The case Hugo Boss Trademark v Britain Boss International Co Ltd [2015] 3 HKLRD 4 serves as a reminder to what the traditional common law approach of setting aside irregular default judgments as of right entails.

The Plaintiffs commenced legal action against a company and its sole director and shareholder (“the director”) for trademark infringement and passing off. The company’s registered address was identical to the director’s residential address provided in the company’s annual returns (“the address”). The Plaintiffs served the writ on both the Defendants at the address. In particular, the writ was served on the director at her “usual or last known address” pursuant to Order 10, rule 1(2) of the Rules of the High Court (Cap. 4A, Sub.Leg.). In fact, the director ordinarily resided in mainland China at the time of the service. The company’s office was shared with an unrelated company owned by its secretary, who would forward documents addressed to the Defendants to the director. However, while the writ of summons and summons for default judgment were served at the address in November 2013 and January 2014 respectively, the secretary did not forward these to the Defendants until March 2014. The Plaintiffs had already obtained default judgments against both the Defendants in January 2014 as a result of their failure to defend the action.

The default judgment against the director was set aside due to the irregularity in the service of the writ. The court reiterated that irregular judgments ought to be set aside “as of right”. Such, however, does not mean the court would ignore the circumstances surrounding the issues of the case; instead it indicates the court would not go into the actual merits of defense. The court therefore has a residual discretion to take the parties’ conduct into consideration in determining whether to exercise the right to set aside a default judgment.

In the present case case, the director was not within the jurisdiction at the time of service. Since Order 10, rule 1(2) only provides an alternative method of service to be effected on a defendant within the jurisdiction, the service was irregular. Although there was delay in making the setting aside application and it was doubtful whether the director really became aware of the proceedings as late as March 2014, such was insufficient for the court to exercise its residual discretion to refuse to set aside the irregular judgment.

The courts faced an issue of whether it should continue to award an interest at 2% p. a. on damages for bereavement in Bushra Bibi v Method Building & Engineering Works Ltd (No. 2) [2015] 2 HKLRD 402, a case involving a fatal accident.

The general principle is that a claimant is entitled to interest on damages from the time of death to the date of judgment, since the damages should have been paid to him at the time of death, unless the Court is satisfied that there are special reasons not to do so. This equally applies to situations where the damages are agreed by the parties.

The Court of First Instance decided to depart from previous decisions awarding interest at 2% p.a. The new position now is that the interest on damages for bereavement will be awarded at the statutory full judgment rate, i.e. 8% p.a., from the date of death until the date of final judgment, pursuant to the Fatal Accidents Ordinance (Cap. 22). This interest rate also applies to one-off expenses, e.g. funeral expense.

The essence of the privity of contract rule means that only the parties to a contract can enforce it.

In an attempt to relax certain aspects of a rule that is at times artificial, various jurisdictions have implemented statutes providing for third party rights, including Hong Kong. The Contracts (Rights of Third Parties) Ordinance, Cap.622 is expected to come into force on 1st January 2016 and will enable a third party to enforce his rights in a more straightforward manner.

A third party can enforce a contract either where it is expressly provided so (section 4(1)(a) of Cap.623) or where it purports to do so (section 4(1)(b) of Cap.623).

Section 6 of Cap.623 makes it clear that the contracting parties may not, without the third party’s consent, by agreement vary or rescind the third party’s rights so that the third party’s right is altered or extinguished.
In England, the default position in the commercial world has been to exclude such third party rights. However, there are some areas where the Contracts (Rights of Third Parties) Act 1999 has not been excluded in its entirety, such as in the context of M&A transactions.

For example, where a seller agrees not to compete but fails to abide by the restrictive covenant, this may mean that the buyer’s group of companies may suffer losses. It is therefore common for contracts governed by English law to make use of the rights under the Contracts (Rights of Third Parties) Act 1999 to directly enforce restrictive covenants.

The aforementioned example demonstrates that whilst the default commercial position in the UK is to exclude the Contracts (Rights of Third Parties) Act 1999, there should always be a careful consideration of the context and circumstances of each contract before the parties choose to adopt such default position.

Background

Section 81(4) of the Ordinance states that “[t]he leave of the Court is required for any appeal from a decision of the Court under article 34 of the UNCITRAL Model Law, given effect to by subsection (1).” The “Court” refers to the Court of First Instance (hereinafter, “CFI”).

In China International Fund Ltd v Dennis Lau & Ng Chun Man Architects & Engineers (HK) Ltd (2015) HKEC 1626, the Court of Appeal (hereinafter, “CA”) considered the constitutionality of section 81(4).

The Applicant sought leave to appeal against L Chan J’s decision (the learned judge dismissed the Applicant’s application to set aside an arbitration award). The Respondent contended that the CA has no jurisdiction to grant leave because of section 81(4), whilst the Applicant contended that this section is unconstitutional because it disproportionately restricts the Court of Final Appeal’s power of final adjudication (as per Article 82 of the Basic Law)

Judgment

The CA held that notwithstanding the apparent finality of section 81(4), it possesses a residual jurisdiction to supervise the process in the CFI as a means of redress in the rare case where a lower court’s decision to refuse leave cannot be regarded as a judicial decision.

The CA also held that section 81(4) imposes finality in respect of the CFI’s decision on whether leave to appeal should be granted, but this is subject to its residual jurisdiction (as aforementioned). The CA held that if multiple rounds of applications were to be allowed, the legitimate aims of dispute resolution by arbitration (that is, finality, speed and reduction of costs) would be undermined. Further, the limitation in section 81(4) was held to be not more than what is necessary to achieve the aforesaid legitimate aims.

Robotunits Pty Ltd v Juergen Karl Mennel (2015) VSC 268 is a case from the Supreme Court of Victoria concerning disputes arising from shareholders agreements.

The Defendant sought a stay of the proceedings and referral to arbitration on the basis that the parties agreed to submit disputes between them to arbitration. He sought to rely on the arbitration agreement in Clause 15(2) of the Amended Shareholders Agreement, which stated as follows:

“Each party irrevocably and unconditionally submits to arbitration in accordance with the arbitration guidelines of the Law Institute of Victoria.”

Is there an operable arbitration agreement? Croft J held that it was undisputed that on its face the arbitration agreement was pathological because “the arbitration guidelines of the Law Institute of Victoria” referred to” do not exist and do not appear to have ever existed.” The Claimant conceded that the agreement may be rendered effective with judicial assistance. Croft J found the words in Clause 15(2) to be strong words evincing a clear intention to submit disputes, falling with the scope of the arbitration agreement, to arbitration. As such, it was held that the arbitration agreement is operable and capable of forming the basis of the orders sought by the Defendant.

Croft J held that the whole of the proceedings should be stayed, but only the issue of whether the Shareholders Agreements provided a legal or equitable basis for the Defendant to cause the Claimant to make the share payment shall be referred to arbitration. It was further held that as a result of the pathologies of the arbitration agreement, the orders should be made on the condition that the parties (within 28 days) seek to agree on the arbitral seat and the rules of the arbitration.

In Beijing Tong Gang Da Sheng Trade Co Ltd v Allen & Overy [2015] 3 HKLRD 247, the Court of Appeal maintained the lower court decision that a litigation funding agreement and assignment of a cause of action were champertous.

Background

The Defendants, a solicitors’ firm and a barrister respectively, were alleged to have provided negligent advice to a company (the Company) in about 2005 or 2006. The Plaintiff and the Company entered into a funding agreement whereby the Plaintiff agreed, inter alia, to lend $3.4 million to the Company at an interest rate of 25% for a term of 2 years for an intended litigation against the Defendants, guaranteed by the proceeds that the Company would recover from the Defendants, and entitling the Plaintiff to 20% of such proceeds. After the Company issued writs against the Defendant, the Company assigned to the Plaintiff the cause of action against the Defendant and, inter alia, the right to the proceeds arising from such action for $100,000 and 10% of the net proceeds of the action. The Defendants challenged that the assignment was champertous. The Plaintiff argued that it was a major creditor of the Company and its controlling shareholder and so had a genuine commercial interest in the enforcement of action.

Ruling

The Court of Appeal disagreed with the Plaintiff’s contention and upheld the court of first instance’s finding that both the funding agreement and the assignment were champertous. It was held that the Judge below had examined the totality of the facts in forming the views that the transactions would pose a genuine risk to the integrity of the court’s processes. The vastly disproportionate potential returns for the outlay in the funding agreement and the assignment created a serious doubt into the genuineness of the assertions of the Plaintiff.

General Principles on Maintenance and Champerty (as enunciated in the CFA decision Unruh v Seeberger [2007] HKLRD 414)

The core concepts of maintenance of champerty are as follows:
› Maintenance involves a person’s “officious intermeddling” in litigation in which he has no legitimate interest.
› Champerty is a particular kind of maintenance and involves a person taking a share of the proceeds of the litigation maintained.

There are several categories of exceptions:
› The common interest category which justified certain persons with a legitimate common interest in the outcome of litigation in funding it.
› Case involving access to justice considerations.
› A miscellaneous category of practices accepted as lawful including sale and assignment by a trustee in bankruptcy of an action commenced in the bankruptcy and the doctrine of subrogation as applied to contracts of insurance.

In considering whether a contract will be vitiated on the grounds of maintenance and champerty, public policy considerations shall be evaluated in light that:
› The fact that an arrangement may be caught by the broad definition of maintenance of champerty is not in itself sufficient to impose liability. It is necessary to examine the “totality of the facts” and ask whether they pose a genuine risk to the integrity of the court’s processes.
› Countervailing public policies must be taken into account, especially policies in favour of ensuring access to justice and of recognizing, where appropriate, legitimate common interests of a social or commercial character in the litigation.