Case Document

100%Judiciary

HCA 1265/2015

[2022] HKCFI 3763

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1265 OF 2015

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BETWEEN

	WONG LUEN HANG (王暖亨)	1^st Plaintiff
	TSUI KWOK SO (徐國甦) (suing on behalf of themselves and all other shareholders in TOPMIX (INTERNATIONAL) COMPANY LIMITED and TOPMIX INDUSTRIAL LIMITED, except the 1^st and 2^nd Defendants)	2^nd Plaintiff
	and
	CHAN YUK LUNG (陳玉龍)	1^st Defendant
	CHAN YUK WAI (陳玉威)	2^nd Defendant
	FAITHFUL RAINBOW LIMITED (榮虹有限公司)	3^rd Defendant
	MAK WAI WING CLEMENS (麥偉榮) also known as MAK WAI WING (麥偉榮)	4^th Defendant
	CHAN WAI HUNG (陳煒洪)	5^th Defendant
	LAM KWOK KIN (林國建)	6^th Defendant
	NG CHUN KAI (吳振佳)	7^th Defendant
	TSE WING KEUNG (謝永強)	8^th Defendant
	TSE WING HONG (謝永康)	9^th Defendant
	TOPMIX (INTERNATIONAL) COMPANY LIMITED (德日(國際)有限公司)	10^th Defendant
	TOPMIX INDUSTRIAL LIMITED (德日實業有限公司)	11^th Defendant

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Before: Hon Anthony Chan J in Chambers (Open to Public)

Date of Hearing: 15 December 2022

Date of Decision: 15 December 2022

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D E C I S I O N

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1.There is before the court a Summons filed on 8 October 2021 by which the 3^rd, 4^th and 6^th Defendants (“Defendants”) ask for relief from sanction imposed under an unless order dated 11 March 2019 (“Unless Order”) debarring them from adducing any expert evidence at trial. The sanction was the consequence of the Defendants’ failure to file and serve their accounting expert report within 35 days from the date of the Unless Order. This is the second application of the Defendants for relief against such sanction.

The rival contentions

2.The arguments in this application turn upon the conduct of the Defendants in failing to comply with the Unless Order. Before the procedural background is examined, it is useful to set out the rival contentions against which the facts will be considered.

3.The Plaintiffs submitted that:

(1) The Defendants had had ample opportunities since May 2017 to consider the issue of adducing accounting expert evidence, and had multiple chances to get their house in order since September 2018;

(2) The Defendants made the 1^st Application for relief from sanction which was dismissed back in April 2020. They had waited for 1 ½ years before taking out this 2^nd Application;

(3) The Defendants had failed to provide any satisfactory explanation for their failure to comply with the Unless Order and/or their failure to take out this Application within a reasonable time;

(4) This Application was taken out at a very late stage of this litigation. The PTR of this case will take place on 17 April 2023 and the trial will commence on 10 July 2023. The granting of the relief sought may jeopardise these dates and cause serious prejudice to the Plaintiffs.

4.On the other hand, the Defendants say, and had provided evidence in support, that the blame for the dilatory manner in which they had dealt with their expert evidence rests on the reprehensible conduct of a “senior legal executive” by the name of Lam Chi Man (“Lam”) who worked in the office of their previous solicitors, Messrs Henry Wan & Yeung (“HWY”).

5.Lam, who had been handling this action on behalf of the 2^nd Defendant since 2014, was introduced to the Defendants by the 2^nd Defendant. After Lam and HWY were instructed by the Defendants on these matters in 2018, some of the communication between them and Lam were conducted via the 2^nd Defendant. It appears from the papers that after HWY were instructed by the Defendants, that firm was representing the 1^st to 6^th, 10^th and 11^th Defendants in this action.

Procedural background

6.The relevant procedural background may be summarised as follows. Alongside with the same, the important events set out in the Defendants’ evidence will be referred to in square brackets.

7.In early May 2017, the Plaintiffs invited, inter alia, the Defendants to agree on directions for the filing of expert evidence on the valuation of a Factory which was transferred to the 3^rd Defendant and a subject matter of this action. In response, the Defendants referred to an existing valuation report of the Factory by Dongguan City Dongqiping Assessment Co Ltd dated 8 April 2014 (“Dongqiping Report”) which they would rely on, and confirmed that they “will not adduce further expert evidence (regardless of being prepared by single or joint expert) …”.

8.On 20 May 2017, the court gave directions for the Plaintiffs to adduce expert valuation evidence.

9.[HWY was instructed to represent the Defendants in February 2018. The Defendants’ evidence suggested that HWY was instructed due to its connection with Lam, and Lam was the person who handled his action on behalf of the Defendants.]

10.More than one year later and after the Plaintiffs’ expert report had been filed, on 19 June 2018, the Defendants applied for leave to adduce expert accounting evidence by Summons filed on that day. This was inconsistent with their previous stance.

11.By an order dated 3 September 2018 (“Expert Directions”), the Defendants were granted leave to file their accounting evidence by 4 March 2019. The leave was actually granted in favour of the 1^st to 6^th, 10^th and 11^th Defendants who were all represented by HWY, but for the present purpose the other Defendants are not relevant. The Expert Directions set out the specific issues which the expert (“Yan”) had to address, namely, the accuracy of the Dongqiping Report and, if not accurate, the fair value of the Factory. The Directions expressly confined the expert evidence to such issues and “not the Plaintiffs’ expert reports already filed”.

12.The Defendants failed to file their expert report by 4 March 2019.

13.[By a letter dated 6 March 2019 to the 1^st and 2^nd Defendants, HWY advised that the valuation report was being prepared, but more time was required for which purpose an extension of time would be sought from the court.]

14.On 11 March 2019, the Unless Order was made requiring the Defendants to file and serve their report within 35 days, ie, by 4 pm on 15 April 2019.

15.[The Defendants got to know about the 15 April 2019 deadline from the 2^nd Defendant. The Defendants’ evidence was not clear as to precisely when they knew about it.]

16.[On 15 April 2019, there was a meeting at Yan’s office attended by the 1^st, 2^nd and 6^th Defendants, Yan and Lam during which the 6^th Defendant discovered that there was no valuation of the Factory. Yan said that he not aware that such valuation was required and he would require more time to do so. Lam assured them that after the filing of Yan’s existing report, another report could be filed.]

17.The Defendants were late in filing and serving their expert accounting report dated 15 April 2019 (“Defendants’ Report”). The evidence of the Plaintiffs was that the Defendants’ Report was filed and served at 5:12 pm on 15 April 2019[1].

18.More importantly, the Defendants’ Report was not in compliance with the Expert Directions: (1) it addressed none of the stipulated issues; and (2) it only addressed matters which were expressly prohibited.

19.On 25 April 2019, the Plaintiffs’ solicitors wrote to HWY recording that the Unless Order was not complied with and, as a result, the Defendants’ Report was inadmissible.

20.On 16 October 2019, after some 6 months since the sanction under the Unless Order took effect, the Defendants took out an application by Summons seeking relief from sanction (“1^st Application”).

21.By an order dated 22 April 2020, Master Hui dismissed the 1^st Application and ordered that the Defendants’ Report be expunged for the reasons set out in a letter dated 22 April 2020 that was sent to the parties. In particular, the learned Master took the view that the Defendants’ Report “is a complete disregard of the [Expert Directions] … [and] is not an expert report permitted by the [same]”.

22.[Prior to the CMC for this action held on 10 September 2020, the Defendants discovered to their amazement the existence of the Unless Order and that of Master Hui. The Defendants decided to terminate the instructions to Lam (and HWY) and represented themselves.]

23.At the CMC, the court noted the failure of the Defendants to file any accounting evidence. Leave was given to the Plaintiffs to set these matters down for trial, which is to commence on 10 July 2023 (to be heard together with HCA 1382/2011) with 28 days reserved.

24.[New solicitors were engaged by the Defendants in November 2020.]

25.More than a year after the CMC, on 8 October 2021 the Defendants took out this 2^nd Application seeking relief from sanction imposed under the Unless Order.

Applicable principles

26.The proper approach in determining whether to grant relief from sanction for failure to comply with an unless order was set out by Lam VP (as he then was) in The IO of Yue Sun Mansion v Lake Side Elderly Centre Ltd, unrep, HCMP 556/2017, 25 October 2017, [12]:

“Order 2 Rule 5 directs the court to have regard to all the circumstances of the case including the matters set out at Rule 5(1) in an application for relief. Those matters, though helpful as a checklist of relevant factors, are not meant to be exhaustive. They serve to highlight the grant of relief is discretionary and one must have regard to the facts and circumstances of the case in the exercise of discretion bearing in mind the different interests and different factors involved. It is a multi-facet balancing exercise with no single factor being conclusive.”

27.In Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606, Fok J (as he then was) held at [41]:

“… 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 O.2 r.5 of the Rules of the High Court, the court should consider all the individual circumstances … 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 … 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 (O.1A r.3 of the [RHC]) and on the court to do so by actively managing cases (O.1A r.4(1) of the [RHC]).”

28.“It is not in the interests of administration of justice to relieve a party from his obligation under an unless order save where the most compelling reason is advanced to exempt his failure”: see Yang Kerwin Catherine v Woo Ma Man [2019] HKCFI 3032 at [26], per P Ng J.

Analysis

29.It should be said at the outset that the Defendants’ evidence that they were kept in the dark by Lam as well as being misled by him on the developments in these proceedings, in particular the production of expert evidence, was corroborated by not only the evidence of the 2^nd Defendant but also that of Yan.

30.Further, there are documentary evidence, such as Whatsapp messages, which showed that Lam was stalling for time when chased repeatedly by the 2^nd Defendant on the progress of the expert report. It appeared that Lam did not have a good grasp on the details of this case, eg, he was apparently unaware of or had forgotten about the limitations prescribed in the Expert Directions and thus the preparation of the Defendants’ Report was a complete waste. Lam showed more interest in keeping this case, no doubt for financial reward, rather than providing a proper service to the Defendants and to ensure that their interests in these matters were protected.

31.As regards the gap of 11 months from instructing new solicitors to the 2^nd Application (November 2020 to October 2021), I accept as reasonable the Defendants’ evidence that they had to seek legal advice and to have a proper expert report prepared by Yan, one which complied with the Expert Directions. Yan had to leave Hong Kong for England during May to August 2021. He was only back in action after quarantine in early September 2021. Given the difficulties caused by the Pandemic, I accept that there was no culpable delay in making the 2^nd Application, which is supported by a fresh report from Yan.

32.In light of the above, unfortunate as it may be, justice demands that the Defendants should not be held responsible for the harsh consequence of the Unless Order. They should be given the opportunity to adduce the report on valuation of the Factory for the purpose of defending this action which involves allegations of fraud against them.

33.As regard the adverse impact on the forthcoming trial, which is 7 months away, the issue identified by the Plaintiff concerns the meeting of their expert with Yan and the preparation of a joint report by them. I believe that those exercises can be completed before the PTR.

34.For these reasons, I grant the order sought in paras 1 to 3 of the Summons. The Defendants have agreed to bear the costs of and occasioned by this Application, which I accept to be fair. Accordingly, I order that the costs of and occasioned by this Application be borne by the Defendants, to be taxed if not agreed.

35.Finally, the parties should endeavour to agree directions for the preparation of the valuation evidence for trial (as identified in para 33 above) to be ready for review at the PTR. Draft agreed directions should be submitted to the court for approval by 2:30pm on 20 December 2022. Unreasonableness may be penalised on costs.