Chan Chung Sing v. Chan Andy Yuan and Another

HCA 1582/2017

[2024] HKCFI 536

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1582 OF 2017

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D E C I S I O N

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A.  INTRODUCTION

1.This is the Plaintiff’s application, out of time, for relief against sanction.

2.On 11 December 2020, Registrar Kwang ordered, amongst others, that unless the Plaintiff do take out applications for amendment, joinder of parties and discovery on or before 4:30pm on 8 January 2021,the Plaintiff’s action against the Defendants be dismissed without further order, with costs of the action to the Defendants, to be taxed if not agreed (“Unless Order”).

3.8 January 2021 went by without the Plaintiff taking out any application for discovery, though he did take out applications for amendment of his Statement of Claim (“SOC”) and joinder of Qupital Limited (“Qupital”) as an additional defendant on that day.  The Unless Order therefore took effect automatically, and the Plaintiff’s action against the Defendants was dismissed on 8 January 2021. 

4.On 21 August 2023, the Plaintiff issued a Notice of Appeal appealing against the Unless Order, contending, amongst others, that the costs of the action, if it was dismissed pursuant to the Unless Order should be borne by his former solicitors, Messrs TC Wong & Co (“TCW”) instead of him personally, but accepts that, in any event, the costs of the appeal should be awarded to the Defendants.

5.Subsequently, on 22 September 2023, the Plaintiff issued a summons for relief from the sanction imposed by the Unless Order (“Relief Summons”), seeking, amongst others, the following orders:

(1)  Leave be granted to the Plaintiff to apply for relief from sanction of the Unless Order out of time and extension of time for compliance with the Unless Order for 7 days^[1]; and

(2)  Upon compliance with the Unless Order, the Plaintiff’s claim in this action be reinstated.

6.8 days before the present hearing, the Plaintiff decided not to proceed with the Notice of Appeal.  Accordingly, I shall dismiss the appeal and what remains is the question of costs.  

7.As for the Relief Summons, the Plaintiff essentially contends that he had no deliberate intention to ignore and disobey the Unless Order and other orders/ directions made by the Court:

(1)  The breach of the Unless Order and other failures to comply with various court orders / directions elaborated in §13 below) were due to the fault or negligence on the part of TCW (“Ground 1”).

(2)  He had not been aware of the need to seek relief from sanction until the hearing of the Plaintiff’s summons for stay of execution of the Unless Order (“Stay Summons”) on 31 August 2023 (“Ground 2”).

8.The Relief Summons is opposed by the Defendants.  In gist, their grounds of opposition are as follows:

(1)  The sanction ought to be upheld unless there is a compelling reason advanced by the defaulting party to displace the same.

(2)  There was a series of flagrant breaches of court orders on the Plaintiff’s part (both in leading to the imposition of the Unless Order, as well as the breach of the Unless Order itself);

(3)  Modern case authorities say that shifting blame to former solicitors is not a good reason to grant relief and the proper recourse (if at all) is for the Plaintiff to sue his former solicitors;

(4)  No meaningful and acceptable explanation was given on why no action for the inordinate delay in seeking relief from sanction until September 2023; and

(5)  The Defendants would suffer irreparable and irremediable prejudice if relief is granted.

B.  FACTUAL BACKGROUND AND PROCEDURAL HISTORY

9.The factual background and procedural history are largely taken from the written submission of Mr Martin Ho, counsel for the Defendants.

10.The Plaintiff’s pleaded case in his Amended Statement of Claim (“ASOC”), in gist, is that:

(1)  In about late October 2015, the Plaintiff and D1 agreed to set up a FinTech business together.

(2)  Pursuant to an oral agreement entered into around November 2015, the Plaintiff and D1 agreed that they would be partners of the business on an equal basis holding a total of 70%, with 30% allocated to third party investors.  The business would be pursued by a newly established company.

(3)  In February 2016, D1 found the investor D2.  It was agreed orally and partly inferred from conduct that D2 would be a minority shareholder providing capital.  The Plaintiff and D1 would undertake work to found and develop the business (“the Agreement”).

(4)  In about March 2016, Qupital was formed by D2 to run the business.  There was a common understanding that D2 was holding the shares in Qupital as nominee for the Plaintiff, D1, a third party called “Winston (Wong)” and another nominal shareholder.

(5)  On the understanding that D1 was to be treated as one of the partners of the business and one of the founding members of Qupital, the Plaintiff contributed his knowledge, skills and experience to found and develop the business until April 2016 when he was barred from participating in the business.

(6)  There was subsequently dispute between the investors as to how the shareholding should be allocated, including whether any shares would be allocated to the Plaintiff at all.

(7)  The Plaintiff therefore contends that the Defendants have been in breach of the Agreement by barring the Plaintiff from participation in the development of the business and refusing to give any shares in Qupital to the Plaintiff. 

(8)  Up to November 2021, Qupital had raised US$150 million through equity funding, with participation from funds including Alibaba Entrepreneurs Fund.

11.Meanwhile, the Defendants deny the existence of the alleged Agreement or understandings, and say that only preliminary discussions took place regarding the potential FinTech business.  Upon the incorporation of Qupital, there was an offer to allocate 14% shareholding to the Plaintiff, to which the Plaintiff turned down.  The contribution of the Plaintiff to the business was de minimis.

12.The present action was commenced on 5 July 2017.

13.For present purposes, there had been various procedural defaults/breaches of court orders on the part of the Plaintiff, which led to imposition of the Unless Order:

(1)  By an order of Master Hui dated 12 April 2019, it was ordered that the parties were not to engage in unilateral communications with the Single Joint Expert (“SJE”) and for the fees of the SJE to be borne by both camps equally.  However, (a) the Plaintiff engaged in unilateral communications with the SJE without copying the Defendants’ solicitors (to which the Plaintiff explained that he was only replying to the SJE’s email that the joint expert fee had been paid), and (b) the Plaintiff failed to pay his portion of the SJE fees.

(2)  By an order of Master Hui dated 13 January 2020, it was ordered, amongst others, that the Plaintiff do file a mediation response within 14 days (i.e. by 27 January 2020) and that unless the Plaintiff do take out an application to file and serve supplemental witness statements within 21 days, the Plaintiff was deemed to have made no such application.  However, the Plaintiff only filed his mediation response on 25 May 2020 (i.e. almost 4 months late).  He failed to take out any application to file and serve supplemental witness statements. That failure was a default, but not a breach of court order and the order was not truly an unless order: Lam Cheuk Ting v Ho Kwan Yin [2023] HKCFI 454, §§9-10.

(3)  By a summons dated 12 March 2020, the Plaintiff sought relief from sanctions in relation to his being debarred from the filing and serving of a supplemental witness statement with no supporting affirmation filed.  The Plaintiff also failed to attend the hearing before Master Dick Ho on 13 May 2020.  The relief application was dismissed for want of prosecution with costs payable forthwith.  The costs order was only settled by the Plaintiff on 22 March 2023 (i.e. almost 3 years later).

(4)  By an order of Master Winnie Tsui dated 29 April 2020, the parties were to file their respective listing questionnaires by 20 May 2020.  The Plaintiff did so only on 25 May 2020 (i.e. 5 days late) and failed to provide any explanation for the delay.

(5)  By a further order of Master Winnie Tsui dated 29 May 2020, the Plaintiff was asked to write to the Court by 5 June 2020 to explain why he failed to comply with the Master’s order of 29 April 2020.  However, no reply was given.

(6)  By an order of Master Winnie Tsui dated 10 August 2020, it was ordered, amongst others, that the Plaintiff do on or before 24 August 2020 take out applications for amendment, joinder and discovery as indicated in his listing questionnaire, failing which the Plaintiff would be taken to have made no such application. No such applications were taken by the Plaintiff.  Although this was a default, it was not a breach of a court order and the order was not truly an unless order : Lam Cheuk Ting v Ho Kwan Yin above.

(7)  By an order of Master Dick Ho dated 30 November 2020, the parties were required to file and serve an updated timetabling questionnaire by 4pm on 18 December 2020.  No such updated timetabling questionnaire was filed by the Plaintiff. 

(8)  By a further order of Master Ho dated 22 December 2020, the Plaintiff’s solicitors were required to explain why the Master’s order of 30 November 2020 was not complied with.  Again, such court direction was not complied with. 

(9)  By a further order of Master Dick Ho dated 5 January 2021, the Senior Partner of TCW, Peter Wong, was required to write to the Court by 15 January 2021 to explain the Plaintiff’s repeated non-compliance with the Court’s orders/directions.  TCW replied on 11 January 2021 placing the delay mostly on the Plaintiff’s counsel and indicated that while the failure to report was the firm’s fault, the firm did report the matter to the Plaintiff.

14.Against the above background, the Defendants took out a summons on 22 October 2020 seeking security for costs under Order 2 rule 3 of RHC (“Security Summons”). 

15.At the hearing of the Security Summons on 11 December 2020, Registrar Kwang took the view that it may be more appropriate to deal with the Plaintiff’s breaches directly either by imposing an unless order or dismissing the case of want of prosecution and abuse of process.  As a result, the Registrar made the Unless Order, with the Security Summons adjourned sine dine with liberty to restore.

16.As noted in §3 above, the Plaintiff only took out an amendment application and joinder application, but did not take out any discovery application by 8 January 2021.  Therefore, the sanction under the Unless Order automatically took effect and the action stood dismissed on 8 January 2021.  By then 3½ years had gone by since commencement of the action.

17.On 24 February 2021, the Plaintiff’s amendment application and joinder application were heard by Master Tse.  Master Tse expressly pointed out to TCW that the sanction under the Unless Order operated automatically such that the action was already dismissed on 8 January 2021.  Master Tse dismissed the 2 applications with indemnity costs to be borne by TCW.  The Plaintiff was physically present at the hearing.

18.In July 2021, TCW ceased to act as the Plaintiff’s solicitors.

19.Nothing was the done by the Plaintiff for 2 years until he commenced a new action in HCA 40/2023 on 11 January 2023 against Qupital (“2023 Action”), advancing a case on essentially the same factual matrix as the present action.

20.On 8 March 2023, Qupital applied to strike out the 2023 Action on the ground of abuse of process.  After hearing arguments, Master Dick Ho struck out the 2023 Action on 21 June 2023.  The Plaintiff appealed against Master Dick Ho’s order.  On 24 November 2023, DHCJ H Au-Yeung dismissed the appeal in [2023] HKCFI 3042.

21.Back to the present action, on 24 March 2023, the Defendants issued a summons seeking leave to file and serve a Notice of Commencement of Taxation.  The application was opposed by the Plaintiff on the basis that TCW should bear the costs of the action.

22.On 4 April 2023, the Defendants obtained leave to commence taxation against the Plaintiff in respect of costs of this action.

23.On 6 May 2023, the Plaintiff took out a summons to set aside leave for taxation and sought an order that TCW be personally responsible for all costs associated with this action.  The Plaintiff’s application was dismissed with costs by Master Lai on 16 May 2023.

24.On 21 August 2023, the Plaintiff took out the Notice of Appeal.

25.On 22 August 2023, the Plaintiff took out the Stay Summons for a stay of the Unless Order pending the appeal against the Unless Order.  The Stay Summons was dismissed by Registrar Kwang on 29 September 2023.

26.On 22 September 2023, the Plaintiff took out the Relief Summons.

C.  RELEVANT LEGAL PRINCIPLES ON RELIEF FROM SANCTION

27.The primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties (O.1A, r.2 (2) of Rules of High Court (Cap.4A)).

28.Under Order 2, rule 4 of the Rules of High Court (Cap. 4A) (“RHC”):

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

29.The relevant circumstances for the Court’s consideration are set out in Order 2, rule 5(1) of RHC. 

30.Non-compliance with the rules shall be treated as an irregularity, which the Court has the discretion to cure on terms of costs or otherwise as it thinks fit: Order 2, rule 1 of RHC.

31.Non-compliance with a peremptory order is contumelious where it is the result of the litigant’s conscious and deliberate decision to ignore or disobey the court order in the absence of any extraneous excuse.  Such deliberate conduct may be contrasted, for instance, with cases where the litigant has made a serious effort to comply in good faith but has been unsuccessful through bad luck or incompetence, or with cases where the litigant has not complied because of circumstances outside his control (including cases where his solicitor has negligently or otherwise missed the deadline through no fault of the litigant).  See Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 §34, Fok J (as he then was).

32.Refusal of relief from sanction is not limited to intentional and contumelious defaults.  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 as to decline relief.  Any other conclusion would be to ignore the positive duty placed on parties to assist the Court to further the underlying objectives of Order 1A, rule 3, and on the Court to do so by actively managing cases: see Top One International, at §41.

33.The burden is on the defaulting part to demonstrate the same “with cogent and compelling evidence” that the failure was not intentional or contumelious and was caused by circumstances beyond his control: Duracell US Operations Inc v Matsushima Electric (HK) Co Ltd [2018] HKCFI 347 at §71 per Deputy Judge Joseph Kwan.

34.A weighty factor in the weighing exercise to be undertaken by the court is the question of proportionality of the sanction in the circumstances of the case; and the court will generally use striking-out as a remedy of last resort and is encouraged to consider other measures that may be more appropriate to be taken: Daimler AG v Leiduck [2012] 3 HKLRD 119 §§57 & 66; 莊裕安 v醫院管理局 [2024] HKCA 156, §§24-34.  This is because the immediate purpose of an unless order is not to punish misconduct but to secure a fair trial in accordance with the due process of law.  The draconian sanction of striking out a claim in its entirety should not be the default consequence of an unless order because it would effectively deprive the litigant of its substantive right on account of procedural default:  Bruce James Stinson v Gu Ming Gao [2019] HKCFI 43, §§165-166, DHCJ M Ng (as she then was).

35.Further, in considering whether to extend time for an application seeking relief from sanctions, the Court has to consider all relevant factors, particularly (i) the length of the delay, (ii) the reasons for the delay, (iii) the merits of the proposed application for relief from sanction  – which will bring into focus the 10 factors listed in Order 2 rule 5(1), and (iv) the degree of prejudice to the other party: Bruce James Stinson, at §144.

D.  SHOULD RELIEF FROM SANCTION BE GRANTED?

D1.  Ground 1 – Fault/negligence on the part of TCW

36.The Defendants drew this Court’s attention to instances of defaults / breaches on the part of the Plaintiff (i.e. excluding item (9) set out in §13 above) and the breach of the Unless Order itself), which occurred in 1 year and 9 months between April 2019 and 8 January 2021.  

37.The Plaintiff submits that the defaults / breaches were due to the fault or negligence on the part of TCW, and that TCW had misunderstood the scope of the Unless Order (transcript at A4/53/600E-601B).

38.In this regard, it is recorded in a letter from the Law Society of Hong Kong dated 24 February 2023 (“LS Letter”) that:

“A Letter of Disapproval be sent to Mr. Wong Ting Chun of Messrs. T C Wong & Co (“the Firm”) for breaches of Rules 2(c), (d) and (e) of the Solicitors’ Practice Rules principles 5.12 and 5.17 of the Hong Kong Solicitors’ Guide to Professional Conduct (Volume 1)(3^rd Edition) in that he had admitted that he had failed to keep Mr. Chan Chung Sing (“Mr. Chan”) properly informed of the status of the proceedings HCA 1582/2017 (“the Proceedings”) during the period from 12 March 2020 to 14 July 2021, and that he had not exercised reasonable care and skill in handling the Proceedings by failing to attend the hearing of the summons dated 12 March 2020, which was returnable on 13 May 2020 and in preparing the summons dated 8 January 2021.”(underline added)

39.Accordingly, most of the defaults / breaches occurred during the period when TCW was found by the Law Society to be at fault.  It was probable that the Plaintiff was not aware of the Unless Order itself.

40.Replying upon 3 English Cases, Mr Martin Ho submits that, even if the defaults or breaches were caused by TCW, the Plaintiff could not hide behind the negligence of TCW.

(1)  Mitchell v News Group Newspapers Ltd [2014] 1 WLR 795, §41 where the English Court of Appeal held that solicitors’ negligence (due to being overworked) was not a good reason to exercise the discretion to grant relief from sanctions as “the need to comply with rules, practice directions and court orders is essential if litigation is to be conducted in an efficient manner.”

(2)  Gladwin v Bogescu [2017] EWHC 1287 (QB), §31, where Turner J refused to grant relief from sanctions even though the default was caused by legal advisers and observed that “it causes greater harm in the longer term to spare litigants the consequences of their lawyers’ defaults” and “tolerance of lawyer’s default encourages sloppy practice and satellite litigation, thereby making litigation more hazardous and the cost more unpredictable.” 

(3)  Clearway Drainage Systems Ltd  v Miles Smith Ltd (unreported, 21 June 2016, 2016 WL 04446413) where the judge refused to grant relief from sanctions for the filing of supplemental witness statements even though the default was caused by the claimant’s legal representatives. 

41.However, care must be taken when applying the English authorities.  This is because CPR r.3.9(1) is not a complete parallel of Order 2, rule 5(1).  The CPR r.3.9(1) provides that,

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction of court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need – (a) for litigation to be conducted efficiently and at proportionate costs; and (b) to enforce compliance with rules, practice directions and orders.”

Amongst others, the Hong Kong Order 2, rule 5(1)(f) (which makes a distinction between fault of the litigant and that of the legal representative) does not exist in the CPR rule 3.9(1).  See Mitchell v News Group, §§23-24.

42.In HK, Order 2, rule 5(1)(f) is still in our statute books:

(1)  In DP Properties Ltd v E Cube Club (Tsuen Wan) Ltd & Anor [2020] HKCFI 1252, §42, Recorder Manzoni SC held that:

“… Having regard to the proposition that relief from sanctions, and preventing a party from coming to court at all should be a matter of last resort, and to the need for proportionality in imposing sanctions, and in particular having regard to the fact that the legislature has decided expressly (in RHC Order 2 rule 5) to require the court to consider whether the default was not caused by lawyers or parties, the court should not equate default of the lawyers with default of the parties for the purpose of addressing relief from sanctions.” (underline added)

(2)  In Far East Sourcing Ltd v Man Bong International Ltd & Another (unrep. HCA 1463/2012, 29 April 2015), DHCJ Sakhrani set aside the default judgment because non-compliance of the unless order for not supplying the documents was due to the negligence of the solicitor, to whom the defendant had given all the documents (§§56-60).

(3)  There is of course nothing to prevent the court from refusing relief despite the fact that the fault lay with the solicitor. In Jose Miranda Da Costa Junior & Anor v Lorenzo Yih (unrep., HCA 156/2010, 22 August 2014), DHCJ Le Pichon refused the applicant’s application to extend the time for payment in of the security though the solicitor had admitted fault on his part.  In particular, the learned Judge noted at §§58 and 69 that while the solicitors accepted full responsibility for the breach, it does not follow that the applicant would be entitled to relief.  On the facts of that case, when deciding to refuse to grant relief from sanction, the Court also took into account other matters including, amongst others, that the solicitors had not been honest in informing the Court the true reason for the breach when they applied for relief and that the tactical maneouvrings of the applicant had significantly hindered the progress of the action.

43.I am prepared to accept that the defaults or breaches of the Plaintiff were caused by TCW.  The Plaintiff did not have much luck after approaching new solicitor. He was (wrongly) advised to start the 2023 Action instead of seeking relief against sanction.  I will take these into account as weighty factors in the exercise of my discretion.

D2.  Ground 2 – Awareness of the need to seek relief from sanction

44.The Plaintiff’s case is that he was only aware of the need to seek relief from sanction on 31 August 2023 when the Stay Summons went before Registrar Kwang:

(1)  After the dismissal of the action, the Plaintiff had been effectively acting in person and had not been advised of the need of seeking relief from sanction;

(2)  Between May 2021 and November 2022, the Plaintiff had been in huge distress emotionally and financially as (i) he faced a criminal charge of common assault against Peter Wong between May and November 2021, although he was acquitted after trial; (ii) he was sued by Vidler & Co on legal fees for legal advice in this action in the Small Claims Tribunal on 8 December 2021, which was discontinued on 30 May 2022; and (iii) he fell victim to a fraudulent scam that involved death threat against him and hacking into his online cryptocurrency platform account between July and November 2022; and

(3)  The Plaintiff had been under the mistaken belief that he had to rely on the result of the Law Society of Hong Kong to establish the misconduct of Peter Wong before he could proceed further in this action.  After he filed the complaint with the Law Society in June 2021, it took more than 20 months for the LS Letter to be issued.

45.Ground 2 is unsustainable because:

(1)  If the Plaintiff chooses to act in person, he has to read the relevant rules and provisions himself, and take all actions to protect his rights:  Poon Sin Mei Cindy v FWD Life Insurance Company (Bermuda) Ltd (unrep., HCMP 1456/2016, 30 September 2016) at §31.  It is no excuse for him to say that he did not take out an application for relief from sanction because of his ignorance with the law.

(2)  As pointed out by Mr Martin Ho, there was nothing to prevent the Plaintiff from pursuing steps in his civil claim against the Defendants concurrently (especially when the Defendants were not parties to the disciplinary complaints).  Whilst the Plaintiff did chase the Law Society for the progress of the investigation, there was nothing in the correspondence between them to show that the Plaintiff impressed upon the Law Society the need to release the results as soon as possible so that he could proceed with the present action.

(3)  After receiving the LS Letter dated 24 February 2023, it took the Plaintiff another 7 months to take out the Relief Summons, way beyond the statutory 14 days.

(4)  Even if the Plaintiff’s case on emotional and financial distress is to be believed, it does not explain why he could not have taken out the Relief Summons in around November 2022, i.e. after the events causing his alleged emotional and financial distress had ceased.

(5)  Further, the following suggests that the Plaintiff was aware of the need for applying for relief from sanction if he would like to continue with the present action:

(a)  When applying to strike out the 2023 Action, D1 had expressly mentioned in his affirmation in support filed on 8 March 2023 that the Plaintiff should seek relief from sanction of the Unless Order if he would like to revive the present action, though he was already out of time for more than 2 years.

(b)  The same point was also repeated in §30.2 of Qupital’s skeleton submissions filed on 16 June 2023. 

46.Therefore, latest by 8 March 2023 (not 31 August), the Plaintiff should have found out the need to apply for relief from sanction.  The Relief Summon was only taken out 6 months later.

47.For present purposes, I shall not take Master Tse’s remarks against the Plaintiff,because it appears from the transcripts that Master Tse said that any such application should be taken before the action was dismissed.

D3.  Factors in Order 2, rule 5(1)

48.Order 2, rule 5(1) of RHC provides that:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including—

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.”

49.“All the circumstances” would definitely include the terms of the Unless Order.  The sanction imposed was the draconian dismissal of the whole action with costs. With respect, that was a disproportionate sanction even having regard to the history of defaults.  This is because:

(1)  Even without the amendment application, the Plaintiff still had an ASOC for trial; it may be different if the Plaintiff had never filed an SOC at all;

(2)  Even without the joinder application, the Plaintiff could still pursue his claim against the existing Defendants;

(3)  Even without specific discovery, the Plaintiff could still rely the documents disclosed by way of general discovery, and may have less documents to support his case.

50.In my view, a more proportionate and effective sanction should have been barring the Plaintiff from taking out these interlocutory applications and, if appropriate, to exercise the Court’s case management power to impose a date for setting down for trial without further ado.

51.The disproportionate sanction is a weighty factor in the exercise of my discretion.

52.With regard to factor (a): It is in the interests of the administration of justice that orders are to be obeyed, particularly when an unless order is a final opportunity for a party to carry out an act ordered by the Court.  The sanctions should take effect and the innocent party should not lightly be deprived of the fruits of the unless order unless the defaulting party is able to satisfy the Court that discretion should be exercised in its favour.  As the Plaintiff has made a serious effort to comply with 2 out of 3 terms of the Unless Order.  This is not a case where the conduct of the Plaintiff was so poor that his case should not be heard by the Court.

53.With regard to factor(b), the delay in application was 2 years and 8 months even on the most lenient view of the Plaintiff’s conduct.  At least 6 months were inordinate and inexcusable (§46 above).

54.With regard to factors (c), (d), (e) and (f), I am prepared to accept that this was not a case of intentional or contumelious disregard of the Unless Order because:

(1)  The breach of the Unless Order and most of the breaches of the other court orders / directions occurred during the period when TCW was found by the Law Society to be at fault. 

(2)  There were Whatsapp messages and emails showing that the Plaintiff had chased TCW on amendment, filing of supplemental witness statement and discovery between April 2020 and 2 June 2020, and even demanded a timeline for completion of those works on 2 June 2020.

(3)  Two out of three terms of the Unless Order have been complied with.  It was TCW who had misunderstood the scope of the Unless Order and hence failed to take out a discovery application.

55.Further, in view of the size of the claim, there was simply no reason to say that the Plaintiff had no intention to carry on this action to its conclusion.

56.With regard to (g), I repeat my observations in §44-47 above.

57.With regard to (h), no date has yet been fixed for the trial.  The Plaintiff has confirmed that the discovery application is no longer necessary. He submits that the action would be ready for setting down for trial, but I consider that to be optimistic.  On the Plaintiff’s own estimate, he will need 14 days to file and serve the amendment application and joinder application.  If granted, there should be 28 days to serve an amended defence and 14 days to serve the reply. There should be another 28 days to exchange witness statements.  Depending on the stance of the added party, one cannot exclude the possibility of other interlocutory applications.  In my own estimate as a Listing Judge, it is unlikely for this case to come on for trial within the next 30 months. The Defendants will thus be dragged into litigation once again through no fault of their own.

58.With regard to (i) and (j), the Defendants would be prejudiced if the present action is allowed to be continued:

(1)  As rightly pointed out by Mr Ho, this is a stale commercial dispute commenced in 2017 centred on an oral agreement allegedly concluded in 2015. 

(2)  The Defendants were entitled to assume that the action had been dismissed after the Unless Order came into effect for 2 years 8 months.  If the Court does not enforce an unless order, an innocent party will be left in the uncertainty of not knowing when the party in the wrong can come back to ask for an extension of time.  

(3)  By not receiving appropriate advice from Vidler and Co and other solicitors, the Defendants have been vexed with various applications.  On 6 May 2023, the Plaintiff issued a summons which sought to shift the costs liability to TCW. The application was dismissed by Master Lai with costs on 16 May 2023. The same argument was raised again when the Plaintiff opposed leave to commence taxation, but was rejected by Master Hui on 4 April 2023.  Then, at the Stay Summons hearing, the same argument was raised for the third time and rejected by Registrar Kwang.

59.On the other hand, failure to take out a discovery application under the Unless Order could not have prejudiced the Defendants.  However, if relief is not granted, the Plaintiff would be deprived of the opportunity of pursuing a potentially substantial claim.  Whilst he may have a claim against TCW for damages arising from the dismissal of the claim, the proprietary relief of 35% shareholding sought by the Plaintiff cannot be claimed against TCW.  

60.Given, the disproportionate nature of the sanction, the fault of TCW, the lack of intentional and contumelious disregard of court orders, and balancing the prejudice to both parties, I exercise my discretion to grant relief from the sanction imposed in the Unless Order in the interests of justice, despite the inordinate and inexcusable delay.

E.  CONDITIONS

61.Under Order 2, rules 1 and 3, relief from sanction can be granted on terms as to costs or otherwise or payment-in.

62.I invited further submissions by a letter dated 19 February 2024(“the Court’s Letter”).  Having considered the further submissions, I find it appropriate to impose conditions for granting relief.

63.The 1^st condition relates to outstanding costs.  It is confirmed that the Plaintiff had satisfied all costs orders but one in the present action and the 2023 Action.

64.The outstanding costs are those arising when the action was dismissed under the Unless Order (“the Costs Order”).  After the Defendants commenced taxation, the Plaintiff gave notice of acceptance of the Defendants’ sanctioned offer on 9 January 2024, whereunder the Plaintiff was to pay the Defendants a sum of HK$660,000 in full and final settlement of the Defendants’ costs of this action up to and including 8 January 2023.  However, there was disagreement between the Plaintiff and the Defendants on the payment date. According to the Plaintiff, his stance is that the payment date should be after the handing down of this Decision, while the Defendants’ is that there was a binding agreement between the parties in the correspondence such that the payment date should be 29 February 2024.

65.On 1 March 2024, Master SP Yip ordered the Plaintiff, amongst others, to pay the Defendants the sum of HK$660,000 by 4 pm on 8 March 2024 (“Master Yip’s Order”). 

66.The Plaintiff thus flouted another court order by not paying the agreed costs.  Not only that, but he has even taken out a summons on 8 March 2024 for stay and interim stay of execution of Master SP Yip’s Order pending this Decision (“the Stay of Payment Summons”).

67.Whatever the reasons behind the latest conduct of the Plaintiff are, the Court is vigilant of the following facts:

(1)  The Plaintiff has previously stated under oath in Plaintiff-8^th filed on 22 September 2023 in support of the Relief Summons that he had “no fixed assets with only mediocre income and liquid asset, would go bankrupt if the stay of execution of the Unless Order and the Costs Order is not granted”. 

(2)  He has not shown to this Court his ability to pay the HK$660,000 and any costs that he now agrees to pay. 

(3)  His agreement to pay the HK$660,000 came after Plaintiff-8^th. The ensuring dispute over the date of payment after 9 January 2024 and issue of the Stay of Payment Summons give the impression that the Plaintiff is buying time and wants to wriggle out of the promise to pay.

(4)  The Costs Order has not been set aside.  Till this date, there has been no interim stay of Master SP Yip’s Order.  Even on the Plaintiff’s case, the parties’ disagreement over payment date will disappear upon the handing down of this Decision. 

(5)  Even if the Plaintiff is successful in the Stay of Payment Summons and any application to set aside the Costs Order, there will still be costs in relation to those applications, the need for the Plaintiff to bear the Defendants’ costs thrown away before the Unless Order was imposed and costs of yet another taxation to ascertain what those costs are.  The HK$660,000 could be security for such liability.  There is no suggestion that the Defendants will not be able to repay any amount of costs received if the Plaintiff were successful.

68.In the Court’s Letter, it is stated that,

“Whilst the Court needs to consider the financial ability of the Plaintiff to meet the conditions, given the substantial delay of the Plaintiff in coming to Court and his unsuccessful applications made after the sanctions had taken effect, this Court is minded to impose substantial and stringent conditions to ensure that the present application is not just an opportunistic attempt of the Plaintiff or to cause nuisance to the Defendants.”

69.I maintain this view after reading the parties’ further submissions.  The Plaintiff must not think that he can drag the Defendants into litigation again at little cost to himself. 

70.The Court’s Letter expressly required the Plaintiff to state the timeframe for prompt performance of the financial conditions.  The time from that letter until I impose any condition will be taken into account.

71.The Plaintiff asks for 28 days from the date of this Decision.  The Defendant asks for 7 days.  The Plaintiff has had enough time from the hearing on 23 November 2023 or 9 January 2024 to raise money. 8 March 2024 has lapsed. 

72.I therefore order the Plaintiff to pay the HK$660,000 into Court by 4:00 pm on 27 March 2024 as security for costs of this action.  This is without prejudice to Master SP Yip ordering payment out of this sum if he were to refuse a stay.

73.The 2^nd condition concerns costs for withdrawal of the Notice of Appeal.  Whilst the Plaintiff agreed to pay all costs summarily assessed, the dispute is the basis of assessment and the time for payment. 

74.I adopt the same principles summarized by DHCJ H Au-Yeung in Chan Chung Sing v Qupital Ltd[2024] HKCFI 74, §§6-10, which must be familiar to the parties. In gist, costs are in the discretion of the Court.  The usual order for costs made in favour of a successful party in litigation is that the party be awarded costs on party and party basis. The Court’s discretion to order indemnity costs is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”: Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 , at §§ 13, 16 & 17.  The successful party has to show that there is some feature in the case even more special or unusual than one which would justify a taxation on the common fund basis.  Indemnity costs  may be warranted where the proceedings were initiated or prosecuted by the unsuccessful party in a manner which constitutes that party’s proceedings an abuse of the process of the court, or where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner, or were instituted or prosecuted in such circumstances as to constitute an affront to the court.  This list is not exhaustive.  The power to order taxation on an indemnity basis is not confined to cases which have been brought with an ulterior motive or for an improper purpose.  Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win.  Conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs. Such conduct would need to be unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight.

75.I have taken into account the following matters:

(1)  The Appeal was hopeless and frivolous, and delayed the taxation process which had already commenced.  It was against a costs order made in October 2020 and the Defendants have been vexed with the same argument for 3 times.  It was oppressive conduct.

(2)  The Notice of Appeal was taken out by the Plaintiff when he was acting in person.  The Plaintiff’s current solicitors wrote to the Court withdrawing the appeal 2 days after they came on board, i.e. on 20 November 2023.  However, that was 8 days before the hearing and costs and time have already been incurred by the Defendants.

76.Considering all the circumstances, I consider costs on indemnity basis to be appropriate.  I summarily assess the amount at HK$145,000.  For the same reason given in §§70-71 above, payment should be within 7 days. 

77.The 3^rd condition concerns costs of and occasioned by the Relief Summons.  The dispute is, again, the basis of assessment and the time for payment. The Plaintiff submits that it should not bear more than half of the costs of the hearing on 28 November 2023 to reflect the failure of the Defendants’ argument that the Relief Summons should not be granted.

78.With respect, the Plaintiff is seeking the Court’s indulgence.  His delay was inordinate and inexcusable, even on the most lenient view of his case.  The Defendants have every reason to contest a stale claim and did nothing unreasonable.  Even though the Court eventually grants relief, there are still conditions that need to be argued out.  I do not consider it appropriate for the Defendants to bear any part of the costs but that the Plaintiff should bear costs on indemnity basis.  I summarily assess the costs at HK$ 450,000.  For the same reason given in §§70-71, payment should be within 7 days.

79.The 4^th condition concerns security for future costs claimed by the Defendants in the sum of HK$1,311,200.  There is an extant summons for security taken out by the Defendants so the Plaintiff should not be taken by surprise.  However, I do not consider it appropriate to impose this condition.  This is because, in respect of the 3 other conditions, this Court will require the Plaintiff to make full payment before the action can go on.  That would provide assurance to the Defendants that the Plaintiff has genuine intention to proceed.  Any other condition will impose an excessive financial burden on the Plaintiff. Thereafter the Defendants can make use of case management tools or restore the summons for security to ensure that the Plaintiff prosecutes this case diligently.

80.Upon compliance with the conditions, the Plaintiff can file and serve his summon for amendment and joinder, on unless order basis.  As he is not seeking discovery, he shall be barred from doing so on the existing state of pleadings.

F.  ORDERS

81.I order as follows:

(1)  Leave to the Plaintiff to withdraw the Notice of Appeal;

(2)  Leave to the Plaintiff to apply for relief from sanction of the Unless Order out of time;

(3)  Relief be granted to the Plaintiff from the sanction imposed in the Unless Order on the terms set out below;

(4)  By 4pm on 27 March 2024, the Plaintiff do pay the amount of $660,000 into Court as security for the costs of this action, without prejudice to Master SP Yip ordering a payment out if he was to refuse stay of execution of his order dated 1 March 2014.

(5)  By 4pm on 27 March 2024, the Plaintiff do pay the costs of the Relief Summons to the Defendants, summarily assessed at HK$450,000.

(6)  By 4pm on 27 March 2024, the Plaintiff do pay the costs of the Appeal to the Defendants, summarily assessed at HK$145,000.

(7)  Upon compliance with sub-paragraphs (4), (5) and (6), the Plaintiff do file and serve his summons for amendment and joinder by 4pm on 10 April 2024, failing which he shall be barred from doing so.

(8)  The Plaintiff is barred from taking out a summons for discovery on the existing state of pleadings.

(9)  Liberty to apply.

82.I thank counsel for their assistance.

Mr Frederick Fong, instructed by Wan Yeung Hau & Co., for the Plaintiff

Mr Martin Ho, instructed by Tanner De Witt, for the 1^st and 2^nd Defendants