“Decisions and Consequences” (Part 2)

Be Genuine When Applying to Lift the Stay of Proceedings

Introduction

It could not be stressed enough that the most critical ingredient for an application to lift a stay of proceedings is that there needs to be a genuine material changes of circumstances. This is exemplified in Signature Diamond LLC v Phillips Fine Watches Limited [2019] HKCFI 2903.

The decision in Signature Diamond LLC mainly concerns the Plaintiff’s application for an order lifting the stay of proceedings. The order of stay the proceedings was made in light of the parallel proceedings in Switzerland, and the Plaintiff’s application for lifting the stay was dismissed because the Courts found that no genuine material changes in circumstances were shown.

Background

The Plaintiff and the Defendant had a dispute over some watches since December 2015 and the Plaintiff commenced proceedings against the Defendant in Switzerland in May 2017. Later in June 2017, the Plaintiff also commenced proceedings against the Defendant in Hong Kong.

In March 2018, the Hong Kong proceedings were ordered by a Master to be stayed until the final determination of the Swiss proceedings and there was no appeal against the order of the Master.

In July 2019, the Plaintiff made an application for an order lifting the stay of proceedings. One of the arguments in support of the Plaintiff’s application was that the order of stay of proceedings would cause at least a 7-year delay in resolving the dispute and the watches would suffer permanent damages and/or loss of value for lack of expert servicing in the meantime.

How did the Court find the Plaintiff’s application “wholly unmeritorious”?

The Court find the Plaintiff’s application “wholly unmeritorious” and agreed with the submissions submitted by the Defendant.

The Plaintiff failed to produce any evidence showing material changes:-

1.The Plaintiff filed an affirmation of a Swiss lawyer merely stating an estimation of the duration of the Swiss proceedings.

2.However, the Court noted that there was no evidence showing that this was beyond the contemplation of the parties when the order of stay was made – so there was no genuine material change in circumstances.

3.As a matter of fact, as submitted by the Defendant, the Swiss proceedings were just proceeding at a normal pace.

4.The Plaintiff also argued that the watches required special care and maintenance to ensure their quality and market integrity as if they had not been subject to good care, but the Court said:

It was not suggested to this Court that the Watches became something else, or that their nature was unknown to P”.

5.In any event, the Plaintiff’s argument was never raised in the hearing where the order of stay was made and it could have been raised if the Plaintiff had been reasonably diligent – so not only was there no material change in circumstances, the point which should and could have been raised was barred under the principle of res judicata.

6.In fact, the watches were being professionally looked after and that was indeed in the Defendant’s interest to do so.

7.There was no evidence showing that the watches were not being maintained properly or that the market values of the watches had dropped, and there was no suggestion that these would happen in the future.

In short, the Courts found that (i) watches will no doubt remain as watches (e.g. not change into something else) and (ii) had the issue of lengthy procedural timetable of Swiss proceedings really been a concern, such concern ought to have been advised and considered during the stay proceedings and not retrospectively.

Lift of stay of proceedings

It is trite law that when considering whether to lift a stay, the court must consider whether there are material changes in circumstances subsequent to the making of the order of stay of proceedings.

Lifting the stay lightly would make a mockery of Order 58 of the Rules of High Court (Cap. 4A). Order 58 allows parties to appeal a decision of a Master to a judge in chambers and the notice must be issued within 14 days of the decision.

In other words, it imposes a time limit for appealing against a Master’s decision to stay the proceedings. Further, Order 58 provides that appeals do not operate as a stay and that no further evidence i.e. new evidence may be received on the hearing of the appeal.

Should the court exercise its discretion lightly to lift a stay, it would defeat the purpose of Order 58, and an application for lift of stay of proceedings cannot be used like an appeal that should otherwise be made under Order 58.

Takeaway

When contesting an application for a stay of proceedings, always remember:-

  • Be diligent and make all arguments that should be made – as it is a ‘now-or-never’ situation

In order to lift a stay of proceedings, always remember:-

  • Show genuine material change of circumstances occurring AFTER the order of stay was made – as it is a new application but not an appeal
  • Make sensible arguments – otherwise the court may express its amusement in the judgment
  • Produce evidence which is supported by fact – otherwise the other party can just defeat the application effortlessly!

– By Mr. Joshua Chu, Solicitor, Hong Kong

– Ms. Francesca Lee,
Trainee Solicitor, ONC Lawyers

Jurisdictions: 

Solicitor, ONC Lawyers

Joshua Chu is a Litigation Solicitor qualified to practice in Hong Kong. Before becoming a lawyer, Joshua worked in the healthcare industry serving as the IT department head at a private hospital as well as overseeing their procurement operations.

Since embarking upon his legal career, his past legal experience includes representing the successful party in one of Hong Kong’s first cryptocurrency litigation cases as well as appearing before the Review Body on Bid Challenges under the World Trade Organization Government Procurement Agreement concerning a health care industry related tender.

Today, Joshua’s practice is mainly focused in the field of dispute resolution and technology law.

Aside from his legal practice, Joshua is currently also a Senior Consultant with a regulatory consulting firm which had been founded by ex-SFC Regulators as well as being a management consultant for the Korean Blockchain Centre.

Trainee Solicitor, ONC Lawyers