principles :-

(a)     Even if a court order as drawn up is ambiguous, it is well settled that the court has an inherent or implied discretionary power to clarify the original order if the court’s intention appearing from the body of the judgment is manifest. In the absence of any prejudice to the other party (in which event discretionary considerations may come into play), it matters not that an application for such clarification is made after the court’s order has been sealed since it operates to make plain what the court has in fact already decided.  It does not involve the court acting when functus officio. (§§10-11)

(b)    It is clear that the failure of the court original order to cover a particular matter as a result of an accidental omission of counsel or solicitors or the party is capable of being corrected under the “slip rule”.  The correction can be made by the court “at any time” so the fact that correction is sought after the order has been sealed is not an obstacle. (§20)

8. Relying on the above principles, Mr Jat argued that my Order dated 25 May 2012 should be amended in the terms set out above for the following reasons :-

(a)     I had decided that there is no triable counterclaim based on the Shun De Claim which may give rise to any arguable defence of set off and that the only matter which should go to trial is the Chin Hsing Claim.

(b)    It is therefore ridiculous for the defendant to suggest that despite my Judgment, it could nevertheless proceed with the counterclaim in relation to the Shun De Claim:-

(i)   I had decided that the Shun De Claim does not give rise to any triable issue.  To allow the Shun De Claim to proceed to trial would necessarily imply that the Shun De Claim is triable, which is plainly in direct conflict to my decision.

(ii)  The defendant has already paid the judgment sum of US$331,366.65.  To allow the defendant to proceed with the Shun De Claim would defeat the whole purpose of the partial summary judgment granted by me.

(c)     My plain and obvious intention was that only the Chin Hsing Claim, but not the Shun De Claim, should go to trial.  The proposed amendment to my Order dated 25 May 2012 would simply operate to make plain what I had in fact already decided and to give effect to my decision.

(d)    There is no substance in the defendant’s arguments that there was no application to strike out the Shun De Claim, that the plaintiff had not requested me to make such an order at the hearing of the appeal before me and that the plaintiff had not raised this issue before my Order was drawn up :-

(i)   It was unnecessary to apply to strike out the Shun De Claim as I had already held in my Judgment that the Shun De Claim is unarguable.

(ii)  It is plain and obvious from the reading of my Judgment what I had decided.  But for the defendant’s wholly unreasonable attitude in insisting on proceeding with the Shun De Claim despite my clear decision, it may well be unnecessary to clarify my Order at all.

(iii)  In any case, even if (which is denied) there was any failure on the part of the plaintiff to seek an express order disposing of the Shun De Claim, this is not a bar to my jurisdiction to amend my Order.  The failure is plainly an accidental omission.  If upon reading my Judgment and before my Order was drawn up, the plaintiff had sought an order that the counterclaim based on the Shun De Claim be dismissed, Mr Jat, SC submitted that I should and would have unhesitatingly ordered the same.

9. For his part, Mr Charles Manzoni, SC, argued that the plaintiff’s application is both hopelessly misconceived and a blatant attempt to shut the defendant out from its specific discovery summons (which was due to be heard the day following the hearing of this application) in which the defendant was seeking discovery of documents which would likely show that the plaintiff has indeed been paid, or certainly claimed payment, of the reinsurance in respect of the Shun De Claim.  Mr Manzoni, SC argued that if the plaintiff’s attempt worked, the plaintiff would obtain a significant benefit of reinsurance under the Shun De Claim as well as not having to repay the defendant for the money that the defendant had paid out on behalf of the plaintiff.

10. Mr Manzoni, SC argued that the plaintiff’s application is misconceived both procedurally and substantively in the context of what had occurred before.  He further argued that the Court did not, and does not, have the jurisdiction to dismiss the counterclaim.

11. Mr Manzoni, SC contended that the plaintiff’s application is procedurally misconceived because :-

(a)     There was never any application made before the Court on the hearing of the Order 14 Summons to have the counterclaim dismissed.  It would clearly be entirely inappropriate for court to dismiss a counterclaim on an Order 14 Summons without any argument as to whether it should or should not be dismissed.

(b)    The plaintiff had clearly recognised this difficulty because on 21 September 2012, it had taken out a summons to strike out the Counterclaim on the grounds that it was an abuse of process.  The hearing of that summons has been adjourned.  It is only on that summons that any order to strike out the Counterclaim could be made, and even that summons is hopeless as the counterclaim is clearly not an abuse of process.

(c)     The present application is far more than seeking to avoid ambiguity, or to reflect the manifest intention of the court.  It is not permissible under the slip rule.  The order had been sealed, and no complaint had been raised by the plaintiff until such time as the defendant’s specific discovery application was made.  This is not a slip or an ambiguity.  It is simply that the plaintiff wants the court to go further than the court did, or was asked to do, at the time.  Relying on Bank of China v Xinyuan Trading Company & Another [2001] 2 HKLRD F2, Mr Manzoni argued that that is not permissible as a matter of procedure under the slip rule.  It amounts to a variation of a fundamental nature, which is impermissible under the rule (see R v Cripps Ex P Muldoon [1983] 3 WLR 465 at 473).

12. Mr Manzoni, SC further argued that the plaintiff’s application is also misconceived substantively for the following reasons :-

(a)     It clearly was not the manifest intention of the Court to achieve something that it was not asked to do.

(b)    Under Order 14, the court is asked to address whether there is a defence to a claim.  The court is not being asked to address the counterclaim, save in so far as to counterclaim is put up as a defence to the claim.

(c)     In the present case, a defence of set-off was argued in relation to the counterclaim based on both the Chin Hsing Claim and the Shun De Claim.  I had found that there was an arguable set off in respect of the Chin Hsing Claim, but not in respect of the Shun De Claim.

(d)    There is no provision within Hong Kong jurisprudence, or rules, or law, by which a court can reach a “summary judgment” that the claim is hopeless, and thereby give judgment on a claim to a defendant.  A counter-claiming defendant stands in the position of a plaintiff in respect of his counterclaim.  Hence, there is no provision by which the court can reach a conclusion that a counterclaim should be the subject of dismissal by way of summary judgment.  Put simply, on the Order 14 application before me, I had, and have no jurisdiction to dismiss the defendant’s counterclaim.

(e)     The only jurisdictional route by which the court could short-circuit (negatively) a claim made either by way of claim counterclaim is the striking out under O.18 r.19.  No such application was made by the plaintiff in respect of the defendant’s counterclaim (although an application has now been made, that application was not and is not before this Court).

(f)     The rules and jurisprudence for the exercise of the jurisdiction to strike out a claim under O.18 r.19 are very different from the rules and jurisprudence in respect of an application under Order 14.  In simplistic terms, when the proposition is that the claim is an abuse of process, the burden rests with the party seeking to strike out the claim to prove that the claim has no prospect of success it has to be impossible that the other party will succeed, and not just merely improbable.  All disputed issues of fact are taken in favour of the party whose claim is sought to be struck out and there is no trial affidavit. It has to be plain and obvious.

(g)     Conversely, in an Order 14 situation, the burden is reversed and it is for the defendant to show that there is a triable issue in respect of its defence to the claim.  That is a very different test to that which applies on a striking out application.  The court would be completely rewriting Hong Kong jurisprudence (as well as the law and rationale of set-off) if it took the view that it could strike out a counterclaim simply because the defendant had failed to satisfy the high burden of showing a triable issue that the defendant was entitled as matter of law to use that counterclaim as a set off.

13. Additionally, Mr Manzoni, SC also argued that the plaintiff’s application is an abuse of process as it is an attempt to maintain a false position that no reinsurance had been obtained by the plaintiff in relation to the Shun De Claim and that the plaintiff had not ratified the payment by claiming under the reinsurance by seeking to prevent the defendant from obtaining discovery of highly relevant documents.

14. In his submissions in reply, Mr Jat, SC, argued that the decisions in Bank of China v Xinyuan Trading Company & Another and R v Cripps Ex P Muldoon are distinguishable.  In response to Mr Manzoni, SC’s argument that the court has no jurisdiction to strike out a counterclaim on an application for summary judgment under Order 14, Mr Jat, SC, argued that there is indeed jurisdiction for the court to do so as under O.14 r.6, when the court orders that a defendant have leave to defend an action, the court is also required to give directions as to the further conduct of the action.  He also argued that as an order for strike out can be made by the court of its own motion, there is no reason why it could not do so under a judgment given on an Order 14 application.

15. I am grateful to Counsel for their helpful, interesting and succinct submissions.

Discussion

16. I am of the view that the short answer to the plaintiff’s application is that the omission from my Order of 25 May 2012 of the paragraph now sought to be inserted by the plaintiff was not as a result of any slip in expressing the court’s intention but because it was not originally asked for.  As the Court of Appeal stated in Bank of China v Xinyuan Trading Company & Another,

“The purpose of the slip rule is to enable the court to correct an error or omission made in an order “in expressing the manifest intention of the court …”

17. Here, there was no error “in expressing the manifest intention of the court”.  In my Judgment, I considered and expressed my views about the Shun De Claim in the context of the plaintiff’s application for summary judgment.  I did not address my mind to whether or not the counterclaim based on the Shun De Claim should be struck out as there was no application to strike out before me.  If the plaintiff had made an application to strike out the counterclaim based on the Shun De Claim, no doubt the defendant would have objected to this and arguments would have been addressed to me on the issue and I would have considered such arguments.  I do not know if I would have acceded to the application to strike out.

18. In this regard, it has now been drawn to my attention that, in fact, after Master de Souza had given summary judgment in favour of the plaintiff, the plaintiff’s then leading counsel had expressly asked the learned Master whether in giving judgment, it could be taken implicitly that the learned Master was dismissing the counterclaim.  The learned Master made it clear that he had not dismissed the counterclaims based on the Shun De Claim and the Chin Hsing Claim and that the defendant was entitled to proceed with them.  The plaintiff must have had this in mind when the parties appeared before me on the appeal from the judgment of Master de Souza.  Yet it did not make any application to strike out or even address the issue at all.  This is further support for my conclusion above that there was no error “in expressing the manifest intention of the court” – I did not have any intention to strike out the counterclaim relating to the Shun De Claim as there was no application to strike out before me despite the plaintiff being clearly alive to the necessity of making such an application.

19. For the reasons set out above, I dismiss the plaintiff’s application.

20. As I have dismissed the plaintiff’s application for the reasons set out above, it is not strictly necessary for me to consider the very interesting arguments made by the parties regarding whether I had jurisdiction to dismiss the defendant’s counterclaim on the plaintiff’s application for summary judgment or Mr Manzoni’s argument that the plaintiff’s present application is an abuse of process.  However, for the sake of completeness, I would say that if I had to decide the point on jurisdiction, I would have accepted and agreed with the arguments of Mr Manzoni, SC.  I do not agree with Mr Jat, SC that the court’s jurisdiction to strike out can be founded on O.14 r.6. On the other, I would not have accepted Mr Manzoni’s argument that the plaintiff’s present application is an abuse of process.

Costs

21. At the conclusion of the hearing before me, Mr Manzoni, SC and Mr Jat, SC made brief submissions to me on the issue of costs. I did not understand Mr Jat, SC to oppose any order for costs against the plaintiff.  The only issue was as to the basis upon which the costs should be taxed.  However, both sides expressed the view that they would need to see these Reasons before making submissions on the issue.

22. In the circumstances, I order that the plaintiff do pay the defendant its costs of this application.  I also direct that the parties do endeavour to agree directions for the disposal of the argument on the basis of taxation of such costs failing which the parties do have liberty to apply to me for such directions.