JTM324 STRATEGIC ADVISORS, INC. v. PERMEX CO LTD

HCA 2109/2020

[2023] HKCFI 403

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2109 OF 2020

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DECISION

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THE APPLICATION

1.  By summons filed on 30 January 2023 (“the Summons”), the plaintiff sought, pursuant to Order 21 rule 3 of the Rules of the High Court (Cap.4A, Laws of Hong Kong) (“RHC”), the following orders from this Court:-

(1)  The plaintiff do have leave to wholly discontinue these proceedings as against the defendant on the ground that the defendant has no means to satisfy any judgment which may be awarded against it;

(2)  The costs of this action, including the costs of this application, be provided for; and

(3)  The trial dates (22 & 23 February 2023) be vacated.

2.  As far as the costs of the Summons are concerned, Ms Law for the plaintiff asked at the hearing for an order that the defendant shall bear the plaintiff’s costs of the action (including the costs of this application).

LACK OF SUPPORTING AFFIDAVIT

3.  The Summons was not supported by any affidavit.

4.  While it has not been expressly stipulated under Order 21 rule 3 of the RHC that an application made thereunder must be supported by affidavit, as a matter of reality, it appears to me that it is extremely difficult, if not impossible, for an applicant to obtain leave to discontinue with costs successfully without filing any affidavit in support, because there are bound to be factual matters which the applicant needs to rely on in order to establish the ground(s) upon which the application is made.

5.  Take the present application as an example.  The plaintiff alleges that the defendant has no means to satisfy any judgment which may be awarded against it.  In the normal course of event, this assertion cannot be established unless the plaintiff is able to point to some factual matters which demonstrate the defendant’s lack of means, and such factual matters must be contained in a supporting affidavit before they are admissible.

6.  At the hearing, Ms Law for the plaintiff attempted to rely on:

(1)  the company search result of the defendant (“the July 2022 Company Search Result”) which had been exhibited to an affidavit of service filed on 20 July 2022 (“Ms Law’s Affidavit of Service”);

(2)  certain representations made by the defendant’s solicitor in the Case Management Conference before Master Phoebe Man on 27 July 2022 (“the CMC”);

(3)  the fact that the defendant’s solicitors have ceased to act for the defendant;

(4)  the fact that since then the defendant has not been represented by any solicitors’ firm, nor is it represented by any director.

7.  Ms Law suggested that it is permissible for the plaintiff to rely on the July 2022 Company Search Result because it had been exhibited to Ms Law’s Affidavit of Service filed in this action. 

8.  With greatest respect, I disagree.   I consider that the plaintiff should have, by way of an affidavit in support of the Summons, confirmed that a previous affidavit would be relied on in the present application, for it is very unfair to the defendant for the plaintiff to rely on a previous court document for a totally different purpose without prior notice to the other side; or alternatively, the plaintiff should have followed the requirement under paragraph 13(3) of Practice Direction 5.4 which provides that:

“Each party should inform the Judge’s clerk and the other party / parties in writing of the court documents, other than the subject summons and the affidavits filed in support of and in opposition to the summons, which will be referred to.”

9.  Apparently the plaintiff has failed to comply with the aforesaid requirement.

10.  Another reason why I do not think the plaintiff should be allowed to rely on Ms Law’s Affidavit of Service is that, as its name suggests, that is an affidavit of service which, I suppose, has not been served on the defendant[1]. As a matter of justice, I do not think it is right for the Court to make an order in favour of the plaintiff on such a basis.

11.  As far as the representations allegedly made by the defendant’s solicitor at the CMC are concerned, the best way for the plaintiff to prove what exactly had been said must be by placing the relevant transcripts before the Court.  Even if the transcripts have not been obtained for one reason or another, the plaintiff should at least prepare an affidavit which sets out what had allegedly been said.  The plaintiff has not taken any of these steps.  It goes without saying that it is entirely improper for Ms Law to give evidence from the Bar Table as to what had been said by the defendant’s solicitor at the CMC. 

12.  What is left is therefore the fact that the defendant’s solicitors have ceased to act for the defendant which is currently not represented even by its director at the moment.  I will consider this further below.  Before I do so, I should set out the legal principles applicable to this application.

APPLICABLE LEGAL PRINCIPLES

13.  Order 21 rule 3(1) of the RHC reads:

“Except as provided by rule 2, a party may not discontinue an action (whether begun by writ or otherwise) or counter-claim, or withdraw any particular claim made by him therein, without the leave of the Court, and the Court hearing an application for the grant of such leave may order the action or counterclaim to be discontinued, or any particular claim made therein to be struck out, as against any or all of the parties against whom it is brought or made on such terms as to costs, the bringing of a subsequent action or otherwise as it thinks just.”

14.  In 深圳正高金屬製品有限公司 v Iu Ho Construction Engineering Co., Limited (裕濠建築工程有限公司) [2022] HKCFI 2685, this Court held that:

“18. The legal principles governing an application for leave to discontinue an action pursuant to Order 21 rule 3 have been succinctly summarised by To J. in Coqueen Company Limited v Chui Wai Kwan & Others (HCMP 438/2010, unreported, 8 December 2015) as follows:

‘37. If a plaintiff wishes to avoid the consequence of having to pay costs for the withdrawal, he may seek the court’s leave to discontinue under Order 21 rule 3(1). Under this rule, the court has complete discretion to grant leave to discontinue on such terms as to costs as it thinks fit. The guiding principle is fairness and justice in the circumstances: Covell Matthews & Partners v French Wools Ltd. Invariably the court takes into account two legal principles when deciding on the terms as to costs. First, Order 62 rule 10(1) provides a convenient starting point. Second, the principle that costs follow event usually applies.

38. A plaintiff applying under this rule has to show he has a good reason to discontinue the action. What is a good reason depends on the circumstances of the case. Examples of good reasons include: that the dispute has become academic; that a crucial witness has died or has otherwise become unavailable; that the subject matter of litigation has ceased to exist; or that the defendant has no means to satisfy any judgment which may be awarded against him. A good reason does not necessarily entitle a plaintiff to unconditional leave to discontinue. It is only the threshold which he must overcome before the court would even consider whether to grant leave to discontinue on terms without costs. Absence of good reason must necessarily mean the starting point applies.

39. If a good reason is shown, the second principle comes into play. Because of the starting point and the general rule that costs follow event, plaintiffs are frequently given leave to discontinue or withdraw only on terms of their paying the defendants’ costs, unless the court is satisfied that it has a proper basis for making a different order: Lloyds Bank Ltd v National Westminster Bank Ltd. This principle was confirmed by the English Court of Appeal in that same case. Hence, it was described as the “general rule” by Keith J (as he then was) in Trend Publishing (HK) Ltd v Vivien Chan & Co (a firm) and by Chadwick LJ in BCT Software Solutions Ltd v C Brewers & Sons Ltd.

40. To persuade the court to depart from the general rule, the minimum a plaintiff has to do is to show that the discontinuance is for reasons other than an acknowledgment of defeat or likely defeat. The most direct way of proof is to show that he will succeed in a postulated trial. The burden of proof is on the plaintiff and the standard of proof is the usual civil standard. Proof of a prima facie case is not enough. The court has to be satisfied on proper factual basis, whether based on agreed fact or determined fact, that the plaintiff will succeed. Discontinuance under such circumstances is consistent with the underlying objective of Order 1A. It is also beneficial to the defendant in that further costs to be incurred by him leading to nowhere but his eventual defeat are saved. The defendant can have no complaint that he was made to incur costs in an action which he is bound to lose but which the plaintiff chooses not to proceed. If the plaintiff is able to discharge this burden of proof, fairness and justice must require that he be permitted to discontinue his action without costs consequence.’

19. The above principles have been applied in Perrine Chamonix Limited v Star League Limited & Another (HCA 1139/2017, unreported, 13 September 2017), in which the Court awarded the plaintiff the costs of and occasioned by the action despite the fact that leave to discontinue the action was granted.

DISCUSSION

15.  The only matters which the plaintiff can properly rely on in this application for the establishment of “good reason” are that:

(1)  the defendant’s solicitors have ceased to act for it;

(2)  no leave has been obtained by the defendant’s director to act on its behalf in this action.

16.  In my view, the Court cannot infer, solely on the basis of the above matters, that the defendant has no means to satisfy any judgment which may be awarded against it.

17.  As Ms Law has only asked for leave to discontinue with a costs order in favour of the plaintiff, the Summons should therefore be dismissed.

18.  It is appreciated that the consequence of the dismissal of the Summons is that the plaintiff would be compelled to proceed with this action against its will.  However, the plaintiff only has itself to blame for failing to place adequate materials before this Court for consideration.  It appears that the reason why this application has been so badly prepared is that the plaintiff was reluctant to incur much further costs in the light of its view that it could not recover such costs from the defendant at the end of the day.   In my view, that is not an excuse for the plaintiff not taking its own application seriously.  The Court is not a rubber-stamp.  It shall not exercise its discretion in favour of the plaintiff without a proper basis.

ORDER

19.  By reasons of the aforesaid, the Summons is dismissed.

COST

20.  As the defendant has not attended the hearing, I make a cost order nisi that there be no order as to the costs of the Summons. 

POSTSCRIPT

21.  The Summons was taken out on 30 January 2023, and a call-over hearing (with an estimated length of 3 minutes) was fixed to be heard on 7 February 2023.

22.  Paragraph 13 of Practice Direction 5.4 reads:

“In respect of contested interlocutory summonses listed for argument for less than 30 minutes before a Judge, except summonses for extension of time and unless orders, the following provisions shall apply:

(1) The applicant should serve on the other side and lodge with the Court his skeleton argument and list of authorities and also for the Court copies of authorities (other than the Rules of the High Court and notes from the Hong Kong Civil Procedure) at least 72 hours before hearing (excluding Saturdays, Sundays and general holidays).

(2) The respondent should serve on the other side and lodge with the Court skeleton argument and list of authorities and also for the Court copies of authorities (other than the Rules of the High Court and notes from the Hong Kong Civil Procedure) at least 48 hours before hearing (excluding Saturdays, Sundays and general holidays).

(3) Each party should inform the Judge’s clerk and the other party / parties in writing of the court documents, other than the subject summons and the affidavits filed in support of and in opposition to the summons, which will be referred to.

(4) The skeleton arguments should clearly identify the issues and should be as brief as possible, in most cases no more than 2 pages.

23.  Pursuant to the directions under the said paragraph 13, the plaintiff’s solicitors should have lodged and served their skeleton argument no later than 9:30am on 2 February 2023.  

24.  The compliance with the said directions is very important for the purpose of assisting the Court, all the more so if the applicant is asking the Court for a substantive order in a call-over hearing, because there is not much time for the parties to develop their arguments verbally at the hearing.

25.  However, the plaintiff’s solicitors have failed to lodge any skeleton argument at all.

26.  When this Court enquired with Ms Law the reason of such failure, she explained that:

(1)  the plaintiff is reluctant to incur too much legal costs;

(2)  her firm only received last-minute instruction to take out the Summons.

27.  These explanations are totally unacceptable.

28.  Firstly, by acceding to their lay client’s request not to lodge any skeleton argument, solicitors for the plaintiff have apparently failed to bear in mind that they are officers of the Court and the paramount duty which they owe to the Court.

29.  Practitioners are reminded once again that their duty to the Court prevails over their duty to their lay client.

30.  The provisions under paragraph 7 of Practice Direction 5.4 should also be reiterated:

“[…] A point not taken or an argument not advanced in a party’s skeleton argument may not be pursued at the hearing of the application or appeal without the leave of the Court.”

31.  If an argument not advanced in a party’s skeleton argument may not be pursued at the hearing without leave of the Court, then, by the same token, a party who has not lodged any skeleton argument should not be allowed to make any submission at all without leave of the Court. 

32.  I have not lost sight of paragraph 1 of Practice Direction 5.4 which seems to suggest that paragraph 7 thereof may not be applicable to hearings fixed to be heard for less than 30 minutes before a Judge[2]. However, as I mentioned above, in the circumstances where an applicant is asking the Court to make a substantive order in a call-over hearing, it is of utmost importance that a skeleton argument in support is lodged.  This is a basic duty of the applicant’s advocate to assist the Court.

33.  Secondly, Ms Law told the Court that the plaintiff had not taken out the Summons earlier because the plaintiff had been waiting for the defendant’s director to represent the defendant, just as what the defendant’s former solicitor represented in the CMC. 

34.  However, it should be noted that the defendant had been absent from the PTR hearing on 21 October 2022.  Nearly three months had passed since the CMC by then.

35.  If the presence/absence of the defendant’s director in the action herein had been such an important factor for the plaintiff to take into account in deciding whether to take out the application for leave to discontinue, I would have thought the fact that the defendant was absent from the PTR hearing altogether should be adequate for the plaintiff to make up its mind.  Yet, the plaintiff waited for more than three other months before taking out the Summons, such that it could only be heard around two weeks before the commencement of the trial.  For the Summons to serve any meaningful purpose (in the event the application is acceded to), the Court would be forced to rule on the matter within a short time.  That means the Court might well have to put aside other cases already in the queue and hand down the Decision of this last-minute application first.  The situation has been made even worse by the failure on the part of the plaintiff’s solicitors to lodge skeleton argument in support. 

36.  With respect, I am of the view that the way of handling this matter by the plaintiff and its solicitors is not conducive to the underlying objective of the RHC to ensure that the resources of the Court are distributed fairly (see Order 1A rule 1(f) of the RHC).

37.  Practitioners are urged to bear in mind and to advise their lay clients the duty set out in Order 1A rule 3 of the RHC:

“The parties to any proceedings and their legal representatives shall assist the Court to further the underlying objectives of these rules.”