Schindler Lifts (Hong Kong) Ltd v. Nikko Services Ltd

DCCJ 2263/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2263 OF 2013

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REASONS FOR DECISION

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1.This is the hearing of the plaintiff’s summons taken out on 23 May 2014 for leave to file a fresh statement of claim (annexed to the summons) (“the fresh SOC”); alternatively for an extension of time for it to file the fresh SOC, pursuant to its undertaking given in court on 22 May 2013 during the hearing before DDJ Yim of the defendant’s summons to strike out filed on 12 April 2014.

2.In its summons filed on 12 April 2014, the defendant seeks to, inter alia, strike out a revised statement of claim filed on 12 March 2014 (“the 2^nd SOC”) and dismiss the action.  As a result of the hearing on 22 May 2014, DDJ Yim made an order of striking out the 2^nd SOC, but not dismissing the action.

Background

3.Background of the case is set out in paragraphs 3 to 23 of the Decision of DDJ Yim dated 26 November 2013 in this action.  In that decision, the plaintiff’s statement of claim filed on 28 June 2013 (“the 1^st SOC”) was found defective, and an order for the plaintiff to take out a summons for its amendment on or before 24 December 2013 was made.

4.The plaintiff sought leave to appeal against DDJ Yim’s order dated 26 November 2013; the leave application was heard on 15 January 2014.  In her decision dated 20 January 2014, DDJ Yim dismissed the plaintiff’s application for leave to appeal.  An unless order was made, inter alia, for the plaintiff to take out a summons to amend the 1^st SOC within 28 days, failing which the 1^st SOC be struck out.

5.On 4 February 2014, the plaintiff applied to the Court of Appeal (HCMP 270/2014) for leave to appeal against the decision dated 26 November 2013 of DDJ Yim in respect of the finding of defectiveness of the 1^st SOC, and for a stay of the order of DDJ Yim.  It did not comply with the unless order requiring it to amend the 1^st SOC within 28 days under the mistake (admittedly so by its solicitor Mr Geoffrey Shaw in his affidavit sworn on 6 June 2014) that its application for leave to the Court of Appeal would stop time running in respect of the time limit of 28 days imposed with the unless order.

6.On 17 February 2014 a Judgment striking out the 1^st SOC was granted, default of the unless order dated 20 January 2014 having been made in that the plaintiff had failed to take out a summons for the amendment of the 1^st SOC.

7.On 12 March 2014 the plaintiff filed the 2^nd SOC.

8.By a summons filed on 12 April 2014 the defendant applied to strike out the 2^nd SOC and to have the plaintiff’s action herein dismissed.

9.Meanwhile, the Court of Appeal decision was given on 20 May 2014 in HCMP 270/2014 refusing leave for the plaintiff to appeal against the order dated 26 November 2013 of DDJ Yim.  The 1^st SOC was found defective and rightly struck out, and there was no merit in the proposed appeal.

10.At the adjourned hearing on 22 May 2014 of the defendant’s summons filed on 12 April 2014, DDJ Yim made an order whereby the 2^nd SOC was struck out, no leave having been obtained for its filing.  The action was not dismissed.

Defectiveness of the 1^st SOC/ The fresh SOC

11.The material parts of the 1^st SOC consist of just three paragraphs, and they read as follows:-

“10. There was an express terms [sic] of the settlement agreement that

‘After the settlement sum is paid, subject to the dismissal of HCCW 251/10:-

(a) case CACV 250/10 shall be withdrawn with no order as to costs’.

11. There were implied terms of the settlement agreement that:-

(a) the defendant would do all things necessary to achieve the withdrawal of the appeal;

(b) the defendant would co-operate with the plaintiff to achieve the withdrawal of the appeal; and

(c) the defendant would take any and all reasonable steps required to achieve the withdrawal of the appeal.

12.   In breach of the settlement agreement the defendant failed and/or refused to achieve the withdrawal of the appeal and/or co-operate with the plaintiff to achieve the withdrawal of the appeal.”

12.It was found that the 1^st SOC was defective in that the three material paragraphs quoted above are inadequate without pleading crucial matters including the meaning and effect of the express term of paragraph 10(a), and the basis of the plaintiff’s case for asserting that the defendant was in breach of the implied terms as alleged in paragraphs 11 and 12 of the 1^st SOC. 

13.These defects are in my view cured by the plea in the fresh SOC which states (in the new paragraphs 11 and 14) the effect and correct interpretation of the express term in paragraph 10(a) and sets out the particulars of breach of the settlement agreement on the part of the defendant in failing to achieve withdrawal of the appeal (CACV 250/2010).

The plaintiff’s summons to seek relief against sanction

14.Pursuant to non-compliance of the unless order the 1^st SOC was struck out in its entirety by the order of DDJ Yim on 17 February 2014.  The plaintiff is, as confirmed by its counsel Mr Benny Lo, in substance seeking relief against sanctions under Order 2 rule 5 of the Rules of the District Court in respect of the unless order dated 20 January 2014. 

15.It is submitted for the plaintiff that leave ought to be granted for the following 3 reasons:-

(1) The plaintiff’s claim under the fresh SOC is sustainable, meritorious and contains triable issues of law and fact;

(2) The plaintiff’s failure to amend the 1^st SOC pursuant to the 20 January 2014 order was due to pure inadvertence, admittedly a mistake on the part of its solicitor, that the application for leave to appeal to the Court of Appeal and for stay of execution of the unless order (in HCMP 270/2014) would stop time running in compliance of the unless order.  The failure to amend the 1^st SOC within time was regrettable but not inexcusable in all the circumstances; and

(3) There can be no conceivable prejudice to the plaintiff.

The legal principles on seeking relief against sanctions

16.On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the court shall consider all the circumstances including the following as set out in Order 2 rule 5(1):-

“5(1) (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 oneach party.”

17.In considering the plaintiff’s application for leave to amend, reference is made to the judgment of Mr Recorder Shieh SC in Sun Focus Investment Limited v Tang Shing Bor (HCA 538/2007; 5 October 2009) (at para 33):-

“33. It is well known that from time to time the courts strike out a pleading without dismissing the action because from the mass of materials filed the court can see that although the original pleading did not perhaps disclose a reasonable cause of action, there could just be enough underlying facts disclosed in the evidence to enable a pleader to plead a proper pleading. If that is the case in our present action, then the proper course to take would be to strike out the action, not to dismiss the claim, but to give a short timeframe for the plaintiff to apply to amend the Statement of Claim again.”

18.In that case the statement of claim in its entirety was, as in the present case, struck out but the action was not dismissed.  An opportunity was given to the plaintiff to issue a summons for leave to file a fresh statement of claim, which in the court’s judgment should be treated as an attempt to amend.

19.Similarly in Total Lubricants HK Ltd v De Chanterac (No 2) [2013] 2 HKLRD 838 referred to in the plaintiff’s submissions, the proposed amended statement of claim as against the 5^th and 6 defendants was struck out as disclosing no reasonable cause of action based on, inter alia, unlawful means of conspiracy (absent a plea of the intent to injure and that the acts complained of were carried out with such intent), following which it was ruled that the action against the 5^th and 6^th defendants was dismissed.  The Court of Appeal upheld the leave granted for the 5^th and 6^th defendants to re-amend the statement of claim.  The objection to the amendments of the 5^th and 6^th defendants based on abuse of process and res judicata, namely that the plaintiffs were trying to resurrect the same claim of conspiracy which had been dismissed in the earlier judgments, was held rightly rejected.  It was held that cause of action estoppel did not apply where there had been no determination on the merits.  Barma JA added (in para 40) that it would be preferable, where a pleading is struck out as disclosing no reasonable cause of action, for the plaintiff to be given an opportunity to put forward a viable pleading within a specified time.  If no such pleading is put forward within the time limit (which may be extended in appropriate cases), a plaintiff who later seeks to bring a claim may well be prevented from doing so, not on the grounds of res judicata, but on the basis that the new claim would be an abuse of process, particularly where no good reason could be provided for his having failed to avail himself of the opportunity to put forward the claim at the earlier stage.

Default of the legal representative

20.The reason for the plaintiff not having amended the 1^st SOC earlier or as ordered was due to the default of its solicitor.

21.In considering whether relief should be granted against failure to comply with a court order, reference is made to the test laid down by Bokhary JA, as he then was, in  PT Bank Pembangunan Indonesia (Persero) v Tan Eddy Tansil [1997] HKLRD 57 (14 November 1995) as follows (at p 59):-

"The test to be applied here is, in my judgment, the one laid down by Sir Nicolas Browne-Wilkinson VC giving the leading judgment in the case of In re Jokai Tea Holdings Ltd [1992] 1 WLR 1196 when he said this at p. 1203 B:-

'In my judgment, in cases in which the court has to decide what are the consequences of a failure to comply with an "unless" order, the relevant question is whether such failure is intentional and contumelious.  The court should not be astute to find excuses for such failure since obedience to orders of the court is the foundation on which its authority is founded.  But if a party can clearly demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances, such failure to obey is not to be treated as contumelious and therefore does not disentitle the litigant to rights which he would otherwise have enjoyed.'"

Applying that principle, the Court of Appeal held that where non-compliance with the unless order is due to the default of the solicitor rather than the litigant himself such default should be regarded as an extraneous cause of non-compliance so far as the litigant is concerned, inclining the court towards granting him an extension of time.

22.The same principle is adopted in An Zhou v Zhou Zheng Kuan (unreported)(HCA 241/2010; 30 August 2012) in the judgment of To J in which it is stated (at para 27) as follows:-

“27. …Usually the court would have considered the appropriateness of the sanction at the time of making of the unless order. However, circumstances may change. The extent of the breach as it turned out may not be as serious as anticipated and there may be mitigating circumstances. Worth noting is that Order 2, rule 5(f) expressly distinguishes between default caused by the litigant and that caused by his legal representative. The court is inclined to grant relief to a litigant if he has no deliberate feet dragging and the default was caused by his legal representative”

Prejudice to the defendant

23.In support of the plaintiff’s application for an extension of time within which to file the fresh SOC, Mr Lo refers to the following in the judgment of Cheung JA in The Decurion [2012] 1 HKLRD 1063 (at p. 1067):-

“11. …

(1) It is clear that the applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case. A rigid mechanistic approach is not appropriate: see Nantong Angang Garments Co. Ltd v. Hellmann International Forwarders Ltd, CACV 64/2005. There are two conflicting principles at play. First, a party being required to observe the procedural rules, the default of which may result in judgment being entered against it. Second, a party should not be deprived of an adjudication on the merits due to a procedural default unless there is prejudice to the other party which cannot be compensated by costs. These two principles are not absolute. A rigid application of the first principle may lead to dismissal of actions without consideration of whether the defendant has been prejudiced by the default. But, the Court has treated the existence of such prejudice to be crucial and often decisive. Likewise a rigid application of the second principle without exception may enable a wealthy litigant to flout the rules. The resolution to these two conflicting principles is to consider all the circumstances of the case and not confine the decision to the application of a universally applicable rule of thumb : see Costellow v. Somerset County Council [1993] 1 WLR 256, per Sir Thomas Bingham M.R. at 263.

(2)  I do not consider this approach has been drastically changed by the introduction of the Civil Justice Reform in Hong Kong since 2 April 2009.  An expeditious disposal of a case has to be considered together with the equally salutary objective of ensuring fairness between the parties.”

Discussion

24.In the present case, the 1^st SOC was struck out as being defective when the cause of action that the defendant was in breach of the settlement agreement was not properly pleaded, and the plaintiff took no action to amend it in compliance with the unless order.  The action was not dismissed.

25.As DDJ Yim ruled when granting leave for the plaintiff to amend the 1^st SOC (paras 43 and 44 of her decision dated 26 November 2013):-

“43. Yet it is not so bad that it could not be amenable by amendment. Strike out on technicality would not prevent the Plaintiff to take out another claim. Too much time has been spent by the parties on matters related to the second hand parts agreement made in 2007. Justice requires me to consider merit and not only technicality. I agreed there is a reasonable cause of action and triable issues of mixed law and fact involved.

44. After due consideration I allow the claim to continue and the Plaintiff to amend his Statement of Claim within reasonable time….”

26.The failure to comply with the unless order to amend the 1^st SOC was not intentional; the default was that of the solicitor rather than the plaintiff.

27.Applying the principles stated in Sun Focus Investment Limited v Tang Shing Bor and Total Lubricants HK Ltd v De Chanterac (No 2) and those authorities cited in paragraphs 21 and 22 above relating to default due to extraneous circumstances such as that by the legal representatives but not the litigants, I am inclined that the plaintiff should not be barred from proceeding this action, now that the defective pleading has been cured by the new plea in the fresh SOC.  The fresh SOC can be treated as an attempt to amend the 1^st SOC. (paras 33-36 of Sun Focus)

28.Whilst objecting to the plaintiff’s application to amend, the defendant has not demonstrated to the court that he would suffer any prejudice in the event that leave was granted.  

29.In any event, as DDJ Yim rightly observed (para 43 of her decision dated 26 November 2013), disallowing the plaintiff to proceed this action on technicality alone would not prevent it from taking out a fresh action against the defendant (based on the fresh SOC), there being no issue of time bar as the settlement agreement based on which the cause of action herein arose was made on 8 November 2012.

30.Having considered all the circumstances in particular those set out in Order 2 rule 5 (1)(a), (c), (d), (f), (h), (i) and (j) and applying the relevant legal principles, it is in my view appropriate to grant leave for the plaintiff to proceed the action by filing the fresh SOC.  That was clearly also the intention of the court when the plaintiff was asked to give an undertaking during the hearing on 22 May 2014 to issue the present summons for further extension of time for the amendment of the 1^st SOC.

31.I grant leave for the plaintiff to file the fresh SOC.

Costs

32.Whilst conceding that the defendant should have costs of the summons and costs of and occasioned by the amendment, the plaintiff argues that it is successful in the argument and should be granted costs of the hearing.  Plaintiff’s counsel refers me to the judgments of Topwell Corporation Limited v Kwan Kam Kee (unreported) (CACV 88/2013; 14 May 2013) and Lessy SARL v Pacific Star Development Ltd & Anor [1996] 2 HKLR 1.

33.Those authorities are distinguishable from the present case in that the defendants who applied for leave to amend the pleadings were not seeking relief against sanctions.  In the present case the plaintiff is seeking relief against sanction as a result of its breach of an unless order.  I exercise my judicial discretion to grant costs of the hearing also in favour of the defendant.

Order

34.The plaintiff shall have leave to file the fresh SOC (in the form annexed to its summons filed on 23 May 2014 (subject to amendments of typographical errors by (i) in para 14(aa): replacing the word “told” with “wrote”; (ii) in para 15: deleting the word “with”; and (iii) in the prayer: replacing the word “DEFENDANT” by “PLAINTIFF”) no later than 4 pm on 20 June 2014.

35.Costs of the plaintiff’s summons filed on 23 May 2014, together with costs of the consequential amendments, wasted costs in respect of the 1^st SOC and the Defence filed on 5 July 2013, and costs of this hearing, be to the defendant in any event, such costs to be taxed if not agreed.

Postscript

36.From a modest claim arising out of a sale and purchase agreement adjudged at $169,040 in DCCJ 1569/2008 payable by the defendant to the plaintiff, the parties have engaged in a bitter legal battle over the past 6 years in 8 sets of legal proceedings including two winding up petitions by the plaintiff against the defendant, appeals and applications for leave to appeal. 

37.Sarcastically, the present action arose out of a settlement agreement reached outside the court room during adjournment of the appeal hearing on 8 November 2012 in CACV 250/2010 whereby the parties agreed to settle all disputes by the defendant paying the plaintiff $50,000 with conditions of withdrawal/ dismissal of the ongoing actions.  The defendant had on 21 November 2012 paid $50,000 as agreed, but there was then an alleged breach of the settlement agreement due to the defendant’s failure to achieve withdrawal of the appeal in CACV 250/2010.  The $50,000 paid has now become the subject matter of yet another claim in the Small Claims Tribunal by the defendant against the plaintiff.

38.The legal process, not sensibly controlled, has been used as an oppressive weapon without due regard to economy and efficiency, in particular the underlying objectives of the CJR set out in Order 1A rule 1.  Needless to say, the time resources and costs incurred by both parties are ridiculously disproportionate to the modest claims.  The director of the defendant, acting in person, expressed adamantly his wish to settle all actions and disputes in the defendant’s skeleton submissions and in the course of the hearing. 

39.It is regrettable that despite the court’s invitation before and amidst the hearing, the parties have not been able to reach settlement that should have been achieved a long time ago.  It is hoped that before too long, common sense will prevail.

Mr Benny Lo instructed by Haley & Co, for the plaintiff

The defendant appeared in person