HOUTAI INVESTMENT HOLDINGS LTD v. LEUNG YAT TUNG AND OTHERS

CAMP 330/2021

[2022] HKCA 411

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 330 OF 2021

(ON AN INTENDED APPEAL FROM HCA NO 1725 OF 2019)

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J U D G M E N T

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Hon Yuen JA (giving the Judgment of the Court):

1.  On 27 May 2021, Mimmie Chan J (“the Judge”) handed down a decision (“the Decision”) ordering that the Plaintiff’s action against the 4^th Defendant (sometimes referred to in the Decision as “CAE”) be stayed pending arbitration (“the 4^th Defendant Stay Order”). In the same Decision, the Judge also ordered that the Plaintiff’s action against the other defendants (the 1^st to 3^rd and 5^th to 8^th Defendants, referred to in the Refusal of Leave Decision mentioned in the next paragraph as “the Remaining Defendants”) be stayed as well, pending the outcome of the arbitration (“the Remaining Defendants Stay Order”).

2.  The Plaintiff has applied for leave to appeal the Remaining Defendants Stay Order.  There can be no appeal from the 4^th Defendant Stay Order by reason of s.20(8) Arbitration Ordinance, Cap.609.  Leave to appeal the Remaining Defendants’ Stay Order was refused by the Judge on 27 July 2021 (“the Refusal of Leave Decision”).

Background

3.  The factual background was set out in the Decision ([2021] HKCFI 1504) at [2] – [10].  For the purposes of this application, it suffices to set out the following material background.

4.  The Plaintiff is the sub-contractor for works relating to the Tuen Mun - Chek Lap Kok Link - Northern Connection Sub-sea Tunnel Section project HY/2012/08 (“the Project”) pursuant to a subcontract.  By a Sub-subcontract dated 16 August 2013 (“the Sub-subcontract”), the Plaintiff sub-subcontracted certain works in the Project to the 4^th Defendant.  It was not disputed that the Sub-subcontract is governed by an arbitration clause (“the Arbitration Clause”).[1]

5.  The Plaintiff is also the owner of a number of vessels, the alleged use of which by the 4^th Defendant (among others) became the subject matter of litigation.  On 19 September 2019, the Plaintiff issued a Writ of Summons with Statement of Claim (“the Action”) containing the following claims:

(1)     As against the 4^th Defendant, the Plaintiff claims that it had leased vessels to it pursuant to a “monthly periodic oral lease” at market rent, and that the 4^th Defendant has failed to pay the market rent.[2]

(2)     As against the 4^th Defendant and the 6^th Defendant, the Plaintiff claims that in breach of a term in the oral lease that the said vessels “can only be used for the purpose of carrying out the Project”, the 4^th Defendant employed a batch of the vessels (referred to as the “Batch 2 Vessels”) for work other than the Project, failed to return the Batch 2 Vessels to the Plaintiff upon demand, and instead delivered the vessels to the 6^th Defendant.[3]

(3)     As against the 6^th Defendant, the Plaintiff claims that the 6^th Defendant collected rent in respect of the Batch 2 Vessels without the consent of the Plaintiff, thereby misappropriating rent belonging to the Plaintiff.[4]

(4)     Apart from the 6^th Defendant, the Remaining Defendants are individuals who the Plaintiff claims, as directors or de facto directors or “Vessels Management Director(s)” of the 4^th Defendant or the 6^th Defendant, managed, assisted, induced, encouraged, and/or persuaded the 4^th and 6^th Defendants to commit wrongful acts resulting in conversion, detinue and/or unlawful means conspiracy[5].

6.  On 6 December 2019, the 4^th Defendant commenced proceedings under the Arbitration Clause in respect of disputes under the Sub-subcontract (“the Arbitration”).

7.  The 4^th Defendant says that the vessels the subject matter of the Plaintiff’s claims in [5] above were provided for the 4^th Defendant’s use under the Sub-subcontract, and thus the Plaintiff’s claims should be referred to arbitration.  Accordingly, on 20 January 2020, the 4^th Defendant applied for the action against it to be stayed for arbitration (“the 4^th Defendant’s Stay Application”).

8.  Also on 20 January 2020, the Remaining Defendants applied for the action against them to be stayed pending the award in the arbitration if the 4^th Defendant’s Stay Application was successful (“the Remaining Defendants’ Stay Application”).

The Judge’s Decision

9.  The Judge made the 4^th Defendant Stay Order under s. 20 of the Arbitration Ordinance for the following reasons:

“32. On the evidence adduced at this preliminary stage, it appears that the oral lease agreements are not entirely different transactions between the Plaintiff and CAE, but are closely related to the performance of the Sub‑subcontract.

33. ...

34.    I am satisfied there is a prima facie case of the existence of an arbitration agreement between the Plaintiff and CAE, as contained in Clause 22, which is sufficiently wide in scope to cover the claims made by the Plaintiff in these proceedings, the dispute on which claims arose out of and are connected with the parties’ relationship and dealings under the Sub-subcontract.  There is no evidence or assertion that the arbitration agreement is null and void, inoperative or incapable of being performed.  Under section 20 of the Ordinance, the Court ‘shall’ refer the Plaintiff and CAE to arbitration.”

10.  The Judge made the Remaining Defendants Stay Order as a matter of case management discretion, as the question of their liability was “dependent and contingent” upon the existence, and the terms, of the alleged lease agreement between the Plaintiff and the 4^th Defendant, which was a question to be determined in the arbitration.  The Judge said:

“35. As for the other Defendants, I am satisfied on the evidence at this stage that the Plaintiff’s claims against them are dependent and contingent upon the existence of a binding lease agreement between the Plaintiff and CAE, and the terms of such agreement as to the use of the vessels. Until such issues are determined, the liability of the 6^th Defendant and the directors of the 4^th and 6^th Defendants in relation to the use of the vessels cannot be determined. On the evidence, CAE’s case is that the vessels or at least the Batch 1 Vessels had throughout been used for the Project. Unless the Plaintiff can establish that CAE was in breach of the lease and had no right to employ the vessels in the way it did, the other Defendants cannot be held to be liable for assisting in the alleged conversion, detinue or any wrongdoing.

36. I accept the submissions made on behalf of the 1^st to 3^rd, and 5^th to 8^th Defendants, that there is an overlap in the factual issues which require determination in this action and those which arise in the arbitration between the Plaintiff and the 4^th Defendant. It would be a waste of costs and there is a risk of conflicting outcomes, if the action against the remaining Defendants is allowed to proceed when the action against CAE is stayed, and this would be contrary to the objectives of the CJR.” (Emphasis added).

11.  On 9 June 2021, the Plaintiff applied to the Judge for leave to appeal against the Remaining Defendants Stay Order.  As mentioned earlier, the Judge refused leave on 27 July 2021.  On 9 August 2021, the Plaintiff issued a summons in the Court of Appeal for leave to appeal.

Legal principles

12.  In the Refusal of Leave Decision, the Judge set out the relevant test applicable to appeals against case management decisions, as follows:

“5. The intended appeal is against a case management decision of the Court. … In Xiamen Xinjindi v Eaton Properties HCMP 13 of 2012, 14 February 2012, the Chief Judge explained:

‘No leave to appeal should be granted unless the threshold test of reasonable prospect of success is satisfied, or (which is not relevant to the present case) there is some other reason in the interests of justice why the appeal should be heard: section 14AA(4), the High Court Ordinance (Cap 4). But the court still retains a discretion whether to grant leave even if the threshold test is satisfied. This is particularly so in relation to an intended appeal against a case management decision. In relation to such an intended appeal, this court rarely intervenes save in exceptional circumstances. As Kwan JA reiterated in the recent case of Mimi Kar Kee Wong Hung v Severn Villa Limited, HCMP 2192/2011, 12 January 2012, para 31, it need hardly be emphasized that generally, an appellate court will not interfere with a judge’s exercise of discretion unless the judge has misunderstood the law or the evidence or the exercise of his discretion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible. In relation to case management decisions, the intended appellant must show that the judge “has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task”, or if the judge “erred in principle or the order was irrational having regard to the issues that had to be resolved”. It is of great importance that this court does not descend to micro-managing cases pending before the court below.’” (Emphasis added)

13.  As recently reiterated by this Court in Redland Precast Concrete Products (China) Ltd v AES Steel Mould (Hong Kong) Ltd [2021] HKCA 1229 at [11], “a party challenging a case management decision faces a high hurdle”.

The Intended Grounds of Appeal

14.  The Plaintiff’s draft notice of appeal set out 11 intended grounds of appeal[6], as follows:

(1)     The Decision failed to take into account Linfield Limited v Taoho Design Architects Limited [2002] 2 HKC 204, specifically the principle that a plaintiff instituting proceedings as of right should not be deprived of carrying on those proceedings unless very good reasons exist to the contrary (“1^st Ground”);

(2)     The Refusal of Leave Decision distinguished Linfield on the facts without challenging the legal principles therein (“2^nd Ground”);

(3)     The Judge failed to take into account the fact that there was no arbitration agreement between the Remaining Defendants such that the Plaintiff commenced proceedings against the Remaining Defendants as of right (“3^rd Ground”);

(4)     The Judge failed to take into account the fact that there is no identity of parties between the Plaintiff’s claim against the Remaining Defendants and the arbitration between the Plaintiff and the 4^th Defendant, and the relevance of this factor to the alleged risk of conflicting outcomes (“4^th Ground”);

(5)     The Judge erred in relying on issue estoppel where there is nothing to suggest the arbitration between the Plaintiff and the 4^th Defendant will necessarily result in a prior judgment, decree or order as against the current proceedings (“5^th Ground”);

(6)     The Judge erred in relying on issue estoppel by piercing the corporate veil (“6^th Ground”);

(7)     Even if issue estoppel applies, it only applies to claims against the 1^st, 2^nd, 3^rd and 5^th Defendants but not the 6^th to 8^th Defendants (“7^th Ground”);

(8)     The Judge erred in relying on the overlap in factual issues and the risk of conflicting outcomes as reasons to stay, when those grounds were rejected in Linfield and China Medical Limited v Autoscale Resources Limited, unreported, HCA 2449/2008, 15 May 2009 (“8^th Ground”);

(9)     The Judge failed to identify any “very good reasons” to justify the order (“9^th Ground”);

(10)   The Judge failed to take into account the constitutional right of the Plaintiff to have access to the Courts to resolve disputes and the Judge’s decision is contrary to the said constitutional right (“10^th Ground”); and

(11)   The Judge failed to consider the prejudice the Plaintiff might suffer as a result of the stay (“11^th Ground”).

DISCUSSION

The 1^st, 2^nd, 8^th and 9^th Grounds

15.  It would be convenient to deal with the 1^st, 2^nd, 8^th and 9^th Grounds together.

16.  The Plaintiff seeks to rely on Linfield which was referred to the Judge at the hearing of the remaining Defendants’ Stay Application.  In that case, the plaintiff developer issued claims against 5 separate parties, viz. the architect, the building contractor, a stonework supplier, the consulting engineer and project manager GWA (the defendant who was applying for a stay), and the development and project consultant.  Just pausing there, it is clear from the roles or functions of the defendants that their respective duties to the plaintiff developer were very different.

17.  There were arbitration agreements between the plaintiff and the architect, the building contractor and the development and project consultant respectively, but not with the stonework supplier or GWA.  GWA (but not the stonework supplier) applied for a stay pending the outcome of the anticipated arbitrations.

18.  In Linfield, Ma J (as he then was) stated the principle that a plaintiff instituting proceedings as of right should not be deprived of carrying on those proceedings unless very good reasons exist to the contrary.  The basic principle was that the Court must consider “what would serve the ends of justice between the parties to the litigation and as far as the administration of justice is concerned?” [14].  On the facts of that case, the judge refused GWA’s application for reasons set out in [19].  There were some reasons which were particular to the facts of that case, such as the continuation of the proceedings against the stonework supplier [19(2)] and the fact that GWA’s contract was only made with the plaintiff developer’s parent company [19(3)].  More pertinent to the present discussion is that even though there may be some similarity in the plaintiff’s factual disputes with the parties in the arbitrations, it was noted [19(5)] that GWA’s duties to the plaintiff were “not necessarily overlapping with the duties owed by other persons” (ie the architect, the building contractor, and the development and project manager).

19.  In the present case, it is clear that the Judge did not misunderstand the legal principles encapsulated in Linfield or err in applying them.  As the Judge noted in [35] to [36] of the Decision, there was clearly an “overlap in the factual issues which require determination” viz. whether there was in the first place an oral lease between the Plaintiff and the 4^th Defendant, and if so, whether there was a breach of its terms, but more importantly, it was only if the 4^th Defendant had breached that lease that any obligations of the Remaining Defendants would arise in the first place: [35] of the Decision (cf China Medical Ltd v Autoscale Resources Ltd HCA2449/2008, at [17]).  If these primary factual issues were to be determined separately as between the Plaintiff and the 4^th Defendant of the one part (in the Arbitration) and as between the Plaintiff and the Remaining Defendants of the other part (in the Action), the duplication of costs and waste of time and (most importantly) the risk of conflicting factual findings (where the Remaining Defendants’ liability was “dependent and contingent” on the 4^th Defendant’s) clearly would not serve the ends of justice.  The Judge was entitled and correct to focus on this “dependent and contingent” factor in the present case in the exercise of the court’s case management discretion: [35] of the Decision.

20.  The fact that as against the Remaining Defendants the Plaintiff has asserted various causes of action (such as conspiracy by unlawful means, conversion, and detinue) does not detract from the basic point that these alleged causes of action are premised on the Plaintiff’s primary factual allegations that there was an oral lease between it and the 4^th Defendant which the 4^th Defendant has breached, consequential to which the Plaintiff has made these claims in the Action against the Remaining Defendants.

21.  In the “dependent and contingent” liability situation in the present case (in contradistinction to Linfield and China Medical), for the Plaintiff to sue the Remaining Defendants in the Action and suggest that they can join the 4^th Defendant as a third party is tantamount to an attempt to circumvent by the back door the arbitration agreement which the Plaintiff and the 4^th Defendant had agreed was the means for determining the primary factual issues as between them.

22.  The Plaintiff also alleged that the Judge failed to take into account the lack of arbitration agreement between the Remaining Defendants and the Plaintiff.

23.  However, the Judge was clearly aware of, and took into account, that fact.  Otherwise, she would not have decided the two Stay Applications on two different bases (vis-à-vis the 4^th Defendant, on the basis of the arbitration agreement, and vis-à-vis the Remaining Defendants, on the basis of the Court’s case management discretion, as expressly stated in [1] of the Decision).

The 4^th to 7^th Grounds

24.  The 4^th to 7^th Grounds relate to issue estoppel, identity of parties, and abuse of process.  The Judge discussed these in the Refusal of Leave Decision: [12]-[13] though not in the Decision.

25.  At this stage and for present purposes (whether, in the Judge’s exercise of case management discretion, there should be a stay of the Action against the Remaining Defendants pending arbitration between the Plaintiff and the 4^th Defendant), it is not necessary to come to any conclusion on these topics.  For the purposes of the application to this appellate court, which is limited to determining whether interference with a discretionary case management decision is justified, it suffices to say that the Judge was entitled to take into account the potentiality of arguments based on issue estoppel, or privity of interest, or abuse of process as relevant considerations in the exercise of the court’s discretion.

The 10^th Ground

26.  The Plaintiff submits that the Judge has failed to take into account its constitutional right of access to the Courts as guaranteed by Article 35 of the Basic Law.

27.  This point can be disposed of shortly.  The Court undoubtedly has the power to grant a stay of proceedings in appropriate circumstances, to be exercised pursuant to legal principles.  The relevant principles have been summarized by the Judge in the Refusal of Leave Decision at [10].  By the requirement of the existence of good reasons before a stay may be ordered, a litigant’s right of access to the Courts is protected.  A decision to stay, properly made pursuant to those principles, does not infringe a litigant’s right of access to the Courts.

The 11^th Ground

28.  The Plaintiff argues that the Judge failed to consider the prejudice it might suffer as a result of the stay.  In the 2^nd affirmation of Tang Chun Tak, Martin, the only prejudice alleged is that if the Remaining Defendants’ Stay Application is successful, the dispute would be resolved at a later date, and in the meantime, it has regulatory obligations as owner of the Batch 2 Vessels [7].

29.  As no further details were provided by the Plaintiff, it is understandable that the Judge did not specifically deal with this.  The court is not required to deal with each and every allegation raised by a party in support of its case.  It only needs to identify the issues critical to its decision and explain how it has resolved those issues: Lucy Michaels v Centaline Property Agency Ltd [2020] HKCA 705 at [51].  Not every factor which weighed with the judge in the appraisal of the evidence has to be identified and explained in the judgment: Leung Wing Yi Aster v Kwok Yu Wah (2015) 15 HKCAR 605 at [59].  It is clear from the Decision which were the factors which weighed more heavily with the Judge, and we do not see any basis on which we should interfere.

30.  For the above reasons, we do not see any prospect of success in the intended appeal.

Order

31.  Accordingly, the application for leave to appeal is dismissed with an order that the Plaintiff pay the costs of the Remaining Defendants in respect of the application before this court.  (As for the Summons for leave to appeal in the Court of First Instance, the Judge has given an order relating to costs in the Refusal of Leave Decision).

32.  The Remaining Defendants have provided a statement of costs for summary assessment under Order 62 rule 9A, claiming $96,060 for their costs of the application.  The Plaintiff has not submitted any statement of costs for itself, or submitted any comments on the Remaining Defendants’ statement.  Having considered the Remaining Defendants’ statement, we would summarily assess the costs at $82,000.

33.  As the Plaintiff has failed to surmount the high hurdle referred to in [13] above and the application is totally without merit, we would also make an order under Order 59 rule 2A(8) that no party may request this determination to be reconsidered at an oral hearing inter partes.