深圳正高金屬製品有限公司 v. IU HO CONSTRUCTION ENGINEERING CO LTD

HCCT 33/2019

[2022] HKCFI 2685

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO.33 OF 2019

(Transferred from HCA 435 of 2018)

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DECISION

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THE APPLICATION

1.  This is the Pre-Trial Review of the trial of this action which is originally scheduled for a 6-day trial commencing on 24 October 2022. 

2.  By summons filed on 3 August 2022 (“The Summons”), the plaintiff seeks, inter alia, the following orders from this Court:-

(1)  leave be granted to the plaintiff to discontinue its claim against the defendant;

(2)  costs of the plaintiff’s claim be paid by the defendant, to be taxed if not agreed;

(3)  the trial dates scheduled for 24 to 28 and 31 October 2022 be vacated; and

(4) the security for costs of $600,000.00 paid into Court by the plaintiff be paid out from the Court and be released to the plaintiff’s solicitors.

BACKGROUND

3.  Before this Court deals with the Summons, it is necessary to set out the background of the case.

4.  The present action arose out of the contractual disputes in relation to sums due and owing in the amount of around $24.85 million by the defendant to the plaintiff in relation to aluminium system formwork supplied by the plaintiff to the defendant for various construction projects in Hong Kong.

5.  In the defendant’s Defence and Counterclaim filed on 31 May 2018, it was pleaded, among other things, that the plaintiff had been in breach of four agreements between the parties under which the plaintiff was engaged to design, manufacture and supply the aluminium system formwork for the construction of reinforced concrete at four different construction sites.  The particulars of the alleged breach were as follows:

(1)  The aluminium system formworks were not of merchantable quality or fit for the purpose of the construction of reinforcement concrete at the defendant’s sites;

(2)  The plaintiff failed to ensure timely delivery of the aluminium system formworks to the defendant’s sites;

(3)  The plaintiff failed to supply all the materials necessary for the installation of the aluminium system formworks;

(4)  The design of the aluminium system formworks was defective;

(5)  Defects in the aluminium system formworks discovered and brought to the plaintiff’s attention during the inspection at the plaintiff’s factories had not been rectified;

(6)  The plaintiff supplied the wrong materials for the installation of staircase at one of the sites.

6.  It was further alleged by the defendant that it had to try to rectify the defects itself by employing more workers and ordering materials from other suppliers, at an estimated cost of some $20.3 million. Notwithstanding these efforts, the main contractor imposed contra‑charges against the defendant by reason of the defects and breaches, estimated in the amount of about $54.08 million.

7.  The defendant therefore counterclaimed damages for such losses estimated in the total sum of around $74.4 million.

8.  The Defence and Counterclaim was subsequently amended on 21 May 2021, pursuant to which the defendant abandoned its counterclaim and only maintained its claims for loss and damage for the purpose of its defence of set-off.

9.  By an order dated 4 January 2021, Mimmie Chan J gave leave to the parties to adduce expert evidence on liability and quantum respectively, both by a single joint expert.  As far as the expert report on liability is concerned, eight expert issues had been identified.

10.  The single joint expert report on liability (“the Expert Report on Liability”) was then filed on 28 February 2022 pursuant to the said Court order.  In the Expert Report on Liability, the single joint expert (“the Liability Expert”) took the view that the aluminium system formworks were of merchantable quality and fit for purpose.  While he agreed that there were indeed Notices of sub-standard performance issued in a number of the construction sites concerned, he opined that those defects were caused by the defendant’s sub-standard work, due to poor workmanship or failure to read the construction drawings properly, and therefore the defendant should be responsible to pay for the rectification costs.

11.  On 12 April 2022, the defendant’s solicitors applied for a declaration that it had ceased to be the solicitor acting for the defendant in this action. 

12.  The “cease to act” order was granted on 28 April 2022, and the defendant’s solicitors formally came off the Court’s record on 13 May 2022 upon the filing of a Certificate of Service pursuant to Order 67 rule 6(1) of the Rules of the High Court (“RHC”).

13.  As the defendant had all along failed to provide the single joint expert on quantum with copies of documents which were disclosed in the defendant’s own lists of documents, the plaintiff applied for an unless order from this Court.  The hearing was held on 20 May 2022, at which the defendant did not turn up.

14.  The order was granted accordingly on 20 May 2022, pursuant to which the defendant had been ordered to provide those documents within 8 days of the service of the order. 

15.  However, the order was not complied with by the defendant.

16.  Apparently, after the defendant’s former solicitors had ceased to act for them, the defendant has not engaged another firm of solicitors, nor has any of its directors applied for leave to represent the defendant in this action.

THE LEGAL PRINCIPLES

17.  Order 21 rule 3(1) of the RHC reads:

“Except as provided by rule 2, a party may not discontinue an action (whether begun by writ or otherwise) or counter-claim, or withdraw any particular claim made by him therein, without the leave of the Court, and the Court hearing an application for the grant of such leave may order the action or counterclaim to be discontinued, or any particular claim made therein to be struck out, as against any or all of the parties against whom it is brought or made on such terms as to costs, the bringing of a subsequent action or otherwise as it thinks just.”

18.  The legal principles governing an application for leave to discontinue an action pursuant to Order 21 rule 3 have been succinctly summarised by To J. in Coqueen Company Limited v Chui Wai Kwan & Others (HCMP 438/2010, unreported, 8 December 2015) as follows:

“37. If a plaintiff wishes to avoid the consequence of having to pay costs for the withdrawal, he may seek the court’s leave to discontinue under Order 21 rule 3(1). Under this rule, the court has complete discretion to grant leave to discontinue on such terms as to costs as it thinks fit. The guiding principle is fairness and justice in the circumstances: Covell Matthews & Partners v French Wools Ltd. Invariably the court takes into account two legal principles when deciding on the terms as to costs. First, Order 62 rule 10(1) provides a convenient starting point. Second, the principle that costs follow event usually applies.

38. A plaintiff applying under this rule has to show he has a good reason to discontinue the action. What is a good reason depends on the circumstances of the case. Examples of good reasons include: that the dispute has become academic; that a crucial witness has died or has otherwise become unavailable; that the subject matter of litigation has ceased to exist; or that the defendant has no means to satisfy any judgment which may be awarded against him. A good reason does not necessarily entitle a plaintiff to unconditional leave to discontinue. It is only the threshold which he must overcome before the court would even consider whether to grant leave to discontinue on terms without costs. Absence of good reason must necessarily mean the starting point applies

39. If a good reason is shown, the second principle comes into play. Because of the starting point and the general rule that costs follow event, plaintiffs are frequently given leave to discontinue or withdraw only on terms of their paying the defendants’ costs, unless the court is satisfied that it has a proper basis for making a different order: Lloyds Bank Ltd v National Westminster Bank Ltd. This principle was confirmed by the English Court of Appeal in that same case. Hence, it was described as the “general rule” by Keith J (as he then was) in Trend Publishing (HK) Ltd v Vivien Chan & Co (a firm) and by Chadwick LJ in BCT Software Solutions Ltd v C Brewers & Sons Ltd.

40. To persuade the court to depart from the general rule, the minimum a plaintiff has to do is to show that the discontinuance is for reasons other than an acknowledgment of defeat or likely defeat.  The most direct way of proof is to show that he will succeed in a postulated trial.  The burden of proof is on the plaintiff and the standard of proof is the usual civil standard.  Proof of a prima facie case is not enough.  The court has to be satisfied on proper factual basis, whether based on agreed fact or determined fact, that the plaintiff will succeed.  Discontinuance under such circumstances is consistent with the underlying objective of Order 1A.  It is also beneficial to the defendant in that further costs to be incurred by him leading to nowhere but his eventual defeat are saved.  The defendant can have no complaint that he was made to incur costs in an action which he is bound to lose but which the plaintiff chooses not to proceed.  If the plaintiff is able to discharge this burden of proof, fairness and justice must require that he be permitted to discontinue his action without costs consequence”

19.  The above principles have been applied in Perrine Chamonix Limited v Star League Limited & Another (HCA 1139/2017, unreported, 13 September 2017), in which the Court awarded the plaintiff the costs of and occasioned by the action despite the fact that leave to discontinue the action was granted.

DISCUSSION

Leave to discontinue and costs of the action

20.  In my view, there are not only good reasons for leave to be granted to the plaintiff herein to discontinue the whole action, there are also exceptional circumstances in the present case which justify the award of costs to the plaintiff:

(1)  Since the time when the Liability Expert made known his expert opinion on the eight expert issues identified by the Court, the defendant has demonstrated that it is no longer interested in participating in this action:  Its solicitors have ceased to act for it and it has not appointed another solicitors’ firm as its legal representative.  Neither has any of its directors applied for leave to represent the company.  The defendant has been absent from hearings in this action since their solicitors have come off the record.  The defendant has also totally ignored the plaintiff’s proposal by letter dated 20 July 2022 that the action be discontinued;

(2)  While the single joint expert on quantum has been appointed since 13 September 2021, the defendant has failed to sign the engagement letter, pay the deposit sum for the engagement of the expert nor to provide the expert with the necessary documents for the purpose of the preparation of the expert report on quantum;

(3)  Judging from the defendant’s recent conduct, it is highly unlikely that it would appear at the trial.  In such circumstances, taking into account the content of the plaintiff’s witness statements and expert opinion expressed in the Expert Report on Liability, the plaintiff shall be bound to succeed at the trial if it proceeds as scheduled;

(4)  Even if the defendant appears at the trial, the result would be the same, given the favourable Expert Report on Liability. While the trial Judge is not bound by the Liability Expert’s opinion, I cannot see any flaw in his reasoning contained in the Expert Report on Liability;

(5)  However, even if the plaintiff succeeds at the trial, it is very likely that any judgment obtained will be an empty judgment.

21.  If the plaintiff goes ahead with the trial, the end result will be that it will have to spend much legal costs but only in exchange for a Judgment which is very likely to be an empty one.  In my view, the Court should take this reality into account.  In the circumstances of the present case, justice cannot be fully done even if the Court makes no order as to costs when it grants leave to discontinue the action, because such an order would only benefit the defendant by exonerating its liability to bear the plaintiff’s costs of the action which it would have to bear if the case goes to trial. 

22.  By reasons of the aforesaid, I grant leave to the plaintiff to discontinue this action and order that the defendant shall bear the plaintiff’s costs of the action (with all costs reserved), to be taxed if not agreed.  Consequentially, I also order that the trial dates scheduled for 24 to 28 and 31 October 2022 be vacated.

Payment out

23.  Pursuant to the Order of G. Lam J. (as his Lordship then was) dated 30 April 2021, the plaintiff had paid into Court the sum of $600,000.00 as security for costs.

24.  In the light of the aforesaid decision, there is no reason why the money shall remain in Court.

25.  I therefore grant the order sought by the plaintiff accordingly.

ORDER

26.  To conclude, I make the following orders:

(1)  Leave be granted to the plaintiff to discontinue this action;

(2)  The defendant shall bear the plaintiff’s costs of the action, (including the costs of this application and all costs reserved), to be taxed if not agreed;

(3)  The trial dates scheduled for 24 to 28 and 31 October 2022 be vacated;

(4)  The security for costs in the sum of $600,000 paid into Court by the plaintiff be paid out and be released to the plaintiff through its solicitors.