Wesoft Nationmark Ltd v. Nationmark (H.K.) Ltd and Others

HCA 724/2019 and HCA 1317/2019

[2023] HKCFI 3322

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 724 OF 2019 AND ACTION NO 1317 OF 2019

(TRANSFERRED FROM LBTC NO 1492 OF 2019)

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(Consolidated by the Order of Master Lai dated 30 August 2019)

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REASONS FOR DECISION

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1.The 10^th and 11^th Defendants took out the Summons dated 16 November 2023 for the stay of execution of the Order of Master Grace Chow dated 21 September 2023 that the 10^th and 11^th Defendants do provide Answers to Request 4 of the Plaintiff’s Request for Further and Better Particulars dated 25 May 2023 pending the determination of the Appeal against the Master’s decision.

2.At the hearing, the Summons was dismissed on both the grounds of abuse of process and on merits with reasons reserved.

Background

3.The factual background of the case was set out in the Judgment of B Chu J dated 18 January 2022 dealing with an appeal against summary judgment against the 1^st to 3^rd Defendants (on separate matters).

4.To put it succinctly for the present purpose, the case is essentially a dispute between the shareholders of the Plaintiff, namely First Joint Limited (“First Joint”) holding 60% of the issued shares of the Plaintiff, and the 1^st Defendant holding the remaining 40%.

5.First Joint is wholly owned by WeSoft Holdings Limited (“Wesoft Holdings”) with its principal business in software development, quality assurance and testing.  WeSoft Holdings was controlled by TW Poon and Victor Poon.

6.Before the incorporation of the Plaintiff, the 1^st Defendant was engaged in the business including hardware maintenance and sale of computer hardware (“Business”).  The 1^st Defendant is owned and controlled by the 2^nd and 3^rd Defendants.

7.The 2^nd and 3^rd Defendants also owned and controlled the 10^th Defendant with the business in sale, renting and maintenance of computer hardware, and the 11^th Defendant which was engaged in internet services.

8.In 2015, a joint venture scheme was formed between the owners of WeSoft Holdings and the 2^nd and 3^rd Defendants in that: (i) a new company would be incorporated; (ii) WeSoft Holdings or its associate would acquire 60 % and the 1^st Defendant 40% of the new company; and (iii) the 1^st Defendant would transfer its Business and certain assets and the Customer Contracts (as defined including the 152 existing customers of the 1^st Defendant) by novation to the new company, and pending the novation, to continue deal with those customers for and on behalf of the new company.

9.Subsequently on 2 September 2015, the new company, i.e. the Plaintiff, was incorporated with the shareholdings mentioned above.  The 2^nd Defendant was employed as the Managing Director of the Plaintiff, and the 3^rd Defendant as the accountant.

10.The 4^th to 9^th Defendants were employees of the 1^st Defendant with employment transferred to the Plaintiff.

11.A Deed of Non-competition was entered into between the Plaintiff and the 1^st Defendant.

12.The Plaintiff’s case is that the 2^nd and 3^rd Defendants, by themselves and through the 10^th and 11^th Defendants, enticed and poached the customers and business of the Plaintiff, and also enticed the breach of employment contract of the 4^th to 9^th Defendants with the Plaintiff, who in turn enticed and poached the customers and business of the Plaintiff.

13.The 10^th and 11^th Defendants’ case is that they were expressly exempted from the Deed of Non-competition.

14.In the Defence of the 10^th and 11^th Defendants, para. 8 pleaded that:

“As such, the 10^th and 11^th Defendants aver that it is the intention of the contracting parties thereof that it is permissible for the 10^th and/or 11^th Defendants to conduct their principal business with their customers that pre-existed the Plaintiff or new customers or responding to inquiry from these customers or potential customers.”

15.The Plaintiff has served the Request for Further and Better Particulars of the Defence of the 10^th and 11^th Defendants on 25 May 2023.  Under Request 4 on para. 8 of the Defence of the 10^th and 11^th Defendants, the Plaintiff requested:

“4.1 Please provide full particulars of the alleged customers that pre-existed the Plaintiff.

4.2 Please provide full particulars of the alleged new customers.

4.3 Please provide full particulars of the alleged potential customers which the 10^th or the 11^th Defendant had allegedly responded their inquiries.

4.4 In respect of the alleged customers with which the 10^th or the 11^th Defendant had allegedly responded their inquiries, please give full particulars of :-

(a) the alleged inquiries raised by them;

(b) the date and time of allegedly making such inquiries;

(c) the circumstances; and

(d) the responses from the 10^th or the 11^th Defendant, if any.”

Related Proceedings

16.The Plaintiff took out the Summons dated 15 June 2023 before a Master to order the 10^th and 11^th Defendants to give Answers to the Request for Further and Better Particulars to their Defence.

17.On 21 September 2023 (reasons on 29 September 2023), Master Grace Chow ordered the 10^th and 11^th Defendants to give Answers to, amongst others, Request 4.

18.Then the 10^th and 11^th Defendants took out the Summons dated 5 October 2023 before Master Grace Chow for the stay of execution of her order on 21 September 2023.  The Summons for stay was dismissed by Master Grace Chow on 7 November 2023.

19.The 10^th and 11^th Defendants appealed against the Master’s decision on ordering the Further and Better Particulars, which was set down for hearing before a Judge of the Court of First Instance on 5 February 2024 (“Substantive Appeal”).

20.The 10^th and 11^th Defendants also appealed against the Master’s refusal for stay of the order on serving Answers to the Requests of Further and Better Particulars, set down for hearing before a another Judge of the Court of First Instance on 8 January 2024 (“Stay Appeal”).

21.At the same time of filing the Notice for the Stay Appeal, the present summons for stay pending the Substantive Appeal was taken out.  And the present Summons was listed for hearing on an earlier date than the Stay Appeal when the estimate of two hours was revised to half an hour.

Abuse of Process

22.Mr Chiu, for the Plaintiff, submitted that the present Summons is an abuse of process.  The 10^th and 11^th Defendants had failed to obtain an interim stay before Master Grace Chow pending the Substantive Appeal, and also lodged the Stay Appeal. The present application is an abuse of process because it effectively bypasses the appeal procedures which the 10^th and 11^th Defendants have themselves commenced.

23.It has been held that except by way of appeal, no court, judge or master has power to rehear, review, alter any judgment or order (see Sanyo Electric Trading Co Ltd v Leung Kwok Hing [1993] 1 HKLR 253 per Keith J at 256-257; Ridge Ltd v Golden Castle Ltd (HCA 122/2005, 27 July 2005 per Sakhrani J at [3]–[7]).

24.It has also been held that it is wholly inappropriate to circumvent the hearing of the appeal to make a pre-emptive application to seek the same relief (see Chak Choi Kwan v Daisy Lai & Ors (HCA 1241/2015, 6 November 2015 per DHCJ Marlene Ng at [64]).

25.Mr Chiu submitted that 10^th and 11^th Defendants’ application for stay pending appeal brought before a judge is procedurally flawed and amounts to an abuse of the court’s process and it should be dismissed (see Source View Development Ltd v Tang Kam Cheung (鄧錦祥) [2022] 2 HKLRD 1 per DHCJ Winnie Tsui at [25].

26.In Source View, DHCJ Winnie Tsui observed that:

“25. Where a master makes a substantive order and an appeal against that order lies to a judge, if the aggrieved party wishes to stay the execution of the substantive order pending the appeal, generally speaking, the proper course for him to take would be to make the stay application before the master who made the substantive order. The application should be made by summons. Any evidence which he proposes to rely on should be adduced by way of an affidavit.

…

28. If the master refuses the stay application, the proper next step for the aggrieved party is to lodge an appeal against the master’s refusal to stay. That appeal would lie to a judge under Order 58, rule 1(1). This appeal framework was confirmed to be the correct procedure by Ma J (as he then was) in Brand, Farrar, Buxbaum LLP v Samuel-Rozenbaum Diamond Limited HCA 5191/1998, 8 May 2002 at para 10.”

27.In Brand, Farrar, Buxbaum LLP v Samuel-Rozenbaum Diamond Limited & anor(HCA 5191/1998) per Ma J (as the Chief Justice then was) referred to in Source View cited above, the situation is not dissimilar to the present case.

28.There, the plaintiff obtained default judgment against the defendants.  A writ of fieri facias was issued and the bailiff seized a quantity of diamonds and other chattels at a trade fair.  The claimant claimed that the diamonds belong to it and should not have been seized.  The bailiff issued an interpleader summons. After the substantive hearing, the Master dismissed the claimant’s claim and ordered the sale of the diamonds.  After the Master’s decision was announced, the claimant asked for a stay of execution of the order pending an intended appeal.  The Master dismissed the application for stay thereat.

29.An appeal against the Master’s decision on the interpleader was filed.  Thereafter, the solicitor for the claimant, mistaken that the Master had not dealt with the application for stay and acting good faith, made another application for stay of execution ex parte before the Registrar.  An interim stay until the return day was granted.  After clarification that that the Master had in fact dismissed the stay, the claimant withdrew the summons for stay and sought to have the order for interim stay discharged.

30.The claimant filed a notice of appeal against the Master’s decision on the interpleader, and 6 days later, the claimant filed a second notice of appeal against the Master’s refusal to stay the execution.

31.On the same day of the second notice of appeal, the claimant applied ex parte for an interim stay before a Judge which was granted.

32.Ma J, in dealing with the continuation of the interim stay of execution granted ex parte to the claimant by the Judge, observed that an appeal against the Master’s refusal to stay execution was the correct procedure to adopt.

33.Ma J stated that in the case of appeals from the Court of First Instance to the Court of Appeal, there is concurrent jurisdiction to grant stay of execution by either Court, so that if a judge at First Instance refused a stay, an application can be made to a judge in the Court of Appeal under O.59 r.13(1), Rules of the High Court (Cap. 4A) without the need to appeal.  However, the concurrent jurisdiction does not exist in relation to appeals from masters to the Court of First Instance because the applicable rule for stay is O.58 r.1(4) and is differently worded from O.59 r.13(1).

34.The two rules referred to are set out here.  Under O.59 r.13(1):

“Except so far as the court below or the Court of Appeal or a single judge may otherwise direct—

(a) an appeal shall not operate as a stay of execution or of proceedings under the decision of the court below;

(b) no intermediate act or proceeding shall be invalidated by an appeal.”

35.But under O.58 r.1(4):

“Except so far as the Court may otherwise direct, an appeal under this rule shall not operate as a stay of the proceedings in which the appeal is brought.”

36.Hence, Ma J held that the appeal against the Master’s refusal to stay execution was the correct procedure to adopt. And where by the time of hearing the appeal the matter would have become academic, the better course was for the claimant to ask for an expedited hearing date for the appeal rather than as for an interim stay of execution pending the appeal before another Judge.

37.Mr Wong, for the 10^th and 11^th Defendants, submitted that the wording of this Summons that the interim stay be pending the Substantive Appeal was perhaps infelicitous, and should have been pending the Stay Appeal.

38.Be that as it may, it would not have made any difference given the analysis in Brand, Farrar, Buxbaum LLP v Samuel-Rozenbaum Diamond Limited.

39.In this case, as the 10^th and 11^th Defendants have already lodged the stay appeal against the Master’s refusal of stay, it is an abuse of process to bring a pre-emptive application before another Judge to hear the same matter afresh.

Merits

40.At the hearing, the grounds for the dismissal of the Summons were both procedural abuse as well as on merits.  By reason of the conclusion of lack of concurrent jurisdiction, it is not necessary to deal with the merits.  Also, it is not desirable to delve into the merits as the Stay Appeal is to be heard before another Judge in chambers.

Conclusion

41.For the reason stated above, the application by the 10^th and 11^th Defendants was dismissed.

Mr Byron Chiu, instructed by Kao, Lee & Yip, for the Plaintiff

Mr Samuel Wong, instructed by Sit, Fung, Kwong & Shum, for the 10^th and 11^th Defendants