Kestronics (Hong Kong) Limited v. Chiu Sik Kuen & 3 Others

HCA004362/1993

1993, No. A4362

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: The Hon. Mr. Justice Kaplan in Chambers

Date of hearing: 20 December 1993

Date of handing down judgment: 3 January 1994

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HEADNOTE

Practice and Procedure - Application to strike out as an abuse of process a summons for injunction - inherent jurisdiction of the court - whether summons can succeed.

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J U D G M E N T

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1. I have before me two matters. The first is the plaintiff's appeal against the decision of Master Jennings given on 11th October 1993 whereby he ordered the Plaintiff to provide $350,000.00 security for costs. This order was varied by Master Burrell to provide that the plaintiff could pay the sum into court. The plaintiff duly paid the sum into court.

2. The second matter is the defendants' summons to strike out or dismiss the plaintiff's application for interlocutory injunctions against the first three defendants which summons was taken out on 24th May 1993 and has not yet been restored for hearing. This summons raises an interesting question on the inherent jurisdiction of the court to dismiss or stay summonses which could be said to be an abuse of the process of the court.

3. I propose to deal with the strike out summons first and in order to appreciate what has happened a short chronology is necessary.

4. On 22nd May 1993, the plaintiff issued a writ seeking injunctive relief against the 1st, 2nd and 3rd defendants to restrain them from breaking a restrictive covenant contained in their contracts of employment. This covenant was to last for 12 months from the date of termination. In the case of the 1st defendant, the 12-month period will expire on 11th May 1994 and in the case of the 2nd and 3rd defendants, it will expire respectively on 21st and 28th January 1994.

5. On 24th May 1993, the plaintiff issued an inter parties summons for injunctive relief which was returnable on 1st July 1993.

6. On 15th June 1993, a 21-page Statement of Claim was served.

7. On 28th June 1993, the 1st, 2nd and 3rd defendants filed affidavits to contest the injunction sought, and one of the grounds relied upon was that the covenant was in restraint of trade.

8. On 19th July 1993, a defence on behalf of all defendants was served.

9. At the hearing on 1st July 1993, both sides consented to the court granting an adjournment. The case was re-fixed for 5th August 1993 with two days reserved.

10. On 4th August 1993, the plaintiff requested the court's leave to file further evidence within 21 days. The hearing was adjourned to a date to be fixed. The defendants were awarded the costs thrown away.

11. The plaintiff has still not filed any further evidence nor have they restored their summons for hearing.

12. On 24th November 1993, the defendants' solicitors wrote to the plaintiff's solicitors requesting the plaintiff to withdraw their summons for want of prosecution and delay, and they pointed out that the 1-year period of restraint would soon end. The plaintiff's solicitors did not respond.

13. On 10th December 1993, the defendants' application to have the plaintiff's summons for injunctive relief dismissed was filed together with a supporting affidavit. No affidavits in response have been filed.

14. It is common ground between the parties that there are no provisions in the Rules of the Supreme Court which empower the court to dismiss a summons for delay or for abuse of process. The provision of Order 18 rule 19 - so often resorted to in Hong Kong - do not apply to a summons of this nature. As Harman J. decided in Port v. Auger, The Times December 16 1993, the court could only use its inherent jurisdiction to strike out an application which had no basis at all.

15. Mr. Ambrose Ho, who appeared for the plaintiff, accepted, quite rightly in my view, that the claim for an injunction against the 2nd and 3rd defendants had no prospect of success at all because it was unlikely that the application could be got on before the expiry date of the covenant and even if it could be got on, no court would grant an injunction for say a 2-week period out of a total restraint period of 12 months. Although Mr. Ho was less certain in the case of the 1st defendant whose period does not expire until May 1994, nevertheless I take the view that, in his case too, it is inconceivable that the court would grant any injunctive relief given the delay and the amount of time left to run in the covenant.

16. How then does Mr. Ho submit that the defendants are not entitled to the relief which they claim? He puts his case on the very narrow point that the defendants should have restored the plaintiff's summons for injunction and on the hearing of that summons should have submitted that the claim for injunctive relief be dismissed. I do not think that Mr. Ho went so far as to argue that I had no jurisdiction to strike out the summons for injunctive relief if I was satisfied that it was an abuse of process, but he submitted that no such abuse could be shown in the circumstances of this case.

17. I do not think that the distinction between striking out a summons which is bound to fail and restoring the hearing of the summons itself is a material difference. I have before me an application to dismiss, under the court's inherent jurisdiction, a summons for an injunction. Although it could be argued that the summons for an injunction might have not been formally restored and thus was not before me, it would be silly to deny that it was in fact before me because its dismissal is in fact being sought by the summons which is before me. In order to avoid any uncertainty, I propose to treat the plaintiff's adjourned summons for injunctive relief as being before me at the hearing of the defendants' summons to strike it out.

18. Does the court have an inherent jurisdiction to strike out a summons in the circumstances outlined above? There are a number of useful statements on the inherent jurisdiction of the court which have been collected together by the then Master Jacob in an article entitled "The Inherent Jurisdiction of the Court" which appears in Current Legal Problems 1970. The learned Master refers to the following pronouncement of Lord Blackburn in Metropolitan Bank v. Pooley (1885) 10 App. Cas. 210 at 220-221 where he said:-

"But from early times (I rather think, though I have not looked at it enough to say, from the earliest times), the court had inherently in its power the right to see that its process was not abused by a proceeding without reasonable grounds, so as to be vexatious and harassing - the court had a right to protect itself against such an abuse, but that was not done upon demurrer, or upon the record, or upon the verdict of jury or evidence taken in that way, but it was done by the court informing its conscience upon affidavit and by a summary order to stay the action which was brought under such circumstances as to be an abuse of the process of the court; and in the proper case they did stay the action ..."

19. In more recent times, Lord Morris in Connelly v. DPP [1964] A.C. 1301 said:-

"There can be no doubt that a court which is endowed with a particular jurisdiction has powers which are necessary to enable it to act effectively within such jurisdiction. I would regard them as powers which are inherent in its jurisdiction. A court must enjoy such powers in order to enforce its rules of practice and to suppress any abuses of its process and to defeat any attempted thwarting of its process."

In the same case, Lord Derlin at page 1347 said :-

"In my opinion, the judges of the High Court have in their inherent jurisdiction, both in civil and in criminal matters, power (subject of course to any statutory rules) to make and enforce rules of practice in order to ensure that the court's process is used fairly and conveniently by both sides."

20. It seems clear therefore that the court possesses the power and to prevent its process being abused. But what does abuse of process connote? As Master Jacob said in this article :-

"Clearly it is a term which has great significance in relation to the inherent jurisdiction of the court as well as under the Rules of the Supreme Court. It connotes that the process of the court must be used properly, honestly and in good faith, and must not be abused. It means that the court will not allow its function as a court of law to be misused, and it will summarily prevent its machinery from being used as a means of vexation or oppression in the process of litigation. Unless the court had power to intervene summarily to prevent the misuse of legal machinery, the nature and function of the court would be transformed from a court dispensing injustice into an instrument of injustice. It follows that where an abuse of process has taken place, the intervention of the court by stay or even dismissal of proceedings may often be required by the very essence of justice to be done, and so to prevent parties being harassed and put to expense by frivolous, vexatious or groundless litigation."

21. It has been held that a proceeding may be held to be vexatious where it is shown to be without foundation or where it cannot possibly succeed. In Willis v. Earl Beauchamp [1886] 11 P.D. 59, an action was brought to obtain revocation of letters of administration after nearly 19 years. It was dismissed as frivolous and vexatious. Bowen L.J. said:-

"I think this action ought to be stayed as being a vexatious action within the meaning attached to that word by the courts, because it can really lead to no possible good. It does not fall under the rule as the Lord Justice has said, but the rules, as we have pointed out more than once, do not, and that particular rule does not, deprive the court in any way of the inherent power which every court has to prevent the use of legal machinery which will occur, if for no possible benefit the defendants are to be dragged through litigation which must be long and expensive."

22. It has also been held that it is an abuse of the process of the court to issue a writ making a claim which is groundless and unfounded in the sense that the plaintiff does not know any facts to support it (see Steamship Mutual Association Ltd. v. Trollope and Colls (City) Ltd. [1986] 33 BLR 77).

23. I have no doubt whatever that it is appropriate to dismiss the plaintiff's summons for an injunction. This summons has now no prospect of success at all given the background of the matter and the amount of time left under the covenant. It is quite inconceivable that any court would grant the plaintiff any relief even assuming they could get the matter before the court in time. The plaintiff was seeking a very wide and far-reaching order. They have had seven months since they issued their summons and still no hearing date has been fixed. These defendants are entitled to have the threat of this injunction, which has been hanging over their heads far too long, removed once and for all. I am satisfied that it is an abuse of the process of the court to leave hanging in the air a summons seeking such far-reaching relief which has no prospects of success whatsoever. It cannot be right to allow this matter to hang in the air anymore and the defendants are entitled to have it dismissed so that they can be awarded their costs with the knowledge that they will not have to incur any further costs dealing with this application for injunction. I have been told that they have incurred considerable costs thus far in dealing with the claim for an injunction and that has included leading counsel's fees.

24. I am perfectly satisfied that I have jurisdiction under the inherent jurisdiction of the court to dismiss the plaintiff's summons for injunctive relief, and that is the order I propose to make. I therefore dismiss the plaintiff's summons dated 24th May 1993 on the grounds that it is now, in the events that have happened, an abuse of the process of the court for it to remain in being any longer.

Security for Costs

25. The plaintiff appeals against the order for security for costs in the sum of $350,000,00 made by Master Jennings on 11th October 1993 and amended by Master Burrell on 30th November 1993.

26. Security was ordered pursuant to the provision of section 357 of the Companies Ordinance which provides that:-

"Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs, and may stay all proceedings until the security is given."

27. The issue before the Master and thus now before me is whether the defendants have shown by credible testimony that there is reason to believe that the plaintiff will be unable to pay the defendant's costs if successful.

28. Let me get one point out of the way at the outset. The plaintiff contended that it is a subsidiary of a Singapore company which is in a substantial way of business and which is about to be listed on the Singapore stock exchange.

29. The plaintiff is in fact a Hong Kong incorporated company with a paid up capital of $10,000,00. The defendant will not be able to look to the Singaporean parent for its costs if successful. I must say that I am surprised that the Singaporean parent has not sought fit to state expressly that it proposes as stand behind its Hong Kong subsidiary in the event that the subsidiary is ordered to pay the defendants' costs. It has not done so and in those circumstances I do not think that it is justifiable to pay any regard at all to the position of the Singaporean parent. I propose to consider this appeal solely on the basis that the plaintiff's audited accounts for the year ended 31st July 1992 prepared by Messrs. Chan, Lai, Pang & Co. certified public accountants in Hong Kong, and further on the basis of the plaintiff's own balance sheet unaudited as at 31st October 1993.

30. It is clear from this material that the plaintiff is not insolvent. The audited accounts as at 31st July 1992 show some $2.3m net assets compared with $6.2m in 1991. The turnover of the plaintiff in 1992 was $19.4m compared to $29m a year before.

31. A number of points were made by Mr. Shum on behalf of the defendants in relation to these accounts. He pointed out that the plaintiff had a small operation in 1993 with only six staff and had little stock in trade and assets because it was only in the distribution business for its principal. He suggested that it can be seen from the audited balance sheet that the plaintiff's finance is heavily inter-dependent on its sisters and parent company. He made the point that out of the net assets of $2.3m there was a current asset of $6.3m being accounts receivable. He submitted that this was not a very healthy proportion. The point was also made that the plaintiff had made a substantial investment in Taiwan whereby some $1.18m will be out of the reach of the jurisdiction of this court and he invited me disregard it.

32. It seems to me that I have to take the financial information about the company which is before me at face value. Of course, the defendants are suspicious that the financial position of the company will be so engineered, if the company were to lose, to ensure that the defendants would not see the benefit of any costs order. However, there is no evidence to support such an allegation of bad faith and I do not see why I must assume that the plaintiff will so organize its affairs so as to place its assets below the likely sum of the defendants' costs.

33. In all the circumstances, and taking account of all the points made so ably by Mr. Shum, I do not find sufficient credible testimony before me to show that the plaintiff will be unable to pay the defendants' costs if successful in their defence. As Mr. Ho pointed out it could be alleged against any company, however substantial, that it could so organize its affairs SO as to keep assets out of the reach of the other party to litigation. I am not prepared on this evidence to draw the inference that the plaintiff would be prepared so to act In those circumstances, I feel I have no alternative but to allow this appeal and set aside the order for security for costs made against the plaintiff and of course consequentially to order that sum in court be paid back to the plaintiff.

Costs

34. I propose to make the following costs orders nisi.

35. In relation to the plaintiff's successful appeal against the order for security for costs, the defendants shall pay the costs of the appeal, but there will be no order as to costs before the Master.

36. In relation to the defendants' summons to strike out the plaintiff's summons for injunction, the plaintiff will pay the defendants all the costs of the injunction proceedings save those that have already been ordered to be the defendants. Such costs shall be taxed if not agreed, and shall be paid forthwith.

37. I am grateful to both counsel for their very helpful and brief submissions in this matter.

Representation:

Mr. Ambrose Ho instructed by Lee Ng & Lam for the Plaintiff.

Mr. Eric Shum instructed by K.C. Ho & Fong for the Defendants.