Karla Otto Ltd (Incorporated in the United Kingdom) v. Bulent Eren Bayram and Another

HCA 821/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 821 OF 2011

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D E C I S I O N

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INTRODUCTION

1.This is the defendants’ summons, filed out of time, to set aside a judgment after a trial in their absence (“the summons”).  The grounds are that the 1^st defendant (Mr Bayram), who is also the sole director and shareholder of the 2^nd defendant, was so ill that he could not take a long haul flight to Hong Kong to attend the trial and there was a series of misunderstanding over the question of adjournment.  When the judgment came to his attention, he quickly sought legal representation to file the summons.

LEGAL PRINCIPLES

2.The legal principles are not in dispute.  Order 35, rule 2 of the Rules of the High Court gives the court a discretionary power to order a retrial where a party was absent at the trial.  The application must be made within 7 days after the trial but the court has discretion to extend the time under Order 3, rule 5.

3.There are 8 factors set out in Shocked & anor v Goldschmidt & ors [1998] 1 All ER 372, Leggatt LJ to consider, applied in Hong Kong in Lau Kam Chuen v Lee Ching [2003] 2 HKLRD 1018, §11, Cheung JA:

“(1) Where a party with notice of proceedings has disregarded the opportunity of appearing at and participating in the trial, he will normally be bound by the decision;

(2) Where judgment has been given after a trial, it is the explanation for the absence of the absent party that is most important: unless the absence was not deliberate but was due to accident or mistake, the court will be unlikely to allow a rehearing;

(3) Where the setting aside of judgment would entail a complete retrial on matters of fact which have already been investigated by the court, the application will not be granted unless there are very strong reasons for doing so;

(4) The court will not consider setting aside judgment regularly obtained unless the party applying enjoys real prospects of success;

(5) Delay in applying to set aside is relevant, particularly if during the period of delay the successful party has acted on the judgment, or third parties have acquired rights by reference to it;

(6) In considering justice between parties, the conduct of the person applying to set aside the judgment has to be considered: where he has failed to comply with orders of the court, the court will be less ready to exercise its discretion in his favour;

(7) A material consideration is whether the successful party would be prejudiced by the judgment being set aside, especially if he cannot be protected against the financial consequences; and

(8) There is a public interest in there being an end to litigation and in not having the time of the court occupied by 2 trials, particularly if neither is short.”

THE FACTS

4.On the first day of trial, Deputy Judge Hunsworth dealt with Mr Bayram’s application for an adjournment of the trial in his absence.  The learned Deputy Judge went through the 8 factors in Shocked.  He had before him a doctor’s certificate issued by Dr Stein in Germany, faxed in by Mr Bayram from a German copy shop.  It contained what should be the fax number of the copy shop.

5.Deputy Judge Hunsworth found the medical certificate to be “almost worthless” as it was undated and did not state the medical cause.  He also found that Mr Bayram had failed to comply with the directions of Deputy Judge Wilson Chan (as he then was) given at a pre-trial review, namely, to provide certified English translations of some documents in German (the PTR directions). Further, the defendants had allowed their solicitors to come off the record without replacing them.  The late application for adjournment struck Deputy Judge Hunsworth “as being no more than a blatant attempt to put off the evil day when [Mr Bayram] had to account for his actions”.  He refused an adjournment and proceeded to trial in the absence of the defendants.

6.On 10 January 2017, at the trial, Deputy Judge Hunsworth permitted the plaintiff to re-amend her case to plead that Mr Bayram was a “de facto” and/or shadow director.  He gave judgment to the plaintiff.

7.On the same day, Tanner De Witt, solicitors for the plaintiff, wrote to the defendants (“the 10 January letter”) informing them that the application for adjournment was refused and that the trial had proceeded in their absence. As per their undertaking to the court, Tanner De Witt expressly informed the defendants of their right to apply to the court within 7 days from that day to set aside any judgment given in their absence pursuant to Order 35, rule 2.

8.On 17 January 2017, Tanner De Witt served the order permitting re-amendment to the statement of claim on the defendants (“the 17 January letter”).

9.The defendants allegedly received Tanner De Witt’s letter only on 25 January 2017.  Mr Bayram called the court clerk and the Resource Centre to make enquiries. 

10.Judgment was handed down on 24 February 2017.  Mr Bayram read the judgment on 28 February 2017. 

11.On 1 March 2017, Mr Bayram made enquiries with the court and tried of find a firm of solicitors.  On 15 March 2017, he instructed his current firm of solicitors, who issued the summons on 29 March.

12.Mr Bayram has now produced another certificate from Dr Stein, which purported to confirm that Mr Bayram was at his clinic on 5 January 2017 (Germany time).  Dr Stein stated that Mr Bayram was suffering from a flu which made him unfit to travel on long haul.

CONSIDERATION OF THE 8 FACTORS

Factors 1&2 – disregarding opportunity to appear; explanation of absence

13.Illness of a party may, depending on the circumstances of the case, justify refixing the trial dates: Law Yin Pok Bosco v Dr Chan Yee Shing, HCMP 2256/2012, 2 November 2012, Fok JA (as he then was).

14.A person who relies on a foreign medical certificate to seek such an adjournment at short notice has to give as much detail as possible to enable the court to make an informed decision.

15.Mr Co (counsel for Mr Bayram) does not say that Deputy Judge Hunsworth erred in his view of the original medical certificate.  The new medical certificate still suffers a deficiency in describing what kind of strong flu would have prevented a person unfit for a long haul flight 3 days later, whether complete bed rest or other measures could have reduced its effect and whether Mr Bayram could have attended on the 3^rd or 4^th day of trial.

16.Further, on Mr Bayram’s own evidence, he was notified of the trial dates by his then solicitors, Withers, on 15 November 2016.  To be able to attend on 10 January 2017, Mr Bayram had to board a plane in London/Berlin by the late evening of 8 January latest.

17.Yet, for unexplained reasons, Mr Bayram stayed in Germany in December 2016 and most of January 2017.  There is nothing in the evidence to show that he had booked air tickets for or accommodation in Hong Kong for the trial period.   These showed that Mr Bayram simply lacked conviction in attending the trial. 

18.Even accepting that he first knew on 4 January 2017 that Withers had ceased acting for him, Mr Bayram had failed to contact Tanner De Witt for trial bundles or opening submissions to prepare himself for trial.  His averment that he was ready for trial sounded hollow.

19.In summary, the evidence falls far short of showing good explanation. I share the conclusion of Deputy Judge Hunsworth.  My findings on these 2 factors alone are sufficient to dismiss the summons.

Factor 3: setting aside the judgment would entail complete re-trial

20.Only Ms Otto gave evidence on behalf of the plaintiff at the trial. Questions were asked of her in chief but it was in the nature of clarification of her case.  Even if there were to be a retrial, the time need to re-investigate Ms Otto’s evidence would be limited.

21.What was more significant was that Deputy Judge Hunsworth gave leave to the plaintiff to re-amend her statement of claim to plead that Mr Bayram was “a de facto and/or” shadow director and fiduciary.  The law on de facto and shadow director was different.

22.Deputy Judge Hunsworth found that Mr Bayram was a de facto director but not a shadow director (§§37 and 38 of the judgment).  The re-amendment was thus crucial to the judgment. 

23.However, I find no injustice to the defendants because:

(1)   The “change” of case was more a matter of legal description of Mr Bayram’s capacity than a departure from the factual scenario that the plaintiff relied on.

(2)   In any case, §39 of the judgment made an additional finding that by assuming control of the plaintiff’s bank account, albeit with the agreement of Ms Otto as a director and controlling shareholder of the plaintiff, Mr Bayram entered into a fiduciary relationship with the plaintiff.

(3)   Mr Co accepts that the final orders could have been made anyway with or without the re-amendment.

24.I am not satisfied that factor 3 assists the defendants.

Factor 4: real prospects of success on the part of the defendants

25.The core issue was whether or not the 2^nd defendant was incorporated in Hong Kong with Ms Otto’s authority.  The case turned on credibility of Ms Otto and the 2^nd defendant.  Mr Bayram believes that he has an arguable case in challenging the testimony of Ms Otto.  Mr Co submits that the learned Deputy Judge was not able to point to any fact to suggest why it was inherently implausible for Ms Otto to put a Hong Kong company in the hands of her then boyfriend alone. 

26.I agree with Mr Lane, solicitor for the plaintiff, that these oblique references to disputes of facts are not sufficient to found real prospects of success. 

27.The core issue did not escape the attention of Deputy Judge Hunsworth. Notwithstanding the absence of the defendants, he had considered the defendants’ version de bene esse.  He noted that on the plaintiff’s own case, Mr Bayram was never formally appointed as a director or shareholder of the plaintiff or the plaintiff’s group of companies.  On the defendants’ own case, Mr Bayram was involved in the management of the group and a wide range of responsibilities.  And yet the 2^nd defendant was the only Karla Otto company with Mr Bayram as the sole director and shareholder, whilst the plaintiff’s money was used to establish the 2^nd defendant. 

28.Further, it was common ground that from February 2009, Mr Bayram had become the sole administrator of the plaintiff’s UK multi-currency bank account at HSBC.  Mr Bayram admitted that he had transferred 200,000 euros from the plaintiff’s bank account to the 2^nd defendant. 

29.Deputy Judge Hunsworth found that Mr Bayram did not rely on any specific authorization to set up the 2^nd defendant in Hong Kong but the general delegation of full power to him to set up an office in Hong Kong.

30.The analyses of Deputy Judge Hunsworth succinctly answered Mr Co’s submission in §25.

31.The defendants purported to show that there were consultancy agreements to clothe him with authority from Ms Otto to handle her companies.  However, those documents were in German and the defendants have failed to provide English translations.  I fail to see how Mr Bayram could establish his authority.

32.I am not satisfied that there are real prospects of success on the part of the defendants.

Factor 5: delay in applying to set aside

33.The judgment has not yet been executed.  No third party will be prejudiced. 

34.The time to issue the summons expired on 17 January 2017 and the defendants are 10 weeks out of time.

35.Mr Bayram deposed that that letter did not reach him until 25 January 2017.  He was confused as to whether the court’s refusal of adjournment related only to the statement of claim or to another hearing for the witness statements.  This, in my view, was a bad excuse.  It was he who sought an adjournment.  He could not have such confusion, particularly since he did not know about the re-amendment.

36.Mr Bayram also deposed that no phone call was received by him in the meantime, despite the fact that the defendants’ phone number was stated in his fax to the court seeking an adjournment, although Mr Bayram did not suggest any error on the part of the court clerk.

37.It is not for the court to call up a litigant.  Rather, it is for him to track if an application for adjournment is granted. 

38.Both the 10 and 17 January letters were sent to the defendants’ address in London.  Mr Bayram was allegedly at Berlin on those dates.  Tanner De Witt’s letter by way of reply was sent to the very same German fax number used by Mr Bayram in his correspondence with the court over the issue of adjournment.  A foreign litigant who left correspondence address in one place but was physically not present there and failed to check on his mail/fax in time had only himself to blame.  The delay was inexcusable.

39.Events after Mr Bayram read the judgment on 28 February 2017 proceeded expeditiously, but this could not remedy the inexcusable delay between the 10 January letter and 27 February.

40.Mr Bayram also suggested that there was miscommunication in the sense that he misunderstood the Resource Centre to mean that the defendants should lodge an appeal.  I do not see how this could help the defendants.  They never even attempted to appeal. 

41.I am not satisfied that there was good explanation for the delay.

Factor 6: past conduct of the defendants in failing to comply with orders of the court

42.Mr Bayram says that this was due to miscommunication.  It was not known to him that Withers were no longer going to do any work for him.   On 4 January 2017, he was still asking Withers about progress of the case. 

43.The order granting them leave to cease acting was made on 12 December 2016.  Mr Bayram has never gone on oath to state when that order came to his notice.  His inquiry of Withers as to “progress of the case” was equivocal and I cannot accept Mr Co’s submission that it was an indication that until 4 January 2017, the defendants were not aware of the cessation to act.

44.Mr Co submits that there was nothing in Withers’ email dated 15 November 2016 that the defendants had to do anything in the PTR orders themselves.  This was, in my view, a probable explanation.  The PTR was held on 13 October 2016. Withers did not cease to act until 2 months later on 12 December 2016. The defendants might have reasons to believe that Withers would take care of the PTR orders.

45.However, this was a matter between the defendants and Withers.  The plaintiff should not be prejudiced. 

46.The lack of opening submission was not important as the contentions were basically factual and the court would expect little contribution on legal research from litigants in persons.

Factor 7: whether the plaintiff would be prejudiced by the judgment being set aside, especially if she cannot be protected against the financial consequences

47.It has taken 6 years for this action to go to trial.  A retrial, if ordered, will likely take place in 2018.  This means the plaintiff will be kept out of its money for another year.  Although there is a Mareva injunction in place, the frozen amount is 65,000 euros short of the claimed amount and does not provide security for the plaintiff’s costs (approximately HK$1.49 million to date on solicitor-client basis).

48.Moreover, given that the defendants cannot even afford to fund their own lawyers, their means are in doubt.  The plaintiff will allegedly have to incur another HK$770,000 for the retrial.

Factor 8: public interest in being an end to litigation and not having the time of the court occupied by 2 trials

49.Mr Bayram lacks good explanation for absence at the trial.  Giving him an opportunity for retrial will waste further court resources.

FINDINGS AND ORDERS

50.I remind myself that under Order 1A, rule 2(2) RHC, the court has to recognize that its primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties.  However, it can be seen that there was no good explanation offered by the defendants as to their absence from the trial under factors 1 and 2.  Even if all other factors are decided in favour of the defendants, it will not make a difference to my conclusion.  I decline to order a retrial.

51.Tanner De Witt has been very fair in issuing the 10 January letter. There was no fault on the part of the plaintiff and she has been forced to incur costs on this summons.  I make an order nisi that the defendants shall pay the costs of the plaintiff on this summons on indemnity basis, summarily assessed at HK$130,000.  The order will be made absolute 14 days after handing down of this decision unless a summons is issued for variation of the order in the interim.

52.I thank Mr Co and Mr Lane for their assistance.

Mr Jeff Lane of Tanner De Witt, for the plaintiff

Mr Dixon Co, instructed by Lim & Lok for the 1^st and 2^nddefendants