Cmbicdha W Investments Ltd v. Li Lei and Others

HCA 905/2020

[2023] HKCFI 1089

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 905 OF 2020

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R E A S O N S    F O R    D E C I S I O N

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1.This is the Plaintiff’s appeal from the order of Master Matthew Leung dated 27 January 2023 dismissing the Plaintiff’s summons dated 17 January 2023 and making an “unless order” (“the 2^nd unless order) described in §6(viii) below against the 1^st, 2^nd and 4^th Defendants (collectively “the Relevant Defendants”). At the conclusion of the hearing, the appeal was dismissed. The Reasons for Decision appear below.

Procedural history

2.The writ in this action was issued on 5 June 2020.

3.On 26 July 2022 the Plaintiff issued its amended summons for discovery.

4.On 7 September 2022, Master Gary CC Lam made an order for discovery of the documents set out in the Schedule to the amended summons to be made by the Relevant Defendants within 28 days (“the specific discovery order”).

5.The Relevant Defendants’ non-compliance with the specific discovery order gave rise to a series of subsequent applications and orders. At about the same time, on 21 October 2022, the Relevant Defendants took out a summons for security for costs.

6.In chronological sequence, they comprise the following:

(i)  on 11 November 2022, the Relevant Defendants’ security for costs summons (“the security for costs summons”) came before the Registrar who gave directions for the filing of affirmations with the substantive hearing fixed for 16 January 2023;

(ii)  on 15 November 2022, the Plaintiff applied for an unless order;

(iii)  3 days later, on 18 November 2022, Master Matthew Leung made an ‘unless order’ (“the 1^st unless order”) to the effect that the Defence of the Relevant Defendants be struck out and the Plaintiff be at liberty to apply for judgment against the Relevant Defendants unless by 4 pm on 16 December 2022 (“the deadline”) the Relevant Defendants shall either (a) serve on the Plaintiff the documents listed in the Schedule to the specific discovery order; or (b) file or serve an affirmation in compliance with paragraph 2 of the specific discovery order;

(iv)  on 2 December 2022, prior to the deadline for compliance with the 1^st unless order, the Relevant Defendants applied for and obtained from the Registrar an interim stay[1] of proceedings in the action pending the outcome of the substantive hearing of the security for costs summons to be heard on 16 January 2023 (“the interim stay”);

(v)  on 16 January 2023, Master Alexander Tang ordered the Plaintiff to provide security in the sum of $2.1 million for the Relevant Defendants’ costs within 35 days and that the action be stayed pending payment;

(vi)  the Plaintiff made payment on the same day;

(vii)  on 17 January 2023, the Plaintiff applied for final judgment to be entered in default of defence pursuant to RHC O.19, r.7 (“the 1^st judgment application”);

(viii)  on 27 January 2023, Master Leung dismissed the Plaintiff’s 1^st judgment application and extended the deadline for compliance with the specific discovery order to “4 pm on 10 February 2023” (“the 2^nd unless order”); and

(ix)  on 10 February 2023, the Plaintiff brought the present appeal to set aside Master Leung’s 2^nd unless order and for default judgment to be entered against the Relevant Defendants.

This appeal

7.The question of law that arises is whether the Relevant Defendants were in breach of the 1^st unless order and, if so, when the breach occurred.

8.In the absence of the interim stay, the answer would be straightforward. RHC O.2, r.4 provides:

“where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for relief from the sanction within 14 days of the failure.”

9.But for the interim stay, it is clear that compliance had to take place “by 4 pm on 16 December 2022”. Central to this appeal is the effect of an interim stay pending compliance with a peremptory order which appears to be relatively uncharted territory.

10.The 1^st unless order required the Relevant Defendants to “serve” on the Plaintiff copies of the documents identified in the specific discovery order or “file or serve” an affirmation in compliance with paragraph 2 specific discovery order.

11.Mr Barrie Barlow SC, leading counsel for the Plaintiff, submitted that the Relevant Defendants are in breach if they allow the deadline to expire without complying with the 1^st unless order.

12.It was submitted that the Relevant Defendants were in breach upon expiration of the deadline during the interim stay while acknowledging except that they were not required “to file anything” until the security for costs summons was heard and the security ordered (if any) provided.

13.Despite that acknowledgement, it is my understanding that the Plaintiff maintained that the breach occurred on 16 December 2023 at 16:01 hours. The Plaintiff’s stance is that a party subject to an unless order takes a risk by not proceeding with discovery required to comply with an unless order albeit that it could neither “file” nor “file or serve” anything because of the interim stay.

14.But the point of granting an interim stay pending the determination of the security for costs summons is to “put a brake on the proceedings[2]” with the consequence that no more costs should be incurred pending the substantive hearing of that summons and payment in (if ordered). When the interim stay came into effect on 2 of December 2022, the Relevant Defendants had another 14 days within which to comply with the 1^st unless order.

15.Logically, no further step in the proceedings could or should be taken during the period of the interim stay in furtherance of the proceedings, subject to specific exceptions granted by the order. For that reason, I have difficulty in understanding how, prior to the lifting of stay, the Relevant Defendants could be or be said to be in breach of the 1^st unless order.

16.The Court was then referred to the receipt issued when payment in was made which shows a date and time stamp of “16/01/2023 04:04 PM”. The Plaintiff’s ‘alternative’ case is that the breach would have occurred at 04:05 pm on 16 January 2023.

17.But when asked whether before any breach could occur the Relevant Defendants must be cognizant of the payment in, the Court was further referred to a time stamp on the Notice of Payment into Court, showing its receipt by the solicitors of the Relevant Defendants at 16:07 on 16 January 2023. It would thus appear that, according to the Plaintiff, 16:08 pm on 16 January 2023 was a further alternative time that the breach would have occurred.

18.Ms Sara Tong SC, leading counsel for the Relevant Defendants disagreed. She submitted that the Relevant Defendants cannot be expected to comply with the unless order while the interim stay was in place. As Neil LJ observed in Rofa Sport Management AG and Another v DHL International (UK) Limited and Another [1989] 1 WLR 902 at 908C-D:

“an order to stay proceedings pending the provision of security is intended to be and takes effect as a temporary brake on proceedings while the party against whom the order is made find the necessary security. Once the security has been provided the brake is removed and the action proceeds.”

19.Moreover, the Plaintiff’s stance that the Relevant Defendants were in breach upon expiration of the deadline on 16 December 2022 does not sit well with the way it chose to frame §1 of 1^st judgment summons dated 17 January 2023[3] and paragraph (ii) of its Notice of Appeal dated 10 February 2023[4], both of which are only consistent with a breach occurring on 16 January 2023 rather than on 16 December 2022.

20.In §12 of the 4^th affirmation of Qui Man Rong dated 24 March 2023 (“Qiu 4^th”) in support of the present appeal, the deponent characterised the unless order as being “revived” upon the Plaintiff’s payment into Court which, again, is inconsistent with the breach having occurred on 16 December 2022.

21.Accordingly, I have no hesitation in rejecting the Plaintiff’s submission that there was any breach of the 1^st unless order while the interim stay remained in force.

22.The Relevant Defendants also do not accept that they were in breach on at any time after the interim stay was uplifted (whether at 16:04 pm when payment in was made or 16:07 pm when they were given notice of the payment in) and 27 January 2023 (when the 2^nd unless order was made) that would trigger the need to apply for relief from sanction pursuant to RHC O.2, r. 4.

23.Ms Tong referred to the decision of Barma J (as he then was) in Wellmart Development Limited v Chan Siu Wan Flora, HCA 1888/2004, unrep., 8 October 2004 which concerned an application by the plaintiff seeking the uplift of the automatic stay of proceedings that arose upon the 1^st defendant’s application for legal aid and for judgment pursuant to RHC O.19, r.7.

24.The effect of section 15(4) of the Legal Aid Ordinance is summarised in Wellmart at §18: the stay operates as a stay of proceedings and suspends the running of time until such time as the stay expires, or such earlier time that the Court uplifts the stay.

25.In that case, when the stay came into effect, the 1^st defendant still had 7 days within which to file her defence. When the stay was lifted, relevantly, Barma J stated that

“21. … the uplifting of the stay does not, in my view, have retrospective effect so as to result in the continued running of time from the date when the stay first arose. On the contrary, it is clear from section 15 (4) of the Legal Aid Ordinance that time does not run during the period while the stay is in place … the effect of my order uplifting the stay would simply be that time will continue to run as from today.

…

25. The effect of my decision will be that … the 1^st Defendant’s defence will have to be filed within 7 days from today, that being the amount of time remaining under the extension of time that had been granted at the time that the automatic stay came into effect.”

26.Wellmart appears to be the only authority where the Court had to consider the effect of an interim stay granted during the currency of an unless order. Ms Tong invited the Court to adopt the Wellmart analysis and approach although the present case does not involve the application of the Legal Aid Ordinance. It would mean that from the moment the stay was uplifted, the Relevant Defendants could still avail themselves of the period of time remaining for compliance with the 1^st unless order.

27.In my view, the interim stay should not (by a side wind as it were) have the effect of penalising the party in whose favour the stay was granted by depriving him of any period of time remaining available for compliance prior to the grant of the stay.

28.Mr Barlow submitted that the Wellmart approach is confined to situations where the legislation specifically provides that time should not run during the statutory stay as in the Legal Aid Ordinance and that it has no wider application. He attached significance to the formulation of the time period for compliance with the 1^st unless order, submitting that the formulation fell within RHC O.3, r.2 (3) rather than r.2 (2)[5].

29.But whether the order specifies a period of time (x number of days) or stipulates a specific date for compliance are merely 2 different ways or formulations for prescribing the time period within which certain acts are to be done.

30.It is relevant to note that under the rubric “Judgment, etc. requiring act to be done: time for doing it”, O.42, r.2 (1) provides as follows:

“2. — (1) Subject to paragraph (2), a judgment or order which requires a person to do an act must specify the time after service of the judgment or order, or some other time, within which is to be done.”

31.It is clear that the 1^st unless order falls within one of 2 common forms of an “unless” order described in the annotation at 42/2/3 and also conforms to the common form set out in 2 (b) of the Practice Direction 16.5 “Peremptory Orders”.

32.The Plaintiff dismissed the annotation at §42/2/3 as mere ‘commentary’ without any attempt to explain why it should be disregarded.

33.In my view, whether or not time stops running would not depend on the formulation used. In other words, whichever of the 2 formulations is applicable cannot affect the analysis of the effect of an interim stay granted during the period of compliance with an unless order.

34.Simply put, the question is whether an interim stay should deprive the applicant for security of the remaining period of time it had for complying with the peremptory order, a matter to which I have alluded in §27 above.

35.In my view, in the absence of any express provision to the contrary, implicit in a stay is an interruption which would only be consistent with time stopping to run. No such express provision was incorporated into the order for a stay that was granted when the parties were fully aware of the 1^st unless order.

36.Absent any compelling reason (and none was put forward by the Plaintiff) why a stay should not stop time from running, it stands to reason that the Relevant Defendants could avail themselves of the remaining period for compliance.

37.The Relevant Defendants submitted that the Plaintiff’s position leads to an absurd result, makes no practical sense and defeats the purpose of an interim stay. I agree.

38.For the reasons stated above, the appeal was dismissed.

Costs

39.Ms Tong sought costs on indemnity basis for the following reasons: (a) the interim stay did not feature in the Plaintiff’s written skeleton; (b) the 1^st judgment application was made on 17 January 2023, the day after the payment in which is highly oppressive given that the specific discovery order was very wide and was not something that could be done overnight; and (c) the appeal was not pursued in good faith in that it is additional pressure on and a distraction for the Relevant Defendants at a time when they were seeking to comply the 1^st unless order.

40.As regards (a), Mr Barlow referred to §18 the Plaintiff’s skeleton which refers to Qiu 4^th where, at §8, the interim stay was mentioned as part of the narrative of the procedural history.

41.With respect, when the effect of the interim stay imposed in the course of the period of compliance of an unless order is the crucial issue of law that arises, the interim order and its effect (if any) on the stay should have featured prominently in the Plaintiff’s written submissions. The fact that it was mentioned in passing in a supporting affirmation rather than in the written submissions themselves is beside the point. By adopting that approach, the Plaintiff was sailing pretty close to the wind.

42.The matters highlighted by the Relevant Defendants are relevant considerations that could well merit costs on an indemnity basis but for the fact that there is no direct authority on question of law that arises.

43.In those circumstances, the Plaintiff was given the benefit of the doubt and costs were awarded to the Relevant Defendants on a party and party basis with certificate for 2 counsel, such costs to be summarily assessed in Chambers in accordance with the directions given at the hearing.

Mr Barrie Barlow SC and Mr Keith Tam, instructed by Jones Day, for the Plaintiff

Ms Sara Tong SC and Mr Keith Chan, instructed by Guantao & Chow Solicitors and Notaries, for the 1^st, 2^nd and 4^th Defendants