Skyrun Light Industry (Hong Kong) Co Ltd and Another v. Swift Resources Ltd and Others

HCA 1278 /2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1278 OF 2014

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REASONS FOR DECISION AND
DECISION ON SUMMARY ASSESSMENT OF COSTS

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I. INTRODUCTION

1.The trial of the present action was originally scheduled to be heard on 21 June 2017 with 5 days reserved (“Trial”). On 31 May 2017, the 1^st and 2^nd defendants (collectively, “Ds”) applied by summons (“Summons”) for leave to vacate the Trial with consequential reliefs. On 13 June 2017, after hearing counsel’s submissions, I made the following order (“Adjournment Order”):

(a)   the Trial be vacated and adjourned;

(b)   the 1^st and 2^nd plaintiffs (collectively, “Ps”) shall arrange to attend before the Listing Clerk within 14 days to re-fix the trial of the present action with 5 days reserved before any Judge at the earliest possible trial dates (and time to run during summer vacation) without accommodation of counsel’s diaries or the 2^nd defendant’s (“D2’s”) availability or otherwise for the re-fixed trial dates;

(c)   at the same time as re-fixing the trial pursuant to (b) above, Ps shall also fix a date for the 2^nd Pre-Trial Review (“PTR”) with 30 minutes reserved no later than 8 weeks before the re-fixed trial;

(d)   the re-fixed trial once fixed and scheduled by the Listing Clerk shall proceed as scheduled irrespective of any unavailability of D2 to attend such re-fixed trial due to legal proceedings and/or prohibition order involving her in Cambodia and/or any inability to depart or leave Cambodia;

(e)   unless Ds do on or before 4pm on 4 July 2017 pay into court a sum of US$1,800,000 (or its equivalent in Hong Kong dollars at the time of payment into court, “Unless Sum”) (“Condition”), D2 shall be debarred from giving oral evidence at the re-fixed trial and Ds shall be debarred from adducing D2’s witness statements by hearsay at the re-fixed trial (“Sanction”) (“Unless Order”);

(f)   Ds shall pay Ps costs of and occasioned by the Summons (including costs of the hearing on 13 June 2017) and costs of and occasioned by and also thrown away by vacating and adjourning the Trial all on indemnity basis, such costs to be summarily assessed and paid forthwith (“Cost Order”).

By the Adjournment Order, case management directions were granted to facilitate summary assessment of costs under the Cost Order.

2.On 19 June 2017, this court handed down Reasons for Decision in respect of the Adjournment Order (“Reasons”).

3.In re-fixing the trial, with a view to save costs (which would benefit Ds who were liable for such costs under the Cost Order) but at potential risk of further delaying the re-fixed trial, Ps applied to this court on 16 June 2017 for leave to re-fix the Trial in consultation with the diary of Ps’ existing counsel. On the same day, this court granted such leave as sought. The trial of the present action was re-fixed to be heard on 15 March 2018 with 5 days reserved (“New Trial”), and the 2^nd PTR was scheduled to be heard on 8 January 2018.

4.In respect of the Cost Order, summary assessment of costs was dealt with by paper disposal and handed down on 6 July 2017 (“Cost Decision”). Costs payable by Ds to Ps forthwith under the Cost Order was assessed at HK$287,325 (“Assessed Cost”). Such costs were paid on 13 July 2017 via solicitors’ cheque.

5.To date, Ds had not paid the Unless Sum into court notwithstanding that it should have been paid by 4 July 2017 under the Unless Order.

6.For convenience, I shall adopt the abbreviations in the Reasons and Cost Decision. These Reasons for Decision should be read together with the Reasons and Cost Decision, and the background of the present action leading to the Adjournment Order will not be repeated here.

II.  PRESENT APPLICATION

7.On 4 July 2017 (ie the deadline for complying with the Condition), Ds filed a summons pursuant to Order 3 rule 5 of the RHC for extension of time until 4pm on 15 January 2018 to pay the Unless Sum into court failing which D2 shall be debarred from giving oral evidence and Ds shall be debarred from adducing D2’s witness statements by hearsay at the New Trial (“Time Summons”). In short, Ds now sought the court’s indulgence to extend the deadline for complying with the Condition for over 6 months. The Time Summons also asked for “costs be provided for” and sought “liberty to apply”.

8.On 4 July 2017, Ds filed Yeung’s 3^rd affirmation that exhibited D2’s 3^rd affirmation in support of the Time Summons. On 11 July 2017, Ds filed D2’s 3^rd affirmation that was duly legalised/ notarised (“D2 3^rd Aff”). Ps did not file any affirmation in opposition, but objected to the application.

9.On 17 July 2017, Mr Hon, counsel for Ps, lodged his written submissions in opposition. On 18 July 2017, Ds filed Yeung’s 4^th affirmation that exhibited D2’s signed (but not yet affirmed) draft 4^th affirmation (“D2 4^th Draft Aff”) and, and undertook to file the notarised version as soon as practicable. On 21 July 2017, Ds filed D2’s 4^th affirmation that was duly legalised/notarised (“D2 4^th Aff”). For convenience, I shall refer to the D2 4^th Aff rather than the D2 4^th Draft Aff in these Reasons for Decision.

10.Several matters were of note. First, there was no appeal against the Unless Order, and Ds did not seek to challenge its validity and/or the Sanction thereby imposed. Indeed, D2 accepted the Sanction would take effect if she were unable to comply with Condition by the proposed postponed deadline of 2 months before the New Trial. Essentially, Ds sought time indulgence to comply with the Condition.

11.Secondly, the application was procedurally incorrect. As Mr Hui (and Ms Chung with him), counsel for Ds, recognised, the proper approach would be to apply under Order 2 rules 4-5 of the RHC for relief against sanction rather than for extension of time under Order 3 rule 5 of the RHC. This was recognised in the D2 4^th Aff. However, Mr Hon did not take procedural issue over such error, and the application was treated as an application for relief against sanction under Order 2 rules 4-5 of the RHC.

12.Thirdly, given the nature of the Time Summons which was for relief against sanction on the ground of present impecuniosity (as evident from the D2 3^rd and 4^th Affs) which allegedly could be remedied if time were granted, one would have thought the fullness of Ds’ grounds would have been elaborated in detail in the D2 3^rd Aff without reservation of material information to be disclosed in the D2 4^th Aff in response to criticisms raised in Mr Hon’s written submissions. It is interesting to note that Ds adopted similar modus operendi in relation to the filing of affirmation evidence for the Summons (see paragraphs 6-9 of the Reasons). Such litigation conduct did not reflect a candid approach.

13.After hearing counsel’s submissions at the hearing on 19 July 2017 (“Time Hearing”), I granted the following order and reserved my reasons for decision which I give below:

(a)   the Time Summons was dismissed;

(b)   notwithstanding paragraph 1(b) above, the dates reserved for trial of the present action was revised to 2 days instead of 5 days;

(c)   paragraph 1(d) above be set aside;

(d)   Ps be at liberty (i) to expedite and re-fix the New Trial scheduled to commence on 15 March 2018 (with 5 days reserved) to the earliest possible dates before 15 March 2018 (and time was to run during summer vacation) with accommodation for the diary of Ps’ counsel but without accommodation for the diary of Ds’ counsel, and (ii) to consequently re-fix the 2^nd PTR scheduled to be heard on 8 January 2018 to a date no later than 8 weeks before the re-fixed New Trial with 30 minutes reserved;

(e)   Ps shall, if so desired, make arrangements to attend before the Listing Clerk within 14 days from the Time Hearing to expedite and again re-fix the New Trial (now with 2 days reserved) before any judge on the earliest possible trial dates before 15 March 2018 (time to run during summer vacation) with accommodation for the diary of Ps’ counsel but without accommodation for the diary of Ds’ counsel;

(f)   at the same time as re-fixing the New Trial pursuant to (e) above, Ps shall also re-fix a date for the 2^nd PTR with 30 minutes reserved no later than 8 weeks before the re-fixed New Trial;

(g)   costs of and occasioned by the Time Summons be paid by Ds to Ps to be summarily assessed and paid forthwith;

(h)   Ps shall within 7 days after the Time Hearing lodge with court and serve statement of costs not exceeding 1 page pursuant to Practice Direction 14.3;

(i)   leave be granted to Ds to lodge with court and serve within 7 days thereafter succinct summary of objections of not more than 1 page in respect of Ps’ statement of costs;

(j)   summary assessment of costs will be by paper disposal (unless otherwise directed).

14.On 2 August 2017, pursuant to paragraph 13(d)-(f) above, the New Trial was re-fixed to be heard on 24 January 2018 with 2 days reserved, and the 2^nd PTR was re-fixed to be heard on 16 November 2017.

.  Ds’ AFFIRMATION EVIDENCE

15.By the D2 3^rd Aff, Ds sought to persuade the court that due to their financial constraints, they presently had insufficient funds and were thus unable to comply with the Condition within the prescribed time, but if given another 6 months or so their financial status would improve and they would have the means to pay the Unless Sum into court. In the D2 4^th Aff, D2 claimed Ds’ default was due to present impecuniosity, and hence it was not intentional and/or contumelious.  

16.In respect of Ds’ financial constraints, the D2 3^rd Aff deposed that (i) as at 3 July 2017 D2’s bank account with Bank of China in Hong Kong (“BOCHK”) only had HK$4,974.78, and (ii) as at 31 May and 30 June 2017 D1’s 3 bank accounts with BOCHK only had HK$43,242.66, HK$48,456.24 and US$16,388.87 (approximately HK$220,000). It was only in the D2 4^th  Aff that D2 disclosed the following:

(a)   There were further bank accounts in Cambodia that were subject to the judgment for temporary forfeiture (暫時沒收裁定書) issued by the Cambodian court on 15 August 2016 (see paragraph 44(f) of the Reasons, “Cambodian Order”). According to bank confirmations/statements as at March to May 2017, the balances of such accounts in the names of Swift Rubber Limited (6 accounts), Swift Resources (Cambodia) Limited (2 accounts) and D2 (4 accounts) held with Bank of China and Acleda Bank Plc ranged from US$14.29 to US$5,094.

(b)   Swift Resources (Cambodia) Limited ran a rubber plantation business, and due to its operational needs D2 applied to the Cambodian court to remove a bank account in the name of Swift Resources (Cambodia) Limited held with Acleda Bank Plc from the ambit of the Cambodian Order (“Defrozen Account”). According to the May and June 2017 bank statements, the balance of the Defrozen Account as at 31 May and 30 June 2017 was respectively US$29,894.81 and US$127,398.42.

(c)   D1 had other US$ and HK$ bank accounts held with The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) which were not active (and hence not mentioned in the D2 3^rd Aff). The former was overdrawn by US$90.85 as at 30 June 2017, and the latter balance was HK$0 as at 31 October 2016.

17.As to Ds’ future means, D2 claimed that by 15 January 2018 Ds would be able to raise the Unless Sum in the following manner:

(a)   D2 exhibited a share purchase agreement dated 30 November 2015 (“Agreement”) between D1 (as seller), Swift Rubber (Singapore) Pte Ltd (“Swift Singapore”), Siat NV (a Belgian company, “Buyer”) and D2 and Wong (“Guarantors”) whereby D1 agreed to sell and Swift Singapore / Buyer agreed to purchase the issued and paid up share capital of Swift Rubber Limited (“Company”) for the consideration of US$18,000,000 (ie the First Closing Consideration of US$16,200,000 and the Second Closing Consideration of US$1,800,0000). For convenience, “clause(s)” below refer to clause(s) in the Agreement. D2 explained that the true buyer was Swift Singapore, and the Buyer was to hold some of the Company’s shares for Swift Singapore. D2 further exhibited 5 variation agreements dated 29 February, 25 March, 26 May, 1 July and 1 July 2016 respectively that provided for inter alia postponement of the First Closing Sunset Date.

D2 claimed the Buyer directly settled (by deduction from the consideration payable under the Agreement) the indebtedness due to Bank of China (about US$10,710,000 – no bank statement) and HSBC (about US$1,100,000 – with bank statement) and suppliers in relation to the rubber plantation in Ratanakiri province. Out of the remaining balance of the consideration, 6 payments were made to D1 from 31 August 2016 to 17 June 2017 in the total sum of US$2,012,594.65,[1] and 2 payments were made to D2 in 2016 in the total sum of US$1,067,072.71.[2] D2 claimed the aforesaid payments to Ds were used for paying suppliers and daily operation expenses (including employees’ wages) of the rubber plantation in Snoul province. D2 claimed that after taking into account all debts and payables (including “De-registration of Hypothec cost” of US$17,075 and “Tay Seng Dispute” of US$300,000 – see clause 5.2(3)(b)), the Buyer still owed D1 US$1,500,000 ie the Retention Amount under the Agreement.

D2 claimed “事實上, 在跟[Buyer]收取出售款項的事宜上也不太順利及不太愉快, 我需要不時向[Buyer]追討, 才出現[Buyer]階段式地向[D1]繳付資金”.

D2 claimed she would discuss with the Buyer’s representatives about payment of the Retention Amount (US$1,500,000) to D1 upon their visit to Cambodia on 7 July 2017, and in this respect she exhibited a chain of emails between D1 and the Buyer between 21 and 29 June 2017 (“Emails”).

D2 further claimed the meeting with the Buyer’s representatives took place on 8 July 2017, and after negotiations D1 (who needed funds urgently) agreed to accept reduction of the Retention Amount to US$1,300,000 in full and final settlement of the consideration under the Agreement. D2 also claimed that according to such oral agreement between D1 and the Buyer, the Buyer would in principle pay US$450,000 to D1 by end of August 2017, and pay the remaining balance of US$850,000 after discharge of the Cambodian Order in the Cambodian Proceedings.

(b)   D2 claimed D1 still carried on rubber plantation business with estimated production of 400 tons/month and expected profit (at US$350 to US$400 per ton) of US$140,000 to US$160,000 per month from July to September 2017, but such profits were expected to increase to US$175,000 to US$240,000 per month from October 2017 to February 2018 being the high season for rubber production.

(c)   D2 claimed she did not own any landed property in Hong Kong apart from 2 carparks 18-18A on Lower Ground Floor, Wing Po Mansion, No 33 Fort Street, Hong Kong (“Carparks”), but she was unable to arrange any mortgage of the Carparks before 4 July 2017 for payment of the Unless Sum into court.

(d)   In the D2 3^rd Aff, D2 claimed D1 owned a hotel in Cambodia (“Hotel”) that was subject to the Cambodian Order. D2 claimed to have been advised by her Cambodian lawyers that the hearing of the Cambodian Proceedings would be concluded by end of July 2017, and judgment would be handed down in August 2017. Although D2 expected she would succeed in her defence in the Cambodian Proceedings (and claimed the Hotel could be mortgaged upon lifting of the Cambodian Order after the conclusion of the Cambodian Proceedings), she noted the hearing of the Cambodian Proceedings had been adjourned several times and further confessed to be unsure whether (i) the Cambodian Proceedings would actually be concluded in 2 months’ time and (ii) Ds would actually be able to forthwith arrange mortgage of the Hotel.

In the D2 4^th Aff, D2 claimed she held the Hotel on behalf of D1 because under the laws of Cambodia a foreign enterprise could not own the land on which the Hotel stood (“Hotel Land”), but D2 could do so as she had a Cambodian identity card. D2 further claimed the Hotel owed the bank US$300,000, and it ceased operations after the Cambodian Order was imposed.

18.In the D2 4^th Aff, D2 claimed Ds had no assets other than referred to above. D2 said Ds had to borrow substantially from banks to maintain the rubber plantation, especially at the beginning when it was not profitable, and assets sold by Ds had been used to repay indebtedness due to the bank and to pay operation expenses of the rubber plantation. In relation to D1’s business operations, depending on the contracting party or business needs, D1 would pay business receivables into the Defrozen Account or its account with BOCHK.

19.But apart from various bank accounts and Hotel / Hotel Land, the Cambodian Order did not appear to freeze or temporarily forfeit other assets of D1 (see exhibit “MMY‑7” to the D2 1^st Aff). This was also borne out by (a) the fact D1 was still in the process of selling its assets in Cambodia, ie the issued and paid up share capital of the Company that was incorporated and existing under the laws of Cambodia with registered office also in Cambodia,[3] and (b) D2 claimed that D1’s profits from its rubber plantation business in Cambodia could be used for part payment of the Unless Sum.

20.In the D2 4^th Aff, D2 claimed Ds paid the Assessed Costs from the balance at D1’s bank accounts with BOCHK. Although Ds only had small balance at their accounts with BOCHK, it was evident from the bank statements of D1’s accounts with BOCHK that “因為橡膠園營運的關係, 那些中國銀行戶口不時也會有金額存入及提取, 只是橡膠園的開支龐大, 這些金額並不能在銀行戶口積存”.

IV.  LEGAL PRINCIPLES

21.I explained the factors outlined in Order 2 rule 5(1) of the RHC for relief against sanction and the relevant legal principles as to (a) the nature of an “unless order” and (b) the exercise of discretion to grant or refuse relief against sanction in Lee Sai Nam v Li Shu Chung & anor,[4] which I adopt but will not repeat here.

V.  DISCUSSION

22.It was true Ds made prompt application (albeit initially by a wrong route) for relief against sanction. It was also clear that if relief against sanction were not granted, the Sanction would have taken effect automatically, and Ds would not be able to adduce witness evidence at the New Trial (then scheduled to be heard in March 2018) against Ps’ substantial claim against them, which would have adverse impact on their Defences.

23.Essentially, Ds argued they had no present means to pay the Unless Sum, but given time they would be able to raise such sum to comply with the Condition. On such basis, it was said the default was not intentional. On the other hand, Mr Hon argued that Ds’ failure to comply with the Condition was intentional and contumelious. But it is important to remember that, as explained in Top One International (China) Property Group Co Ltd v Top One Property Group Ltd,[5] the exercise of discretion to refuse an extension of time to comply with a peremptory order or to relieve a party from sanction is not limited to cases of intentional and contumelious default.

(a) Rationale for the Sanction / Unless Order

24.Before I embark to discuss D2’s various contentions, it is important to understand the nature/rationale for Sanction / Unless Order. As explained below, the application made in the Time Summons was actually contrary to the underlying rationale for the Sanction and the Adjournment Order as set out in the Reasons.

25.It all began with the Summons that sought an adjournment of the Trial. It was a patently late application, and this court found there was no good reason for the delay. This court also found that even though the Defences depended on D2’s oral evidence, (a) Ds overstated the complexity of the present action, and (b) D2 could reasonably have given evidence via videolink. Not only did Ds failed to provide clear/cogent evidence to show suitable videolink facilities were not available in Phnom Penh, there was no prohibition against her going there to give evidence via videolink. I also found that since the trial issues were less complex than what Ds would have this court believe, it would have been appropriate to receive D2’s evidence via videolink. It was Ds’ delay in taking out the Summons when they had known of such need for some time (and hence Ds were the author of such delay) that made it impossible to arrange videolink facilities in time for receiving D2’s evidence at the Trial.

26.This regrettably led to unsatisfactory alternatives of either refusing to adjourn the Trial in which case Ds would have no witness (since D2 could not leave Cambodia and videolink facilities could not be properly set up in time) or vacating/adjourning the Trial in which case Ps through no fault of their own would be postponed from judgment (if they were to succeed at the end of the day) with increased risk of diminished enforcement and recovery.

27.It was in such context that the court considered the balance of justice between the parties, and came to the view that the interests of justice would be served by affording Ds the opportunity to call D2 as their witness at a new trial either in person or via videolink but only if (a) the new trial would be fixed as soon as practicable and (b) Ps’ exposure to financial risks due to deferral of the trial would be covered. The consideration in (a) above was manifested by the orders in paragraphs 1(b)-(d) above, which made clear Ds could only expect to have a circumscribed opportunity to call D2 to give evidence at the New Trial if they could, but they could not hope for an indefinite adjournment until when D2 would definitely be available. The consideration in (b) above was manifested by the orders in paragraphs 1(e)-(f) above (ie the Unless Order and Cost Order) which represented protection afforded to Ps as part of the balance of justice in face of Ds’ tactical move in deferring issuance of the Summons which led to the adjournment. I also explained in the Reasons that the Unless Sum was in broad terms equivalent to Ps’ claim for interest over a period of 6 months, ie the period for which the trial was likely to be postponed, and particularly held that the Condition was the only appropriate sanction to protect Ps for the adjournment of the Trial.

28.Ds now sought leave to defer payment of the Unless Sum into court for about 6 months. The practical effect of such proposal (if allowed) would mean that Ds gained an adjournment of the Trial without having to give balancing protection for Ps that was crucial to the balancing exercise in the interest of fairness and justice that led to the Adjournment Order. Mr Hui emphasised that D2 was Ds’ key witness, so if relief against sanction was not granted Ds would be substantially prejudiced by having no witness evidence to support the Defences at the New Trial. But this very factor had been taken into account in arriving at the Sanction / Unless Order after balancing the interests of justice between the parties when application was made to adjourn the Trial, and this court had already concluded that such adjournment to give Ds an opportunity (not assurance) to call D2 to give evidence (if they could) would only be justified by the countervailing protection for Ps (who were completely innocent of any default) by way of the Unless Order. The result was that Ps would either be immediately assured there was financial cover for the delay caused by the adjournment of the Trial (through Ds’ unwarranted delay and no fault on Ps’ part), or they would be put in the position as if there was no adjournment, ie D2 would be unable to give evidence at the Trial. This court would not have granted an adjournment if there was no balancing protection for Ps for the delayed trial caused by the adjournment, and in such circumstances the Trial would have proceeded without D2 giving evidence. The Sanction was therefore a necessary feature of the balance of justice in arriving at a fair solution.

29.Upon proper understanding of the rationale for the Unless Order, Ds’ present proposal by the Time Summons was plainly unfair and prejudicial to Ps. As Mr Hon submitted, the Sanction was important because once effective it would have been open to Ps to explore other avenues for earlier determination of the present action. Ps could consider applying to court to expedite the New Trial if the estimated length of trial was shortened should D2 be debarred from giving evidence. This was what happened after I granted the order at the Time Hearing (see paragraphs 13-14 above). In my view, overall fairness (and the less than cogent evidence as to Ds’ present and future means as discussed below) led inexorably to the conclusion that Ds’ application by the Time Summons should be dismissed.

(b)  Ds’ present means

30.In seeking relief against the Sanction on the ground of present impecuniosity, it was incumbent on Ds to be frank and forthcoming about the entirety of their present means. But D2’s affirmation evidence left much to be desired:

(a)   D2 suggested D1’s rubber plantation business was expected to earn profits of US$140,000 to US$160,000 per month up to September 2017. Since D2 claimed such profits could be used for the Unless Sum, such expected profits must have been net and not gross profits. Further, the logical view from D2’s assertions (and she did not say otherwise) was that D1’s rubber plantation business is currently profitable. There was no suggestion that such business had not been profitable but would somehow became immediately profitable up to US$140,000 to US$160,000 per month. That being the case, D2’s affirmation evidence was conspicuously silent as to where the accumulated net profits were parked, and why such accumulated net profits could not have been used to contribute to the payment of the Unless Sum into court.

(b)   In the D2 4^th Aff, D2 claimed that every now and then trade receivables would be deposited into and withdrawn from the Defrozen Account or the account with BOCHK due to business operation of D1’s rubber plantation, but there was no significant balance due to “huge expenses” of the rubber plantation business. The effect of such assertion was that as a result of the need to pay “huge expenses” of the rubber plantation out of business income/turnover, there was little money left in the Defrozen Account or the account with BOCHK for payment of the Unless Sum. But it also meant the rubber plantation business was able to afford payment of “huge expenses” from its business income/turnover (as indeed it must in order to generate net profits). It begged the question why D1’s business income/turnover (that was sufficient to cover “huge expenses”) was not used to pay the Unless Sum. Quite irrespective of any net profits, in considering compliance with a peremptory order, it would not be open for Ds to cry impecuniosity but at the same time withhold available funds (eg working capital, cashflow, cash in hand and/or cash at bank) for other purposes, eg for its business operations.

(c)   According to D2, the Buyer made 6 payments to D1 during the period from 31 August 2016 to 17 June 2017 (when the Cambodian Order was effective). The 6 payments were not paltry sums (see footnote 1 above), and one would have expected such sums to have been deposited in bank account(s). At least there was no suggestion otherwise from D2. However, the June 2017 bank statement of the Defrozen Account (being the only bank account of D1 in Cambodia that could be used) as disclosed by D2 showed the Buyer’s last payment on 17 June 2017 (US$250,000) was not deposited into the Defrozen Account, and D2 was silent as to the whereabouts of such sum. Further, Ds did not disclose the bank statements of the Defrozen Account for August and October 2016 and February, March and April 2017, and D2 did not say anything about the whereabouts of the Buyer’s 5 payments of US$150,000, US$165,000, US$300,000, US$500,000 and US$647,594.65 (except that they had been disbursed for business expenses). These 6 payments that totalled US$2,012,594.65 were more than the Unless Sum.

(d)   For the Hotel business (if owned by D1 as D2 alleged), there was no explanation in the D2 3^rd Aff as to why revenue, cashflow and/or working capital (ie funds of any sort) of such business as distinct from real property rights could not have been used to pay the Unless Sum. The only response offered in the D2 4^th Aff was that the Hotel owed the bank US$300,000, and it ceased operations after the Cambodian Order was imposed. But apart from such bare assertions, Ds did not adduce any documents to show either the Hotel’s indebtedness to the bank or it had ceased operations. Since the information was plainly within Ds’ and not Ps’ knowledge, and it was Ds who came to court for indulgence, one would have expected Ds to place cogent objective evidence before the court to support their assertions. But despite Ps’ complaint, Ds fell short in this regard.

(e)   As seen below, the Email from the Buyer dated 29 June 2017 referred to “USD300,000 recently sent” (my emphasis). But the D2 3^rd Aff was totally silent on when (ie how recently) such sum was received by D1 (as seller), and why such sum could not have been used for partial payment of the Unless Sum. I note from the D2 4^th Aff that D1 received a sum of US$300,000 from the Buyer on 24 February 2017, but that could hardly be “the US$300,000 recently sent” being “the last one in terms of advanced before receiving the needed documents” (see Email dated 29 June 2017 referred to in paragraph 32 below) when the Buyer paid further sums of US$500,000, US$647,594.65 and US$250,000 on 22 March, 21 April and 17 June 2017 after the payment of US$300,000 on 24 February 2017. Question immediately arose as to whether there was another sum of US$300,000, and if so its whereabouts. Again, Ds were silent on this.

(c)  Agreement

31.D2 suggested she would pursue payment of the Retention Amount of US$1,500,000 under the Agreement (now allegedly compromised to be US$1,300,000) which could be used as part payment of the Unless Sum.

32.The Email from Teav Sophea for D1 to Philippe Monnin for the Buyer dated 21 June 2017 concerned payments for “final environmental certification” and “final tax certificate”. This was followed by another Email from Teav Sophea to Phillippe Monnin requesting the Buyer to settle their payment for the “final environmental certification” first “because we need to pay some thing need to settle very urgent”. According to the earlier email, the Buyer agreed to pay US$27,500 for the “final environmental certification”. Philippe Monnin replied by Email dated 29 June 2017 that whilst “the cost for Environmental approval and for the taxes certificate” were agreed, “as it was stated before, the USD300,000 recently sent, are the last one in terms of advanced before receiving the needed documents. Mr Pierre Vandebeeck will be coming in Cambodia the 7^th of July and it will be the opportunity to discuss with him about the final payment” (my emphasis).

33.D2 claimed she had discussed with the Buyer about the Retention Amount on 8 July 2017, and it was alleged they reached agreement that the Buyer would pay a sum of US$1,300,000 in full and final settlement with US$450,000 to be paid by end of August 2017 and US$850,000 to be paid after discharge of the Cambodian Order. There was, however, no objective evidence in support of such assertion.

34.The Email dated 29 June 2017 from Philippe Monnin for the Buyer reflected reluctance for further advance “before receiving the needed documents”, but there was no evidence when the “final environmental certificate” and “final tax certificate” would be or had been available, which cast doubt on whether agreement had really been reached with the Buyer over the Retention Amount on the terms set out above.

35.Also, D2 had not explained why the alleged agreement was not reduced into writing given her admission that “事實上, 在跟[Buyer]收取出售款項的事宜上也不太順利及不太愉快, 我需要不時向[Buyer]追討, 才出現[Buyer]階段式地向[D1]繳付資金”. In the face of such historical difficulties, at the very least one would have expected D1 to have forthwith sent an email to the Buyer to confirm the terms of the agreement reached, especially when the Emails showed that email communication was an usual liaison channel between D1 and the Buyer.

36.Mr Hon raised legitimate concern that given the various postponements since 2016 by the 5 variations to the Agreement and D1’s difficulty in prying consideration money out of the Buyer, there was no telling when exactly the Retention Amount would be forthcoming.

37.Still further, there was no comfortable assurance that the reduced Retention Amount (even if it were forthcoming) would be fully dedicated for partial payment of the Unless Sum and not be used for any other purpose, especially when the affirmation evidence revealed D1 was not above prioritising payment of rubber plantation operation expenses over payment of the Unless Sum into court. I note the First Closing Consideration of US$16,200,000 comprised Prepayment of US$5,100,000 (for third party creditors and costs of the transaction), Secured Party Payout (for bank), First Closing Balance and Retention Amount as adjusted under clause 5.2. The Prepayment out of the First Closing Consideration was paid to the Escrow Agent for direct payment to Third Party Creditors by the Escrow Agent on behalf of D1 and/or the Company (clause 5.2(1)). No similar proposal was forthcoming in respect of the reduced Retention Amount for dedicated payment of the Unless Sum into court.

38.In all the circumstances, I am not satisfied Ds had provided clear/cogent evidence that the reduced Retention Amount (US$1,300,000) would be assuredly forthcoming in the near future for part payment of the Unless Sum.

(d) Rubber plantation business

39.D2 claimed the accumulated profits of D1’s rubber plantation business of US$140,000 to US$160,000 per month or US$175,000 to US$240,000 per month during the high season would enable Ds to raise sufficient funds by mid-January 2018. But there was nothing to substantiate such bare allegations. D2 did not produce any profit and loss accounts, ledgers, balance sheets or other accounting documents to show D1’s rubber plantation business would be able to generate such alleged level of profits. If such documents were in Cambodia, then surely D2 as director of D1 would have been able to exhibit them to the D2 3^rd Aff or D2 4^th Aff. If such documents were in Hong Kong, Wong could have produced them by affirmation. Such documents would also show D1’s true financial status, and inform the court as to the veracity of D2’s allegation of financial difficulties.

(e)  Carparks

40.D2 claimed she was unable to mortgage the Carparks in time to raise funds to comply with the Condition. Even though D2 was in Cambodia, there was no reason why a power of attorney could not have been given to her husband Wong to arrange mortgage of the Carparks. Given that D2 had both Cambodian and Hong Kong lawyers, and further given the ease with which D2 was able to prepare her affirmations and have them properly legalised/notarised, there was no reason why D2 could not have given such power of attorney to set in train the mortgage application. Further, the Carparks were bought for HK$170,000 in 1990, but there was no evidence of the present value of the Carparks or their present monetary significance vis-à-vis the Unless Sum.

(f)  Hotel

41.The Chinese translation of the land search record of the Hotel Land exhibited to the D2 3^rd Aff gave the reference A_IV0127, which matched the description of the land that was subject to the Cambodian Order. It also showed D2 was the owner of the Hotel Land, and D2 (not D1) acquired the Hotel Land on 19 February 2014 and mortgaged such land to a bank on 1 July 2014. Importantly, there was no evidence at all as to the indebtedness due to the mortgagee bank over the Hotel Land. D2 claimed the Hotel owed the bank US$300,000, but it was unclear whether it was banking facilities for the Hotel business or mortgage debt due to the bank in respect of the Hotel Land. Be that as it may, there was, quite simply, no objective evidence to show there would be any significant equity over the Hotel Land irrespective of the Cambodian Order.

42.D2 claimed the Hotel Land could be mortgaged after conclusion of the Cambodian Proceedings. It was unclear whether landed property could be further mortgaged or re-mortgaged in Cambodia. In any event, apart from a bare assertion by D2’s Cambodian lawyers in their certificate dated 3 July 2017 that they had high confidence of success in the Cambodian Proceedings and that D2 would consequently be released, there was little to support such assertion. Whilst Mr Hui previously submitted I should not delve into the merits of the Cambodian Proceedings for the purpose of determining the Summons, different considerations apply to the Time Summons as Ds sought to urge this court to accept they would be able to pay the Unless Sum in about half year’s time. It was telling that the Cambodian lawyers did not condescend into the merits of the Cambodian Proceedings, and despite expressed confidence that D2 would be released upon conclusion of the Cambodian Proceedings, they were silent on whether and when the Cambodian Order would be lifted and/or whether and when D2 would be able to deal with the Hotel Land after conclusion of the Cambodian Proceedings. Further, the Cambodian lawyers also did not say whether Chen could appeal even if D2 succeeded in her defence, and if so the impact of any appeal on the Cambodian Order (if at all). Given D2’s self-confessed uncertainty over (a) when the Cambodian Proceedings would truly conclude and (b) the effect of conclusion of the Cambodian proceedings on the Cambodian Order, and the paucity of objective evidence as to the existing mortgage over the Hotel Land, there must be concern as to whether the Hotel Land could be further mortgaged or re-mortgaged if at all.

(g)  Summary on Ds’ financial means

43.To seek relief against the Sanction, it was incumbent on Ds to adduce clear/cogent evidence to persuade the court to exercise discretion in their favour. But in light of the above analysis, Ds had not been forthcoming in assuring the court they had little assets in Hong Kong and/or elsewhere, and their claims of having access to further funds/assets to meet the Condition in the near future were uncertain and unreliable. In my view, Ds’ evidence in this respect was less than desirable.

44.I am reminded of the guidance by Fok J in Top One International (China) Property Group Co Ltd at pp 618-619 as follows:

“41. In my view, the passage quoted above from Hytec is entirely consistent with the more pro-active case-management approach encouraged by the CJR and, in my view, the CJR has had the effect that the Hytec approach now reflects the approach that should be applied in this jurisdiction. That is to say, although intentional and contumelious disregard of a court’s peremptory order may be the most usual circumstance leading to the refusal of an extension of time to comply with a peremptory order, the exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default. As directed by RHC O.2 r.5, the court should consider all the individual circumstances including those listed in r.5(1) at sub-paragraphs (a) to (j). Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted. Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (RHC O.1A r.3) and on the court to do so by actively managing cases (RHC O.1A r.4(1)).” (my emphasis)

45.Up to the Time Hearing, there was no evidence of any attempt by Ds to at least partly comply with the Unless Order by paying cash from business income/turnover into court, or any effort by D2 to give a power of attorney to Wong to mortgage the Carparks. I am not persuaded Ds made serious effort to comply with the Condition in good faith but had been unsuccessful through bad luck or incompetence (when they had Hong Kong and Cambodian lawyers) or circumstances outside their control (as explained above and despite the Cambodian Order).

46.For all of the above reasons, I granted the order set out in paragraph 13 above at the Time Hearing.

VI.  SUMMARY ASSESSMENT OF COSTS

47.For the summary assessment of costs in paragraph 13(g) and (j) above, Ps lodged their Statement of Costs on 21 July 2017, and Ds lodged their List of Objections on 28 July 2017. Having carefully considered the items of costs and objections, and noting that (a) the Time Hearing took 1½ hours and (b) Ps had to deal with not just the D2 3^rd Aff but also the last-minute D2 4^th Aff, Ps’ costs on their Statement of Costs are assessed at HK$75,000. I therefore order that Ds shall forthwith pay costs in the sum of HK$75,000 to Ps.

Mr Kevin Hon, instructed by Christine M Koo & Ip, for the 1^st and 2^nd plaintiffs

Mr John Hui and Ms Wallis Chung, instructed by Michael Li & Co for the 1^st and 2^nd defendants