Signature Diamond Llc v. Phillips Fine Watches Ltd

HCA 1536/2017

[2021] HKCFI 192

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1536 OF 2017

________________________

BETWEEN

________________________

Before:  Hon Mimmie Chan J in Chambers

Date of Hearing:  13 January 2021

Date of Decision:  13 January 2021

Date of Reasons for Decision:  25 January 2021

________________________

REASONS FOR DECISION

________________________

1.This is the appeal against the decision of Master Lam made on 25 November 2019 (“Decision”), refusing to lift a stay of the present proceedings which was granted by Order of Master Hui made on 6 March 2018 (“Stay”). At the end of the hearing, I dismissed the Plaintiff’s applications and refused to lift the Stay. The following sets out the reasons for my decision.

2.The Plaintiff in these proceedings is a company incorporated in Dubai.  The Defendant is an international auction house, part of the Phillips Group which was founded in London in 1796, with headquarters in New York and London and offices around the world, including Geneva and Hong Kong.  The Defendant auctions fine collectors’ watches, contemporary art, photographs, designs and jewellery.

3.The Plaintiff purchased various lots of watches from the Defendant which were sold at a series of auctions held by the Defendant.  In short, it purchased and paid for watches which were sold at auctions in Geneva and Hong Kong (“Paid Swiss Watches” and “Paid Hong Kong Watches”), but did not pay for watches which were sold at 3 auctions in Geneva (“Unpaid Swiss Watches”).

4.The Defendant retained the Paid Swiss Watches and the Paid Hong Kong Watches (together referred to as “Paid Watches”) and refused to deliver them because of the Unpaid Swiss Watches, relying on a lien over the property of the Plaintiff which was in the Defendant’s possession (“Lien”).

5.On 31 May 2017, the Plaintiff brought proceedings in Switzerland (“Swiss Proceedings”), seeking to prohibit the Defendant from disposing of the Paid Watches and for their return.  The Plaintiff claims in the Swiss Proceedings that the Defendant has no statutory or contractual lien as regards the Paid Watches on the ground that the Conditions of Sale, on which the Defendant relies for the Lien it claims, are not applicable.  The Plaintiff further claims that the clause in the Conditions of Sale providing for the right of retention and sale is unusual and should be declared invalid since the attention of the Plaintiff was never drawn to such a clause.  Further, the Plaintiff alleges that one Ms Jessica Silli who had bid for the watches on behalf of the Plaintiff at the Geneva auctions was never authorized to do so.

6.The Defendant’s Defence in the Swiss Proceedings is that the Plaintiff had purchased but failed to pay for the Unpaid Swiss Watches, for which the Plaintiff owes to the Defendant a debt of CHF 5,125,223.93, with interest.  The Defendant relies on a statutory retention right over the Paid Swiss Watches, as well as a contractual lien pursuant to the Conditions of Sale which governed the auctions held in Switzerland.  The contractual lien covers any of the Plaintiff’s property in the possession of the Defendant, and entitles the Defendant to arrange the sale of such property.

7.Prior to the commencement of the Swiss Proceedings, the Plaintiff had applied in March 2017 to the Swiss Court for an interim injunction to restrain the Defendant’s sale of the Paid Watches.  The Swiss Court granted an interim injunction, and after a contested hearing, the injunction was continued in respect of the Paid Swiss Watches, but the Swiss Court dismissed the initial injunction in respect of the Paid Hong Kong Watches, relying on the choice of forum clauses in the Conditions of Sale.

8.After the commencement of the Swiss Proceedings, the Plaintiff issued the present proceedings in Hong Kong in June 2017 for delivery of the Paid Hong Kong Watches.  The Defendant will be relying on the same defence raised in the Swiss Proceedings, namely, that it is entitled to retain the Paid Hong Kong Watches by virtue of the Unpaid Swiss Watches and the debt due by the Plaintiff to the Defendant, and that its lien and power of sale is exercisable over all of the Plaintiff’s property in the possession of the Defendant, regardless of where such property was purchased and regardless of the location of such property.

9.On 11 October 2017, the Defendant applied for a stay of the Hong Kong proceedings until the final determination of the Swiss Proceedings, including any appeals, and for the time for the service of the Defence and Counterclaim to be extended to 28 days following the final determination of the Swiss Proceedings.  After hearing the parties on 6 March 2018, Master Hui granted the Stay.  No appeal was made to the order for Stay made by the Master.

10.More than 16 months after the grant of the Stay, the Plaintiff applied, by its summons issued on 24 July 2019, to lift the Stay.  After hearing submissions from the parties, Master Lam refused the Plaintiff’s application, on the basis that there was no material change in circumstances.  It is against such Decision that the Plaintiff now appeals, by its Notice of Appeal filed on 10 December 2019.

Notice of Appeal out of time

11.First, the Defendant objects to the appeal against the Decision on the basis that the Notice of Appeal was filed out of time, after the time limit of 14 days.  The Decision was dated 25 November 2019, and the last day to appeal fell on 9 December 2019.  The Plaintiff’s Notice of Appeal was only filed on 10 December 2019, one day late.  As the Defendant highlighted, no explanation for the delay was given at all, and in fact no leave to appeal out of time was sought, until after the Defendant had filed and served its Skeleton Argument on 11 January 2021.  The Plaintiff then issued its summons on 12 January 2021 for leave to appeal out of time with an affirmation in support.

12.The only excuse given for the delay was that the Plaintiff’s solicitors had only received instructions from the Plaintiff to appeal against the Decision at around 1:49 pm on 9 December 2019.  By the time they had prepared the Notice of Appeal and arrived in Court, it was 8 minutes after the time for filing of documents at the Court Registry, and the solicitors could only return the next day, on 10 December 2019.

13.I accept the submissions of Counsel for the Defendant, that there was no good explanation for the delay.  The Decision was handed down on 25 November 2019, and the Plaintiff made the choice only to give instructions to its solicitors to appeal, on the last day, on 9 December 2019. It took the risk of the appeal not being made in time, due to unforeseen circumstance, accidents, or otherwise.  In this case, “delays in travel arrangements” deterred the Plaintiff’s solicitors from filing the Notice in time on 9 December 2019, but that is a consequence which the Plaintiff has to accept.  There was no explanation at all as to why the Plaintiff was not able to communicate its instructions to appeal to the solicitors before 1:49 pm on 9 December 2019.

14.Where there is no good reason or excusable delay, as in this case, the Plaintiff has to show that it has real prospects of success in its appeal which was filed out of time, even if the delay is unsubstantial (Secretary for Justice v Hong Kong and Yaumatei Ferry Co [2001] 1 HKC 125).  The merits of the intended appeal are considered below for that reason, and also in the event that I should be wrong on the question of unexplained or inexcusable delay, and leave to appeal out of time should be granted.

New evidence for hearing of the appeal

15.The Defendant seeks leave to adduce as evidence the ruling of the Swiss Court handed down on 26 November 2020.  Since it was handed down nearly one year after the Decision, it constitutes new evidence of an occurrence after the date of the Decision.  The current status of the Swiss Proceedings is relevant to whether the Stay should be lifted on the grounds contended by the Plaintiff.  The Plaintiff referred to the Swiss Ruling in Counsel’s skeleton submissions, and the fact that the Ruling has been handed down is not disputed. 

16.Leave to admit the evidence is accordingly granted.  The costs of the application to adduce evidence are to be in the cause of the appeal, with Certificate for Counsel.

17.The effect of the Swiss Ruling is that the Swiss Court dismissed all the Plaintiff’s claims against the Defendant in the Swiss Proceedings, with costs.  The Swiss Court found that it has jurisdiction over the Plaintiff’s claim and that Swiss law applied to the dispute, as the Conditions of Sale contained a choice of forum clause in favour of the Swiss Court and a choice of law clause in favour of Swiss law.  The Swiss Court found that the Conditions of Sale were known to the Plaintiff, and enforceable.  The lien clause was found to be not unusual and applied to terms sold at auctions held by the Defendant.

18.According to the Swiss Ruling, the Plaintiff is bound by the transactions entered into on its behalf by Ms Sili.  As a debt totaling CHF 5,125,223.93 is due from the Plaintiff to the Defendant in respect of the Unpaid Swiss Watches, the Swiss Court found that the Defendant is entitled to exercise its lien, and to retain the Paid Hong Kong Watches and the Paid Swiss Watches until its debt is repaid, and in the event of non-payment, the Defendant is entitled to arrange for their sale.

Prospects of success of the appeal

19.On behalf of the Plaintiff, Counsel argued that the Stay should be lifted, as the Court has broad jurisdiction to do so, and relies on the fact that the balance of convenience has shifted as to whether or not a stay of proceedings should be granted.  On the Plaintiff’s case, it will clearly suffer prejudice now, if the Stay is not lifted. 

20.The Plaintiff claims that on its estimate, the Swiss Proceedings (which were commenced in March 2017) will not be concluded before 2024 at least.  It claims that the Paid Hong Kong Watches are now in need or will soon be in need of expert servicing, without which the watches will be permanently damaged and the Plaintiff will suffer permanent loss of the value of the Paid Hong Kong Watches.  The Plaintiff pointed out that the Defendant has not offered any undertaking, despite the Plaintiff’s demands, that there would be the necessary servicing of the Paid Hong Kong Watches which the Defendant is detaining.  This, it was argued, is a new and material change in circumstance which justifies the lifting of the Stay.  On the other hand, as the Plaintiff contends, the Defendant will not suffer any prejudice if the Stay should be lifted.

21.The Stay was initially applied for, and granted by Master Hui in March 2018, on the basis of there being concurrent foreign proceedings in Switzerland, and of the Swiss Court being the forum clearly or distinctly more appropriate than Hong Kong, for the trial of the dispute between the Plaintiff and the Defendant over the Paid Watches.  This is apparent from the skeleton submissions filed by the Defendant for the hearing before the Master in March 2018.  The legal principles relied upon by the Defendant were those set out in China Construction Bank (Asia) Corp Ltd v Shanghai Pudong Development Bank Co Ltd, unreported, CACV 14/2016, 3 February 2017, and in support of the application for a temporary stay of proceedings, the Defendant referred to the balance of convenience and fairness as between the parties as being the correct approach in the Court’s exercise of its discretion (Luen Tat Watch Band Manufacturer Ltd v Li Sin Man Seline, unreported, HCA 1428/2012, 25 July 2014).  These principles were not disputed by the Plaintiff at the hearing in March 2018 before the Master - as is also apparent from the skeleton submissions filed by the Plaintiff for the hearing.

22.When the Plaintiff applied for the Stay to be lifted in November 2019, it referred to China Construction Bank to assert that the Court has a broad jurisdiction to lift a stay.  Counsel for the Defendant pointed out however that the Court of Appeal did not, in the judgment in China Construction Bank, describe the jurisdiction to lift a stay as “broad”.

23.I accept the submissions of Counsel for the Defendant, that the principles for staying proceedings and how they apply to the lifting of a stay, are those set out in the decision of Recorder Andrew Liao SC in Clinton Engineering Limited v B-Tech (Holdings) Limited (formerly known as Dong-Jun (Holdings) Limited, unreported, HCA 3608/1998, 28 September 2005 (at para 9):

“It is common ground between the parties, and I think it is right that, the principle for staying proceedings applies equally to the lifting of a stay.

…

… Where a temporary stay is sought, I think the correct approach should be that as adopted by Glidwell LJ in Alfred McAlpine v Unex Corporation at 45D and by Findlay J, namely, to consider the balance of convenience and fairness as between the parties.  In considering the plaintiff’s application for lifting the stay, I have to look at events subsequent to the making of the Order and to see if there are material changes in the circumstances as affecting the balance of convenience or the fairness between the parties, and if the conditions of stay imposed by the Order have been satisfied.”

24.The matter can, in my view, be looked at from the perspective of whether issue estoppel or res judicata applies to the order for the Stay, granted by the Master in March 2018.  Res judicata (in the wider sense) was referred to by Counsel at the hearing of the appeal before this Court.  On the authorities, these doctrines do not apply to interlocutory procedural orders, but when the Court considers whether it is in the interests of justice to allow the parties to relitigate a matter which has been determined in a previous interlocutory decision, it will have regard to all relevant circumstances of the particular case.  The matter was considered and explained by Mayo VP in Chu Hung Ching v Chan Kam Ming [2001] 1 HKC 396:

“This approach is consistent with the approach adopted by Alberta Court of Appeal in Pocklington Foods Inc v R in right of Alberta (1995) 123 DLR (4th) 141 as can be seen from a passage at 144 of the report:

… Res judicata and issue estoppel do not apply to procedural interlocutory motions. While in the judgment of Clement J.A. in Talbot, there is considerable discussion of the position where a decision is made on the adequacy of the material rather than on the merits of the application, when read as a whole the decision supports the position taken by McDonald J. in this case.

However, the court is not powerless to deal with attempts to re-litigate issues already decided by it. In Talbot, after refusing to apply res judicata to an interlocutory procedural application, Clement J.A. stated at p. 112:

… I am of the opinion that the principle does not apply to an interlocutory application of the nature now before us; rather, the second application is subject to control by the exercise of judicial discretion in determining whether it is frivolous or vexatious in all the circumstances then appearing.

McDonald J went on to consider the reasoning which should apply in controlling abuse of process. He cited from the decision of Lord Maugham L.C. in New Brunswick Ry. Co. v. British & French Trust Corp., Ltd, [1939] A.C. 1 (H.L.) at p. 20(cited with approval in Talbot) as follows [at p. 282]:

If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.

He continued:

Thus the raison d’etre of the principle of res judicata or issue estoppel lies in what is just and reasonable. Applying that notion to an assertion that a ruling on an interlocutory application is res judicata when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust or unreasonable to allow the second application to be heard, for what is involved is not relitigation of an identical issue of law or fact:

(a)  if the ruling on the first application was not based on the merits of the issue but on a technical objection…

(b)  if upon the first application the applicant had failed to prove essential facts from mistake or inadvertence…

(c)  if there is new evidence that seriously justifies reconsideration of the issue;

(d)  if there is a material change of circumstances of non-evidentiary nature.

It is apparent from this that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable…” (emphases added)

25.The matters referred to and relied upon by the Plaintiff as constituting the shifting of the balance of convenience, and as the material changes in the circumstances, relate to the delay in the Swiss Proceedings, the condition of the watches which are said to be in need of expert servicing to avoid permanent damage, and the “new” fact that the Defendant has not offered any undertakings that it will provide the necessary servicing of the watches or any form of security to compensate the Plaintiff of its loss.

26.As I have indicated in the course of the hearing, none of these matters can constitute material changes in the balance of convenience.

27.As the Defendant has highlighted, the Swiss Proceedings were instituted by the Plaintiff itself.  The forum and its procedure was the Plaintiff’s own choice.  The time span for trial including appeals should have been known to the Plaintiff.  It was also within the contemplation of the parties and the Court at the time of the application for the Stay and when the Stay was ordered in March 2018.  On the issue of the alleged 7-year delay now asserted by the Plaintiff, Counsel for the Defendant pointed out that the Plaintiff had claimed in July 2019 (in opposition to the Stay application) that the main hearing would only take place in 2020 and that judgment of the Swiss Court would not be expected until 2021, but in fact the Swiss Ruling was handed down in November 2020.  Any alleged or additional delay in the Swiss Proceedings appears to be an exaggeration on the part of the Plaintiff, but in any event, does not constitute any material change in circumstances not hitherto envisaged.

28.As for the condition and value of the watches and their components, this was obviously known to the Plaintiff and the Defendant.  The fact that they need care, maintenance and servicing by experts (as alleged by the Plaintiff) is inherent in the nature of the watches and must have been known to and considered by the Plaintiff at the time when the watches were purchased, when the Plaintiff commenced these proceedings to seek their release, and at the time when the Defendant applied for the Stay of these proceedings.  By the time of the commencement of these proceedings, the 1^st lots of the watches had been purchased for over 19 months, and by the time of the Stay in March 2018, the 1^st lots of the watches had been purchased for over 28 months.  There is no expert or cogent evidence to support the Plaintiff’s claims now made that the watches in question require servicing every 2, 4, 5 and 10 years, but even if this was true and is to be accepted, this allegedly important issue should have been known at the time of the Stay application in March 2018.  The fact that it was not raised before the Master suggests that it was not a material issue, and is not, in my view, any material change in circumstance.

29.Since I do not consider the alleged need to service or maintain the watches and components is either material, or not known to the Plaintiff, the claim that the Defendant failed to undertake to service and maintain the Unpaid Hong Kong Watches is neither relevant nor a material change.  If the need for servicing was material, the Plaintiff should and would have raised this with the Defendant in 2018 and sought the necessary undertaking.  The fact is that it did not, and I fail to see why the Plaintiff can now be permitted to rely on the Defendant’s failure to give an undertaking for servicing, as a ground to lift the Stay. 

30.I also reject the suggestion that the Defendant, which is a professional seller of fine watches, would not appreciate the need to maintain and service the watches, or would fail to tend to these when it is in its own interest to do so, considering that the Defendant is detaining the watches for exercise of its lien and right to sell the watches for recovery of the debt due.

31.If the Unpaid Hong Kong Watches detained by the Defendant should be damaged as a result of any lack of care by the Defendant as bailee, the Plaintiff is entitled to seek and recover damages from the Defendant in these proceedings, and there is no suggestion or evidence that the Defendant would not be in the position to pay such damages under any order which may be made against it.

32.In all the circumstances, I am not satisfied that there was any material change in circumstance such that the balance of convenience or fairness between the parties would be affected, to justify the lift of the Stay ordered by the Master in March 2018.  The Stay ordered was until the final determination of the Swiss Proceedings, including any appeals. When the appeal is resolved in the Swiss Proceedings, the parties would be bound, as a matter of issue estoppel at least, by the Swiss Court’s finding on the debt due and payable by the Plaintiff to the Defendant in respect of the watches purchased in the Geneva and Hong Kong auctions, and time and costs would be saved in any trial that may be necessary in these proceedings.  In the overall consideration and exercise of the Court’s discretion in this matter, I do not consider that the continuation of the Stay and the alleged further delay (if any) that may be caused by the appeal in the Swiss Proceedings, would constitute any unfairness or injustice to the parties.

33.By reason of the above matters, the intended appeal has no realistic prospects of success and leave to appeal out of time is not granted.  Even if leave should be granted, I would have dismissed the appeal on their merits.

Disposition

34.The appeal against the Decision of Master Lam of 25 November 2019 and the application to lift the Stay was dismissed at the conclusion of the hearing on 13 January 2021.  The order for costs, unless varied by application within 14 days, is that the Plaintiff should pay to the Defendant the costs of the Notice of 10 December 2019 and the summonses of 12 January 2021, with Certificate for Counsel.

Mr Azan Marwah, instructed by GPS McQuhae LLP, for the plaintiff

Mr Norman Yip, instructed by Stephenson Harwood, for the defendant