SCHINDLER LIFTS (HONG KONG) LTD v. NIKKO SERVICES LTD

CACV 250/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 250 OF 2010

(ON APPEAL FROM DCCJ NO. 1569 OF 2008)

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REASONS FOR DECISION

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Introduction

1.  The subject matter of this appeal is the Judgment of HH Judge Chow given on 12 May 2010 by which he gave judgment for the plaintiff in the sum of $166,825.70 together with interest and costs.

2.  On 20 August 2010, Master Ko gave leave for the defendant (appellant) to be represented by its director, Mr Lau Chun Ming, in applying for leave to appeal and to prosecute the appeal, if leave was granted.

3.  On 8 November 2010, the Court of Appeal under HCMP 1619 of 2010 granted the defendant leave to appeal against the Judgment out of time and further ordered a stay of execution of the Judgment. The Notice of Appeal was filed on 15 November 2010.  On 8 December 2011, the Registrar of Civil Appeals gave direction for the appeal to be set down for hearing.  On 15 December 2011, the defendant applied to fix the date of the hearing of the appeal.  The appeal is now scheduled to be heard on 8 and 9 November 2012.

Applications before the Court

4.  By summons filed on 28 December 2011, the plaintiff applied for: (1) security for costs of the appeal; and (2) an order revoking the leave given to Mr Lau to represent the defendant in this appeal.

5.  At the conclusion of submissions, I ordered the defendant to provide security of costs in the amount of $50,000 by 21 May 2012 with consequential directions and costs and dismissed the application to revoke the leave given to Mr Lau to represent the defendant with costs.  My reasons appear below.

Security for costs application

6.  Under Order 59 rule 10(5) of the Rules of the High Court, the Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just.

7.  The principles governing an application for security for costs were those set out in Chung Kau v. Hong Kong Housing Authority & Ors [2004] 2 HKLRD 650.  Special circumstances that may give rise to an order for security for costs include impecuniosity of an appellant or proof that the respondent will be likely to encounter undue delay or be put to undue expense in enforcing an order for costs of the appeal.  The court however retains a discretion and will consider other relevant facts such as the strength of the appeal in deciding whether it would be just to order that security for costs be provided.  Once the existence of special circumstances has been demonstrated, it is generally up to the party resisting the application to demonstrate countervailing factors militating against an order being made.

8.  In the present case, the plaintiff relied on what Mr Lau (who was also given leave to represent the defendant in the District Court) had informed the court at the commencement of the trial on 15 January 2010 and also the Registrar of Civil Appeals at one of the direction hearing on 24 January 2011.  The transcripts of the hearings recorded Mr Lau as saying that the defendant “was going to close” and “has ceased operation”.  In Mr Lau’s affidavit opposing the application, he had not sought to contradict these. In his oral submissions, he explained that as the defendant has to incur warehouse expenses for storing the goods in dispute, it has a liquidity problem and so as to be fair to customers, it has not entered into new contracts or conducted new business.  Mr Lau also said that the goods in dispute are an asset of the defendant and it was valued to be worth $400,000 odd in the audited report of 2008.  He added further that the defendant’s shareholders will support the company to continue with the litigation.  On the materials before the court, I am satisfied that the defendant is shown to be impecunious.

9.  In opposing the application, Mr Lau raised three matters.  The first is that the plaintiff had delayed in making the application.  The second is that the defendant had obtained leave to appeal and also a stay of execution of the judgment, which is demonstrative of a high chance of the appeal succeeding.  The third is that the court should exercise the discretion to dispense with the requirement of security.

10.  As a matter of principle, applications for security for costs should be made promptly.  It should be made as soon as possible after the appeal is set down: Hong Kong Civil Procedure 2012, vol. 1 para. 59/10/34. The present application was made on 28 December 2011, less than two weeks after the appeal had been set down.  It is not a late application.  Further, at the early stage of the appeal proceedings, on 16 November 2010, the plaintiff’s former solicitors had already written to the defendant to demand for security and also intimated that an application would be made if the defendant did not respond.  The defendant had therefore been forewarned.

11.  In addition, Mr Shaw referred to paragraph 42 of Practice Direction 4.1, which provides that: “All applications and appeals in which the applicant or appellant or respondent is acting in person will be set down in the first instance for a preliminary directions hearing before the Registrar of Civil Appeals, …” and paragraph 43, which provides that: “No application or appeal will be placed or listed before the Court of Appeal or any Judge thereof until such directions have been given and the Registrar of Civil Appeals has certified that those directions have been complied with.”  It was explained that the plaintiff had withheld making the application until after the Registrar of Civil Appeals had given leave for the appeal to be set down. This point had been alluded to in the letter dated 12 December 2011 from the plaintiff’s solicitors to the Registrar of Civil Appeals enquiring whether the Registrar had made the certification under paragraph 43 of the Practice Direction.

12.  Having regard to the submissions made on behalf of the plaintiff, I do not accept there had been delay in making the application and/or the timing of the application has in any way caused any prejudice to the defendant such that the court should exercise its discretion against the application.

13.  I turn next to consider Mr Lau’s arguments on the merits of the appeal and the exercise of the court’s discretion.  His point is that although the defendant has liquidity problem, it has assets (made up of the goods sold by the plaintiff to it) and its shareholder(s) has/have been supporting and will continue to support the appeal.  In the light of all these coupled with the very strong merits of the appeal, the court should exercise its discretion against the making of an order for security.

14.  In my view, the financial position of the defendant, including the reliance on the financial support of its shareholders, do not assist the defendant.  On the contrary, they afford grounds for ordering security.

15.  As to the merits of the appeal, the plaintiff’s claim in DCCJ 1569/2008 was for the unpaid balance of the price of goods sold and delivered under a contract made on 21 January 2007.  The goods in question were the component parts of elevators that were dismantled from a construction site.  The amount claimed by the plaintiff was $189,040.  The defendant counterclaimed against the plaintiff for damages for defective goods, short delivery and late delivery.  The trial judge found for the plaintiff on the claim.  After deducting the costs of 4 sets of car and counterweight buffer that had not been delivered ($2,214.30) and the appraised value of the damaged parts ($20,000), the trial judge entered judgment for the plaintiff in the sum of $166,825.70 together with interest and costs and dismissed the defendant’s counterclaim.

16.  In granting leave to appeal and staying the execution of the judgment, Cheung JA had regard to two of the contractual provisions.  The first is that the defendant was required to move away the goods within 14 days from receipt of the plaintiff’s notice.  The second is that the defendant could make a claim to the plaintiff within a reasonable time in respect of goods that did not comply with the contractual specifications.  Cheung JA observed that the trial judge did not appear to have dealt with these provisions when observing that the defendant should not have moved away the goods if indeed they did not conform to contractual stipulations and there was no opportunity for inspecting the goods at the site.  His Lordship considered that the defendant’s acts in moving away the goods and making part payment did not necessarily mean that the goods were in order.

17.  For the purpose of amounting to countervailing factors that would militate against the making of an order for security, it has to be demonstrated that the intended appeal has strong merits.  This is a higher threshold than that for giving leave to appeal, which is that the intended appeal should have a reasonable prospect of success: see section 63A(2) of the District Court Ordinance, Cap. 336.  I, however, accept that the court will have to be satisfied that the appeal has a real prospect of success before it will stay the execution of a judgment and this is not an easy threshold.

18.  At this interlocutory stage, when considering the merits of the appeal for the purpose of a security for costs application, the court should not embarked upon a detailed examination of the appeal.  It needs only form some sort of a preliminary, even instinctive, view: Chung Kau v. Hong Kong Housing Authority & Ors, op cit.

19.  I have considered the grounds of appeal put in by the defendant after leave to appeal was given.  They are wide ranging, unfocused and go much beyond the issues identified by the court when granting leave to appeal.  They even refer to material that came into existence after the trial: see paragraph 2(i) on page 4 of the Notice of Appeal.  I am not persuaded that the merits of the defendant’s appeal are so strong as to militate against the making of an order for security for costs.

20.  In short, I am satisfied that it is just to order security for costs be provided.

21.  As to quantum, the plaintiff’s skeleton bill is in the amount of $299,000.  Having regard to the relatively small amount involved in the appeal and in order not to stifle the appeal, I consider it is appropriate to order security for part of the plaintiff’s costs of the appeal in the sum of $50,000.

22.  The defendant will have until 21 May 2012 to provide the security either by way of payment into court or by furnishing a bank guarantee to the plaintiff’s satisfaction or, failing agreement between the parties, to be approved by Registrar, High Court.  Pending the provision of the security, all further proceedings in the appeal shall be stayed.  In the event the defendant fails to provide the security within the stipulated time, the appeal shall, without further order, stand dismissed with costs to the plaintiff to be taxed if not agreed.

The defendant’s representation

23.  The plaintiff’s application for revocation of the leave given to the defendant to be represented by Mr Lau in this appeal is made on three bases.  Firstly, the plaintiff raised doubts as to whether the Registrar’s jurisdiction under Order 5 rule 6 of the Rules of the High Court extends to appeal proceedings.  Secondly, it was said that because leave should as a matter of principle only be granted in exceptional circumstances, which are not apparent from the facts of this case, the leave given to Mr Lau should be revoked.  Thirdly, the plaintiff contended that Mr Lau was not a suitable or competent person to represent the defendant.

24.  Order 5 rule 6 provides that:

“Right to sue in person (O. 5, r. 6)

(1) Subject to paragraph (2) and to Order 80, rule 2, any person (whether or not he sues as a trustee or personal representative or in any other representative capacity) may begin and carry on proceedings in the High Court by a solicitor or in person.

(2) A body corporate may not begin or carry on any such proceedings in the Court otherwise than by a solicitor except-

(a) as expressly provided by or under any enactment; or

(b) where leave is given under paragraph (3) for it to be represented by one of its directors.

(3)     (a) An application by a body corporate for leave to be represented by one of its directors shall be made ex parte to a Registrar and supported by an affidavit, made by the director and filed with the application, stating and verifying the reasons why leave should be given for the body corporate to be represented by the director.

(b) The relevant resolution of the board of the body corporate authorizing the director to appear on its behalf if leave is granted shall be exhibited to the affidavit.

(4) No appeal shall lie from an order of the Registrar under paragraph (3) giving or refusing leave.

(5) Leave given by a Registrar under paragraph (3) may be revoked by the Court at any time.

(6)     No appeal shall lie from an order of the Court revoking leave given by a Registrar.”

25.  In Kone Elevator (HK) Ltd v. Senfield Ltd (Unreported) CACV 216/2002, 24 February 2003, the Court of Appeal held that it had no jurisdiction to entertain an application by the corporate defendant to be represented by its director in the appeal.  Woo JA (as he then was), giving the judgment of the Court, examined the meaning of the term “the Court” in rule 6(2), (5) and (6) and held that it should include both the Court of First Instance and the Court of Appeal (at paragraphs 5 to 7):

“5. Sub-rule (2) of Order 12, rule 1 of the RHC allows a defendant in an action begun by writ to acknowledge service of the writ and give notice of intention to defend by a person duly authorized to act on its behalf. However, sub-rules (2A), (2B), (2C) and (2D) of Order 12, rule 1 of the RHC are respectively in terms identical to those in sub-rules (3), (4), (5) and (6) of Order 5, rule 6 cited above. It is clear from these two rules of the RHC that a body corporate in any High Court proceedings cannot, unless with leave of a Registrar, bring or carry on proceedings except by a solicitor. The decision of the Registrar in such an application is not appealable, although if he grants leave, the Court can revoke the leave.

6. The term of “the Court” used in sub-rules (2), (5) and (6) of Order 5, rule 6 of the RHC, and similarly in sub-rules (2C) and (2D) of Order 12, rule 1, unless the context otherwise requires, means the Court of First Instance (see Order 1, rule 4(2) of the RHC). In view of the absence of any rule conferring power on the Court of Appeal on representation of a body corporate, we consider that the term should include both the Court of First Instance and the Court of Appeal. Some support of this construction can be found from the wording of sub-rule (1) of Order 5, rule 6 where the term “High Court” is used, and the use of the term “the Court” in the sub-rules that follow sub-rule (1) may therefore be referable to the High Court.

7.   There is no provision in the RHC allowing the Court of Appeal to review the decision of a Registrar where he has refused leave to allow a director to represent a body corporate.  The necessary implication, in the context of the two rules of the RHC, is that decisions on the subject of representation of a body corporate in proceedings in the High Court is to be decided by a Registrar.  It is only where he has granted leave that the Court of First Instance or the Court of Appeal may revoke such leave.  The Court of Appeal therefore does not have jurisdiction to entertain any application for such leave, or entertain any appeal from a Registrar’s refusal of such leave.”

26.  Mr Shaw however relied on Hondon Development Ltd & Another v. Powerise Investments Ltd & Others (Unreported) CACV 296/2003, 11 December 2003, in which Yuen JA raised doubts as to whether there is jurisdiction to grant leave to a body corporate to be represented by its director to conduct an appeal.  In that case, it was noted that whereas rule 6(1) refers to “the High Court” which consists of the Court of First Instance and the Court of Appeal (section 3(1) of High Court Ordinance, Cap. 4), rule 6(2) refers only to “the Court” which means the Court of First Instance only, unless the context otherwise requires (Order 1 rule 4(2) of Rules of the High Court). However, Yuen JA also accepted that since rule 6(2) follows rule 6(1), it may well be, as a matter of construction, the expression “the Court” in rule 6(2) should be read consistently with “the High Court” in rule 6(1).  On the other hand, it was pointed out that Order 5 governs the mode of beginning civil proceedings in the Court of First Instance while appeals to the Court of Appeal are governed by Order 59.  Accordingly, Yuen JA was of the view that “Order 5 rule 6 probably does not apply to appeals, with the result that the master probably did not have jurisdiction to grant leave.”

27.  For my part, I consider I am bound by the judgment of the full court in Kone Elevator (HK) Ltd v. Senfield Ltd.  Although Yuen JA had questioned whether Order 5 rule 6 gives the master jurisdiction to grant leave in appeal proceedings, she had expressly refrained from coming to a firm view on the issue and the observations are obiter.  It would also appear that the word “proceedings” in rule 6(2) is sufficiently wide to include appeal proceedings.  Further, I consider that in the absence of clear and explicit expressions, the court should be slow in concluding that the legislature intends that corporate litigant may only appeal by solicitors, having regard to the right of access to court inherent in Article 10 of the Hong Kong Bill of Rights, Cap. 383[1], which prima facie applies to a corporation[2], as much as it applies to a natural person.  Although the right of access to court is by its nature not absolute and may be subject to limitations, any restriction, including a requirement that corporate litigants have to be represented by solicitors in appeals, should only be in pursuance of a legitimate aim, proportionate to that aim and not such as to defeat the very essence of a corporate litigant’s right of access to court.

28.  I am therefore not persuaded that the leave granted to Mr Lau to represent the defendant should be revoked on the basis that it was given without jurisdiction in the first place.

29.  The second basis on which the plaintiff applied to revoke the leave was that there was no good reason to support the granting of leave.  Under Order 5 rule 6(3), when applying for leave to be represented by a director, a corporate litigant has to give reasons why leave should be given.  In Hondon Development Ltd & Another v. Powerise Investments Ltd & Others, at para. 18, it was held that lack of resources is per se not a good reason for the grant of leave.  In the present case, the grounds on which the defendant applied for leave are not known.  Mr Shaw had requested to inspect the affidavit and documents lodged in support of the leave application so as to understand the basis of the defendant’s leave application, but the request was refused by the Master. As the leave application was made in another proceeding, I have no information as to the grounds relied upon by the defendant. That being the position, I have to act on the basis that the Master was satisfied that leave should be given. It will not be right for me to speculate that the defendant’s application was not supported by proper reasons and to revoke the leave on such basis.

30.  I turn to the third basis of the revocation application, namely, the suitability of Mr Lau as the representative of the defendant.  Order 5 rule 6(5), in providing that the Court may revoke leave, has not specified the circumstances under which the jurisdiction may be exercised.  In my view, considerations that are relevant to the granting of leave will also be relevant factors for revoking leave.  These will include the financial ability of the corporation and whether the representative has been properly authorized.  Other factors that the court may take into account in deciding whether leave should be revoked include the competence and ability of the corporate representative to properly present the case of the corporation and discharge the duties of a litigant and whether, having regard to the nature of the action and the issues and their complexity, it will cause grave unfairness or injustice to the other party in the proceedings.  In Hondon Development Ltd & Another v. Powerise Investments Ltd & Others, op cit, the corporation was a one-property company.  Its financial statements show that it had made substantial advancement to a corporate director and it was unsecured, interest-free and with no fixed repayment terms.  The financial viability of the corporate director is unknown.  The corporation applied for leave to be represented by its director on the sole ground that its stringent financial condition prevented it from instructing lawyers to pursue an appeal.  Yuen JA considered that leave should not have been given by the Master and revoked the leave, observing that (at paragraph 18): “To permit a company with limited liability to purse proceedings without legal representation, at no financial risk to itself, its shareholders or directors, is inherently unfair to the other parties to the litigation.”  In the context of appeals, public interest will not be served if the leave procedure is mis-used by impoverished corporation to pursue unmeritorious or frivolous appeals so as to delay the enforcement of a judgment.  Where this is shown to be the case, leave may be revoked. Similarly, leave may be revoked to prevent abuse of process of the court.  An example will be where a natural person uses a corporate entity to circumvent a Restricted Proceedings Order.

31.  In the present case, Mr Shaw relied on the long and tedious process of preparing the appeal bundle as demonstrative of the unsuitability of Mr Lau to represent the defendant.  It was submitted that it would not be in the interest of justice for him to continue to have the conduct of the appeal on behalf of the defendant in that he would not be able to properly assist the court and that the appeal hearing would be unduly lengthened.  In opposing the application, Mr Lau referred to the fact that he is a registered lift and escalator engineer, a registered safety officer and also a member of the disciplinary board for inquiring into disputes between the Electrical and Mechanical Services Department and registered lift contractors.  He also referred to the “technical nature of the dispute”, by which I take it to mean that the dispute involves the technical specifications of lifts.

32.  As pointed out during the hearing, I do not question Mr Lau’s professional qualification and his expertise as a lift and elevator engineer.  It may also be that he had some experience of civil litigations as he said.  What is at the heart of the plaintiff’s complaint, however, is the approach adopted by Mr Lau in this appeal and whether he is able to properly discharge the duties of a litigant.

33.  In the first place, all litigants, whether legally represented or not, are expected to observe the rules and procedures and the directions of the court.  While courts are in general prepared to make allowance for unrepresented litigants because they are unfamiliar with the rules and procedures, this should not be at the expense of causing undue prejudice to the other party and undue delay to the proceedings.  In the present case, it was more than 15 months after the defendant obtained leave to appeal and a stay of the Judgment that the appeal was set down for hearing.  The bulk of the time was spent on sorting out the appeal bundles.  In addition to two lengthy direction hearings before the Registrar for Civil Appeals, voluminous correspondence had been exchanged between the parties and with the court over the issue of the appeal bundles.  The plaintiff has a legitimate concern over its costs position, which is made more acute by the small amount of its claim.  In my view, it is imperative that parties adopt a disciplined approach in the conduct of litigations; they must be prepared to abide by court directions even though they are not in their favour.  Equally, it is important that the court in the exercise of its case management powers ensures that the parties act expeditiously and move on with the case.

34.  Secondly, parties to civil litigation are not at war.  They are expected to act in the spirit of cooperation so that litigations are conducted fairly, efficiently and economically.  The hostility over, for example, the rescheduling of the direction hearing from 1 April to 5 May 2011 due to the unavailability of Mr Shaw is unnecessary.  Still less will it be necessary to resort to strong language and emotive words in correspondences.

35.  As said, I can understand the plaintiff’s concern over the defendant’s representation.  Mr Lau’s approach to the compilation of the appeal bundles has led to a period of delay and has caused costs to escalate.  I am, however, not prepared at this stage to revoke the leave granted to Mr Lau, due to two reasons. First, it does not appear from the materials presently before the court that Mr Lau was deliberately trying to prolong the proceedings.  The main problems over the preparation of the Appeal Bundle are as a result of Mr Lau not appreciating that an appeal is not a retrial and because of his distrust of the plaintiff.  Secondly, the appeal will be heard in about six months’ time and it is not envisaged that will be much activities in the interim period.

Orders

36.  In conclusion, the orders I made are as follows:

(1)     The defendant shall on or before 21 May 2012 provide security for the plaintiff’s costs in the appeal in the amount of $50,000 either by way of payment into court or by a bank guarantee to the satisfaction of the plaintiff, or failing agreement, as approved by the Registrar, High Court.

(2)     If the security is provided by way of a bank guarantee,

(a)   the defendant shall on or before 26April 2012 provide the draft to the plaintiff’s solicitors for approval;

(b)   the plaintiff’s solicitors shall on or before 3 May 2012 provide to the defendant their comments (if any); and

(c)   where there is no agreement on the terms of the bank guarantee, the defendant shall on or before 10 May 2012 submit the draft to the Registrar for approval.

(3)     Pending the provision of the security, all further proceedings in the appeal are stayed.

(4)     In the event the defendant fails to provide the security by 21 May 2012, the appeal shall, without further order, stand dismissed with costs to the plaintiff to be taxed if not agreed.

(5)     The costs of the application for security for costs shall be paid by the defendant to the plaintiff in any event, to be taxed if not agreed.

(6)     The application to revoke the leave given to Mr Lau to represent the defendant is dismissed.

(7)     The costs of the application to revoke leave shall be paid by the plaintiff to the defendant in any event, to be taxed if not agreed.

(8)     50% of the costs of the summons and of the hearing shall be apportioned to the application for security for costs with the remaining 50% to be the costs of the application to revoke leave.

 

 

[1] See A Solicitor v. The Law Society of Hong Kong [2006] 2 HKC 40 at para.81.

[2] In Otis Elevator Company (HK) Limited v. Director of Electrical and Mechanical Services [1995] 5 HKPLR 78, the Court of Appeal proceeded on the basis that the company’s right to a fair hearing was protected by Article 10 of HKBORO.