FALCON INSURANCE CO (HONG KONG) LTD v. ISP HOLDINGS LTD (formerly known as SYNERGIS HOLDINGS LTD) AND ANOTHER

HCA 245/2022

[2022] HKCFI 3490

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 245 OF 2022

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DECISION

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BACKGROUND

1.  This is the 1^st and 2^nd defendants’ application made by summons filed on 1 November 2022 (“the Summons”) for leave to file and serve the 2^nd Affirmation of Tse Chi Chiu (“Tse 2^nd Aff”) in opposition to the plaintiff’s summary judgment application (“the O.14 Application”).

2.  Tse 2^nd Aff consists of a total of 12 paragraphs. Putting aside paragraphs 1 to 3 which are introductory in nature, only paragraphs 4 to 12 thereof contain substantive content. Mr Ho for the plaintiff informed this Court that the plaintiff only objected to the admission of paragraphs 6 to 12 of the said Affirmation, and would consent to the inclusion of paragraphs 1 to 5 thereof.

3.  This Court will therefore focus on those paragraphs which are in issue in this Decision.

4.  As a matter of background, the O.14 Application was taken out on 11 May 2022. A supporting affirmation (Wong Yuk Yee’s Affirmation (“Wong 1^st Aff”)) was filed and served on the same day.

5.  Pursuant to Cheng J’s directions made on 1 June 2022 (“the Directions”), the defendants and the plaintiff filed their affirmation in opposition (Tse Chi Chiu’s 1^st Affirmation (“Tse 1^st Aff”)) and affirmation in reply (Wong Yuk Yee’s 2^nd Affirmation (“Wong 2^nd Aff”)) on 28 June 2022 and 12 July 2022 respectively.

6.  The Directions further stipulated that:

(1)  The hearing of the O.14 Application be adjourned to a date to be fixed for argument;

(2)  No further affidavit may be filed without leave of the court;

(3)  No later than 7 days before the adjourned hearing for argument, the plaintiff shall lodge with the Court and serve hearing bundle and skeleton arguments with list of authorities.

7.  The substantive hearing of the O.14 Application has been fixed to be heard on 1 December 2022. In other words, the plaintiff is obliged to lodge and serve hearing bundle and skeleton arguments on or before 22 November 2022 (i.e. one week from today)[1].

THE LEGAL PRINCIPLES

8.  Order 32 rule 11A(4) of the Rules of the High Court (Cap.4A, Laws of Hong Hong) (“RHC”) provides that:

“Where the determination of the application is adjourned for the hearing of the summons, no further evidence may be adduced unless it appears to the Court that there are exceptional circumstances making it desirable that further evidence should be adduced.”

9.  In Jose Miranda Da Costa Junior & Another v Lorenzo Yih, also known as Yu Chuan Yih & Others (HCA 156/2010, unreported, 28 April 2014), Deputy High Court Judge Le Pichon had the following to say:

“9. The October order made it abundantly clear that no further affidavit was to be filed without the leave of the court. In the post-CJR era, it is inconceivable that leave would be granted in the absence of genuine extenuating circumstances, for example, that the evidence was not available at the date of the earlier affidavit or only came into existence after the date for the filing of that affidavit. In other words, they would be exceptions that normally would fall within the rule in Ladd v Marshall.

10. Further, in exercising the discretion to grant leave, the court is bound to have regard to the objectives of the CJR set out in O 1A, r 1 and to seek to promote the attainment of such objectives.

11. For those reasons, where a direction prohibiting further evidence to be adduced without leave has been given, it has to be read with RHC O 32, r 11A(4). That provides that where the determination of the application is adjourned for the hearing of the summons, no further evidence may be adduced unless it appears to the Court that there are exceptional circumstances making it desirable that further evidence should be adduced.

12. It will be seen that the rationale of O 32, r 11A(4) is to ensure that a case is dealt with as expeditiously as is reasonably practicable and to ensure fairness between the parties (those being the objectives of the CJR stated in O 1A, r 1(b) and (d)): Fortune Assets Development Ltd v De Monsa Investments Ltd, HCA 167/2009, (unrep) 21 August 2009 at §§10-11 and the annotation in Hong Kong Civil Procedure 2014 at 32/11A/3 which states that the sort of ‘exceptional circumstances’ envisaged are likely to be along the lines of the exceptions laid down in Ladd v Marshall [1954] 1 WLR 1489.

13. ‘Special circumstances’ are not made out if a proper review of the potential issues that might arise in proceedings ought to have resulted in the information contained in the affidavit being filed within the time limits imposed: Fortune Assets at §12. I agree with that approach which is in line with the rationale underlying O 32, r 11A (4) and furthers the CJR objectives identified above.”

10.  The ruling of DHCJ Le Pichon was upheld on appeal (see HCMP 1127/2014, unreported, 21 July 2014). In his Decision dismissing the applicant’s application for leave to appeal, Lam VP (as he then was) had the following to say at [6]:

“We also do not discern any errors in principle in the exercise of the discretion by the judge with reference to the underlying objectives in Order 1A Rule 1. It does not matter whether the case is within the scope of Order 32 Rule 11A(4). In respect of late application for admission of evidence, the court in the exercise of its case management power must pay regard to timetable already in place and the potential disruption such late application may cause to any substantive hearing. It cannot be seriously suggested that the judge was not entitled to dismiss the application in the absence of good explanation and exceptional circumstances for such late application […]”

11.  Mr Chin for the defendants expressed doubts as to whether Order 32 Rule 11A(4) of the RHC should be applicable in the present case as the Directions in the O.14 Application were not given by a Master but by a Judge. As Lam VP explained, it does not matter, because the same approach can also be made applicable by virtue of the underlying objectives set out in Order 1A rule 1(b) and (d) of the RHC.

12.  Pursuant to Ladd v Marshall [1954] 1 WLR 1489, further evidence is admissible only where such evidence:

(1)  could not have been obtained before with reasonable diligence (“Condition 1”);

(2)  would or might, if believed, have a very important influence on the result of the case, though it need not be decisive (“Condition 2”); and

(3)  is apparently credible though it need not be incontrovertible (“Condition 3”).

DISCUSSION

Lateness of the application

13.  Given the fact that the substantive hearing of the O.14 Application is only slightly more than 2 weeks away, and that, pursuant to the Directions, the plaintiff is supposed to lodge and serve hearing bundle and skeleton arguments no later than 22 November 2022, there is no doubt that this is a very late application.

14.  However, in the 3^rd Affirmation of Tse Chi Chiu (“Tse 3^rd Aff”) filed in support of the Summons, the defendants have not sought to explain why they could not make this application earlier. It should be borne in mind that the plaintiff’s affirmation in reply (Wong 2^nd Aff) was filed and served back on 12 July 2022. It is unknown as to why the defendants should wait until 24 October 2022 before they first mentioned about the necessity to file and serve further evidence in opposition to the O.14 Application.

15.  As Lam VP pointed out, in respect of late application for admission of evidence, the Court in the exercise of its case management power must pay regard to the timetable already in place and the potential disruption such late application may cause to any substantive hearing.

16.  Be that as it may, Mr Ho for the plaintiff has informed this Court very fairly that, taking into account the nature of the further evidence which the defendants seek to adduce, there is no need for the plaintiff to file and serve any affirmation in reply even if the defendants are granted leave to rely on Tse 2^nd Aff, and it is further accepted that the focus of the Court in considering the Summons should be on the satisfaction or otherwise of the Ladd and Marshall conditions. I will therefore turn my attention to those conditions.

The Ladd and Marshall criteria

17.  I will now consider paragraphs 6 to 12 of Tse 2^nd Aff with reference to the Ladd and Marshall criteria.

Paragraph 6

18.  This paragraph reads:

“As to paragraph 3(5) […] I deny that there is any intent to selectively impart to Falcon Insurance information about ISPC’s claims against Fortune Pharmacal. As is of course the case, parties to an arbitration are bound by duties as to confidentiality.”

19.  As admitted by Mr Chin for the defendants, paragraph 6 of Tse 2^nd Aff only serves to deny an allegation made under paragraph 3(5) of Wong 2^nd Aff, in which, among other things, it was said that:

“Regardless of the 2^nd Defendant’s real reason for opting for arbitration, the objective effect of the 2^nd Defendant’s decision to opt for arbitration is that it can selectively impart information about its claim against Fortune Pharmacal to the Plaintiff, and the Plaintiff has very limited information of the arbitration proceedings due to its confidential nature.” (Emphasis added)

20.  It can be seen that the plaintiff was in fact only stating what the 2^nd defendant can do, namely, selectively impart information about its claim. This is not a factual allegation that the 2^nd defendant has done or will do that. It was just a submission made by the plaintiff. If the defendants so wish, submission can be made in reply at the substantive hearing of the O.14 Application.

21.  Hence, I agree with Mr Ho that there is no need to file an affirmation for the purpose of making denial in this regard.

Paragraph 7

22.  This paragraph seeks to:

(1)  provide an update on the on-going arbitration in that an arbitrator has been appointed, and that directions for the conduct of the arbitration have now been made;

(2)  explain that, according to the contract between the 2^nd defendant and Fortune Pharmacal, the parties agreed to adopt a “stepped dispute resolution procedure”: parties should try to settle their dispute through a designated representative first before referring the dispute to mediation, and they should resolve the matter by arbitration as a last step.

23.  It was submitted that it was necessary for the defendants to explain the above in reply to paragraph 3(6) of Wong 2^nd Aff, which stated that:

“It appears from paragraph 26 of [Tse 1^st Aff] that now the 2^nd Defendant is not progressing with the arbitration because it wants to attempt mediation. The 2^nd Defendant has not positively confirmed whether the arbitrator has been appointed […] I do not wish to speculate why the 2^nd Defendant, who claims to have a genuinely strong case, does not progress with arbitration and mediation at the same time to put pressure on Fortune Pharmacal […]”

24.  As far as the appointment of an arbitrator is concerned, I do not think the defendants should be allowed to give further evidence on the matter for two reasons:

(1)  Tse did not state when the arbitrator was appointed in Tse 2^nd Aff. Hence, the defendants did not satisfy the burden that this piece of information could not be mentioned in Tse 1^st Aff;

(2)  In fact, the plaintiff did not make any new allegation against the defendants in Wong 2^nd Aff. Wong only pointed out, as a matter of submission, that Tse did not mention about the appointment of arbitrator.

25.  In relation to the “stepped dispute resolution procedure”, I am of the view that this is clearly a matter which Tse could have mentioned in paragraph 26 of Tse 1^st Aff when it was said that:

“At paragraph 8, Ms Wong states that Falcon Insurance does not know the current status of the arbitration. Unfortunately, notwithstanding the Decision of 21 September 2021 staying the court action in HCCT 6/2021 for arbitration, Fortune Pharmacal has (incorrectly and without basis) alleged that the dispute resolution mechanism under the Contract is inoperable. In my respectful view, that is with a view to delaying matters and ultimate payment of the very significant sums due to ISPC. In view of such approach by Fortune Pharmacal, ISPC re-started the dispute resolution steps and has applied for the appointment of a mediator. Should Fortune Pharmacal not agree to participate in any mediation arranged by the appointed mediator, ISPC will re-commence arbitration proceedings”

26.  Therefore, Condition (1) of Ladd v Marshall is not satisfied.

27.  For the above reasons, this paragraph should not be allowed to be included.

Paragraph 8

28.  This paragraph emphasises that it will take a long time for construction disputes to resolve (often years) even if no party intentionally drags on the matter.

29.  This purports to reply to paragraph 5(1) of Wong 2^nd Aff, in which it was said that:

“I am not sure why Mr Tse is in a position to say that it will likely take years for an arbitral award to be published unless Mr Tse is aware that the 2^nd Defendant has intention to drag on in the arbitration. In any case, the arbitration may end in a few years’ time; it may also end quickly if there is settlement. The Plaintiff will not take Mr Tse’s estimate at its face value.”

30.  With greatest respect, with the plaintiff’s acceptance that an arbitration may “end in a few years’ time”, I wonder what useful purpose can be served by Tse’s emphasising that it will often take a few years to resolve construction disputes. In my view, Condition (2) of Ladd v Marshall is not satisfied and therefore this paragraph should not be allowed.

Paragraphs 9 and 12

31.  The purpose of paragraphs 9 and 12 of Tse 2^nd Aff is to reply to the point made in Wong 2^nd Aff that the 1^st defendant had cash flow issues.

32.  This is not a new point. The same allegation had been made in Wong 1^st Aff, in respect of which Tse 1^st Aff had sought to answer already.

33.  What Wong 2^nd Aff has done is to make submission on the basis of the evidence adduced by virtue of Tse 1^st Aff.

34.  In further reply thereto, paragraph 9 of Tse 2^nd Aff reads:

“Ms Wong says at paragraph 10(3) that at paragraph 33 of my 1^st affirmation, I stated that ISPH had about HK$244 million of cash as at 23 June 2022. HK$244 million however represents only the cash held in fixed deposits. In addition to that, ISPH held about HK$29.7 million in listed securities as disclosed in the announcement of 18 March 2022 (there is now produced and shown to me marked ‘TCC-12’ a copy of such announcement) and the market value of the listed securities as at 30 June 2022 was about HK$30.672 million as stated on page 18 of ISPH’s Interim Report 2022. It could further be seen from page 18 of ISPH’s Interim Report 2022 that as at 30 June 2022, it held approximately HK$279.5 million by way of cash and cash equivalent (HK$242.522 million) and pledged bank deposits / time deposits with original maturities over three months (HK$37 million). There is now produced and hown to me marked ‘TCC-13’ excerpts from ISPH’s Interim Report 2022.”

35.  What the defendants are now saying in the first part of paragraph 9 quoted above[2] is that Tse 1^st Aff has only disclosed part of the cash possessed by the 1^st defendant (namely, the fixed deposit), and in fact the 1^st defendant has other sources of cash and liquid assets. They have themselves to blame for not disclosing the same at one go in Tse 1^st Aff. Indeed, the announcement which Tse seeks to adduce by virtue of Tse 2^nd Aff is dated 18 March 2022 and therefore should have been available at the time when Tse 1^st Aff was filed on 28 June 2022. Therefore, Condition (1) of Ladd v Marshall is not satisfied. I should further add that the reference to the 1^st defendant’s Interim Report 2022 as at 30 June 2022 cannot assist the defendants. This is because, while admittedly this is a document which is only available recently on 15 September 2022, the inclusion of this piece of evidence at this point would not have added much to the defendants’ case if the said announcement had been adduced in the first place, because the market value of the listed securities as at 30 June 2022 (HK$30.672 million) was only slightly higher than the corresponding figure disclosed in the said announcement (HK$29.7 million). In these circumstances, I do not think the Court should allow the defendants to put in the Interim Report 2022 for this purpose.

36.  In the second part of paragraph 9 of Tse 2^nd Aff, the defendants further seek to adduce the 1^st defendant’s Interim Report 2022, so as to support the defendants’ case on cash flow. As aforesaid, this has only become available recently on 15 September 2022. It was therefore submitted that the defendants could not have adduced this document when Tse 1^st Aff was filed.

37.  On the other hand, it was submitted by Mr Ho that the defendants could have adduced other evidence to make the same point in Tse’s 1^st Aff.

38.  I would have accepted Mr Ho’s argument but for the latest evidence as adduced in paragraph 12 of Tse 2^nd Aff that the 1^st defendant’s cash flow position had substantially improved in 2022 as shown by the said Interim Report. That being the case, I am of the view that the defendants should be allowed to adduce evidence on the latest financial position as a matter of fairness.

39.  Mr Ho submitted that Condition (2) of Ladd v Marshall is not satisfied because such latest financial position has not been pleaded in the Defence. However, I am of the view that the Court should take into account the fact that the Interim Report 2022 was only made available after the date of the filing of the Defence. Hence, I do not accept this pleading point taken at this hearing.

40.  I would therefore give leave for the defendants to include paragraph 12 as well as the second part of paragraph 9[3].

Paragraph 10

41.  The purpose of paragraph 10 of Tse 2^nd Aff is to reply to paragraph 10(3)(a) of Wong 2^nd Aff in which it was alleged that the 1^st defendant’s Group of companies had suffered loss of over HK$15.4 million, and that the profit for the year 2021 was only recorded because of the sale of the Disposal Group[4].

42.  Mr Ho accepted at the hearing that this assertion was not correct. Because of that, I am of the view that the defendants should be allowed, as a matter of fairness, to put the record straight by reference to the 1^st defendant’s Interim Report 2022.

Paragraph 11

43.  This paragraph reads:

“Paragraph 10(3)(c) states that […], I respectfully disagree, and refer to paragraphs 40 and 41 of my 1^st affirmation.”

44.  If the basis of Tse’s disagreement has already been set out in Tse 1^st Aff, there is no meaningful purpose for this paragraph to be included.

45.  Condition (2) of Ladd v Marshall is clearly not satisfied.

46.  This paragraph should therefore not be allowed to be included.

DISPOSITION

47.  Leave is therefore granted for the defendants to file and serve no later than 17 November 2022 the 2^nd Affirmation of Tse Chi Chiu which shall only include the following parts of the draft affirmation attached to the Summons:

(1)  Paragraphs 1 – 5;

(2)  Paragraph 9: the first sentence and the second part thereof starting from the words “It could further be seen”;

(3)  Paragraph 10; and

(4)  Paragraph 12.

COSTS

48.  Each party has succeeded in persuading this Court to accept part of their respective contentions. In these circumstances, I am of the view that the costs order in relation to the Summons should be in the cause of the O.14 Application.