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Dispute Resolution Newsletter&nbsp;<br> </font></u></b><font face="Verdana" size="3" color="#003366"><b> Issue 1 of 2012: February</b></font></a></P> <P ALIGN="left" style="margin-right: .98"><font face= "verdana" size="2"><b>SUMMARY OF CONTENTS</b></font></P> <div align="left"> <TABLE BORDER=0 CELLPADDING=2 WIDTH=500> <TR><TD HEIGHT=102 VALIGN="TOP"> <P align="left" style="margin-right: .98"> <a HREF="#0"><strong> <font size="2" face="verdana">Landmark Ruling on Insurance Broker Commissions</font></strong></a> <P align="left" style="margin-right: .98"> <a HREF="#1"><strong> <font size="2" face="Verdana">Beware of Med-Arb Approach: a Follow-Up</font></strong></a> <P align="left" style="margin-right: .98"> <a HREF="#2"><strong> <font size="2" face="verdana">Defamation Recent Developments - When is publication innocent and other matters? </font></strong></a> <P align="left" style="margin-right: .98"> <a HREF="#3"><strong> <font size="2" face="verdana">Admissions in Claims for Payment of Money: first guidance from the Court</font></strong></a> <P align="left" style="margin-right: .98"><a HREF="#4"><strong><font size="2" face="verdana">Applications to strike out for delay- A thing of the past?</font></strong></a> <P align="left" style="margin-right: .98"><a HREF="#5"><strong><font size="2" face="verdana">Two years into the mediation regime - some observations</font></strong></a></TD> </TR> </TABLE> </div> <P ALIGN="left" style="margin-right: .98"> <span style="text-transform: uppercase"> <font face= "Verdana" size="2"><b><a name="0" id="0">Landmark Ruling on Insurance Broker Commissions <br> </a></b></font></span><font face= "verdana" size="2">by Robert Clark (<a href="mailto:robert.clark@deacons.com.hk">robert.clark@deacons.com.hk</a>)</font></P> <p ><font face= "verdana" size="2"><em>Hobbins v Royal Skandia Life Assurance Ltd (&quot;Skandia&quot;) &amp; Anor </em>HCCL 15/2010 (6 January 2012), is the first case in Hong Kong regarding the legality of insurance brokers receiving commissions. In this landmark ruling, the court ruled that commissions paid by an insurer to an insurance broker are not illegal secret profits, unless they are in excess of what is normally paid in the insurance market. Robert Clark of Deacons acted for the successful insurer, Skandia.</font></p> <p ><font face= "verdana" size="2"> <strong>Background </strong></font></p> <p ><font face= "verdana" size="2">Clearwater (an insurance broker) acted as Mr Hobbins' agent to purchase Investment Linked Assurance Scheme (ILAS) products from Skandia. Clearwater (with Mr Hobbins' knowledge) made money from commissions and fees paid by insurers (such as Skandia) whose ILAS products were purchased by Mr Hobbins. Mr Hobbins sought to set aside the investment schemes (as they were not doing well) and to be restored to the position he was in immediately before entering into them. Mr Hobbins sought restitution on the basis that, although Clearwater had disclosed to him that it would be earning commission from insurers, it did not inform him precisely how much commission it would be earning and had therefore breached its fiduciary duty owed to him as his agent.</font></p> <p ><font face= "verdana" size="2">Further, it was alleged that the contracts whereby Mr Hobbins purchased ILAS products from Skandia were illegal under Section 9(2) of the Prevention of Bribery Ordinance (&quot;PBO&quot;) or tainted by an underlying fraudulent misrepresentation. Section 9(2) of the PBO prohibits a person, without lawful authority or reasonable excuse, offering any advantage to an agent as an inducement to or reward for doing any act in relation to his principal's affairs or business. </font></p> <p ><font face= "verdana" size="2"><strong>Issues considered &amp; the Court's decision</strong></font></p> <p ><font face= "verdana" size="2"><strong>1. Was Clearwater Skandia's agent? </strong></font></p> <p ><font face= "verdana" size="2">No. There was an express term, in the contract that Clearwater was not Skandia's agent. Clearwater had no express or implied authority to act as Skandia's agent and there was no suggestion that Clearwater had apparent authority to act as such. It is long established at common law that insurance brokers (such as Clearwater) are acting solely as agents for an insured. The mere fact that an insurer pays brokerage fees to a broker does not mean the broker is undertaking to perform any obligation on behalf of the underwriter. </font></p> <p ><font face= "verdana" size="2"><strong>2. Were Skandia's contracts with Hobbins illegal under the PBO? </strong></font></p> <p ><font face= "verdana" size="2">No. There was no breach of the PBO. There was &quot;lawful authority&quot; (consisting of a long line of judicial pronouncements dating back to the 19th century to the present) for the commercial practice that an insurance broker acts as an agent of the insured and not the insurance company. As a result of those judicial pronouncements, it has long been settled at common law that commission paid to an insurance broker by an insurer does not constitute an illegal secret profit, unless it is in excess of what is normally paid within the insurance market. There was no evidence whatsoever that the commission or fees which Clearwater received from Skandia were otherwise than that normally paid in the insurance market.</font></p> <p ><font face= "verdana" size="2"><strong>3. Was Clearwater in breach of its fiduciary, common law or statutory duty to Hobbins? </strong></font></p> <p ><font face= "verdana" size="2">No. There was no breach of Clearwater's obligation as Mr Hobbins' agent to make adequate disclosure of the fact that it would receive commission from Skandia. An agent is a fiduciary and obliged (by equity) to disclose commission/fees earned from third parties in connection with the agent's handling of the principal's business. It is accepted practice at common law for an insurance broker to receive commission from an insurer, provided those commissions do not exceed the usual market rate. Clearwater had disclosed the fact that it would be remunerated by way of commissions and fees from insurers (such as Skandia). That should be regarded as minimum good practice for insurance brokers. To go beyond that and say that Clearwater should have disclosed the quantum of commission it expected to receive would be to impose a standard which would be at odds with case law on prevailing commercial practice among insurance brokers.</font></p> <p ><font face= "verdana" size="2"><strong>4. Was Skandia liable as principal for Clearwater's breaches?</strong></font></p> <p ><font face= "verdana" size="2">No. Skandia was not Clearwater's principal and Clearwater was not Skandia's agent. Further, Clearwater had not committed any breaches.</font></p> <p ><font face= "verdana" size="2"><strong>5. Were the ILAS contracts between Skandia and Hobbins void/unenforceable?</strong></font></p> <p ><font face= "verdana" size="2">No. There was no misrepresentation by Clearwater and no illegality under the PBO.</font></p> <p ><font face= "verdana" size="2"><strong>6. Was there an obligation on Clearwater to make restitution?</strong></font></p> <p ><font face= "verdana" size="2">No.</font></p> <p ><font face= "verdana" size="2"><strong>Practical Implications</strong></font></p> <p ><font face= "verdana" size="2">This ruling will ease insurance brokers' concerns about whether they can legally receive commissions. However, the judgment also demonstrates that brokers should obtain their clients' consent before receiving commissions and that the amount of commissions should not exceed the usual market rate. It is advisable for brokers to include clear terms in contracts with their clients stating that they will receive commission/fees from insurers and recording that the client consents to this. </font></p> <P ALIGN="RIGHT" style="margin-right: .98"><A HREF="#contents"><font face="Verdana" size="1">Back to Top</font></A></p> <P ALIGN="left" style="margin-right: .98"> <span style="text-transform: uppercase"><font face= "Verdana" size="2"><b> <a name="1" id="1">Beware of Med-Arb Approach: a Follow-Up<br> </a></b></font></span><font face= "verdana" size="2">by Philipp Hanusch (<a href="mailto:philipp.hanusch@deacons.com.hk">philipp.hanusch@deacons.com.hk</a>)</font></P> <font face= "verdana" size="2"> <p>In the September 2011 issue of our <a href="http://www.deacons.com.hk/eng/knowledge/knowledge_439.htm#3" target="_blank">Construction and Arbitration Newsletter</a>, we reported on a High Court decision made by Reyes J on <br> 12 April 2011 in <em>Gao Haiyan v Keeneye Holdings Ltd </em>(HCCT 41/2010). <p><font face= "verdana" size="2"><strong>Background </strong></font></font> <p ><font face= "verdana" size="2">Reyes J refused enforcement of a Mainland award made by an arbitral tribunal appointed by the Xian Arbitration Commission (&quot;the Commission&quot;) on the basis that enforcement would be contrary to public policy, as the arbitration process had been tainted by bias or the perception of bias. </font></p> <p ><font face= "verdana" size="2">A previous application by the Respondents to the Xian Intermediate People's Court (&quot;the Xian Court&quot;) to have the award set aside had been refused.</font></p> <p ><font face= "verdana" size="2">On 2 December 2011, the Court of Appeal (CACV 79/2011) overturned Reyes J's judgment and allowed enforcement. The Court of Appeal's judgment was given by Tang V-P. </font></p> <p ><font face= "verdana" size="2">Basically, the arbitration concerned the validity of Share Transfer Agreements. The factual background is however, as the Court of Appeal put it, &quot;complicated and murky&quot;.</font></p> <p ><font face= "verdana" size="2">At the centre of the dispute in the enforcement proceedings in Hong Kong, were the circumstances surrounding an unsuccessful attempt at mediation, in the form of arbitration-mediation (so-called &quot;arb-med&quot;), a process where an arbitrator transforms his role to one of mediator and, if the mediation fails, resumes his role as arbitrator. The Commission's arbitration rules (&quot;the Xian Rules&quot;) permit arbitrators and, with the parties' consent, third parties, to act as mediators, and to meet with the parties jointly or separately. </font></p> <p ><font face= "verdana" size="2">The mediation took place over dinner at the Shangri-la Hotel. The parties agreed to arb-med, but did not attend the mediation. However, a third party attended, who the Tribunal believed was friendly with the Respondents. Further, the Secretary-General (&quot;the SG&quot;) of the Commission acted as mediator and the mediation was conducted by the SG together with a party-appointed member of the Tribunal, whereas the presiding arbitrator and the other party-appointed member of the Tribunal did not attend. At the mediation, the Tribunal gave the view that it regarded the Share Transfer Agreements to be valid, but proposed that the Respondents compensate the Applicants by paying RMB250million. When this view was conveyed to the Respondents, they refused to pay the proposed compensation. After the arbitration had resumed, the Respondents made supplemental submissions, attacking the integrity of the Applicant and a hearing took place. Subsequently, the Tribunal issued an award to the effect that the Share Transfer Agreements were not valid, this being the opposite result of what was said during the mediation.</font></p> <p ><font face= "verdana" size="2"><strong>The Court of Appeal's decision</strong></font></p> <p ><font face= "verdana" size="2">The key issues to be dealt with by the Court of Appeal related to waiver and apparent bias.</font></p> <p ><font face= "verdana" size="2"><strong>Had the Respondents waived their right to complain about any irregularities relating to the mediation?</strong></font></p> <p ><font face= "verdana" size="2">The issue of waiver concerned whether the Respondents had waived their right to complain about the events in the Shangri-la Hotel. Contrary to Reyes J's conclusion, the Court of Appeal found that a clear case of waiver had been made out.</font></p> <p ><font face= "verdana" size="2">Tang V-P did not believe that the Respondents had an apprehension of bias or impropriety, real or apparent, prior to the making of the award. Instead of bringing a complaint, they had continued the arbitration, as if there had been compliance with the relevant rule, hoping for a satisfactory conclusion, even though it was their case that they feared that, should they antagonise the arbitral tribunal by complaining, that might result in an unfavourable or less favourable result.</font></p> <p ><font face= "verdana" size="2">Reyes J on the other hand took the view that the Respondents' decision to make submissions and continue the arbitration, but to attack the integrity of the applicant, was a &quot;clumsy compromise solution&quot;. However, Tang V-P made clear that this was not a substitute for a complaint about impropriety or bias, apparent or real, against the arbitral tribunal or the SG. This in particular, since the Xian Rules made express provision for waiver of the right to object. Accordingly, what the Respondents should have done was object promptly, during the arbitration, to any events in the Shangri-la Hotel they considered irregular. Since they failed to do so, they were deemed to have waived their right to object to any irregularities at a later stage, whether in setting-aside or enforcement proceedings. </font></p> <p ><font face= "verdana" size="2">Tang V-P accepted Reyes J's findings that no estoppel arose from the decision of the Xian Court, but emphasized that the Xian Court's decision to refuse to set aside the award for bias was nevertheless relevant to the enforcement court's decision and that Reyes J should have given more weight to it.</font></p> <p ><font face= "verdana" size="2"><strong>Did the mediation disclose the apprehension of bias, so as to justify refusal of enforcement on grounds of public policy?</strong></font></p> <p ><font face= "verdana" size="2">The second issue dealt with by the Court of Appeal was whether a case of apparent bias had been established. The Court of Appeal was not satisfied that it had.</font></p> <p ><font face= "verdana" size="2">Although Reyes J had confirmed that in principle there was nothing wrong with arb-med (provision for which is expressly made in the new Arbitration Ordinance, Cap. 609), he concluded that the events at the Shangri-la Hotel, as briefly described above, gave rise to an apprehension of bias and that, as a matter of public policy, the award should not be enforced in Hong Kong. </font></p> <p ><font face= "verdana" size="2"> Tang V-P found that no case of apparent bias had been established and certainly not such that would lead the court to refuse enforcement of the award. Tang V-P accepted that one might share Reyes J's unease about the way in which the mediation was conducted, because it is normally conducted differently in Hong Kong. However, he found that, when looking at the question of whether the conduct of the mediation would give rise to an apprehension of apparent bias, the enforcement court must take into account differences in mediation culture and practice at the place of the mediation.</font></p> <p ><font face= "verdana" size="2">Moreover, Tang V-P held that where the court at the seat of arbitration with supervisory jurisdiction (here the Xian Court) had refused to set aside the award, due weight must be given by the enforcement court to the supervisory court's decision, as the supervisory court is in a better position to decide whether or not certain conduct or events are acceptable at the seat of arbitration (e.g. whether it is acceptable to hold a mediation over dinner in a hotel or what role a Mainland lawyer may be expected to play during mediation).</font></p> <p ><font face= "verdana" size="2">Tang V-P confirmed that in Hong Kong, enforcement of an award should be refused for public policy reasons only if enforcement would be contrary to the fundamental conceptions of morality and justice in Hong Kong. However, in the context of the present case, Tang V-P found that this did not mean that if it was common for mediation to be conducted over dinner at a hotel in Xian, an award would not be enforced in Hong Kong because in Hong Kong such conduct might give rise to an appearance of bias.</font></p> <p ><font face= "verdana" size="2">Finally, Tang V-P dealt with the question of whether enforcement in Hong Kong can be refused at all in cases of apparent bias or whether actual bias is required. Tang V-P's view on this issue appears to be that enforcement may be refused in cases of apparent bias, but that the judge, when dealing with this question, should not be too ready to refuse enforcement on the basis of his own notions of what may amount to bias.</font></p> <p ><font face= "verdana" size="2"><strong>Comment</strong></font></p> <p ><font face= "verdana" size="2">1. In line with the pro-enforcement attitude of the Hong Kong courts, it remains the position in Hong Kong that the public policy ground is to be interpreted narrowly and that the enforcement court does not go into the merits of the award. </font></p> <p ><font face= "verdana" size="2">2. The Court of Appeal's decision confirms the importance of prompt complaint, where a party considers itself confronted with procedural irregularities which may however be cured. A party cannot keep such complaints up his sleeve and try to rely on them later, whether at the stage of setting aside or enforcement proceedings. </font></p> <p ><font face= "verdana" size="2">3. It is important to bear in mind that the scope of the public policy ground may differ widely from one jurisdiction to another and an enforcement court is not prevented from considering the question of bias from the viewpoint of its own public policy (as also emphasized by Reyes J in his decision). Enforcement courts of other jurisdictions might therefore reach a different decision to the Court of Appeal, if they conclude that the mediation process at hand violates the public policy of their jurisdiction.</font></p> <p ><font face= "verdana" size="2">4. While arb-med is popular in the Mainland and many parties from the Mainland are quite familiar with it, there is a certain distrust of this process in Hong Kong. The core problem with arb-med lies in the risk of an appearance of bias on the part of a mediator when he turns again into an arbitrator, if the mediation fails. </font></p> <p ><font face= "verdana" size="2">5. Despite the outcome of this case, arbitrator-mediators and the parties should strive to adhere to Reyes J's statement that:</font></p> <p ><font face= "verdana" size="2"><em>&quot;&hellip;labelling a process as mediation does not mean that anything goes. There are appropriate and inappropriate ways of conducting mediations. The would-be mediator must ensure at all times, especially when one might act as arbitrator later on, that nothing is said or done in the mediation which could convey an impression of bias.&quot; </em></font></p> <p ><font face= "verdana" size="2">6. This case provides a good example of the general importance of having sound knowledge of the cultural differences and local practices at the seat of arbitration (and, if different, the place where the arbitration is conducted) and that parties should only agree to a seat after they have properly considered such differences.</font></p> <P ALIGN="RIGHT" style="margin-right: .98"><A HREF="#contents"><font face="Verdana" size="1">Back to Top</font></A></p> <P ALIGN="left" style="margin-right: .98"> <font size="2" face="Verdana"> <span style="text-transform: uppercase"> <b><a name="2" id="2">Defamation Recent Developments - When is publication innocent and other matters?</a></b></span></font><font face= "verdana" size="2"><br> by Robert Clark (<a href="mailto:robert.clark@deacons.com.hk">robert.clark@deacons.com.hk</a>)</font></P> <p><font size="2" face="Verdana">In a recent decision of the Court of Appeal in Hong Kong, perceived to be the first of its kind in Hong Kong (and it appears in other similar common law jurisdictions) the Court of Appeal upheld a decision of Mr Justice Chung in finding that the host of a website forum can be regarded as being in a position similar to that of someone who makes a notice board available to third parties to post notices (<em>Oriental Press Group Limited and Another v Fevaworks Solutions Limited</em> CACV No. 53 of 2011).</font></p> <p><font size="2" face="Verdana"> In this decision, Mr Justice Fok JA considered, in particular, three English cases and one Australian case, and determined that he would follow the approach of Mr Justice Eady in a recent English case (<em>Metropolitan International Schools v Designtechnica Group and Others</em>) in holding:</font></p> <font size="2" face="Verdana"> <p><em>&quot;A more logical approach, in my opinion, would be to impose legal responsibility for publication on the basis of acquiescence. On this basis, liability for defamatory material would attach to the host of a website forum once it had been notified of the existence of the material and requested to remove it but had failed to do so within a reasonable time.&quot;</em></p> <p>This finding, itself, was based upon an earlier decision of Mr Justice Eady in which he had found that for a person to be held responsible for publishing defamatory matter, there must be knowing involvement in the process of publication of the relevant words. Consequently a website host which did not have any knowing involvement in the content of the words prior to their being posted upon a forum would not be held to be a primary publisher of the defamatory material, but rather a subordinate distributor.</p> <p>Mr Justice Fok JA was, however, cautious to express his decision in terms that it was on the facts of the particular case that he found that the particular forum host not to be liable, and that in other factual situations a host might still be liable. </p> <p> He also pointed out that his finding did not mean that a person defamed by a third party posting on a &quot;<strong>notice board</strong>&quot; on a website would not have a remedy. Firstly, the person could, through the website host, seek to obtain the identity of the original poster of the material and take action against that person. Secondly, once the website host became aware of the defamatory content, if it did not remove the defamatory content within a reasonable time, it would no longer be entitled to a defence of innocent dissemination and would become liable.</p> <p>Two other interesting cases (one of which was referred to by Mr Justice Fok JA) recently decided on defamation include <em>Metropolitan International Schools</em>, in which a claim was brought against not only the operator of a website which provided bulletin boards, but also against Google Inc., the well-known ISP, and its UK subsidiary, on the basis that defamatory comments appeared as &quot;<em>snippets of</em>&quot; information when an internet search was carried out under the Plaintiff's name using Google's search engine.</p> <p>On an interlocutory determination Mr Justice Eady found that it was unreasonable to attribute responsibility for publication to Google, whether on the basis of authorship or acquiescence.</p> <p>Further, in the Supreme Court of Canada (<em>Crookes v. Newton</em>, 2011 SCC 47) (on an appeal from the British Columbia Court of Appeal) the Supreme Court held that a hyperlink (being a device routinely used in articles on the internet, whereby a word or phrase is identified, often with underlining, as being a portal to additional, related information) which connected the reader to allegedly defamatory material could not be said to &quot;<em>publish</em>&quot; that material for the purposes of defamation. </p> <p> The Supreme Court held that hyperlinks are, in essence, references, saying:</p> <p><em>&quot;Hyperlinks may be inserted with or without the knowledge of the operator of the site containing the secondary article. Because the content of the secondary article is often produced by someone other than the person who inserted the hyperlink in the primary article, the content on the other end of the link can be changed at any time by whoever controls the secondary page. Although the primary author controls whether there is a hyperlink and what article that word or phrase is linked to, inserting the hyperlink gives the primary author no control of the content in the secondary article to which he or she has linked.&quot; </em></p> <p>In determining that it is the actual creator or poster of the defamatory words in the secondary article who is the publisher when a third person follows a hyperlink to that content, the Court found that when a person follows a link they are leaving one source and moving to another.</p> <p>However, the Court also found that where a defendant used a reference in a manner that in itself conveyed a defamatory meaning about the plaintiff, then this could give rise to liability. So:</p> <p><em>&quot;Individuals may attract liability for hyperlinking if the manner in which they have referred to content conveys defamatory meaning; not because they have created a reference, but because, understood in context, they have actually spread something defamatory.&quot;</em></p> <p>This was the view of the majority, but the Chief Justice and another Judge from the Supreme Court, whilst agreeing with the result, found a different formulation of the test for when a hyperlinked reference constitutes publication of defamatory material. The Chief Justice, giving the judgment, said:</p> <p><em>&quot;The combined text and hyperlink may amount to publication of defamatory material in the hyperlink in some circumstances. Publication of a defamatory statement via a hyperlink should be found if the text indicates adoption or endorsement of the content of the hyperlinked text. If the text communicates agreement with the content linked to, then the hyperlinker should be liable for the defamatory content. The defendant must adopt or endorse the defamatory words or material; a mere general reference to a website is not enough. &hellip; In sum, in our view, a hyperlink should constitute publication if, read contextually, the text that includes the hyperlink constitutes adoption or endorsement to the specific content it links to.&quot;</em></p> <p>A final dissenting judgment of Deschamps J was given, which we will not address in this article. </p> </font> <P ALIGN="RIGHT" style="margin-right: .98"><A HREF="#contents"><font face="Verdana" size="1">Back to Top</font></A></p> <P ALIGN="left" style="margin-right: .98"><span style="text-transform: uppercase"><font size="2" face="Verdana"> <b><a name="3" id="3">Admissions in Claims for Payment of Money: first guidance from the Court</a></b></font></span> <font face= "verdana" size="2"><br> by Richard Hudson (<a href="mailto:richard.hudson@deacons.com.hk">richard.hudson@deacons.com.hk</a>)</font></P> <p><font size="2" face="Verdana">One of the changes to the Rules of the High Court (the &quot;RHC&quot;) brought in by the Civil Justice Reforms (&quot;CJR&quot;), implemented in April 2009, was the insertion of a new Order 13A, designed to facilitate early settlement of claims by providing simple and flexible provisions for a binding admission to be made by a defendant to all or part of a claim.</font></p> <p><font size="2" face="Verdana">The Order 13A regime applies to monetary claims (liquidated or unliquidated) only and allows a defendant who admits liability to propose terms in relation to the time for payment and, if payment is to be made in instalments, the amount of each instalment. The defendant's admission of the whole or part of a monetary claim amounts to an offer to the plaintiff to settle the action for an amount less than the claim, and it is open to the plaintiff to accept or reject the offer or contest the defendant's proposal for payment.</font></p> <p><font size="2" face="Verdana">There were no written judgments issued considering Order 13A during the first two years it was in effect. However, last year the court considered the Order, in the decision made by Master Levy in the Court of First Instance in <em>Panjabi v Cader </em>HCA 290/2011 17 June 2011.</font></p> <p><font size="2" face="Verdana">The Defendant made an application under Order 13A of the RHC to request time to satisfy an admitted judgment debt of approximately HK$4,464,000. The Defendant proposed to repay the judgment debt in instalments of HK$50,000 per month, which meant that it would take more than seven years to repay the principal judgment sum. The Defendant stated that he was employed as a company manager earning HK$76,000 per month (although he was owed 4 months' wages by his employer). Set against this, the Defendant said that he incurred monthly expenses of HK$100,000, apparently supporting a large number of dependants. The Defendant also had substantial credit card debts and two legal charges, totalling over HK$ 5.5 million had been executed against a property he owned, for which he had paid a deposit of HK$7.18 million, with the balance of HK$21.55 million being due in late 2011 or early 2012.</font></p> <p><font size="2" face="Verdana">Master Levy noted that much of the information the Defendant had given concerning his assets and liabilities was unsupported by documentary evidence, that some of the figures looked &quot;quite doubtful&quot;, and she felt it &quot;quite odd&quot; for him to let wages remain outstanding given his financial position. She also noted that no realistic proposal in relation to a lump sum payment had been made.</font></p> <p><font size="2" face="Verdana">In making her decision, the Master noted that there was little Hong Kong authority in relation to the Order 13A procedure, but cited with approval, passages from the judgment of Field J in the English case of <em>Gulf International Bank B.S.C. v Al Ittefag Steel Products Co</em> [2010] EWHC 2601 (QB), a decision relating to a similar provision in the English Civil Procedure Rules, to the following effect: </font></p> <p><font size="2" face="Verdana">1. When considering whether a defendant's proposed time for paying a judgment sum should be accepted, the court has absolute discretion.</font></p> <p><font size="2" face="Verdana">2. In considering how the discretion should be exercised, the court will have regard to the interests of the relevant parties. This will inevitably include the interests of the judgment creditor whose claim will be vindicated by a judgment and the interests of the judgment debtor. The court would also bear in mind that, where enforcement of the judgment can take place within the jurisdiction, the judgment creditor would be free to choose from the available methods of enforcement, including a petition to secure the bankruptcy or the winding-up of the debtor, as the case may be. </font></p> <p><font size="2" face="Verdana">3. The observation that inability to pay will usually not justify a pre-execution extension of time, with an insolvent debtor having to take the usual consequences of his or its insolvency, applies, a fortiori, where the parties are business entities. </font></p> <p><font size="2" face="Verdana">4. In ordinary circumstances, the court will only exceptionally extend time for payment, and then only where the judgment debtor is solvent and for relatively short periods of time, and after which, the whole judgment debt will become payable. Further, in reaching its decision, the court will give careful consideration as to whether some provision in respect of interest ought to be made in light of the fact that the judgment debtor will be kept out of his money for the period of the extension. </font></p> <p><font size="2" face="Verdana">Master Levy held that in exercising her discretion she had to decide how to balance the creditor's interests and the debtor's financial situation. As the Defendant appeared to be insolvent, it would be quite difficult to say that the Defendant's case fell into an exceptional circumstance where the court would grant time to pay, as the Defendant's solicitor had confirmed that the Defendant was unable to put forward a more realistic proposal by making full repayment within a short period of time. This was not a situation where an individual debtor was clearly solvent and only needed perhaps a short period of time to restructure his financial situation so that the entire judgment sum (together with interest) could be paid.</font></p> <p><font size="2" face="Verdana"> As the Master had been told that the Defendant had already put his property on the market, she saw no reason why the Plaintiff should be prejudiced by being prevented from executing the judgment, so that he could be put in a more secured position by way of an immediate execution of the judgment against the Defendant before he could actually dispose of his property. Therefore, the Master declined to exercise her discretion in favour of the Defendant by accepting his proposal or allowing any time for him to satisfy the admitted sum. The Master entered judgment for the sum claimed in the Statement of Claim, together with interest from the date of the writ until payment at judgment rate, and refused the Defendant's application under O.13A for time to pay the admitted sum. </font></p> <p><font size="2" face="Verdana">So far as costs were concerned, the Master noted that upon receiving the plaintiff's notice not to accept the defendant's proposal for payment by instalments, the court's standard practice under Order 13A rule 10(3) of the RHC is to enter judgment for the amount admitted, without a hearing. However, the court here used its discretion and directed the parties to attend a hearing before the judgment was entered. This created an issue regarding costs, because Order 13A does not provide for costs in situations where a hearing takes place. Master Levy noted that where a plaintiff obtains judgment under Order 13A without a hearing, Order 62, Sch.2, Part I, para.1A of the RHC applies and the plaintiff is entitled to fixed costs. She held that as the purpose of Order 13A was to facilitate admission so that the defendant would know his costs liability with certainty when making the admission, the fact that a hearing was needed to determine the Defendant's request for payment would not affect the fixed costs provisions under Order 62,Sch.2, Part I, and the costs incurred by the Plaintiff before the hearing were still to be a fixed sum based on this provision. However, the court had the usual discretion when considering the costs of the hearing itself. </font></p> <p><font size="2" face="Verdana">Whilst guidance as to the application of new rules created by the CJR is always welcome, the adoption of the principles from the <em>Gulf International Bank</em> case and the suggestion that further time for payment will only be granted to a solvent defendant with temporary cashflow problems tends to indicate that the Order 13A regime may rarely be used in practice. </font> </p> <P ALIGN="right" ><A HREF="#contents"><font face="Verdana" size="1">Back to Top</font></A></p> <P ALIGN="left" style="margin-right: .98"><span style="text-transform: uppercase"><font size="2" face="Verdana"><b><a name="4" id="32">Applications to strike out for delay- A thing of the past? </a></b></font></span> <font face= "verdana" size="2"><br> by Karen Dicks (<a href="mailto:karen.dicks@deacons.com.hk">karen.dicks@deacons.com.hk</a>)</font></P> <p><font size="2" face="Verdana">In The Liquidator of <em>Wing Fai Construction Co Ltd (in compulsory liquidation) v. Yip Kwong Robert &amp; Ors</em> (FACV No. 3 of 2011, 8 December 2011), the Court of Final Appeal (&quot;the CFA&quot;) restated the principles which apply to applications to strike out actions for delay. The CFA said that with the new litigation culture and initiatives, aimed at expeditious and effective resolution of disputes, brought about by the Civil Justice Reforms (&quot;the CJR&quot;), introduced on 2 April 2009, it was appropriate to restate those principles.</font></p> <p><font size="2" face="Verdana"><strong>Applicable principles post-CJR<br> </strong></font><font size="2" face="Verdana">The CFA said that the applicable principles post-CJR are as follows:</font></p> <p><font size="2" face="Verdana">1. Striking out an action for delay, should only be used as a last resort and when it is plain and obvious that by reason of the delay, a plaintiff should be deprived of the opportunity to go to trial for the resolution of his dispute. One of the main aims of the CJR is to enable parties to have their dispute resolved as expeditiously, effectively and efficiently as reasonably practicable. The primary responsibility of the court, as made clear by the &quot;underlying objectives&quot; (introduced by the CJR and set out in the court rules) is to &quot;<em>secure the just resolution of disputes in accordance with the substantive rights of the parties</em>&quot;. The court's role is therefore not to prevent actions being litigated, but quite the opposite. </font></p> <p><font size="2" face="Verdana">2. Mere delay is not sufficient. There must be an element of abuse of the process of the court by the plaintiff. Inordinate and inexcusable delay causing real prejudice would be an abuse. Prejudice can take the form, for example of a substantial risk that a fair trial is not possible, having proceedings hanging over one's head causing anxiety or the existence of an interim mareva injunction pending trial. </font></p> <p><font size="2" face="Verdana">3. Merely for a party to start proceedings and then delay (&quot;warehouse&quot;), as the liquidators were alleged to have done in the present case, will not <em>necessarily</em> amount to an abuse. The appropriate remedy in such cases may be for the court to exercise some of its other powers, such as making peremptory orders or ordering the payment into court of a substantial sum. For &quot;warehousing&quot; to justify striking out, it must be clear that the plaintiff is abusing the process of the court. Accordingly, where there is simply no intention to bring proceedings to a conclusion or there is a &quot;wholesale disregard&quot; of the rules or court orders, abuse can be found to exist. </font></p> <p><font size="2" face="Verdana">4. Where abuse is clearly demonstrated, proceedings can be struck out even where prejudice to the defendant cannot be shown. For example, where there is contumelious conduct on the part of a plaintiff, no prejudice to the defendant need necessarily be shown. However, in the majority of applications to strike out for delay, whether or not there is prejudice to the defendant will often be extremely relevant and very much a factor. </font></p> <p><font size="2" face="Verdana">5. The parties' conduct remains a relevant consideration. Post-CJR, where all parties to the proceedings have the obligation to prosecute the proceedings and assist the court in furthering the &quot;underlying objectives&quot;, it is highly relevant to consider any failure on the part of the parties. Defendants can no longer adopt the attitude of &quot;letting sleeping dogs lie&quot; i.e. sit back and do nothing, in the hope of accumulating sufficient delay so that some sort of prejudice can then be asserted. If, for example, a defendant seeks to argue that the delay has dimmed the memories of witnesses, the court will usually want to know what steps the defendant has taken to take instructions, or proof or locate witnesses. The court will certainly want to know what the true nature of the defence is, in order to assess the extent of the prejudice suffered by a defendant. </font></p> <p><font size="2" face="Verdana">6. Previously, the attitude of the court has been to look only to the position of the parties themselves. However, post-CJR, the courts must now have regard to wider considerations, such as the &quot;underlying objective&quot; of ensuring that the court's resources are distributed fairly. The court must bear in mind its own practical limitations and the fact that there are other litigants who are entitled to have their disputes resolved by the court. </font></p> <p><font size="2" face="Verdana">7. The non-expiry of any applicable limitation period should no longer be a reason for not striking out for delay. A plaintiff (who is guilty of inordinate and inexcusable delay and has abused the process of the court) should no longer be permitted to institute another action at the expense of other, far more deserving litigants. The policy of the CJR is for disputes to be expeditiously, effectively and efficiently resolved and seeks to achieve this by ensuring that parties to litigation get on with the proceedings, by complying with the court rules and orders. It is wrong as a matter of principle, that where a plaintiff has otherwise abused the process of the court, he should be allowed to continue with a stale action simply on the basis that he would be free to institute another action within the limitation period. Where there is abuse, the court ought to strike out the action for delay and leave it to the plaintiff to institute fresh proceedings. The burden would then be very much on the plaintiff to justify why he should be permitted to continue with the second action. </font></p> <p><font size="2" face="Verdana">8. Post-CJR, it remains the position that the fact any delay was caused by the plaintiff's legal representatives, will not be relevant to the exercise of the court's discretion. Acts done or omitted to be done by a party's legal representatives will be attributable to that party. </font></p> <p><font size="2" face="Verdana">The CFA said that post-CJR, in light of the above principles, it would seldom be necessary to refer to authorities such as <em>Birkett v James </em>and the many authorities, both in England &amp; Wales and in Hong Kong, following that decision (which have been applied in Hong Kong for many years), as those authorities had not taken into account the procedural changes under the CJR in Hong Kong (or the Woolf Reforms in England).</font></p> <p><font size="2" face="Verdana">One of the other issues considered by the CFA was the extent to which it could take the CJR into account where (as in the present case) the application to strike out had been made <u>before</u> the CJR came into effect, but was heard <u>after</u> the CJR came into effect. The CFA said that for applications such as the present, the court must take the CJR into account i.e. it has to apply the law as it exists today. However, when evaluating the conduct of a party (in the present case examining the delay that had taken place), the court does not disregard the circumstances and the statutory structure in place at the relevant time. So in the present case the delay had to be viewed in the context in which it arose (i.e. pre-CJR) and at a time when the liquidators were perhaps not expected to do as much to move the proceedings along than would be the case now. </font></p> <p><font size="2" face="Verdana">Applying the above principles, the CFA affirmed the decisions of the courts below, which had dismissed the Respondents' application to strike out the liquidators' claims. Although the liquidators had been guilty of inordinate and inexcusable delay for two years, there was not the degree of abuse that would prompt the court to strike out and it was by no means plain and obvious that the sanction should be utilized here. Further, the CFA was not convinced that a fair trial would not be possible. </font></p> <p><font size="2" face="Verdana"><strong>What is the likely effect of the CFA's judgment?<br> </strong>There will probably be far fewer applications to strike out actions for delay, given that actions will only be struck out in the most plain and obvious cases and as a last resort. Mere delay will be insufficient and there has to be an element of abuse. Further, defendants will no longer be able to sit back and do nothing, in the hope of accumulating delay to form the basis of a strike out application. They will be expected to be pro-active and move the case forward and try other options, such as applying for peremptory orders. </font></p> <p><font size="2" face="Verdana">In its judgment, the CFA said that post-CJR, it would expect to see virtually no applications to strike out for delay (or at least very few) unless for instance peremptory orders had not been complied with. This did not, the CFA said, signal a more relaxed approach by the courts to delay. Under the CJR regime, the combination of the court's greater case management powers and duties and the obligation on the parties to assist the court in achieving the underlying objectives and get on with the action, should ensure that delays are kept to a minimum. Post-CJR, peremptory orders are more readily made by the court and the court is also now able to act on its own motion, even where the parties have not applied to court. Accordingly, no proceedings should get to the stage where delay will prompt an application to strike out for delay.</font></p> <P ALIGN="RIGHT" style="margin-right: .98"><A HREF="#contents"><font face="Verdana" size="1">Back to Top</font></A> </p> <P ALIGN="left" style="margin-right: .98"><span style="text-transform: uppercase"><font size="2" face="Verdana"><b><a name="5" id="322">Two years into the mediation regime - some observations </a></b></font></span> <font face= "verdana" size="2"><br> by Richard Hudson (<a href="mailto:richard.hudson@deacons.com.hk">richard.hudson@deacons.com.hk</a>)</font></P> <p><font size="2" face="Verdana">The Civil Justice Reforms enacted in Hong Kong in 2009 included, for the first time, the idea that in addition to adjudicating disputes the court should also have a more proactive role in settling them. This sentiment is expressed in Order 1A rule 1 of the revised Rules of the High Court, which provides that one of the underlying objectives of the Rules is facilitating the settlement of disputes. Further, Order 1A rule 4 provides that the court is to further the underlying objectives of the Rules by actively managing cases, which includes encouraging parties to use an alternative dispute resolution (&quot;ADR&quot;) procedure, if the court considers that appropriate, facilitating the use of such a procedure, and helping the parties to settle the whole or part of a case. </font></p> <p><font size="2" face="Verdana">Subsequently, 1 January 2010 saw the coming into force of Practice Direction 31, which created a framework to assist the parties to litigation and the Court in discharging the duty to settle disputes via an ADR procedure, namely mediation. The Practice Direction imposes a duty upon solicitors to file a Mediation Certificate confirming whether or not their clients are prepared to attempt mediation and, if a party is prepared to mediate, the Practice Direction provides a framework by which the terms on which the mediation is to take place are to be agreed. Whilst mediation is not compulsory, the court has power to make adverse costs orders against parties who unreasonably refuse to engage in mediation. Our experience has been that unless the parties are engaged in settlement negotiations or some other form of ADR, which are likely to be regarded as reasonable explanations for not engaging in mediation, the court will expect the parties to embrace the mediation process. There is a high risk that failing to mediate without any sufficient explanation, or any explanation at all, will cause the court to make an adverse costs order against such a party after a subsequent trial (for further commentary on this particular issue, see our article <a href="http://www.deacons.com.hk/eng/knowledge/knowledge_435.htm#4" target="_blank">Costs Consequences of refusing to mediate</a>).</font></p> <p><font size="2" face="Verdana">In the two years since Practice Direction 31 came into force, Deacons' Litigation and Dispute Resolution Department has gained considerable experience of the court driven mediation process. In respect of <br> non-personal injury cases, of cases mediated, 34% settled during the mediation process, 8% settled shortly after an unsuccessful mediation, and in 58% of cases no settlement was achieved, either at the mediation itself or shortly thereafter. Settlement was therefore achieved in 42% of cases mediated. The subsequent settlement of cases after the parties had failed to settle the matter via mediation tends to suggest that even an unsuccessful mediation can focus the minds of the parties towards settlement. </font></p> <p><font size="2" face="Verdana">Practice Direction 31 states clearly that the failure of previous settlement negotiations does not absolve the parties from considering the appropriateness of mediation, and indeed our experience has been that the court will encourage the parties to engage in the mediation process even after extensive without prejudice negotiations have failed. Indeed, some of the mediations that we have been involved in, have resulted in a settlement, despite the fact that the differences between the parties apparent during earlier without prejudice discussions, had made settlement look impossible.</font></p> <p><font size="2" face="Verdana">Whilst the mediators appointed in the cases in which we have been involved are mainly solicitors or barristers, we have also seen cases where academics or specialists in a particular field (notably construction) have taken appointments as mediators. The hourly rate charged by a mediator can vary considerably, from less than HK$2,000 by a junior barrister to over HK$5,000 for a partner in a firm of solicitors. The potentially high cost of mediators familiarising themselves with the papers relating to a complex case and the involvement of both parties' legal teams can make the cost of the mediation exercise equate to the cost of an interlocutory application.</font></p> <p><font size="2" face="Verdana">In summary, notwithstanding the cost of mediation perhaps being higher than was envisaged when the Practice Direction came into force, it can fairly be said that the reasonable settlement rate that we have seen achieved via mediation, which includes the settling of cases where previous without prejudice negotiations have failed to resolve matters, indicates that the Practice Direction 31 regime has been a useful tool in terms of dispute resolution. Further, the potential costs consequences that may ensue should a party fail to mediate and the proactive nature of the courts in seeking to comply with the underlying objective to facilitate the settlement of disputes, means that mediation will have a role to play in almost every commercial litigation case brought in the Hong Kong courts. </font></p> <p><font size="2" face="verdana">Please click <strong> <a href="http://www.deacons.com.hk/upload/other/20120202_LitigationDisputeResolutionNewsletter_2012(1).pdf" target="_blank"> here</a></strong> to view or download this publication.</font></p> <P ALIGN="left" style="margin-right: .98"><FONT FACE="verdana" SIZE=1>Whilst every effort has been made to ensure the accuracy of this publication, it is for general guidance only and should not be treated as a substitute for specific advice.</FONT></P></font></td> </tr> </table> <p>&nbsp;</p> </div> </td> </tr> </table> </td> </tr> <tr> <td width="140" height="95">&nbsp;</td> <!-- <td width="500" valign="bottom" height="95" align="right"><a href="javascript:window.print();"><img src="/eng/images/cmn/printthispage.gif" border="0"></a>&nbsp;&nbsp;<a href="javascript:window.location = 'mailto:?body=' + window.document.URL;"><img src="/eng/images/cmn/emailthispage.gif" border="0"></a></td>--> <td width="500" valign="bottom" height="95" align="right"><a href="javascript:window.print();"><img src="/eng/images/cmn/printthispage.gif" border="0"></a>&nbsp;&nbsp;<a href="javascript:window.location = 'mailto:?body=' + window.document.URL;window.location = window.document.URL;"><img src="/eng/images/cmn/emailthispage.gif" border="0"></a></td> </tr> <tr> <td width="140" height="95">&nbsp;</td> <td width="500" valign="bottom" height="95" align="right"><a href="/eng/knowledge/knowledge.htm"><img src="/eng/images/knowledge/backup_to_knowledge.gif" width="305" height="36" border="0"></a></td> </tr> </table> <!----> <!--End Template Here--> </td> </tr> <!--Begin Menu--> <tr> <table width="800" border="0" cellspacing="0" cellpadding="0"> <tr> <td width="53"><img src="/eng/images/spacer.gif" width="53" height="10"></td> <td class="index_footer"> <a href="javascript:newPopUp('/eng/header_session/terms_of_use.htm');"><font color="#6699cc">Terms of Use</font></a> | <a href="javascript:newPopUp('/eng/header_session/Disclaimer.htm');"><font color="#6699cc">Disclaimer</font></a> | <a href="javascript:newPopUp('/eng/header_session/privacy.htm');"><font color="#6699cc">Privacy Policy </font></a> | <a href="javascript:newPopUp('/eng/header_session/pic.htm');"><font color="#6699cc">Personal Information Collection Statement</font></a> | <a href="/index.htm"><font color="#6699cc">Deacons International</font></a> <br> Copyright&copy;<script language="javascript">printCurrentYear();</script>, Deacons All rights reserved. </font> <td width="155"> <p><img src="/eng/images/img_hk_asia.gif" width="155" height="18"></p> </td> </tr> <tr> <td width="53"><img src="/eng/images/spacer.gif" width="20" height="20"></td> <td class="footer">&nbsp;</td> <td width="155">&nbsp;</td> </tr> </table> </tr> <!--End Menu--> </table> <!--Begin Menu--> <!-- ******** BEGIN ALLWEBMENUS CODE FOR deacons ******** --> <img name='awmMenuPathImg-deacons' id='awmMenuPathImg-deacons' src='/eng/cmn/js/awmmenupath.gif' alt=''> <script type='text/javascript'>var MenuLinkedBy='AllWebMenus [2]', awmBN='456'; 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