Case Document

100%Judiciary

HCA 236/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 236 OF 2013

_________________________

BETWEEN	HISHINUMA MACHERY CO. LTD.	1^st Plaintiff
	HISHINUMA (HONG KONG) LIMITED	2^nd Plaintiff
	菱沼(香港)有限公司
	and
	MINI DIECAST MACHINE LIMITED	1^st Defendant
	微型壓鑄設備有限公司
	CHEN JUNHONG	2^nd Defendant
	陳俊紅

_________________________

Before: Mr Registrar K.W. Lung in Chambers (Open to the public)

Date of Hearing: 5 May 2015

Date of Decision: 5 May 2015

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D E C I S I O N

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THE APPLICATION

1.This is the hearing of the application by the defendants made by summons dated 28 April 2015 for the following orders:-

(a) leave be granted to the defendants to apply out of time for relief from sanction in respect of the Unless Order of Mr. Registrar K.W. Lung dated 5 November 2014, pursuant to O.2, rr. 4-5 and O.3, r.5; and

(b) if so granted, for leave to exchange the witness statement (陳俊紅之證人口供) filed on 13 January 2015 in a sealed envelope.

2.The plaintiffs concede the following:

(a) It is likely that the trial date will not be substantially affected;

(b) The effect of the defendants’ delay in the application on the plaintiffs is not great.[1]

3.The plaintiffs, however, oppose on the grounds that the reasons were given not by the defendants themselves, but by their solicitor; that the reasons were not sufficient to exonerate the defendants from the sanction for not complying with the Unless Order and that it caused the plaintiffs to send the witness statements in a sealed envelope, which the plaintiffs are not sure if it had been opened as the defendants had told them that it had been opened but subsequently retracted that statement.

4.The parties are legally represented.[2]

5.On the special facts of this case and in view of the plaintiffs’ concession, it will not take much time to dispose of this application. However, having considered the defendants’ written submissions on the legal principles applicable to this application, I find it necessary to review the relevant legal principles, especially the recent development of the law on the enforcement of the “unless” order. I shall set out defence counsel’s submissions where appropriate.

THE FACTUAL BACKGROUND

6.The plaintiffs claim against the defendants for passing off their substantial reputation and goodwill of their products and also for conspiracy to injure.^{^[3]} The defendants were in breach of an “unless order” dated 5 November 2014, by which the parties were ordered to exchange the witness statements by 4:00 pm on 4 January 2015. The sanction was that the party in default should be debarred from adducing such evidence and the other party ready to exchange should be at liberty to serve the witness statements forthwith. The defendants had failed to exchange the witness statements by the deadline. Under O.2, r.4, the defendants should have made an application for extension of time “within fourteen days of the failure”. Again, the defendants had failed to do so, there being a five-day delay.[4]

DISCUSSION

Order 2, r.4 – jurisdiction

7.The defendants therefore applied for an extension of time for relief under O.2, r.4. Deputy Judge Au-Yeung (as she then was) in Tang Kim Kwan Patrick v Lee Chi Ting Karen (unrep., HCA920/2009, 6 January 2012) held that the court had the jurisdiction to entertain the application.[5] In that case, the defendant filed her summons for relief from the “unless” order seven weeks after the failure.[6]

8.In my view, if this Court grants the relief to the defendants, it is unnecessary for the defendants to apply for leave to exchange the witness statements with the plaintiffs. The relief itself has provided the leave already. Tang Kim Kwan Patrick case had adopted this approach. This can be contrasted with the Decision of Daimler AG v Leiduck [2012] 3 HKLRD 119, where the plaintiff’s Points of Defence re Fraud had been struck out under the sanction of the Unless Order. The court held that the Points of Defence re Fraud had to be restored by an order of the court. See §50 of the Reasons for Judgment.

Nature of the “unless”order

9.It will be appropriate at this stage to review the court’s approach to the enforcement of unless orders.

10.To start the discussion, it is important to note the nature of unless orders. The Court of Final Appeal has discussed this issue in Wing Fai ConstructionCompany Limited (in Compulsory Liquidation) v Yip Kwong Robert & Others (2011) 14 HKCFAR935. At §32 of the judgment, the Court discussed the court’s case management power within the context of striking out for delay. But the rationale is, in my view, applicable to other case management exercises such as the enforcement of the “unless” orders. At §32(4), the Court held: “The amendments to the Rules recognize that the court must be empowered and encouraged to make orders that would render effective its case management functions, and, in appropriate cases, to enforce compliance. Where appropriate, the court will be able to order that consequences might flow where there has been non-compliance.” At §32 (5)(b), it held: “Where any delays occur, the court is able to make peremptory orders to ensure that proceedings are not unduly held up:- O.1B r.1(3)….”

11.As such, the peremptory order or “unless” order must be given due weight and authority it deserves in order to establish the court’s authority in case management. It will be apposite to bear in mind what Ma J. (as he then was) said in Ping Kai Engineering Co Ltd v Hong Kong Teakwood Works Ltd (unrep. HCCT 2/2001, 6 February 2002) at §20 where he adopted the applicable principles contained in the judgment of Sir Nicholas Browne-Wilkinson VC in Re Jokai Tea Holdings Limited (Note) [1992] 1 WLR 1196 at page 1203:

“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 would otherwise have enjoyed.” (emphasis added)

It will be seen that the test of “intentional and contumelious” has been modified after the CJR as discussed below.

12.Order 2, rule 5(2) provides that the application for relief must be supported by evidence. The burden must be on the party who has not complied with the “unless” order to give explanations on affidavit for such default[7]. See § 22 of Ping Kai Engineering Co Ltd:

“… the party in default (and it is important to stress that the burden is on him) to demonstrate with cogent and compelling evidence that the failure was not intentional or contumelious and was caused by circumstances beyond his control. Invariably, I would have thought that an affidavit would be essential if any explanation is sought to be given for, as is obvious, a court would attach more weight to sworn evidence than evidence either unsworn or simply given from counsel’s table.” (emphasis added)

The test

13.The test that the court would adopt to consider whether relief should be granted to the applicant for non-compliance with the “unless order” after the CJR should be those set out in the UK authority Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666 where, at p.1677, Auld LJ said:

“In my judgment, there is no need to confine the test to that of an intentional disregard of a court’s peremptory order, whether or not it is characterised as flouting, contumelious, contumacious, perverse, obstinate or otherwise. Such an intent may be the most usual circumstance giving rise to the exercise of this jurisdiction. But failure to comply with one or a number of orders through negligence, incompetence or sheer indolence could equally qualify for its exercise. It all depends on the individual circumstances and the existence and degree of fault found by the court after hearing representations to the contrary by the party whose pleading it is sought to strike out.”

The above is the appropriate test after the CJR as held by Fok J. (as he then was) in Top One International (China) Property Group Co Ltd. v Top One Property Group Limited [2011]1 HKLRD 606 at §41 where he said:

“In my view, the passage quoted above from Hytec is entirely consistent with the more pro-active case-management approach encouraged by the CJR and, in my view, the CJR has had the effect that the Hytec approach now reflects the approach that should be applied in this jurisdiction. That is to say, although intentional and contumelious disregard of a court’s peremptory order may be the most usual circumstance leading to the refusal of an extension of time to comply with a peremptory order, the exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default. As directed by RHC O.2 r.5, the court should consider all the individual circumstances including those listed in r.5(1) at sub-paragraphs (a) to (j). Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted. Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (RHC O.1A r.3) and on the court to do so by actively managing cases (RHC O.1A r.4(1)).”

This decision was followed in Tang Kim Kwan Patrick.

The solicitor’s fault

14.The defendants submit that it was due to the solicitor’s mistake that the application was made out of time and they should not be penalized by their solicitor’s mistake. The Court of Final Appeal in Wing Fai Construction Company Limited (in Compulsory Liquidation) at §34 held: ‘Rules do not exist for the sake of compliance with them as an end in itself; they exist for the purpose of ensuring that disputes before the courts are justly resolved. It does not, however, provide any excuse for parties or their legal representatives not to comply with the Rules or orders made by the court, nor does it relieve them of this duty under O.1A r.3. The emphasis must be placed on the word “just”.’ (emphasis added) In Far East Sourcing Ltd v Man Bong International Ltd & Another (unrep. HCA 1463/2012, DHCJ Sakhrani, 29 April 2015) where the court set aside the default judgment because non-compliance of the “unless” order for not supplying the documents was due to the negligence of the solicitor, to whom the 2^nd defendant had given all the documents. [56-60] On the other hand, in the case of Jose Miranda Da Costa Junior & Another v Lorenzo Yih, also known as Yu Chuan Yih & Others (unrep. HCA 156/2010, DHCJ Le Pichon, 22 August 2014), the Court refused the applicant’s application to extend the time for payment in of the security though the solicitor had admitted fault on his part. [58] It held that the solicitors could be held liable for the default. [69]

The proportionality test

15.In the application of the above legal principles and those provisions under O.2, r. 5, RHC, the court will apply the proportionality test. At §513 of the Final Report, it stated:

“As indicated in the Interim Report, the sanction prescribed in a self-executing order should be proportionate to the non-compliance in question. Where the non-compliance is such as to make a fair trial impossible, the claim or defence may be struck out. However, that should be a last resort. As Lord Woolf MR pointed out in Biguzzi v Rank Leisure Plc [1999] 1 WLR 1926, other sanctions often enable a case to be dealt with justly without the draconian step of striking the case out.”

16.This is exemplified by the Court of Appeal in Daimler AG where after it had decided that a fresh exercise of discretion for the relief under the “unless” order was necessary and it said at §57: “In our view, a weighty factor in the weighing exercise to be undertaken by the court on a fresh exercise of the discretion is the question of proportionality of the sanction in the circumstances of this case.” Having considered the circumstances of the case, the Court of Appeal found that “the delay can be compensated in costs and the insufficiency of the four answers in question can be addressed by this court requiring the plaintiff to provide further answers to those interrogatories without the invocation of LPP.” (legal professional privilege). It had exercised its discretion afresh and made the “unless” order with different terms. See §68.

17.On the other hand, in Top One International (China) Property Group Co Ltd., the court, having considered the circumstances of the case had come to find at §54 that “it is tolerably clear from the procedural history of these proceedings since at least February 2010 that the 3^rd defendant has played a systematic game of “hide and seek” in order to evade service of documents on him and compliance with orders, including the Unless Order.” The court went further to consider the factors under O.2, r.5 and finally found at paragraph 62:

“Taking all the matters I have referred to into account, I have ultimately come to the conclusion that I should not grant relief from the sanction imposed by the Unless Order in the present case. I recognise that the striking out of the Amended Defence deprives the 1^st and 3^rd defendants of the opportunity of having their day in court and it is therefore a draconian sanction. But in the light of my findings, it would be right to say that the 1^st and 3^rd defendants have brought this on their own heads.”

18.In Tang Kim Kwan Patrick , DHCJ Au-Yeung (as she then was) adopted the same approach and finally came to a conclusion at §30 that “To preclude the defendant from relying on her witness statement will effectively deprive her of a proper defence as the plaintiff is relying on the presumption of resulting trust. The primary aim of the Court in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties and not technical failure. It will not be conducive to the administration of justice to bar the defendant entirely from adducing witness statements.” At §32, she held: “Having considered all the factors, I am not satisfied that there had been deliberate flouting of the unless order. I therefore exercise my discretion to grant the relief against sanction in the interests of justice.”

CONCLUSION

19.As I have said earlier in this Decision, this case bears similar factual circumstances with those in Tang Kim Kwan Patrick, though the length of delay in taking out the application under O.2, r.5 in that case is much longer than that in this case.

20.I note that the plaintiff complains that the affidavit evidence was made by the solicitor instead of the defendants. Order 41, r.5(2) provides:

“An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof.”

21.As to the criticism on the sufficiency of the reasons for the delay, it suffices for me to say that those reasons explain the delay and the plaintiffs have not suffered prejudice because of the delay. The issue of the plaintiffs’ witness statements having been seen is now irrelevant as they are to be exchanged with the defendants.

22.I shall therefore exercise my discretion to grant the extension of time to the defendants to exchange the witness statements with the plaintiffs and the witness statements should be exchanged within 7 days from the date hereof.

COSTS AND ORDER

23.As to the costs of this application, the defendants have succeeded in their application for relief under O.2, r.4. However, costs are matters of the court’s discretion under section 52A(1) of the High Court Ordinance, Cap.4. The exercise of the discretion must, of course, be made judiciously in accordance with the rules and practice of the Court. O.62, r.5 provides with the relevant factors which the court is enjoined to consider when exercising its discretion. The application is taken out by the defendants for relief under O.2, r.4 because of their own defaults. The defendants should bear the costs for their own redress unless the plaintiffs’ conduct has contributed to the costs or cause more costs than necessary under the circumstances.

24.Considering the grounds of objection, it is quite apparent that the plaintiffs do not have good reasons to oppose the application. I have therefore adjourn the matter for the parties to discuss the proper order of costs, which this Court should make under the circumstances. The parties, having discussed the issue between themselves, have come to an agreement of this Court making no order as to costs, which in my view, is a sensible agreement in light of O.62, r.5 RHC. I shall accede to the parties’ agreement on costs.

25.I shall now make an order in terms as follows: