JOSE MIRANDA DA COSTA JUNIOR AND ANOTHER v. LORENZO YIH, also known as YU CHUAN YIH AND OTHERS
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HCA 156/2010
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 156 OF 2010
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BETWEEN | ||
| JOSE MIRANDA DA COSTA JUNIOR | 1st Plaintiff | |
| MIRANDA GEMS E MINE LTDA | 2nd Plaintiff | |
and | ||
| LORENZO YIH,also known as YU CHUAN YIH | 1st Defendant | |
| PARAIBA LIMITED | 2nd Defendant | |
| MIRANDA GEMS (HK) LIMITED | 3rd Defendant | |
| ________________ | ||
| (By Original Action) | ||
| AND BETWEEN | ||
| MIRANDA GEMS (HK) LIMITED | Plaintiff | |
and | ||
| JOSE MIRANDA DA COSTA JUNIOR | 1st Defendant | |
| DHARMENDRA MUTHA trading as SHREY INTERNATIONAL | 2nd Defendant | |
| TRIANGULO COMERCIO DE GEMAS E | 3rd Defendant | |
| JOIAS LTDA | ||
| AZIZI ENTERPRISES COMPANY LIMITED | 4th Defendant | |
| NEVESTONES LTDA | 5th Defendant | |
| HATTA NEW WORLD COMPANY, LIMITED | 6th Defendant | |
| MIRANDA GEMS E MINE LTDA | 7th Defendant | |
| _______________ | ||
| (By Counterclaim) | ||
Before: Deputy High Court Judge Le Pichon in Chambers
Date of Hearing: 13 August 2014
Date of Decision: 13 August 2014
Date of Reasons for Decision: 22 August 2014
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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. Before the court was the summons of the plaintiff by counterclaim (“MGHK”) dated 9 April 2014 for relief from sanction for failure to comply with an order of Chung J dated 24 March 2014 pursuant to Rules of the High Court, Order 2, rules 4 and 5, and for an extension of time to make the payment ordered. At the conclusion of the hearing, MGHK’s summons was dismissed with costs in favour of the 1st defendant by counterclaim (“Miranda”). I set out my reasons below.
BACKGROUND FACTS
2. The hearing of Miranda’s application for security for costs took place on 6 March 2014. Miranda’s summons sought an order of security in the sum of $2.69 million. § 2 of the summons specifically sought an order that “[MGHK]’s claim against [Miranda] be dismissed with costs without further Order of the Court if [MGHK] fails to provide such security within the period specified”.
3. Chung J who handed down his decision on 24 March 2014 made an order in terms save as to the amount. The order thus required MGHK to pay $1.5 million into court as security for costs within 14 days, ie on or before 7 April 2014, failing which its counterclaim against Miranda would be dismissed automatically (“the Order”). In substance, the Order was an “unless order”. MGHK failed to make payment before the deadline of 7 April 2014 resulting in the automatic dismissal of its counterclaim against Miranda. It was in those circumstances that the application for relief came to be made.
4. MGHK’s summons was taken out two days after the expiration of the deadline for payment. The affidavit in support of Mark Andrew West the partner at Kennedys in charge of the case for MGHK (“Mr West”) was not filed at the time of the summons was taken out as required by the rules but two days later, on 11 April 2014 (“West 1”).
THE SUPPORTING EVIDENCE
5. Be that as it may, the thrust of West 1 was that the fault was entirely Kennedys. West 1 recognized that the Order imposed a 14‑day deadline (expiring on 7 April 2014) for payment and that MGHK did not manage to deposit the monies before the deadline although Mr West’s firm (Kennedys) had informed Roger Chen (“Mr Chen”), the sole director of MGHK, of “MGHK’s obligation to pay the security for costs on 25 March 2014, and reminded Mr Chen again about the payment on 1 April 2014”: West 1, §§9‑11 and 14.
6. Mr West went on to state at §14 that:
“[a]s a result of an administrative error, [Kennedys] did not realise until 8 April 2014, the day after the deadline had passed, that the deadline for payment had passed”
and at §17(c) that:
“the failure to make the Application before the deadline expired is due to the administrative error within my firm and MGHK is not to blame for this.” (emphasis added)
7. Other relevant factors were said to include the fact that MGHK had to comply with two adverse court orders totalling approximately $650,000 payable in March 2014 but as MGHK had not actively engaged in trading since 2010 it was “not an easy task [for MGHK] to come up with a significant amount of cash in a short period of time” and suggesting (at §17(c)) that had MGHK been “reminded … again about the imminent deadline between 1 April and 7 April” it might not have been able to raise funds in time.
8. The factors MGHK relied on for the exercise of the court’s discretion to grant relief as set out in §17 of West 1 are proportionality, promptness of the application, the ‘administrative’ error being Kennedys (and not MGHK’s), MGHK’s history of prompt payment of adverse costs orders in the action and the absence of detrimental effects on Miranda.
9. Mr West’s reply affidavit dated 20 June 2014 (“West 2”) was filed in response to Miranda’s 11th affidavit of 9 May 2014 (“Miranda 11”). West 2 consists of 29 pages, five of which were devoted to ‘Reason for Breach of the Order’. Those gave a detailed chronological account of events between the date of the Decision and the filing of West 2, apparently to answer Miranda’s “speculation and conjecture” that MGHK had intentionally failed to pay.
10. It is clear from West 2 that Mr West was on leave on the date the Order was made and through to 1 April, leaving the matter in the hands of a senior associate and a junior associate during his absence. It is also clear that the “administrative error” which came to light at about 5 pm on 8 April 2014 was nothing less than the senior associate’s failure to appreciate that the Order imposed a deadline for payment and hence her failure to inform MGHK of the deadline.
11. There would not appear to be any valid excuse for this error: if, by the time lapse of the Decision (18 days after the hearing), the senior associate had no clear recollection of the precise terms of the summons which was indispensable for a proper understanding of the Order, it is clear that she should have reminded herself of its terms before communicating with the client. Instead, she failed to read the Decision which made an order in terms (save as to the amount) together with Miranda’s summons and proceeded (without good reason) to inform the client of the terms of the Order based on her unfounded assumption that there was no deadline and that a further application on Miranda’s part was necessary as to when and in what manner security would need to be provided.
12. West 2 went on to explain that the “administrative error” was then compounded by the junior associate’s failure to diarise the deadline although the junior associate had appreciated the deadline from the outset. Rather, she left a Post‑It note attached to a copy of the Decision and the summons for the senior associate instead. Unfortunately, the clear folder containing all that was said to have been buried in the senior associate’s ‘in‑tray’ and did not re‑surface till mid‑April. (Pausing there, while the junior associate may not have followed Kennedys’ office procedure, it could not be said that she was negligent.)
13. Kennedys had a meeting with MGHK in the course of the morning of 8 April 2014. At about 5 pm the same day, the junior associate, remembering the Post‑It note and recalling that no mention had been made at that meeting of payment of the security, raised the matter. It was then realised by Mr West and the associates involved that the client had not been informed of the deadline that, by then, had already passed.
14. West 2 criticised Miranda, inter alia, for his ‘speculation and conjecture’ that MGHK’s failure to pay was deliberate; his ‘unfounded speculation’ that Lorenzo had funded the security and his ‘incorrect’ view that MGHK and Lorenzo are to be treated as “one and the same”.
15. In the circumstances related by Mr West, Kennedys’ failure to advise MGHK of the deadline could not properly be characterized as “an administrative error”. Without mincing words, it was nothing short of professional negligence.
MGHK’S GROUNDS FOR RELIEF
16. Mr Brown, counsel for MGHK, contended that:
(1) the unless order ought not to have been made in the first place; and
(2) based on the material before the court, the answers to the factors to be considered by the court under Order 2, rule 5 all point in favour of relief.
But before those contentions are considered, the original action and its status need to be stated as they set the context for MGHK’s counterclaim against Miranda.
The original action
17. There have been a number of decisions/judgments resulting from the numerous applications/appeals that have taken place in the four plus years since the commencement of the action on 1 February 2010. For present purposes, the facts outlined in §§2‑10 of my Decision dated 26 March 2013 when the matter came before me for the first time are reproduced below for ease of reference:
“2. [Miranda] is a Brazilian merchant engaged in the business of supplying high end gemstones and is the founder and owner of the 2nd plaintiff, a Brazilian company. This action arises from [Miranda]’s claim that in or around September 2003 he and [Lorenzo] orally agreed to jointly set up and operate in partnership a wholesale business of gemstones in Hong Kong through a Hong Kong company to be formed. [Miranda] would manage and develop the business and its goodwill by making use of his expertise and experience and [Lorenzo] would provide financial and local support in Hong Kong including office premises and staff.
3. [Lorenzo] is the major beneficial owner, the Chairman and CEO of LJ International Inc (‘LJI’), a NASDAQ listed company engaged in the manufacture and marketing of jewellery.
4. Pursuant to the agreement, [MGHK] was incorporated in Hong Kong on 7 January 2004. Two shares were issued: one was issued to Li Fung Ying, Cam and the other to Wan Po Ming, Flora. They were employees of LJI and held the same on trust for [Miranda] and [Lorenzo].
5. On 31 December 2006, the two issued shares in [MGHK] were transferred to a BVI company beneficially owned by [Lorenzo] called Oceandrift Group Ltd (‘Oceandrift’) and on 6 November 2008, Oceandrift transferred those shares to [Paraiba]. [Miranda]’s case is that those shares continued to be held on trust for [Miranda] and [Lorenzo].
6. [Miranda] actively participated in the business of [MGHK] from 2004 onwards until his exclusion from [MGHK]’s office on 5 November 2009. [Miranda] gave instructions to staff who took orders from him and was treated as one of two bosses. He was also a director from August 2007 until 10 November 2009. He and [Lorenzo] were each paid a monthly shareholder’s bonus of $120,000 until December 2008 when [MGHK]’s cash flow situation no longer permitted that.
7. At all material times [Lorenzo] controlled a company called Goldleaves Trading Ltd (‘Goldleaves’) which had an office at Unit C, LG/F, Phase 3, Kaiser Estate, 18 Man Lok Street, Hunghom (‘the premises’). [MGHK] operated from the premises and staff of Goldleaves was seconded to and placed under the payroll of [MGHK]. Rental for the use of the premises, office furniture and supplies were paid to a subsidiary of LJI at the request of [Lorenzo].
8. It is [Miranda]’s case that on 5 November 2009, [Lorenzo] repudiated the agreement. When [Miranda] returned from Shenzhen that day he found out that Mr Osorio Mendes Quintino Neto who had worked with [Lorenzo] for many years caused [MGHK]’s office to close and compelled all staff to leave. [Miranda] was thus excluded from [MGHK]’s office. He was also denied access to [MGHK]’s computer system and was no longer able to access his e-mail accounts or [MGHK]’s server.
9. The relief [Miranda] seeks includes:
(1) declarations that [Lorenzo] had repudiated the agreement, that [Miranda] and [Lorenzo] were at all material times the beneficial owners of [MGHK], that [Paraiba] holds one of the two shares in [MGHK] on trust for [Miranda];
(2) an account; and
(3) payment of the fair value of a 50% interest in [MGHK] and consequential relief.
10. [Lorenzo] denies the agreement or any business partnership between himself and [Miranda] but advances no positive case as to the beneficial ownership of [MGHK]. Mr Manzoni SC (counsel for [Lorenzo]) characterized [Miranda]’s claim as a claim by a disgruntled ex‑employee. [Paraiba] who was the sole registered shareholder of [MGHK] has not appeared in these proceedings.”
18. MGHK filed its defence on 28 May 2010, denying the allegations and putting Miranda to strict proof. It did not advance a positive case.
19. Its belated application to amend its defence and counterclaim (the effect of which was to add five additional parties to its counterclaim) came before G Lam J three years later, in May 2013. In the event, the judge hived off the counterclaim from the main action. As appears from his Decision of 13 May 2013 (to which I will return), the reasons were delay on MGHK’s part and real prejudice to Miranda.
20. On 19 February 2014, Lorenzo’s defence was struck out for non-compliance with a peremptory order and judgment entered in favour of Miranda and against Lorenzo and Paraiba. The order made included declarations to the effect that immediately prior to Lorenzo’s wrongful repudiation of the agreement (as defined in the statement of claim), each of Miranda and Lorenzo beneficially owned 50% of the entire share capital of MGHK and that Paraíba (to whom all the issued shares had been transferred on 31 December 2006) at all material times held one of the two issued shares in MGHK (being 50% of the entire issued share capital of MGHK) on trust for Miranda (“the Judgment”).
(1) The unless order
21. The first matter to consider is whether it was appropriate for Mr Brown to challenge the ‘unless order’ made in the absence of any appeal from the Order and when the matter had been canvassed at the time of the hearing. In that connection, Mr Brown did not demur from §3 of the written submissions of Ms Cheung, counsel for Miranda. That stated, inter alia, that the judge had heard substantive arguments before making the Order in the ‘unless form’.
22. Mr Brown explained that an appeal would have generated satellite litigation. I do not consider the answer adequate since if it is suggested that it is wrong in principle for a court to make an immediate unless order without any prior breach at any rate in the context of an order for security for costs, MGHK should have appealed. MGHK cannot have it both ways.
23. In any case, the point appears to be devoid of merit. In the Civil Justice Reform era, security for costs orders made in the ‘unless’ form are consistent with the underlying objectives of the Civil Justice Reform. Such orders are common form in the Court of Appeal. Even assuming that different considerations apply in the Court of First Instance, circumstances may exist such as the history of the litigation that would justify such an order. It is within the discretion of the judge to so order.
(2) Order 2, rule 5 considerations
24. Whether relief should be granted in any particular case involves a balancing exercise, weighing up the relevant factors that arise and their relative strengths. Rule 5 lists 10 non‑exhaustive factors to be taken into account.
25. They are:
“(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.”
26. Before launching into the relevant considerations, it is as well to state at the outset that Miranda accepts that MGHK’s application was made promptly, that the failure to comply (made clear only in the reply evidence) was not intentional and that the reason for non‑compliance was attributable to the negligence of MGHK’s solicitors. Thus, factors (b) and (c) are in MGHK’s favour. Further, on the facts, (g) does not arise.
(a) the interests of the administration of justice
27. Mr Brown submitted that the court’s primary aim is to secure a just resolution of the disputes in accordance with the substantive rights of the parties, citing Fok J (as he then was) in Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at §57. It was submitted that while MGHK’s breach has virtually no impact on time or cost, MGHK’s allegations in the counterclaim—that whilst a director of MGHK Miranda had misconducted himself to his significant financial gain—would not be resolved on the merits. Hence, refusing relief would not achieve the primary aim. Further, it was said that result would be wholly disproportionate to the breach. Thus, it was submitted that the balance lies in MGHK’s favour.
28. But the inevitable consequence of any refusal of relief necessarily results in the primary aim not being achieved. If Mr Brown’s submissions were correct, relief must be granted in every case. That would negate the court’s discretion altogether. Such an approach cannot be right.
29. In my view, a just resolution of the disputes in accordance with the substantive rights of the parties has a much broader compass than just the effect of the grant or otherwise of relief on the parties and the question of proportionality. How the parties have conducted themselves in the litigation is a highly relevant factor.
West 1
30. It is clear from the description of the contents of West 1 in §§5‑8 above that Mr West chose not to come clean with the true reason for the breach of the Order, which was that his subordinate had failed to read the Order together with the summons resulting in a miscomprehension of its terms and as a consequence, the client had not been informed of the deadline. Rather, Mr West mischaracterised and dressed up what in substance was nothing short of negligence as an “administrative error” on the part of his subordinate for which error Kennedys accepted sole responsibility.
31. I agree with Ms Cheung that as a fundamental matter in the proper administration of justice, litigants are expected to be honest and forthcoming to the court especially when seeking an indulgence from the court. This is not a case where at the time West 1 was prepared, Mr West had to undertake further inquiries in order to uncover or ascertain the true reason for the breach. In that sense the five pages devoted to “Reason for Breach of the Order” in West 2 were wholly unnecessary.
32. By about 5 pm on 8 April 2014, Kennedys (including Mr West) was under no misapprehension: the true reason was that MGHK had not been informed of the deadline for payment because the associate in question had failed to understand the Order such that the client was not told of the deadline. Ms Cheung’s criticism that “there was a blatant lack of candour in West 1” is entirely justified.
33. Beyond that, the manner in which West 1 is written conveyed to the reader the impression that the true effect of the Order had been communicated to the client but that due to an “administrative error”, a breach had occurred. The “administrative error” hinted at was Kennedy’s failure to remind Mr Chen again about the imminent deadline between 1 April and 7 April and not because the latter had not been told about the existence of a deadline for payment at all. What was critically not said created the misunderstanding on Miranda’s part (that MGHK was informed of the deadline), leading to wholly undeserved and unfair criticism of Miranda 11 for suggesting that MGHK’s default was intentional.
34. It should also be mentioned that West 1 was also misleading. What I have in mind is the puzzling reference (at §17(c) of West 1) to Kennedys “failure to make the Application before the deadline expired” (emphasis added). That would appear to be referring to the passage (West 1, §§12‑13) about it not being an easy task for MGHK who was not actively engaged in trading to come up with a significant sum in a short time.
35. But when West 1 was sworn on 11 April 2014, the necessary funds had already been with Kennedys for two days. There was no question of MGHK not being able to come up with the money. The question then arises as to why Mr West saw fit to raise an unnecessary red herring, if not to obfuscate and mislead? In any event, his conduct ill becomes an officer of the court.
36. It will have become crystal clear that the quality of West 1 left a great deal to be desired.
Chen 1 and West 2
37. In addition to West 1, there were two other supporting affidavits/affirmations filed respectively by Mr Chen and Mr West and dated 20 June 2014 (respectively “Chen 1” and “West 2”). As will appear below, certain statements made on oath are flatly contradicted by various documents referred to in and pre‑dating the reply evidence.
38. I have already set out the background to the original action giving rise to the counterclaim and identified the real protagonists to this action. It has been Miranda’s contention throughout that MGHK is but a pawn in Lorenzo’s concerted campaign against Miranda and that Lorenzo controlled MGHK. The judgment effectively upheld that contention. Yet, MGHK persisted in maintaining that MGHK had nothing to do with Lorenzo.
39. In Miranda 11, Miranda stated that it was Lorenzo who was funding MGHK’s litigation (“the funding statement”) and that there was no suggestion that Lorenzo had any difficulties in paying $1.5 million by way of security for costs.
40. Mr Chen deposed (at §36) that he did not believe Miranda to have any personal knowledge of how MGHK is funding this litigation, adding that he did not believe that “Miranda has in his possession any documents which show or even remotely suggest that MGHK has been funded by Lorenzo”. He dismissed Miranda's funding statement as “unsupported speculation and conjecture”.
41. Mr West joined in the fray and, in West 2 (§§60‑61), rounded on Miranda and took him to task for the funding statement which was said to be “pure unfounded speculation”, relying on a disbursements invoice for the $1.5 million that had been issued to MGHK, allegedly “exhibited in Chen 1”. Pausing there, it is to be noted that no such invoice was ever exhibited to Chen 1 and in fact the invoice surfaced together with the e‑mails mentioned on 18 July 2014, after a notice (issued pursuant to Order 24, rule 10(2),) had been served on Kennedys.
42. Mr West went on to accuse Miranda (through his legal representatives) of “oscillating between the truth [as to funding] whatever position happens to suit their cause at the time”: §61, West 2.
43. It now transpires from the documents supplied in response to the notice that various e‑mails had been sent out in March and April 2014 by solicitors within Kennedys to both Ringo Ng (“Mr Ng”) and Mr Chen with the subject heading “MGHK Litigation against Miranda”. They show that Kennedys took instructions from and reported to Mr Ng who was Lorenzo’s subordinate, occupying the position of CFO of LJI but who had no role within MGHK. Mr Ng and Mr Chen were asked to pay various sums of costs for which MGHK alone was liable.
44. In the e‑mail dated 1 April 2014, subject headed “Security for Costs”, they were asked to pay the $1.5 million of security on behalf of MGHK. An invoice was enclosed. It was addressed to “Miranda Gems (HK) Ltd/LJ International Ltd” but, significantly, it was sent to the address of the principal place of business of LJI only, that address not also being the registered office of MGHK.
45. At all material times, Mr Ng was the CFO of LJI; he was never a director, secretary or employee of MGHK. LJI was taken private in the summer of 2013. Since then, and unquestionably by the date of the various e‑mails and the invoice of 1 April 2014, LJI became Lorenzo’s private company.
46. The ramifications of the e-mails are far‑reaching. In purported compliance with the discovery order made on 26 March 2013, Miranda had written to MGHK to ask for the documents. As recorded in §16(n) of the Judgment dated 19 February 2014, Kennedys’ reply was that Lorenzo had no standing within MGHK’s corporate structure and refused to provide the information sought when, in fact, Kennedys reports to Mr Ng from whom Kennedys receives instructions.
47. For his part, Mr Chen professed not to have anything to do with LJI or Lorenzo and denied acting at Lorenzo’s behest. The scenario depicted was that there was no ‘interface’ between Mr Ng and Mr Chen: they were associated with entirely different companies, wholly independent of each other. It was never mentioned that Mr Ng had any role at all within MGHK.
48. At this point, it should be remembered that Mr Chen, a nominee director, was appointed the sole director of MGHK in 2010 after Miranda’s ouster from MGHK in November 2009 and remains such sole director. As noted in an earlier decision, only Lorenzo could have placed him there.
49. For what it is worth, Mr Brown’s explanation for the e‑mails and the invoice being sent to Mr Ng was the fact that Mr Ng was one of the authorised bank signatories of MGHK accounts, apparently relying on this court’s view (at §31 of its Decision of 26 March 2013) that Mr Ng was one of several signatories to MGHK’s bank accounts. That view was expressed in the context of there being prima facie evidence to show that there was a real likelihood of Lorenzo having custody or possession of board minutes of MGHK evidencing the authorised signatories of MGHK’s bank accounts.
50. I reject the explanation Mr Brown proffered: it is far from satisfactory. For one thing, the court’s view was based on evidence presented up to that hearing (March 2013) and could not relate to whether Mr Ng was a bank signatory at the date of the e‑mails and invoice under consideration which was in March‑April 2014. Moreover, if MGHK now accepts that Mr Ng was a bank signatory at the relevant time, given the matters stated in §45 above, it necessarily undermines Mr Brown’s contention based on what was described as the ‘enshrined’ principle of separate legal entities he later deployed (see §60 below).
51. In any event, Mr Brown’s answer does not explain why those e‑mails had not also been sent to the other authorised bank signatories referred to in the Decision on the discovery appeal in March 2013. Perhaps more significantly, why was the invoice sent to LJI at the address of its principal place of business when, allegedly, there was no connection between LJI and MGHK? MGHK proffered no answer.
52. Mr Chen and Mr West’s statements on oath were made on 20 June 2014. Given Kennedys’ e‑mails of March and April 2014 and Kennedys’ April invoice now in evidence, it is stretching one’s credulity and highly improbable that Mr Chen and Mr West did not know that those statements were untrue when Chen 1 and West 2 were sworn/affirmed. As an officer of the court, Mr West should have known better. On any view, he was sailing far too close to the wind, if not also crossing the line.
53. For present purposes, it is strictly unnecessary to identify other instances of litigation conduct on the part of MGHK and Lorenzo that deserves to be deprecated in the strongest terms. Nevertheless, Lorenzo’s hopeless appeal from this court’s case management decision to refuse leave to admit Lorenzo 5 as evidence on 24 April 2014 is on point and illustrates a determination to ignore the duty imposed on a litigant (and his legal advisers) to further the objectives of the Civil Justice Reform.
54. It would appear that the court’s observations as to the duty and obligations of litigants (see for example §§62‑65 of the Judgment dated 19 February 2014) have fallen on deaf ears so far as MGHK and Lorenzo are concerned. That is regrettable.
55. MGHK has also indulged in applications wasteful of judicial resources, for example, in attempting to re‑open Chung J’s decision in October 2013 to allow the 2nd plaintiff’s appeal from the master’s order of security for costs to MGHK. MGHK’s application caused the judge to comment (at §18 of his Reasons for Decision of 24 March 2014) that it “falls within the categories of ‘useless’ litigation, or litigation which amounts to an affront to the court”.
56. In those circumstances, in light of how MGHK and his lawyers have seen fit to conduct this litigation, it would be a travesty of justice to conclude that the interests of the administration of justice consideration require an answer in favour of MGHK. In my view, and without any doubt, the scales come down heavily in favour of Miranda.
(d) and (f) whether there is a good explanation for the failure to comply and whether the failure to comply was caused by the party in default or his legal representative
57. Mr Brown’s position was that the answer to (f) dictates the answer to since the fault lay with the solicitors and not MGHK, factors (d) and (f) must lie in MGHK’s favour.
58. While MGHK’s solicitors have accepted full responsibility for the breach, it does not follow that in those circumstances MGHK necessarily would be entitled to relief: the English Court of Appeal’s judgment in Confetti Records and Ors v Warner Music UK Limited (Trading as East West Records) [2003] EWCA Civ 1748, unrep, 26 November 2003 is an instance where despite the fault being the solicitors, the court refused the appellants’ application.
(e) the extent to which MGHK has complied with the other rules and court orders
59. It is accepted that the most serious of breaches of rules and orders is Lorenzo’s breach of the ‘unless order’ for discovery resulting in the striking out of his defence and judgment being entered in favour of Miranda. The difference between the parties in the present case is whether there is a connection or relationship between MGHK and Lorenzo in this litigation. Miranda’s case has consistently been that Lorenzo controls MGHK.
60. Mr Brown’s stance, invoking the ‘enshrined’ principle of separate legal entities now in the face of the March‑April e‑mails and invoice and in respect of which there is no adequate or valid explanation or response is entirely devoid of merit. (It is noteworthy that the same defence had been deployed unsuccessfully when Lorenzo sought to resist the discovery appeal: see §50 above.)
61. MGHK’s breaches of Order 41, rule 5 of the Rules of the High Court should not go unmentioned. There have been numerous applications, appeals and hearings of one kind or another in the four years or so that this action has been on foot. Until 20 June 2014, when Chen 1 was affirmed, no one from MGHK even saw fit to give any evidence.
62. It is a fact that prior to Chen 1, solicitors of Kennedys and not MGHK’s responsible officers/staff, have filed various affidavits/affirmations on behalf of MGHK notwithstanding the fact that they concerned factual matters about which the solicitors could have had no personal knowledge. Yet, as mentioned in §18 of Miranda 11, as of 9 May 2014, solicitors of Kennedys have seen fit to file more than 10 affidavits (excluding affidavits of service) on behalf of MGHK.
63. That was in the face of specific criticism by Chung J in §10 of his Decision dated 24 March 2014, citing UES International (HK) Ltd (formerly known as Grand View Development (HK) Ltd) v Maritima Maruba SA (formerly known as Maruba SCA), HCA 632/2011, unrep, 19 November 2013 at §§13‑17 when, coincidentally, Kennedys and Mr Brown had represented Maruba in UES and so would have had direct knowledge of the judge’s observations since November 2013.
(h) whether the trial date or the likely trial date can still be met if relief is granted
64. In so far as it was submitted that there are no trial dates for the matter which is “at an early stage”, sight should not be lost of the fact that MGHK’s defence and counterclaim to the original action was filed as long ago as May 2010.
65. Almost three years later MGHK applied to amend its defence and counterclaim and to add another five defendants to its counterclaim. In hiving off the counterclaim, it did not escape the notice of G Lam J who heard MGHK’s application in May 2013 (whose Decision was dated 13 May 2013) that:
(1) The pleadings had long closed. (§33)
(2) MGHK’s did not seem to be “consistent with a desire to see matters expeditiously dealt with”. (§25)
(3) MGHK’s conduct of the proceedings “does not inspire any confidence at all that the counterclaim, if expanded in the way sought, would be expeditiously proceeded with in keeping with the spirit of the civil justice reform”. (§31)
(4) Allowing the amendment and joinder would very substantially set back the action, even though it has not been set down for trial. (§38)
66. Clearly the tactical manoeuvrings of MGHK have significantly hindered the progress of the action. In the circumstances of this case, I do not consider it open to MGHK to argue that the lack of trial dates is a factor in its favour.
(i)-(j) The effect which the failure to comply had on each party and the effect which the granting of relief would have on each party
67. It was submitted that the effect on MGHK was obvious and extreme when the fault lay not with MGHK but their solicitors whilst Miranda would gain an unjustified windfall and that result would be unfair. However, the grant or otherwise of the relief sought is bound to result in one of the parties suffering some prejudice.
68. The seeming disparity may, in a particular case, be redressed by other relevant factors. Confetti Records(supra) is a good example. The application for relief in that case involved a breach of a single day and, as in the present case, the fault lay with the solicitors. While recognising the considerable effect on refusing the appellants’ application, Pill LJ refused the application stressing the need to do justice between the parties and also to have regard to the administration of justice, taking into account the “present attitude” of the appellants.
69. In Hayden v Charlton [2011] EWCA Civ 791 at §41, on the issue of prejudice when the party in default who fails to obtain relief from the court but whose solicitors have claimed responsibility, Toulson LJ remarked that the party would have the opportunity of some redress against their former solicitor. While accepting that a negligence claim is far from a perfect remedy, he acknowledged that it is “at least some remedy”. Since Kennedys have claimed full responsibility for the default, it is an avenue that would be open to MGHK.
70. In assessing the prejudice to Miranda, Mr Brown submitted that the only negative effect was that he was unsecured for an additional two days. That is too simplistic an approach.
71. The manner in which MGHK has pursued its counterclaim to date is highly relevant. G Lam J’s Decision of 13 May 2013 meticulously considered the progress (or rather the lack of it) in MGHK’s pursuit of its counterclaim: see in particular §§18‑31. However, since the hiving off of MGHK’s counterclaim and the joinder of five new defendants to the counterclaim, MGHK still has not evinced any real interest in “getting on” with its claim notwithstanding a litigant’s obligation under Order 1A, rule 3 to further the underlying objectives of the Civil Justice Reform.
72. The counterclaim has been in existence for over four years. Since G Lam J’s order made in May 2013, as of the date of West 1, some of the defendants in the counterclaim have still not been served. The absence of real progress is disturbing. It is wholly unfair to Miranda who is one of the parties being sued and lends significant support to Miranda’s view that MGHK has no genuine claim or interest to proceed.
73. In fact, there is good reason to believe that MGHK is deploying the counterclaim to delay the account taking exercise this court has ordered when it entered judgment against Lorenzo. This is well‑illustrated by a recent sequence of events that involved:
(1) Lorenzo writing to his own company (MGHK) requesting co‑operation for the account taking (an exercise that both this court and Master Au‑Yeung have considered artificial);
(2) MGHK on its own motion engaged forensic accountants to assist Lorenzo in discharging the latter’s obligations when it was Lorenzo’s own case that MGHK was insolvent;
(3) MGHK then advising its remaining beneficial owner (Lorenzo) in writing of the engagement of the forensic accountant; and
(4) Lorenzo causing MGHK to argue that the account taking should only begin after the resolution of the counterclaim.
74. Miranda has had the counterclaim cast a shadow over him for over four years. Being a gemstone merchant, reputation is of great importance to him. Allegations of dishonesty are damaging particularly when no one (whether Lorenzo himself or from within MGHK) has even seen fit to substantiate those allegations on affidavit.
CONCLUSION
75. In my view, in balancing the various factors to be taken into account, the court has to consider their relative importance and gravity. MGHK’s conduct and attitude in this litigation, the quality of the evidence put forward in support, the ‘games’ it (and its lawyers) have seen fit to indulge in, the total abjuration of its obligations to further the objectives of the Civil Justice Reform and abusing the court’s process, not to mention the prejudice caused to Miranda, disentitle it to any indulgence. Having regard to the seriousness of those matters, factors that are in MGHK’s favour do not even begin to make headway.
76. This is a case where I consider that it is high time to put an end to the games being played. As envisaged by Ma CJ in Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935 at §33, there may be cases where the court comes to the view that “enough is enough”. This is just such a case.
| (Doreen Le Pichon) Deputy Judge of the Court of First Instance High Court |
Mr Toby Brown, instructed by Kennedys, for the plaintiff (by Counterclaim)
Ms Elizabeth Cheung, instructed by Reed Smith Richards Butler, for the 1st defendant (by Counterclaim)