CHUNG KONG MATERIALS (JV) LTD (IN LIQUIDATION) v. CROWN ASIA ENGINEERING LTD AND ANOTHER

HCA 635/2022

[2024] HKCFI 1698

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 635 OF 2022

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DECISION

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A.   LEAVE TO APPEAL

1.  By a summons dated 18 January 2024, the 1^st Defendant applies for leave to appeal against this Court’s Decision dated 5 January 2024 (the “Decision”). The 1^st Defendant also applies for an extension of time to file its defence for 28 days after the determination of the proposed appeal.

2.  The 1^st Defendant relies on two main grounds:

(1)  This Court erred in allowing the Amendment Summons (“Ground 1”); and

(2)  The Plaintiff’s case is not salvageable by amendment.  It is suggested that this Court erred in finding that the Plaintiff has authority to sue. (“Ground 2”).

3.  Ground 2 can be dealt with succinctly. Mr Leung for the 1^st Defendant fairly accepted that if the present action is struck out, the Plaintiff can duly commence a new action.  Given that is the case, the Plaintiff does have the authority to sue.   For otherwise the Plaintiff would not be able to commence a new action.  The only issue is whether it should be done by way of a new writ or by way of amendments to its present writ.  As no limitation issue is involved, this Court took the view that it is more cost effective to allow the amendment application and let the action proceeds in its usual course.  I do not find that there is a reasonable prospect of success in relation to this ground.

4.  Mr Leung has correctly reminded this Court that leave to appeal should not be granted unless the court hearing the application for leave is satisfied that (1) the appeal has reasonable prospect of success or (2) there is some other reason in the interest of justice why the appeal should be heard (see Section 14AA(4) of the High Court Ordinance, Cap 4.).

5.  Reasonable prospects of success involve the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”.  (See SMSE v KL [2009] 4 HKLRD 125 at §17). In other words, the threshold is relatively low.

6.  The pleaded case and the material facts of the present case have been set out in the Decision and are not repeated herein.

7.  The 1^st Defendant submitted that in §10 of its original statement of claim, the Plaintiff pleaded a case that the Plaintiff entered the Subcontract purely as the 2^nd Defendant’s agent, but not otherwise.  Hence, the real parties to the Subcontract are the 1^st Defendant and the 2^nd Defendant but not the Plaintiff.  As such the Plaintiff has no right or standing to sue the 1^st Defendant for any claim arising out of the Subcontract.  The only party who has the right or standing to pursue such claim, should it choose to, is the 2^nd Defendant.

8.  This Court accepted the 1^st Defendant’s submissions above. However, the key issue is whether the Plaintiff can now be allowed to amend §10 to read “In accordance with the Agreement, the Plaintiff in its own name, and for and on behalf of the 2^nd Defendant as undisclosed principal, entered into a subcontract (“the Subcontract”) with the 1^st Defendant…”.

9.  In the Decision, this Court takes the view that the above amendments seek to clarify the issues rather than to run an inconsistent case as suggested by the 1^st Defendant.  Ms Ng for the Plaintiff fairly accepted that she could have made the pleaded case clearer and hence the proposed amendments.  This Court came to the view that it is not plain and obvious that the underlined words above could not be added to make the Plaintiff’s case clear.

10.  This Court accepts that the concept of undisclosed principal or the allegation that the 2^nd Defendant as the principal was unknown to the 1^st Defendant at the time of the Subcontract is not pleaded anywhere in the original statement of claim.  It merely pleaded as agent for the 2^nd Defendant.  This Court is of the view that this does not mean that the Plaintiff is debarred from clarifying its position.  This Court has set out its reasons in the Decision and does not seek to rehearse the same here.

11.  Even if this Court were wrong on the above analysis, this Court accepts Ms Ng’s submission that she takes responsibility for the pleadings and hence the application for amendment.  Every case depends on its own facts.  In the present case, this Court is entitled to take Ms Ng’s words instead of demanding an affirmation to explain the obvious mistake which the amendment application seeks to ratify.  Ms Ng also said that she has no problem with filing an affirmation to the same effect though Mr Leung submitted that it is too late for Ms Ng to do so as this is the leave stage.

12.  I am of the view that the Court’s function is to deal with real issues. Litigation is not a game.  Hence, I do not find that Ground 1 satisfies the relevant threshold test.

13.  For Ground 2, this Court has dealt with it above. In relation to the detailed arguments as set out in Mr Leung’s very comprehensive skeleton, this Court has considered the same.  It covers the same submissions as considered by this Court in the Decision. Briefly, at §50 of the Judgment, this Court takes the view that the authority to issue is not expressly excluded by Clause 6 of the Agency Agreement.  In terms of the issue relating to the priority of the liquidators’ costs and expenses, this Court accepts the submission that the Plaintiff upon recovery of the outstanding sum on behalf of the 2^nd Defendant will hold the same on trust for the 2^nd Defendant and then it is a matter of set-off between the Plaintiff and the 2^nd Defendant.  This Court does not see any basis to distrust its own officers’ undertaking to the Court (See §§53-55 of the Judgment.) The liquidators are entitled to give up their priorities to all other claims.  Hence, on the issue of authority to sue (Ground 2), I do not consider that there is a reasonable prospect of success.

14.  The 2^nd Defendant is a party to these proceedings, it can surely sort out its interest with the Plaintiff.  The 1^st Defendant argues that it is not in the best interests of the 2^nd Defendant to allow this action to proceed.  If that be the case, then it is a matter for the 2^nd Defendant to come forward and make its case.

15.  I also note that at the present stage, this Court has not been informed of any defence or basis as to why the outstanding sum should not be paid.

16.  For all the reasons stated above, the application for leave is dismissed and the 1^st Defendant is to pay the costs of and occasioned by the application to be summarily assessed at HK$50,000.

17.  As for the application for extension of time, this court will grant the same, namely the defence is to be filed 28 days after the disposal of the application for leave to appeal by the Court of Appeal.

B.   VARIATION OF COSTS ORDER NISI

18.  By a summons dated 15 January 2024, the Plaintiff applies for the costs order nisi made by this Court to be varied as follows:

(1)  The costs of the hearing of the Amendment Summons be to the Plaintiff to be taxed on a party to party basis, if not agreed;

(2)  The costs of this Appeal hearing be to the Plaintiff to be taxed on a party to party basis, if not agreed.

19.  On 17 January 2024, this Court directed the parties to file their respective written submissions on costs.

20.  First, this Court agrees that in the amendment application, there are two sets of costs, namely, the costs of and occasioned by the amendments; and the costs of the hearing itself. Whilst Ms Ng for the Plaintiff agrees that the costs of and occasioned by the Amendment Summons (save and except the hearing itself) should be ordered in favour of the 1^st Defendant to be taxed if not agreed), she submits that the costs of the hearing itself should be given to the Plaintiff as the Plaintiff has successfully persuaded this Court to grant the leave to amend despite the 1^st Defendant’s strong opposition made during the hearing thereof.

21.  However, Mr Leung for the 1^st Defendant is correct that in fact the Plaintiff did not take out a proper summons to amend its statement of claim. Instead the request for leave to amend the statement of claim was included as one of the reliefs sought in the Notice of Appeal to Judge in Chambers (the “Notice of Appeal”).  In the Notice of Appeal, the Plaintiff only sought the costs of the striking out application or the Appeal, but not the costs for the request for leave to amend.  Mr Leung has a point that on the basis of the reliefs sought in the Notice of Appeal, the Plaintiff is not entitled to costs of its request for leave to amend.

22.  Mr Leung also pointed out Ms Ng for the Plaintiff accepted during the hearing on 29 August 2023 that the Plaintiff would have to bear the costs of the hearing in any event if the Plaintiff were to be allowed to amend its pleadings.

23.  I am of the view that, on balance, on the facts of the present case, the 1^st Defendant should be entitled to the costs of the hearing of the amendment application as well.

24.  First, this Court has not lost sight of the fact that the hearing of the amendment application was intertwined with the hearing of the Appeal. But for the application for amendment, the Appeal would be dismissed outright.

25.  Secondly, it is perfectly reasonable on the part of the 1^st Defendant to contest the amendment application as the full ground and basis were not set out. For example, it was not until the hearing that this Court was informed that Ms Ng takes responsibility for the pleadings and the proposed amendments are to clarify the Plaintiff’s case.  Further, the liquidators are willing to give the undertakings to address the 1^st Defendant's concern about the issue of priority of the liquidators’ own costs and expenses.

26.  Thirdly and importantly, any application for amendments involves an indulgence of the Court and the Court is entitled to take a holistic approach in determining what is the appropriate costs order. The 1^st Defendant is entitled to argue that judicial discretion should be exercised against allowing the proposed amendments. On the facts of the present case it cannot be fairly said that as soon as the 1^st Defendant has notice of the proposed amendments, it should agree to the amendment application and thus avoid a hearing.

27.  Fourthly, had the Plaintiff, faced with the strike out application, duly taken the appropriate measures of putting its own house in order at the earliest opportunities, the entire appeal hearing might not be necessary. There is no explanation as to why the amendment application was not taken out before the Master.  This Court, on the facts as presented to it, tried its best to achieve what it considered to be a fair way forward. But it does not mean that such costs were properly incurred. In fact, this Court takes the view that such costs should not be incurred had the Plaintiff properly put its own house in order at the first available opportunity, at least, at the hearing before the Master.

28.  Mr Leung referred this Court to the cases of Suen Wah Fai v CIS Global Opportunities Fund SPC [2023] HKCFI 2493 and Cheng Hung Kit v Jim Yiu Ming HCA 2037 of 2011, unreported, 8 January 2016 for the proposition that depending on the facts of each case, a successful party resisting a striking out application can be ordered to pay the costs of the hearing if the reason for the success is a belated amendment application. But each case depends on its own facts. In the present case, as mentioned, although a version of proposed amendments was presented to this Court during the hearing, this court exceptionally accepted some of the submissions from the Bar table and the undertaking from the liquidators.

29.  As for the costs of the Appeal, this Court is fully aware of the fact that the Plaintiff is the successful party. However, this Court does not consider that the Master had made a wrong decision on the basis of the materials before her and the appeal was allowed in view of both the proposed amendments and the arguments developed only during the hearing.

30.  I am of the view that as a matter of discretion, the 1^st Defendant should not be made to pay for the failure of the Plaintiff to put its own house in order.  All the costs will be avoided had the Plaintiff prepared its Statement of Claim properly instead of insisting on the false premises that its original Statement of Claim is good enough.

31.  Indeed, one of the key submission relied upon by Ms Ng for the Plaintiff is that it is more costs effective to allow this action to proceed than to dismiss the appeal and force the Plaintiff to commence a new action.  This is also one of the discretionary factors taken on board by this Court.

32.  When it comes to the Appeal, the Plaintiff should also make sure that all the material facts that it wished to rely on were presented properly to the Court.

33.  Finally, I agree with Mr Leung for the 1^st Defendant that in a case where a striking out application is only successfully resisted because of an application for amendments made at the appeal stage, depending on the facts of each case, the Court is entitled to allow the appeal but to direct the plaintiff to pay for the costs. I agree that this is a proper case for the party seeking indulgence from the Court to pay for the costs of the amendment application and the Appeal.

34.  For the reasons stated above, the Plaintiff’s summons is dismissed with costs to the 1^st Defendant to be summarily assessed by this Court.

35.  By another summons also dated 18 January 2024, the 1^st Defendant applies for the costs order nisi under §58 of the Judgment (which granted costs to the 1^st Defendant for both the Amendment Summons and the Appeal) be varied for an order that:

(1)  Costs of and occasioned by the Amendment Summons and the Appeal are to be paid by the Plaintiff to the 1^st Defendant forthwith, to be summarily assessed (with certificate for counsel); or

(2)  Alternatively, costs of and occasioned by the Amendment Summons and the Appeal are to be paid by the Plaintiff to the 1^st Defendant forthwith, to be taxed on a party to party basis (with certificate for counsel).

36.  This Court also orders this matter to be dealt with by way of paper disposal. Parties have since filed written submissions.

37.  I am of the view that the 1^st Defendant’s application should be acceded to and this Court makes an order in terms of the draft order as submitted by the 1^st Defendant save and except that the words “and occasioned” are deleted from the draft order.

38.  This Court has considered the Plaintiff’s submissions but considers it right that for interlocutory application like the present one, the Court is entitled to order a forthwith costs order and to have the same summarily assessed by the Court.  This is a fair result than acceding to the Plaintiff’s request for the costs to be paid in any event.

39.  Hence, the 1^st Defendant’s summons is allowed with costs to be paid by the Plaintiff and such costs will be summarily assessed by this Court.

40.  Finally, it remains for this Court to thank Ms Ng for the Plaintiff and Mr Leung for the 1^st Defendant for their helpful assistance.