Arch Capital Ltd and Another v. Neo Telemedia Ltd

CAMP 14/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 14 OF 2017

(ON AN INTENDED APPEAL FROM HCA NO. 1281 OF 2015)

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(By Original Action)

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(By Counterclaim)

Before: Hon Cheung and Chu JJA in Court

Date of 1st and 2nd Plaintiffs’ (By original action) Written Submissions: 6 September 2017

Date of Defendant’s (By original action) Written Submissions: 27 September 2017

Date of Decision: 2 November 2017

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D E C I S I O N

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Hon Cheung JA (giving Decision of the Court) :

1.This is an application for leave to appeal out of time against the decision of Deputy High Court Judge Kwok SC dated 26 September 2016. We will deal with the application on paper.

Background

2.1The plaintiffs (by original action) (‘the plaintiffs’) are the holders of two convertible notes for shares (‘the Two Notes’) issued by the defendant (by original action) (‘the defendant’), Neo Telemedia Limited, for the principal amount of HK$144 million with interest.  Under the Two Notes, the defendant owed payment obligations to the plaintiffs with a maturity deadline at 5 April 2016 which was three years from 5 April 2013.  Contractual interest at 7% per annum was expressly stated to be payable every six months over the three year period.

2.2The plaintiffs commenced the present action on 11 June 2015 to enforce the Two Notes. The defendant filed a counterclaim to the action. 

2.3On 6 January 2016 the parties entered into a consent order by way of a Tomlin Order staying the parties’ claim and counterclaim except for the purpose of carrying the terms contained in the Schedule of the Tomlin Order into effect.  The terms are as follows :

‘ 1) The defendant (by original action) shall, within three business days after closing of the open offer regarding the sale of shares of the defendant, pay to the plaintiffs (by original action) the sum of HK$10,080,000.00 in full and final settlement of the plaintiffs’ claim for outstanding accrued interest pursuant to the Two Notes as defined in paragraphs 2 through 4 of the statement of claim in this action from the period from 5 October 2014 to 4 October 2015 and in the event of default by the defendant in the payment of the said sum the plaintiff shall be at liberty to apply to enter judgment forthwith for the amount thereof.

2) The defendant (by original action) shall comply with all terms of the Two Notes in that, inter alia :

a) The defendant (by original action) will redeem the 1^st Note with certificate number 001 for the principal amount of HK$95,000,000.00 as and when it falls due three calendar years after the day of its issue on 5 April 2013;

b) The defendant (by original action) will redeem the 2^nd Note with certificate number 002 for the principal amount of HK$49,000,000.00 as and when it falls due three calendar years after the day of its issue on 5April 2013;

c) The plaintiffs (by original action) shall have the rights to convert part or full of the Two Notes as defined in Condition 5 of the Two Notes at the price of HK$1.10 on or before 4 April 2016;

d) Without prejudice to Paragraph 1 above， the obligation of the defendant (by original action) to pay interest pursuant to Condition 3(a) of the Two Notes at the rate of 7% per annum from 5October 2015 until full payment pursuant to the Two Notes is now expressly waived by the plaintiffs (by original action).

3) The defendant (by original action) shall undertake to guarantee its compliance with the terms of the Two Notes and in the event of default by the defendant (by original action) in compliance with the terms of the Two Notes the plaintiff (by original action) shall be at liberty to apply to enter judgment forthwith for the amounts outstanding thereof.

4) Upon compliance by the defendant (by original action) with the terms of paragraphs 1 through 3 above, the defendant (by original action) shall be discharged from any further liability in respect of the plaintiffs’ claim herein.’

2.4The defendant defaulted in complying with the full terms of the Schedule. 

2.5On 26 May 2016 the plaintiffs applied by summons to enforce the terms of the Tomlin Order.  The relief they sought in the summons was for :

‘ Judgment be entered in favour of the 1^st and 2^nd plaintiffs (by original action) that the defendant (by original action) do pay to the plaintiffs the sum of HK$144,000,000.00 together with interest at judgment rate from the date of the order to be made herein until full repayment.’

2.6Master Leong on 13 June 2016 made an order in terms of the summons.  

2.7On 21 September 2016 the plaintiffs issued another summons before the Judge seeking the following relief :

‘ 1. Defendant (by original action) do pay to the 1^st and 2^nd Plaintiffs (by original action) interest pursuant to Condition 3(a) of the Two Notes (as defined in The Schedule to the Tomlin Order in this matter dated 5 January 2016) at the rate of 7% per annum from 6^th April 2016 to 12^th June 2016 on the judgment sum of HK$144,000,000.00 as per the Order of Master Leong dated 13^th June 2016; .....’

2.8What the plaintiffs sought in this summons was the interest for the period from 6 April 2016 to 13 June 2016 (‘Disputed Period’).  It represents the period between the date the Two Notes were to be redeemed and the date Master Leong entered judgment.

2.9On 26 September 2016 the Judge dismissed the application.  

2.10On 7 November 2016 the plaintiffs issued yet another summons before Master Leong seeking the same relief that the Judge had refused to give on 26 September 2016.

2.11On 18 August 2017 the plaintiffs issued the present application seeking leave to appeal out of time against the decision of the Judge.  In the draft notice of appeal the plaintiffs ask for the decision of the Judge to be set aside and that the summons dated 21 September 2016 be adjourned for argument before a master.

Principles

3.The relevant factors for the present application are that the Court will consider the length of the delay, the reasons for the delay, the chances of the appeal succeeding if an extension of time is granted and the degree of prejudice to the other party if the application is granted.

Application refused

4.1We will refuse the application for the following reasons :

1) the length of delay of about 11 months is substantial;

2) the plaintiffs had not adequately explained the reason for this substantial delay apart from laying the blame on the Judge that he had wrongly suggested that the matter should be dealt with by the Master.  The plaintiffs were represented by counsel before the Judge, clearly they should rely on the advice of their own lawyers rather than what the Judge said in the course of discussion in the appeal.  In any event it is a travesty to even suggest that the Judge had misdirected them in a certain way.  What the Judge actually said is as follows :

‘ Court: If you are saying there was a slip in not making an interest order, you go before the Master under the slip rule, if you can.’

3) most importantly, the plaintiffs have not demonstrated that they have a meritorious appeal.  When the plaintiffs applied to enforce the Tomlin Order, they only asked for interest from the date of judgment until full payment of the judgment sum, and had not asked for interest for the Disputed Period.  This is not a case for the application of the slip rule.  Further, the summons dated 21 September 2016 was an abuse of process in that the plaintiffs could and should have applied for interest for the Disputed Period when they applied to enforce the Tomlin Order.  The Judge was correct to dismiss the summons, instead of adjourning it to the Master, as the plaintiffs seek to argue in the intended appeal.

4.2Accordingly, the application must be refused. 

4.3The application is without merit.  We will, pursuant to Order 59, Rule 2A(8), order that the plaintiffs are not allowed to apply for a hearing to reconsider this application. 

4.4The defendant is entitled to the costs of this application.  It asked for $143,000 which includes $90,000 for counsel fee (being perusal of documents, preparing affirmation in opposition and statement in opposition).  We will summarily assess the defendant’s costs at $120,000 of which $90,000 is counsel fee.

Mr Minju Kim, instructed by Lam & Co., for the 1^st and 2^nd plaintiffs (By original action)

Mr Kenny C. P. Lin, instructed by Khoo & Co., for the defendant (By original action)