DRACCO NETHERLANDS B.V v. SIMBA TOYS GMBH & CO. KG

HCA 304/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 304 OF 2014

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D E C I S I O N
(Leave to Appeal)

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Introduction

1.  This is an application for leave to appeal against my judgment handed down on 5 October 2016 (“Judgment”), in which I allowed P’s appeal against Master Michael Wong’s decision ordering P to pay security for costs.

2.  In this decision, I shall adopt the abbreviations in the Judgment, unless otherwise stated.  I will not repeat the background to this case, save that P is a Dutch limited company, and D is a German limited partnership, and they entered into the Licensing Agreement.

3.  P’s claim against D is based on the latter’s alleged breach of the Licensing Agreement, and D has counterclaimed based on P’s alleged breach of the implied term of quiet enjoyment of the Licensing Agreement.

4.  Master Wong ordered P to pay security for costs in the amount of HK$500,000 which was duly paid by P.  As seen in the Judgment, I allowed P’s appeal.  D now seeks leave to appeal.

5.  There are now 5 grounds in D’s amended draft grounds of appeal, namely, briefly, the court erred in the following:

(i) By having regard to the evidence of Wong Tik Lung Eric (“Wong”) of the amount of outstanding License Fees; (“1^st Ground”)

(ii) By misdirecting itself on P’s prospect of success; (“2^nd Ground”);

(iii) By misdirecting itself on D’s counterclaim; (“3^rd Ground”);

(iv) By considering that both parties should be treated equally; (“4^th Ground”);

(v) By considering whether there was evidence regarding enforcement of costs orders in Netherlands (“5^th Ground”).

6.  Mr Cooney SC appeared for D in this leave application and Mr Grossman SC appeared with Mr Hylas Chung for P.

7.  I will start with the 2^nd Ground as this appears to be D’s main ground.

2^nd Ground

8.  It was submitted by Mr Cooney that taking a broad-brush approach, at this stage of proceedings, P has not demonstrated a high probability of success and this court could not determine that the claim has a high probability of success at this stage.

9.  Further, the complaint under the 2^nd Ground is that this court misdirected itself by applying an incorrect test in paragraph 47 of the Judgment and that instead of considering whether P’s claim has a high probability of success the court went only so far as concluding that it was unable to say that the claim does not have good prospects of success.

10.  The focus was on Clauses 11(a) and (d) of the Licensing Agreement.  I have set out P’s and D’s respective case on Clauses 11(a) and (d) at paragraphs 36-44 of the Judgment.  In particular, I have set out D’s case that its obligations under those two contractual clauses did not survive the Extraordinary Termination, and I have also referred to Chung J’s remarks in the Reasons in paragraphs 40-41 of the Judgment.

11.  At the present leave hearing, Mr Cooney presented the same arguments as Mr Shaw did during the September 2016 hearing, in submitting that those two clauses are subject to different construction, and referred again to Chung J’s remarks in the Reasons.

12.  However, as seen in paragraphs 36-37 of the Judgment that, in relation to Clause 11(a), P’s case was, among other things, that D had, after being served with the Extraordinary Termination, had agreed to provide the quarterly accounting statements for the 1^st quarter of 2014 and failed to do so.  Further, as seen in paragraphs 43-44 of the Judgment, P’s request for inspection under Clause 11(d) was made in November 2013, and that there had been no inspection arranged by D prior to the date of the Extraordinary Termination.

13.  In any event, notwithstanding it has been said that the parties should not go into the merits of the case, as stated in paragraph 33 of the Judgment, Mr Shaw himself had in September 2016 hearing made submissions on the merit of P’s case almost point by point.

14.  I accept in paragraph 47 of the Judgment, I have used a “double negative” to express my view on the prospect of success of P’s case in so far as D’s alleged breach of those two clauses, which was submitted by Mr Cooney to be a lowering of the threshold and a wrong approach. Whether it was or not, in paragraphs 45 and 46 of the Judgment, this court had referred to what was set out in paragraph 23/3/2 of HKCP and stated that it was unnecessary to embark on any detailed assessment exercise and that in considering a security for costs application, P’s case and D’s case should be balanced against each other.  In any event, this court was of the view that P does have a bona fide claim against D.

1^st Ground

15.  D’s complaint under the 1^st Ground was in relation to paragraphs 30-32 of the Judgment where the court had referred to the amount of outstanding Licence Fees stated by Wong in his 4^th affirmation, the calculations of which were based on the Inventory Report.  

16.  It was accepted by Mr Grossman that this part of Wong’s evidence was not asserted.  It was quite clear from the Judgment that this court did not rely on that estimate of outstanding Licence Fees, and the reference thereto was only set out as part of the background to the dispute between the parties.

3^rd Ground and 4^th Ground

17.  The complaints under these two grounds are in connection with the court’s consideration of D’s counterclaim, namely that this court had misdirected itself by failing to consider other factors, in particular that an order for security would not prevent P from pursuing its claim, the costs of the defence cannot be regarded as costs necessary to prosecute the counterclaim, and also the marked discrepancy in size between the amount claimed by P and the significantly smaller amount counterclaimed by D, and further that the issues regarding the P’s are many and varied and different from the issues regarding the counterclaim.

18.  Mr Cooney submitted that the nature of D’s counterclaim was confined to the breach of an implied term concerning loss over the last quarter of 2013 and for only about Euro 2.6m, whereas P’s claims were very broad involving 5 separate and different alleged breaches for which P was claiming some Euro 24m plus general damages, and going back to 2011.

19.  The main issue is however in the court’s view whether P was entitled to give notice for the Extraordinary Termination and whether D was entitled to sell after the Extraordinary Termination.  Whether P was entitled to give notice would in turn be dependant on whether D was in breach of the Licensing Agreement.

20.  This court’s consideration of D’s counterclaim was set out in paragraphs 48-50 of the Judgment, and further, in paragraphs 51-52, this court had referred to para 23/3/8 of the HKCP, 2016 Ed.  Mr Cooney had produced to this court a copy of the case of The Silver Fir [1980] 1 Lloyd’s Rep, 371 referred to in para 23/3/8.

21.  Mr Cooney submitted that in the above case, both sides had applied for security, whereas in the present case, P did not in the present case apply for security for costs from D. 

22.  Although the case of The Silver Fir was not referred to this court at the September 2016 hearing, what was stated in paragraph 52 of the Judgment had correctly set out what was held in The Silver Fir, and this court also referred to the Dickson Yoga case in paragraph 51 of the Judgment.

The 5^th Ground

23.  The new argument raised by Mr Grossman on FJREO at the September 2016 hearing was raised as a matter of law.  What this court said in paragraph 61 of the Judgment was, if I recall correctly, in relation to Mr Shaw’s submission at that time that because the Netherlands does not have a common law system, there may be difficulties for enforcement.

Conclusion

24.  Most of Mr Cooney’s arguments had been put forward by Mr Shaw at the September 2016 hearing.  The power to order security for costs is discretionary, and as said in paragraph 65 of the Judgment, having considered all the circumstances of this case, I had come to a different view from the Master and I was not satisfied that it would be just to require P to provide security.

25.  Having considered all the above, I am not satisfied that D’s intended appeal has a reasonable prospect of success. I decline to grant leave.

Costs

26.  In the Judgment, I made a costs order nisi that D should pay P’s costs below and of the appeal, to be taxed if not agreed (“Order Nisi”).  In D’s summons for leave to appeal, D has included an application to vary the Order Nisi such that P do pay D’s costs of the hearing before the Master.  P had later also issued a summons to vary the Order Nisi to seek summary assessment of the costs ordered under the Order Nisi.

27.  Thus, there are two outstanding issues in relation to the Order Nisi:

(i) Whether P should pay D’s costs of the hearing before the Master;

(ii) For the costs ordered, whether these costs should be by way of summary assessment, or should be taxed.

28.  So far as the present leave application is concerned, as I have declined to grant leave, I dismiss paragraph 1 of D’s summons issued on 19 October 2016, and order D to pay P’s costs of this leave application.  As to whether such costs should be summarily assessed, or taxed, I am of the view that this is to be considered, together with item (ii) above.

29.  I therfore direct that:

(i) D to lodge and serve its written submissions on costs within 21 days from the date hereof;

(ii) P to lodge and serve its written submissions in opposition within 14 days after being served with D’s written submissions;

(iii) Any reply submissions by D to be lodged and served within 7 days after D’s written submissions.

(iv) The matter will be dealt with on paper, unless a further hearing is directed by this court.