WONG WAI MAN v. CHEUNG PAK HING AND ANOTHER

DCCJ1744/2017

[2018] HKDC 461

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1744 OF 2017

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DECISION

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1.  There are 2 matters before the Court:-

(a)   The plaintiff (“P”)’s application for declaratory judgment against the 2^nd defendant (“D2”) in default of defence, pursuant to O 19, r 7 of RDC (“P’s Application”), originally filed on 19 October 2017 and re-filed as amended on 15 December 2017; and

(b)   D2’s application filed on 9 March 2018 for extension of time to file and serve its Defence and Counterclaim within 14 days from the date of the order (“D2’s Application”).

BRIEF CASE BACKGROUND AND PROCEDURAL HISTORY

2.  P’s pleaded case, in a nutshell, is that:-

(a) P was assigned P Property in January 1998, on which a temple or place for worship was built in about 1977;

(b) The said temple has a garden in front of it and the garden has at all times encroached on parts of both the property of the 1^st defendant (“D1”) and D2 that adjoin each other and P Property; the entire encroachment is defined as the “Disputed Area” in the SoC;

(c) P alleges that its predecessor in title had since 1977 been in “exclusive, open and uninterrupted” possession and/or occupation of the Disputed Area;

(d) P alleges that it has continued the above “exclusive, open and uninterrupted” possession and/or occupation after it acquired P Property in 1998;

(e) P alleges that it has the requisite “intention to possess the Disputed Area against all persons”;

(f) P therefore claims, among other reliefs against D1, adverse possession against D1 and D2 in relation to the respective parts of their property within the Disputed Area.

3.  D1 filed his Defence and Counterclaim on 3 July 2017 and his pleaded case, in a nutshell, is that:-

(a) He denies that P’s predecessor in title, one Madam Lau, had been in exclusive, open and uninterrupted possession of the Disputed Area since 1977, on the basis of alleged use of the Disputed Area by D1’s predecessor in title and that the Disputed Area (as indeed the entire P Property) was disserted after 1986;

(b) He alleges that Madam Lau had actually kept the key to the gate of the Disputed Area and since 1986 was the only person, together with her family, who had access to the Disputed Area and indeed P Property;

(c) He denies that P has continued such exclusive, open and uninterrupted possession of the Disputed Area, and alleges that P has never even been in possession of the Disputed Area or even the entire P Property, until P or its representative broke into the Disputed Area and tried to change the lock of the gate in September 2016;

(d) On the above basis D1 alleges also that P could not have had any intention to adversely possess the Disputed Area.

4.  D2, at that time legally represented, did file an Acknowledgement of Service on 25 April 2017, indicating that it intended to defend P’s claim.  However it failed to file its Defence in time and that led to P’s Application on 18 October 2017.

5.  The day before P’s Application was made, ie 17 October 2017, D2 filed a Notice to Act in Person.

6.  At the directions hearing of P’s Application on 14 December 2017 D2 was absent.  It was P’s evidence that D2’s representative and director in fact called P’s solicitors and said that D2 would not attend the said directions hearing.  On that occasion the Court also gave leave to P to amend P’s Application.

7.  Then on 29 January 2018 the firm of solicitors that previously acted for D2 filed a Notice to Act for D2. 

8.  However, on 9 March 2018 D2 filed a Notice to Act in Person again and at the same time took out D2’s Application.

9.  Up to the substantive hearing on 13 March 2018 D2 has not prepared a draft defence or alluded to any grounds of defence in any way.

PRINCIPLES AND CONSIDERATIONS

10.  Since the 2 applications are mutually exclusive, consideration of one cannot ignore the effect on the other, so principles and considerations of both ought to be analysed together before deciding what is the most fair and just result in these circumstances.

Principles

11.  Firstly, when a draft defence consisting just bare denials of the plaintiff’s case is handed to the Court only at the hearing of the plaintiff’s application for judgment in default of defence and the defendant’s cross application for time to file a defence, the position is that this will generally prevent the plaintiff from entering judgment (see HKCP 2018 Vol 1 n 19/7/4 at p 498).

12.  As to whether production of a draft defence is a “must” before the Court can exercise its discretion to grant extension of time for filing of defence and to refuse granting default judgment, I agree with the view of Deputy High Court Judge Anson Wong S C in Alibaba Group Holding Ltd. & Anr v Ant Financial Group Co, Ltd. [2017] HKCFI 651 that it is not.  What the Court must do is to “consider all the circumstances and conduct a balancing exercise in light of the two conflicting principles identified by the Court of Appeal in The Decurion [2012] 1 HKLRD 1063”.

13.  The two conflicting principles the Court of Appeal identified in The Decurion are these (para 11 of the judgment):-

(a) A party being required to observe the procedural rules, the default of which may result in judgment being entered against it;

(b) 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.

14.  The Court of Appeal emphasised that neither principle should be rigidly applied and the correct approach is to “consider all the circumstances of the case and not confine the decision to the application of a universally applicable rule of thumb”.

15.  The defendant in Alibaba Group Holding Ltd. was given leave to file its defence out of time on an unless order on these considerations:-

(a) The Court was “not impressed” by its defence orally put forth at the hearing but recognised that its solicitors came into the picture very late;

(b) The defendant of course was to blame for failing to instruct lawyers in good time;

(c) There was no prejudice to the plaintiffs, the prejudices argued, namely delay in resolution and lack of total recoverability of costs thrown away, could be said of every extension of time application and thus should not carry any significant weight;

(d) The defendant’s conduct led the Court to harbour a healthy scepticism that it may seek to delay filing of the defence, and in that case it will be a complete waste of time and resource for the plaintiffs to make another application for default judgment.

16.  Secondly, where there are several defendants and some duly defended but some defaulted, and the plaintiff proceeds to trial against those duly defended and applies for default judgment against those defaulted, that plaintiff should have the trial and the application to be heard at the same time (see HKCP (supra) n 19/7/6 at p 498).  This represents a suggestion to plaintiffs in such a situation as to what is the appropriate course to take.

17.  The Court, on the other hand, in dealing with an application for default judgment in such a situation, and where there are matters affecting other parties waiting to be decided, “may” order the application to stand over until trial (see ibid n 19/7/13 at p 499).

18.  Thirdly, although not a rule of law, it is a rule of practice of the Court to not make a declaration without a trial.  There are of course exceptions and circumstances warranting a declaration to be made in default of defence, but the Court will scrutinise the application carefully and does not hastily grant the relief sought (see ibid n 19/7/20 at p 500).

Considerations

19.  Firstly, as D1 has duly defended and there is nothing to suggest that the matters between P and D1 will not require a trial to resolve, the Court must look into the inter-play and also potential consequences if P gets default judgment against D2 but goes to trial against D1.

20.  As I see it, there is a potential factual basis problem and injustice if the case proceeds in that way:-

(a) P’s pleaded case on its act of exclusive possession of the Disputed Area is a one-off act (building the garden and its wall) covering the entire Disputed Area, ie there was not differentiation between the part therein belonging to D1 and that to D2; P also bears the burden of proving this element;

(b) As such, logic dictates that P either proves exclusive possession of the Disputed Area as a whole or fail as a whole, there is no logical basis for the Court to make any finding separately and independently in respect of exclusive possession of the parts therein belonging to D1 and to D2; it is an all-or-nothing factual allegation;

(c) D1’s pleaded case challenges P’s exclusive possession of the entire Disputed Area, and in effect alleging that his predecessor in title and her family had exclusive possession to the entire Disputed Area since 1986 (as only they had the key to the gate);

(d) Similarly, D1’s pleaded case makes no differentiation between the parts of the Disputed Area belonging to D1 and that to D2, ie it is also an all-or-nothing factual allegation;

(e) To say nothing about the substantive merits, if at trial the Court finds against P’s pleaded case then P will have no basis to claim adverse possession in respect of any part of the Disputed Area;

(f) In that eventuality, a default judgment against D2 (granted before the trial against D1) will have no factual basis to stand, and as such totally unjust to D2;

(g) This potential problem is further exacerbated by the fact that D1 has a positive pleaded case which also cover the entire Disputed Area and determination of P’s case cannot be done without taking D1’s case into account.

21.  Mr Henry Fung, counsel for P, argued that there will not be such a problem as a default judgment against D2 would not prejudice D1’s case at trial and the Court can still determine whether P has successfully adversely possessed part of the Disputed Area belonging to D1.  He further argued that chances of this problem arising are remote, if any at all.

22.  I am afraid I cannot agree to either of these arguments. 

23.  His first point is premised upon the Court being able to separately and independently determine adverse possession of parts of the Disputed Area as opposed to its entirety, notwithstanding the fact that both P’s case and D1’s case are logically all-or-nothing in nature.  As I analysed above, this is not possible given the way P and D1 have pleaded their respective cases.

24.  His second point is one based on quantification of a possibility, and that inevitably requires examination of the substantive merits of P’s and D1’s case.  This is not only inappropriate but indeed impossible as the case has only progressed to close of pleadings and no evidence has been filed at all.

25.  Secondly, following from the above consideration, this is clearly a case where the P’s declaratory judgment should be stood over to the trial against D1 so that their respective cases can be tested before determined.  To state the obvious, determination of their respective pleaded cases inevitably affects the part of D2’s Property inside the Disputed Area.

26.  It must be made clear that given P’s and D1’s respective pleaded cases, I would have ordered P’s Application to stand over to the trial against D1 even if D2 had continued its absence and not made D2’s Application.

27.  Thirdly, on prejudice, Mr Fung argued that allowing D2 to defend and refusing to enter default judgment against it will be unfair and bring prejudice to P.  He submitted that the unfairness and prejudice lies in the delay, as the case started almost a year ago, and it is not compensatable by costs.  As for D2, Mr Fung argued that it will not be unfair to D2 to not allow it to defend as it has been given multiple opportunities and time to defend and still has hitherto failed to do so, despite the fact that it was at points legally represented.

28.  Regarding unfairness and prejudice to P, Mr Fung’s argument mirrors those made by the plaintiffs in Alibaba Group Holding Ltd. and I share the Court’s view therein that these arguments could be made in any case where an extension of time is sought and thus should not carry significant weight. 

29.  Further, given the fact that P is on course to go for trial against D1 and that part has only progressed to close of pleadings, there is no reason why D2’s part cannot catch up with D1’s part (and if necessary with more stringent time table being imposed by the Court) comes trial, if not earlier at Case Management stage.  On this basis delay in the disposal of P’s claim as a whole can be readily avoided.

30.  There is therefore nothing not compensatable by costs in allowing D2 to defend.

31.  Regarding prejudice to D2, if it is not allowed to defend then it will not only lose the chance to have P prove its case against D2 on evidence but also lose the chance to benefit from D1’s positive case against P, which as analysed above affects also D2’s Property inside the Disputed Area.  Obviously neither of these can be adequately compensated by costs, and could potentially be totally unfair to D2 given the first consideration.

32.  Fourthly, if a draft defence is not a “must” and if a bare denial defence will generally prevent judgment being entered in default of defence, then in this case the fact that D2 has not eluded to any grounds of defence so far should not prevent the Court from allowing it to defend, not least because in this case P bears the burden to prove all elements of adverse possession.

Conclusions

33.  Having considered all of the above matters, I have come to the following conclusions:-

(a) Judgment in default of defence should not be entered against D2 without a trial;

(b) D2 should be allowed to defend, albeit substantially out of time;

(c) Strict time tables must be set in relation to conduct of D2’s defence;

(d) D2 must bear the costs consequences of its delay in complying with procedural rules.

34.  At the oral hearing I gave directions for summary assessment of costs.  P has duly filed and served its skeleton bill of costs on 26 March 2018 and D2 has filed and served its written objections thereto on 9 April 2018.  I shall therefore, in making a costs order herein, conduct a summary assessment based on these filed documents.

35.  I therefore make the following orders:-

(1) Unless D2 do file and serve its Defence and Counterclaim (if any) within 21 days from the date hereof, it be debarred from filing or serving any Defence and/or Counterclaim herein and P’s Application be stood over to be heard together at the same time as but after the trial against D1;

(2) Upon D2’s due compliance of (1) above, P’s Application be dismissed without further order from the Court;

(3) Upon D2’s due compliance of (1) above, P do file and serve its Reply and Defence to Counterclaim (if any) within 14 days after being served D2’s Defence and Counterclaim (if any);

(4) Costs of and occasioned by P’s Application and D2’s Application be paid by D2 to P forthwith, such costs summarily assessed at HK$50,000.