TANG WING HUNG ALBERT FORMERLY KNOWN AS TANG SHUN TAI v. LAW CHAU FAT

CACV 556/2020

[2022] HKCA 1002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 556 OF 2020

(ON APPEAL FROM HCA NO 929 OF 2015)

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J U D G M E N T

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Hon Cheung JA:

1.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

Background

2.  On 23 December 2020, a sum of money ($669,835)  was paid into court by the appellant under a Consent Order made by a single judge of this court.  The order expressly stated that it was security for costs of the respondent “in this appeal”.  The consent order followed a Consent Summons filed the day before, the marginal note of which stated that it was issued under Order 59 rule 10 Rules of the High Court (the rule which provides for security for costs of an appeal).  There can therefore be no doubt that the order was made on the parties’ agreement that the money should be dealt with pursuant to the rules governing security for costs of the appeal.

3.  On 25 November 2021, this court dismissed the appeal.  Reasons were given on 8 December 2021. An order was made that the appellant pay the respondent’s costs of the appeal, which were summarily assessed at $430,000.  Thus, there was a remaining balance of more than $230,000 (plus interest)  (“the Balance”).

4.  The appellant sought the payment out of the Balance to him.  This was opposed by the respondent who referred to Order 1B rule 1(4)  RHC and sought to retain the Balance in court for the costs of the trial which have not been paid.  The appellant submitted that this rule did not apply.

5.  Order 1B rules 1(3)  and (4)  provide as follows:

“(3)  When the Court makes an order, it may—

(a)  make it subject to conditions, including a condition to pay a sum of money into court; and

(b)  specify the consequences of failure to comply with the order or a condition.

(4)  Where a party pays money into court following an order under paragraph (3), the money is security for any sum payable by that party to any other party in the proceedings.”

Discussion

6.  The question is, notwithstanding the nature of the Consent Order, can Order 1B rules 1(3)  and (4)  be applied so as to make the Balance “security for any sum payable by [the paying] party to any other party in the proceedings”, including the costs of the trial?  I do not think they can.

7.  First, it is well-established that consent orders are to be treated as contractual in nature, and one party would not be allowed to set it aside without the other party’s consent, except in exceptional circumstances such as fraud, economic duress etc (Hong Kong Civil Procedure 2022, vol.1 para.42/5A/4).  If this court were to accede to the respondent’s application to retain the Balance in court to pay the costs of the trial, that would effectively allow him to set aside (in the absence of any vitiating circumstances)  the contractual agreement that the money pad in be security for the costs of the appeal only.

8.1.  Second, Order 1B rule 1(4)  expressly applies only to a situation where a party pays money into court “following an order under paragraph (3)”.

8.2.  It is clear from the language of Order 1B rule 1(3)  that the applicable situation was one where the court, in making an order for the future conduct of the case,

(a)  in its discretion imposes a condition that a party must pay a sum of money into court, and

(b)  specifies the consequences of failure to comply with the order or a condition

(“a para.3 order”).

8.3.  In other words, before making a para.3 order, it was within the court’s discretion to add (or not to add)  a condition to an order.  An example would be an order under Order 1B rule 1(2)(a)  extending a dilatory plaintiff’s time to file a statement of claim.  It is within the discretion of the court whether or not to add a condition that he pays a sum into court.  If no condition is added, it is not a para. 3 order.  If it is added, then it becomes a para.3 order.

8.4.  A typical order under Order 59 rule 10 (like the present one)  is not a para.3 order.  It is not an order whereby the court permits the appellant to proceed with his appeal, and then (if it exercises its discretion to order security for costs of the appeal)  makes such permission subject to a condition that the appellant pays money into court.  This is illustrated by the order that would be made if the court decides not to order security.  In that case, the court does not make any order at all (except as to costs)  - it does not make an order permitting the appellant to proceed with his appeal, as such an order would not be necessary in the first place.

9.1.  Third and more importantly, the rationale of Order 1B rules 1(3)  and (4)  does not permit their application to an Order 59 rule 10 order which has already been made.

9.2.  Order 1B rule 1(1)  states that the powers in that rule are in addition to and not in substitution for powers in pre-existing rules (which include Order 59 rule 10).  Rather, it is clear from the scheme of Order 1B that the power under rules 1(3)  and (4)  is to be used to enable the court to exercise management control, by deterring a party’s non-compliance with orders in the future conduct of the litigation, and thus to ensure or encourage that party’s compliance with the underlying objectives set out in Order 1A rule 1.

10.  It may be helpful to consider some English cases on relevant English Civil Procedure Rules (“CPR”).  Before discussing the cases, I shall first set out the rules which were discussed in those cases.

Under the CPR,

in Part 3 (entitled “The Court’s Case Management Powers”):

-  rule 1 is similar to Hong Kong Order 1B rule 1(1)  in stating that the powers in this rule are in addition to pre-existing powers¹;

-  rule 3.1(3) gives the court similar powers to those in Hong Kong Order 1B rule 1(3);

-  rule 3.1(6A)  is similar to Hong Kong Order 1B rule 1(4);

in Part 24 (“Summary Judgment”), which may be ordered for/against a claimant or a defendant:

-  rule 4 gives the court power to make a conditional order if it appears possible, but improbable, that a claim or defence will succeed;

-  rule 5.1(4) gives the court power (among others)  to make a conditional order;

-  rule 5.2 defines a conditional order as including one for payment of money into court;

in Part 25 (“Interim Remedies and Security for Costs”):

-  rule 25.3 gives the court power to grant an interim remedy on an application made without notice.  There is no reference in the rule to fortification of an undertaking as to damages, or payment of money into court as security, but it is followed by the words “(Part 3 lists general powers of the court)”²;

-  rule 25.12 gives the court power to order security for costs of the defendant in first instance proceedings in specific situations, eg where the claimant is resident out of the jurisdiction, or is a nominal claimant etc (but not including a situation where the claimant is impecunious or where the claim is unlikely to succeed);

-  rule 25.15 gives the court power to order security for costs of an appeal in the same situations as under Rule 25.12.

11.1.  In Olatawura v Abiloye [2002] EWCA Civ 998, the defendant had made an application for summary judgment against the claimant under CPR Part 24.  The district judge did not make the order sought, but found that the claimant’s conduct of the proceedings had been unreasonable and that his prospects of success were limited.  After referring (among other things)  to CPR Part 24 rule 5.2 and CPR Part 3 rule 3.1, the judge made an order that the claimant give security for costs by a stated date, failing which his action was to be dismissed, and stayed the proceedings meanwhile.

11.2.  The English Court of Appeal held at [18]-[19] that the court now has jurisdiction to make orders tantamount to orders for security for costs outside the provisions of CPR Part 25 (HK Order 59 rule 10).  It held at [20] that CPR Part 24 rules 4 and 5, and CPR Part 3 rule 3.1(3)  allowed the court to make an order conditional on the payment of money into court.

11.3.  At [21]-[26], the court set out the correct approach to the exercise of the wider new jurisdiction.  At [24], Simon Brown LJ (with whom Dyson LJ agreed)  said:

“Now, it is clear, the court has an altogether wider discretion to ensure that justice can be done in any particular case. Obviously relevant considerations, besides the ability to pay, will be (a)  his conduct of the proceedings (including in particular his compliance or otherwise with any applicable rule, practice direction or protocol), and (b)  the apparent strength of his case (be it claim or defence). And these considerations, of course, are expressly reflected in the new rules governing the court’s power to order payment into court: [Part 3] rule 3.1(5)  dealing expressly with compliance, rule [Part] 24 with the probabilities or otherwise of success”. (Emphasis added).

11.4.  CPR Part 3 rule 3.1(5), referred to in the above passage, provides: “the court may order a party to pay a sum of money into court if that party has, without good reason, failed to comply with a rule, practice direction or a relevant pre-action protocol”.  Thus it gives the court power to order payment of money into court where there is a history of non-compliance.

11.5.  It would be noted that CPR Part 3 rule 3.1(5)  has no equivalent in Hong Kong.  But even with such a rule, at [25], the court cautioned as follows:

“That, however, is by no means to say that the court should ordinarily penalise breaches of the rules and the like by making orders for payment into court under rule 3.1(5). Quite the contrary. [After citing a passage from Mealey Horgan plc v Horgan The Times, 6 July 1999 ...] That seems to me to point the way admirably: a party only becomes amenable to an adverse order for security under rule 3.1(5)  or perhaps 3.1(2)(m)  once he can be seen either to be regularly flouting proper court procedures (which must inevitably inflate the costs of the proceedings)  or otherwise to be demonstrating a want of good faith - good faith for this purpose consisting of a will to litigate a genuine claim or defence as economically or expeditiously as reasonably possible in accordance with the overriding objective”.

11.6.  In other words, even with the wider powers of the English court under CPR Part 3 rule 3.1(5), the Court of Appeal considered that the rationale for making orders for payment into court under the new rules was to cater for situations where the party had failed to comply with the overriding objective (the “overriding objective” in CPR Part 1 rule 1 is similar to the Hong Kong “underlying objectives” in Order 1A rule 1).  The other rule referred to in that passage, ie CPR Part 3 rule 3.1(2)(m), is similar to Hong Kong Order 1B rule 1(2)(l).

12.1.  That approach was made even clearer in Huscroft v P&O Ferries Ltd [2010] EWCA Civ 1483 where another division of the English Court of Appeal (Sedley, Moore-Bick and Elias LJJ)  gave further guidance on the powers of the court under CPR Part 3 rule 3.1(3), i.e. Hong Kong Order 1B rule 1(3).

12.2.  First, it held at [17] that the power under CPR Part 3 rule 3.1(3), i.e. Hong Kong Order 1B rule 1(3), to attach conditions to an order was “intended ... to enable the court to exercise a degree of control over the future conduct of the litigation” (emphasis added).

12.3.  The court arrived at that conclusion based on the following [17]:

(1)  by contrasting Part 3 rule 3.1(3)  with Part 3 rule 3.1(5)³, the latter being intended to give the court punitive powers where a party has failed to comply with the procedural code and was “directed more to what has gone on in the past than what will go on in the future”;

(2)  importantly, it arrived at that conclusion based on “the language of the rule itself.  The very fact that it allows the court to make an order subject to conditions is sufficient to show that the rule is concerned with the basis on which the proceedings will be conducted in the future, and that remains the case even when the condition is imposed in order to make good the consequences of some kind of previous misconduct” (emphasis added).

12.4.  In other words, CPR Part 3 rule 3.1(3), i.e. Hong Kong Order 1B rule 1(3), is forward-looking only.  It cannot be “tagged on” to a pre-existing order, such as, in the present case, the Consent Order made in December 2020 for security for costs of the appeal.

12.5.  Second, the English Court of Appeal held at [18] that “r.3.1(3)  does not give the court a general power to impose conditions on one or other party whenever it happens to be making an order ... When the rule speaks about the court’s making an order it is referring to a direction that a party act in a certain way or that a certain state of affairs should exist ... The purpose of r.3.1(3)  is to enable the court to grant relief on terms and when the power is exercised the condition ought properly to be expressed as part of the order granting the specific relief to which it relates” (emphasis added).  In respect of the latter practice, it held that “expressing the relevant order as subject to the condition in question is the right way to exercise the power”.

13.1.  I respectfully agree with the views of the English Court of Appeal in Huscroft.

13.2.  It is notable that Hong Kong Order 1B, by its very title, is concerned with Case Management Powers.  Order 1B rules 1(3)  and (4)  are thus part of the court’s arsenal of powers to deter a party’s non-compliance with a procedural order, giving the court “teeth” beyond simply an order for costs (which may not be sufficient deterrence)  in managing the case in furtherance of the underlying objectives set out in Order 1A.

14.1.  At first blush, CMA-CGM Marseille v Petro Broker International (formerly known as Petroval Bunker International) [2011] EWCA Civ 461 might be thought to support a wider construction of CPR Part 3 rule 3.1(3), i.e. Hong Kong Order 1B rule 1(3). However, the factual situation and the rules applied are essential to an understanding of that judgment.

14.2.  Petroval had succeeded in obtaining two arbitration awards totalling about US$4.5m (“the award sum”)  against CMA.  CMA had previously provided on-demand guarantees, from which Petroval could draw-down the award sum (there was no evidence that the guarantors, a bank and a P and I Club, would resist draw-down).

14.3.  Despite a number of obstacles presented by CMA, by 24 November 2010, the way was clear for Petroval to call on the guarantees for draw-down.

14.4.  However, before Petroval could do so, on 30 November 2010, CMA applied ex parte to the duty judge for a “freezing order” injunction.  CMA contended that it had a counterclaim against Petroval, that Petroval was no longer trading and was only “kept alive for the purpose of receiving” the award sum, and that if the money was paid to Petroval, CMA would not be able to recover it if it (CMA)  eventually succeeded in its counterclaim.

14.5.  Despite substantial concerns, the duty judge made an order that (among other things)  Petroval shall not draw down the monies under the guarantee, subject to the following:

“This order shall not come into effect until [CMA] has complied with the undertaking at para. 2 ... and has paid US$4.5 million into court”.

14.6.  CMA duly paid US$4.5m into court.

15.1.  Subsequently, Petroval was sold as a going concern, for a sum larger than the award sum, to a large listed company.  As such, there was no risk of dissipation of the award sum, and Petroval notified CMA that it would apply to set aside the injunction on the return date.

15.2.  CMA then decided not to maintain the injunction, and applied to withdraw the money it had paid into court.

15.3.  In the meantime, on 16 February 2011, Petroval applied under s.66 Arbitration Act 1996 (“AA”)  to enter judgment in terms of the award.  CMA asserted however that it did not have sufficient time to prepare for this application.

15.4.  On the return date (18 February 2011), another judge made the following orders:

-  leave was given to Petroval to enter judgment under the AA in terms of the award, but CMA would have 14 days to decide if it would apply to set it aside; and

-  the US$4.5m be paid out to CMA (despite Petroval’s contention that the sum should remain in court so that it could enforce the award against it upon obtaining judgment under the AA).

However, the judge stayed the order for payment out pending appeal.

16.1.  By the time the matter was heard on appeal (30 March and 19 April 2011), Petroval had obtained judgment in terms of the award under the AA.

16.2.  In the English Court of Appeal, Tomlinson LJ (with whom Laws LJ and Jackson LJ agreed)  held the following:

-  the duty judge’s order for payment in of the US$4.5m was a condition of the grant of the freezing order injunction, for without the injunction, Petroval could have enforced the awards against the guarantors [43];

-  although the return date judge was correct in saying that since CMA no longer wished to maintain the injunction, the original rationale for the payment into court no longer applied, that was not conclusive [45];

-  after referring to CPR Part 3 rule 3.1(6A)⁴ and rule 3.1(3)(a)⁵, it held that CPR Part 3 rule 3.1(6A)  should have informed the return date judge’s exercise of discretion whether to order payment out [46];

-  as the return date judge had not considered this rule, he had erred in principle in his approach to the exercise of discretion [51].

The Court of Appeal then directed the funds in court to be paid to Petroval in partial satisfaction of the judgment obtained under the AA.

16.3.  It would be noted that Tomlinson LJ referred to rules in CPR Part 3 because CPR Part 25 expressly applied CPR Part 3⁶. That is not the case in Hong Kong.  As such, CMA cannot be authority for the proposition that Order 1B rules 1(3)  and (4)  of the Hong Kong rules of court can be applied to a pre-existing order for security for costs of an appeal.

17.  Meanwhile in Hong Kong, in Astro Nusantara International BV v PT Ayunda Prima Mitra (No 2) [2016] 1 HKLRD 591, Chow J (as he then was)  reiterated the principle that the powers under Order 1B rule 1 are given to the court to secure the underlying objectives.  I respectfully agree.

18.  For the above reasons, I consider that Order 1B rules 1(3)  and (4)  cannot be applied in order to change funds paid pursuant to a previous order for security for costs of an appeal into security for the costs of the trial.  The respondent may have other procedural means to enforce an order for costs of the trial against the Balance, but not, in my view, under Order 1B rules 1(3)  and (4).

Order

19.  I would order that the sum of $430,000 (plus interest)  be paid out to the respondent forthwith and, in the absence of any order to the contrary in the meantime, the Balance be paid out to the appellant upon the expiry of 14 days from the date of this Judgment.

Hon G Lam JA:

20.  I respectfully agree with the judgment of Yuen JA.  The consent order here is an order for the plaintiff to give security for the defendant’s costs of the appeal.  Although the order specified the security was to be in the form of payment into court, it does not seem to me to be an order made “subject to … a condition to pay a sum of money into court” within the meaning of Order 1B rule 1(3), such as the ex parte injunction granted subject to the condition of payment of a sum into court in CMA-CGM Marseille v Petro Broker International.  Accordingly, in my view the funds in court here are not “money [paid by a party] into court following an order under [rule 1(3)]”, and the provision in rule 1(4)  for such money to be security for any sum payable by that party to any other party in the proceedings does not therefore apply to them.  It is unnecessary to decide whether because the trial costs were awarded in the action below and not in the proceedings in this court in which the consent order was made, they are not a sum payable “in the proceedings” within the meaning of rule 1(4).