CHEERISE ASIA LTD v. ADVANCE ENGINEERING (DEVELOPMENT) LTD

HCCT 24/2019

[2021] HKCFI 3395

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 24 OF 2019

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REASONS FOR DECISION

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Background

1.  This is perhaps a typical case, in which the last months leading up to trial have been fraught with applications to the Court and strained correspondence between the parties.  Much of these last minute activities could have been avoided if the parties’ legal advisers had properly considered and prepared their cases in the early stages of the proceedings, instead of taking action only when trial is imminent.

2.  Trial dates for 6 days in November 2021 were fixed as early as in January 2020.  On 29 July 2021, the Defendant applied by summons for security for costs to be paid by the Plaintiff, and for the action to be stayed pending the provision of security, on the basis that the Plaintiff is unable to pay the Defendant’s costs in the light (inter alia) of a petition for winding up having been filed against the Plaintiff some time around July 2021 (“Petition”). The Defendant also applied by summons on 23 August 2021 to vacate the trial dates (“Summons to Vacate”).

3.  The application for security was heard on 18 October 2021, and the Plaintiff was ordered to make payment into court of $1.3 million ($2.6 million was originally sought by the Defendant), or to provide a guarantee for the said amount, within 14 days namely by 1 November 2021, with the action being stayed in the interim (“Security Order”).

4.  Security was furnished by the Plaintiff’s payment into court on 1 November 2021 (“Security Payment”).  With the trial set to commence on 8 November 2021, the Defendant restored the hearing of the Summons to Vacate at the earliest date available from this Court, on the first day of trial.

5.  The Summons to Vacate was of course opposed by the Plaintiff.  At the conclusion of the hearing, I acceded to the Defendant’s application and adjourned the trial to new dates to be fixed.  The following are the reasons for my decision.

Grounds of the Summons to Vacate

6.  The Defendant claimed that the trial should be adjourned in view of the uncertainties arising from the Petition, the Security Order, and the Plaintiff’s refusal to pay the costs of the single joint expert appointed by the Court and as ordered on 14 July 2021 (“14/7 Order”), which had caused the expert to withhold his report sought to be relied upon by the Defendant.  The Defendant claimed that these constitute exceptional circumstances to justify its application to vacate the trial milestone dates.

7.  The Defendant did not dispute that milestone dates for the trial were ordered to be fixed in December 2019, and that variations of such dates require exceptional circumstances to be shown, but it was argued that the Petition constituted a change in the circumstances existing at the time when directions for trial were issued.  Counsel also submitted that the Court may on its own motion vary a milestone date under Order 25 rule 1B (2) (8) RHC, without the existence of any exceptional circumstances, citing Samuel Tak Lee v Tsang Chiu Wing Florence [2012] 1 HKC 185.

The appointment of the SJE and the expert report

8.  By order of 17 December 2019 (“CMC Order”), directions were issued for expert evidence on quantum to be adduced for trial, by a single joint expert (“Expert”).  The Expert was appointed by the Court on 19 May 2020.  By the directions made in the CMC Order, the Expert’s report shall be prepared within 56 days after the exchange of factual witness statements. Paragraph 5 of the CMC Order listed questions to be answered by the Expert.

9.  The parties’ solicitors were still engaged in correspondence in April 2021 in an attempt to finalize the joint instructions to the Expert, with debate on the documents to be included.

10.  In June 2021, the Plaintiff first informed the Defendant, and later the Court, that it no longer elected to adduce any expert evidence on the issues it introduced.  The Plaintiff had informed the Defendant that this was due to financial considerations.  The 14/7 Order was accordingly made on the parties’ application, whereby the Plaintiff withdrew its application for leave to adduce expert evidence, and the Defendant was granted leave to adduce the Expert’s report on the issues introduced by the Defendant.  A costs order was made, whereby the Plaintiff was ordered to pay to the Defendant: the Defendant’s costs incurred in relation or incidental to paragraphs 5 (a) (b) and (d) of the CMC Order, the Expert’s costs incurred in relation and pursuant to paragraphs 5 (a) (b) and (d) of the CMC Order up to the date of the 14/7 Order (“Expert’s Costs”), and all costs thrown away by the application for and withdrawal of paragraphs 5 (a) (b) and (d) of the CMC Order.  As the Court highlighted at the hearing on 8 November 2021, the Expert’s Costs were a separate and distinct part of the costs and expenses for which the Plaintiff is liable under paragraph 2 of the 14/7 Order, and which were ordered to be paid by the Plaintiff.

11.  The Defendant’s complaint was that up to the hearing on 8 November 2021, the Plaintiff had failed to pay its share of the Expert’s costs of his having been engaged as the single joint expert pursuant to the CMC Order, including the initial deposit payable by the Plaintiff for the engagement, and the Expert’s Costs as ordered to be paid by the Plaintiff to the Defendant under the 14/7 Order.  The Expert has refused to release his report as a result, and the Defendant in essence claims that it was thereby prejudiced, in not being able to obtain and adduce the report to support its case at trial.

12.  At the commencement of the hearing on 8 November 2021, this Court invited the Plaintiff to make submissions and to show cause as to why the Court should hear the Plaintiff in this action, when it had been in continuous breach of the 14/7 Order to the extent of its failure and refusal to make payment to the Defendant of the Expert’s Costs.  The Court also invited submissions from the Defendant as to the suggested course of the Court ordering release from the Security Payment a sum representing the Expert’s Costs outstanding, as a realistic and effective remedy to the Defendant in respect of the Plaintiff’s failure to make payment of the Expert’s Costs.

13.  On the Plaintiff’s part, it denied that it was in breach of the 14/7 Order, and sought to argue that it had offered to pay “a reasonable sum in lieu of taxation”, and had then made a sanctioned payment into court in respect of its liability for the Defendant’s costs under the 14/7 Order.  It further claimed that it was not its intention to ignore or contravene any order of the Court.  Counsel for the Plaintiff in any event confirmed, at the hearing on 8 November 2021, that the Plaintiff would be making payment of the Expert’s Costs in the afternoon.

14.  I do not accept that the Plaintiff had good grounds to excuse its non-payment of the Expert’s Costs.  If it was in doubt or had queries as to the calculation of the Expert’s Costs, it was open to it at all material times to seek clarification and particulars from either the Expert or the Defendant’s solicitors, from 14 July 2021 until its eventual payment on 8 November 2021.  The fact that the Defendant’s own legal costs, as provided for in paragraph 2 of the 14/7 Order, may be further negotiated or taxed, does not affect the Plaintiff’s liability to make payment of the Expert’s Costs at the rates agreed with the Expert when he was engaged jointly by the parties.  The calculation of the Expert’s Costs to be paid under the 14/7 Order are therefore simply a question of arithmetic.

15.  Nor do I accept that the Defendant was at any time entitled to the leisure of doing nothing, and to abstain from taking reasonable steps to seek the release of the Expert’s report, if the Defendant had considered the expert evidence to be important to its defence and/or counterclaim.  It would have been possible, and proportionately reasonable, for the Defendant to pay the Plaintiff’s share of the costs of engaging the Expert and of the preparation of the Expert’s report up to 14 July 2021, and to seek reimbursement from the Plaintiff later.  Instead, the Defendant and those advising it decided to idle away 3 months, before agreeing at the Court’s suggestion on 8 November 2021 to advance the Expert’s Costs outstanding from the Plaintiff, and to ascertain from the Expert when the report could be released upon payment, and whether the Expert would be available to give evidence from 9 November 2021.

16.  The parties’ recalcitrance and obstinacy in this case are remarkable.

17.  The Plaintiff has been prompt in pointing out, that the Defendant had throughout represented to the Court, before the pretrial review, that it required an extension of time to file the Expert’s report, but had not claimed that the delay in the preparation of the report was due to the Plaintiff’s failure in making payment of any of the Expert’s fees.  Counsel for the Plaintiff submitted that the Defendant had misled the Court by suggesting that the report was ready but was not released because of the Plaintiff’s non-payment, when this was not so.  Even in the Defendant’s affirmation of 2 November 2021, it was claimed that the Expert’s report was “yet to be prepared”, showing that the Expert had not done any work on the report.  The Defendant did point out that this was because the Plaintiff had not paid the sum due to the Expert.

18.  In my judgment, the fact that the Expert’s report was not available by November 2021 cannot be blamed entirely on the Plaintiff as the Defendant sought to do.  The Defendant had known of the difficulties in the finalization and release of the Expert’s report since July 2021, and despite knowing the importance of the expert evidence for trial, it made a conscious decision not to discuss the problem with the Expert and to find a solution to procure the release of the report (at least on the remaining issues raised by the Defendant), by making advance payment or otherwise.  Hence, the unavailability of the Expert’s report and the Expert for trial is partly of the Defendant’s own making, and cannot on its own be an exceptional circumstance.

The Petition

19.  The Defendant’s stronger ground is that the Petition for winding up the Plaintiff, filed on 2 July 2021, remains in effect.  It was heard and then adjourned in September 2021, for further evidence to be filed by the Plaintiff.

20.  Although proceedings by and against the Plaintiff are not stayed by virtue only of the filing of the Petition, the Defendant pointed out that it is as yet uncertain whether an order will be made on the Petition to wind up the Plaintiff.

21.  As set out and referred to at paragraphs 4 and 5 of the Reasons for Decision handed down on 19 October 2021 on the security application, the Petition was filed on the basis of a statutory demand served on the Plaintiff, and the Plaintiff has not provided any particulars of what its purported defence is to the debt, and what bona fide dispute it can raise.  Counsel for the Defendant argued that the Court should make adverse inferences against the Plaintiff with regard to the Petition and whether it has any ground to resist a winding up order, by virtue of the Plaintiff’s “suspiciously coy” attitude with regard to the Petition, and its lack of forthrightness as to the steps it had taken and the prospects of its successfully resisting the winding-up order sought against it.

22.  If a winding-up order is made, the Defendant’s counterclaim against the Plaintiff will be stayed.  It will be for the liquidators of the Company to decide whether to carry on with the Plaintiff’s action against the Defendant.  Continuing with the trial of this action carries the risk of costs being wasted if a winding-up order is made before the conclusion of the trial, and the liquidators decide not to carry on with the proceedings.  Even if the Defendant should succeed in its defence and counterclaim, any judgment in favour of the Defendant, and its costs (which may exceed the Security Payment), may not be recoverable in full from the available assets of the Plaintiff.  The Defendant also pointed out that it is theoretically possible for the Plaintiff to agree to a winding-up order being made against it, if its claims against the Defendant are not successful, or if its prospects of success do not appear to be high in the course of trial, purely to prevent the Plaintiff from recovering the fruits of any judgment or order of costs that may be made in its favour.

23.  I can accept that the existence of the Petition is a factor which is out of the ordinary, and the risks of a winding-up order being made against the Plaintiff during the pendency of the trial and even after its conclusion but pending full payment and recovery render it unfair to require the Defendant to incur the costs of a trial when it is uncertain whether it would be commercially worthwhile to do so against a company on the verge of insolvency and being wound up by the Court.

The Security Order

24.  I do not accept that the Defendant’s application for security, resulting in the Security Order on 18 October 2021, created such a state of uncertainty as to justify the trial dates being vacated.  The Defendant’s case, that there was reason to believe that the Plaintiff would not be able to pay the Defendant’s costs if the Plaintiff’s action should fail, was accepted by the Court and led to the Security Order, for security of $1.3 million to be furnished within a reasonable period of 14 days.  There was a stay pending the provision of such security, which necessitated the original hearing date for the Summons to Vacate to be vacated.

25.  However, the Defendant was not entitled to its wishful thinking that the Plaintiff would not be complying with the Security Order by 1 November 2021, nor to assume that the trial would not proceed on 8 November 2021.  As the Court sought to remind the parties by directions issued on 2 November 2021, until there was an actual order to vacate the trial dates, no party was relieved from any obligation imposed on it under any prior order made by the Court or under any provision of the RHC, including any Practice Directions.

26.  In the eventuality, the Plaintiff furnished the Security on the last day, on 1 November 2021.  The Defendant complained that despite its letters to the Plaintiff, on 18, 20 and 29 October 2021, inquiring whether the Plaintiff would be providing security, the Plaintiff did not make any response at all and it was only at around 4 pm on 1 November 2021 that the Defendant received Notice of the Plaintiff’s payment into court.  The Plaintiff has not furnished any explanation as to its complete silence, and whilst I appreciate that it had no strict obligation to advise the Defendant whether it would be providing the Security ordered, and that the Plaintiff’s solicitors may themselves have had difficulties in confirming its client’s stance until payment was actually made, I accept that the Defendant would have been concerned and anxious to enquire on the parties’ readiness for trial on 8 November 2021.  The Plaintiff’s complete silence in this regard did not assist matters so far as preparations for trial were concerned.

Readiness for trial

27.  As for the solicitors’ obligations to prepare for trial in the interim of the stay of the proceedings under the Security Order, I amply expressed, at the hearing on 8 November 2021, my dissatisfaction with the preparation and the state of the trial bundles lodged by the Plaintiff’s solicitors at 5:30 pm on 2 November 2021.  Although the Plaintiff’s solicitors lodged a set of documents within the time specified in the Unless Order of 2 November 2021, the bundles fall pitifully short of the standards required for use by the Court and were totally inadequate, unhelpful and unusable for trial.  An order was made on 8 November 2021 to disallow the solicitors’ costs of preparing and lodging the trial bundles of 2 November 2021, such that the costs shall not be recoverable from either the Plaintiff or the Defendant.

28.  The Plaintiff repeatedly registered its complaint as to the documents sought to be included by the Defendant, both in the instructions to the Expert and in the trial bundles.  The documents objected to by the Plaintiff include those relating to the Defendant’s costs and expenses, which documents had been disclosed in discovery but had not been referred to in any of the witness statements of the parties.  The Plaintiff objects to reliance being placed on these documents, as the Defendant never sought in their witness statements to explain how the documents related to the Defendant’s claims, nor how the documents would be relied on at trial.  As the Court pointed out in the course of the hearing, it would appear to be necessary for the Defendant to file and serve witness statements to explain the provenance and relevance of the disputed documents, and how the Defendant’s witnesses seek to rely on the documents to establish the defence and counterclaim.

29.  The expert evidence on quantum is on the expressed assumption that there were defects in the Plaintiff’s works up to 21 March 2019.  There is however no expert evidence on defects.  This issue had been highlighted by the Court on a number of occasions before the commencement of trial.  It is difficult to see how the Defendant’s claims of defects can be objectively established and determined by the Court at trial.

30.  Upon the Court’s direction, the Defendant was only able to ascertain from the Expert on 8 November 2021 that the report on quantum would only be ready by 19 November 2021, but that the Expert was not available in the weeks of 8 and 15 November 2021 to give evidence or be cross-examined at the trial.

31.  In short, the parties were hardly in readiness for an efficient and effective trial to commence on 8 November 2021.

32.  The Plaintiff claimed that the Defendant was at fault in failing to make timely response to the draft index of the trial bundles prepared by 15 October 2021.  On its part, the Defendant put the blame on the Plaintiff’s failure to pay the Expert’s Costs, on the uncertainty created by the Petition and the Security Order, and on the Plaintiff’s delay in and failure to prepare a complete and proper set of trial bundles.  I have explained above that the non-payment of the Expert’s Costs, the Petition and the Security Order cannot excuse the Defendant from not making due and timely preparations for trial.  If a party claims that the other is delaying the preparation of the trial bundles or documents required by the Court, it should take the initiative of doing and filing what is necessary.  There is no excuse to sit on one’s hands and do nothing.

33.  Whilst it is clear that trial dates should not be disrupted, and the underlying objectives of ensuring that a case is dealt with expeditiously have to be borne in mind, it is also important to pay due heed to the objective that there should be cost-effectiveness of any practice and procedure to be followed.  To proceed with the 6 days’ trial on the current state of the evidence is in my consideration not cost‑effective at all, but may well be a total waste of costs as well as the time and resources of the Court, if at the end of the day, all the claims may well be dismissed for lack of evidence not only from the Defendant, but also on the part of the Plaintiff.  There are only the parties’ bare assertions of their respective cases, with no objective evidence from independent witnesses, which is not helpful in a construction dispute on the work carried out, defects, non-performance, and delay.

34.  In allowing the application for adjournment, I had borne in mind that the primary aim in the exercise of the powers of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties (Order 1A rule 2 (2) RHC).  Even if the Expert report can be finalized, filed and served by 12 November 2021, there cannot be a fair trial for either party in the limited time available, nor can there be a just resolution of the parties’ disputes.

35.  For all the above reasons, the application to adjourn the trial was granted, on the condition that the outstanding Expert report be served and filed by 19 November 2021, and there be a further case management/pre-trial review hearing 6 weeks thereafter.

Costs

36.  Having considered all the circumstances in which the application to adjourn was made and granted, I consider that both parties and their legal advisers had a role to play in the events which led to this adjournment.  They failed in being communicative as to their readiness and preparations for trial, to the extent of each keeping up its sleeve its intentions for the trial, and they failed to be reasonably cooperative in their efforts to bring about an effective trial.  Since the absence of an expert report was one of the main reasons for the Defendant’s application, which in my view is of its own making, the order on costs is that the Defendant is to pay 50% of the costs of and occasioned by the adjournment of the trial (including the costs reserved on 8 September 2021), and each party is to bear, on its own, the balance of 50% of such costs.