Top Point Ltd v. K&L Gates (A Firm of Solicitors)

HCA 1088/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1088 OF 2011

____________

BETWEEN

(by Main Action)

AND BETWEEN

(by Counterclaim)

____________

_____________________________

REASONS FOR DECISION

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1.This is an appeal against the decision of Master J Wong dated the 24 July 2013 whereby he dismissed the application of five of the defendants to the Counterclaim in the above action to set aside the service of the Defence and Counterclaim upon them, and the order of Master Au-Yeung giving leave for the service out of the jurisdiction.

2.The five defendants concerned (there are eight in all) are offshore companies.  However a short consideration of all the defendants, and the plaintiff in the main action reveals the background to what I regard as an entirely unmeritorious appeal based on a pettyfogging technicality which had already been corrected.

3.K&L Gates is a firm of solicitors.  It was, as it transpired, unfortunate to have, as one of its partners, a solicitor by the name of Navin Aggarwal.  Following the discovery that Mr Aggarwal had misappropriated clients’ monies occasioning considerable losses for the firm, Aggarwal resigned from the firm in June 2011 and was taken into custody on criminal charges arising therefrom, where he still is. 

4.Apart from the taking of clients’ monies Aggarwal is alleged to be involved in the creation and management of some “escrow” accounts in which monies had been deposited by or on behalf of non-clients of the firm.  Very large sums of money are involved and sums of money, allegedly representing “fees”, have been paid out to the holders of those accounts between January 2009 and May 2011.

5.Gates have to date found 51 such accounts, and 233 transactions relating to them.  More than 88 million HKD in “fees” and “interest” have been paid out to the holders of those accounts, being approximately 55 million HKD more than had been paid into those accounts. 

6.Proceedings were begun by Top Point on 29 June 2011 against Gates, claiming to be the assignee of Geminis Funds and Capital Cosmos and entitled to the sums deposited in the “escrow” accounts by those companies.  All three companies are owned and/or controlled by a Mr James Yang. 

7.It appears that a number of other entities have taken proceedings against Gates on essentially the same basis. 

8.In its turn Gates has taken proceedings against Aggarwal and obtained world-wide Mareva injunctions against him. 

9.Top Point tried to obtain an early judgment against Gates by proceeding under Order 14.  That came before Deputy High Court Judge L Chan on 6 December 2011.  He gave Gates unconditional leave to defend. He took the view – as do I – that the “escrow” accounts appear to be a sham. 

10.Gates have counterclaimed against seven companies and James Yang who is the plaintiff’s controlling shareholder.  The 1^st and 2^nd defendants are the very companies whose assignment to the plaintiff of their claims forms the basis of the claim against Gates.  Both those companies are controlled/owned by James Yang, the 8^th defendant, who had admitted that he owns and controls all of the seven corporate defendants to the counterclaim.  There had been a serious omission from Top Point’s Statement of Claim against Gates in its failure to disclose that James Yang’s companies had been signing “escrow” agreements with Aggarwal or receiving payments under them up to the time of Aggarwal’s arrest and resignation. 

11.Whilst the 5^th defendant is a Hong Kong registered company all the other companies owned by Yang are offshore companies.  The solicitors for Top Point, Geminis Capital (5^th defendant) and James Yang (8^th defendant) are Messrs Tse Yuen Ting Wong. 

12.The solicitors for Gates understandably wrote to Top Point’s solicitors asking if they would accept service of the counterclaim on behalf of the remaining defendants – i.e. their client Yang’s six companies.  Their response was a not very sensible refusal. 

13.Acknowledging that they were now being faced with deliberate delay and lack of reasonable cooperation, Gates’ solicitors, Messrs Robertsons now had to apply to the court for leave to serve those defendants out of the jurisdiction under Order 11. 

14.Initially a Master said leave was not required but Robertsons pursued the point although in fact effecting service on those defendants outside the jurisdiction by registered post. 

15.In the meantime Top Point’s solicitors sought an extension of time for Yang (8^th defendant) and the 5^th defendant to serve their Defence to the counterclaim.  They then refused to accept that the other defendants (for whom they purported not to act) had been served and insisted that leave was required under Order 11. 

16.Robertsons then made an application for leave to serve the counterclaim against the relevant defendants out of the jurisdiction.  It was heard by Master Au-Yeung (as she then was) who made the requisite order but the time limit for the acknowledgement of service was not specified. 

17.Nonetheless it was served on the 18 December 2012 on these defendants with the solicitors for Gates taking the precaution of adding the 28 day time limit in their letter (see Order 11 rule 4/1G – page 170 – Hong Kong Civil Procedure 2013 – Vol 1).  On the 3 January 2013 Top Point’s solicitors filed acknowledgement of service for the 1^st, 3^rd, 6^th and 7^th defendants and a few days later for the 4^th defendant. 

18.But, shortly thereafter, Top Point’s solicitors wrote again, this time to say they had no instruction to accept service.  On 25 January 2013 they wrote again, this time to say that they act for all defendants but complain that no copy order accompanied the counterclaim.  [The letter accompanying the documents served clearly enough referred to a copy order being enclosed.]  On the 4 February 2013 the solicitors took out a summons to set aside the service.  That was heard by Master J Wong who dismissed the application. 

19.I made it clear on the hearing of this appeal that I regarded it as a waste of time and cost, entirely without merit, a cynical delaying tactic of the worst kind, an unacceptable abuse of the court process and a pointless attempt to circumvent the rationale and spirit of the Civil Justice Review. 

20.I have had the benefit of reading the notes of the learned Master and the transcript of his decision.  I wholly and respectfully concur with his decision and reasoning and can do no better than quote directly from his decision: 

“Upon consideration of all the evidence, authorities and submissions before me, I have decided to dismiss the application and go further to clarify the parties’ disputes by positive declarations to avoid any unnecessary uncertainties so that they could move forward in the usual track. My reasons appear below:

First I remind myself of the underlying objectives of Civil Justice Reform, including, in particular, to increase the cost-effectiveness of any practice and procedure. A case is to be dealt with as expeditiously as is reasonably practicable and to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.

Second, applying the above principles into the present dispute, on a broad view, the applicants are taking technical and procedural points, bearing no substance or real prejudice to their case. As a matter of evidence, there is no dispute that all the applicants are offshore companies owned and controlled by Mr Yang, the 8^th defendant herein by counterclaim.

By insisting K&L go through the process of applying for leave to serve the counterclaim out of the jurisdiction instead of accepting service of the same by the same firm of solicitors locally, it must be a factor to be taken into account.

Third, both learned counsel have taken me to go through how the November and December services were performed. The November service is clearly not effective and cannot be relied upon. The December service is irregular by failure to include the usual 28 days’ time limit for the acknowledgment of service to be filed. However, such irregularity, albeit mandatory, does not and will not affect any substantive right of the applicants at all.

Fourth and finally, no doubt it is a piece of hotly contested litigation involving a substantial amount of money and multi parties. To avoid any future complication regarding service of the amended defence and counterclaim, I take the view that a simple dismissal of the summons may not be good enough. So in the circumstances, I will be making two declarations in the following:

The service of the amended defence and counterclaim upon the applicants by K&L, by letter of 2 November 2012, are not effective.

The service of the amended defence and counterclaim upon the applicants by K&L, by letters of 18 December 2012, are effective, notwithstanding that the order of Master Au Yeung dated 7 December 2012 does not contain the time limit within which the applicants must acknowledge service.”

21.The appeal is dismissed.

22.As far as the filing and service of the Defence is concerned, that will be done within 7 days from the date of my decision ie 25 November 2013 without prejudice to the application of the defendants to challenge jurisdiction, to be heard on the 27 January 2014.  They have had almost one year already. 

23.The defendants to the counterclaim will pay the costs of K&L Gates’ solicitors to be taxed if not agreed, forthwith, on an indemnity basis.  I have had regard to the matters set out in Order 62/App/12 – “when to order indemnity costs”. 

Ms Frances Lok, instructed by Robertsons, for the plaintiff (by counterclaim)

Mr Jin Pao, instructed by Tse Yuen Ting Wong, for the 1^st, 3^rd, 4^th, 6^th and 7^th defendants (by counterclaim)