LESSY S.A.R.L. v. PACIFIC STAR DEVELOPMENT LTD AND ANOTHER

1997 No. 157
(Civil)

Headnote

[Consideration shall be given to the adoption in Hong Kong, modified as appropriate to suit local conditions, of the guidance given in The Mortgage Corporation Ltd. v. Sandoes, Blinkhorn & Co. and Gibson. "The Times", 27th December 1996 (relating to failures to adhere to twice limits] and in Hytec Information Systems Ltd. v. Coventry City Council, "The Times", 31st December 1996 (relating to failures to comply with "unless" orders").]

IN THE HIGH COURT OF HONG KONG

COURT OF APPEAL

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J U D G M E N T

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Keith J. (giving the first judgment at the invitation of Nazareth V.-P.):

The Facts

1. The Plaintiff in this action is a limited company incorporated in France. In February 1994, it was ordered to pay the sum of $65,000.00 into court as security for the Defendants' costs of the action up to the setting down of the action for trial. By July 1996, however, the Defendants' solicitors believed that that sum would be inadequate. Accordingly, they informed the Plaintiff's solicitors that they would be applying "at the appropriate time" for further security - both to top up the security for the costs incurred prior to the setting down of the action for trial, and for security for the subsequent costs of the action.

2. As it turned out, the Defendants' solicitors did not make a further application for security for some time. What happened was that their intention to apply for further security was mentioned at a hearing on 4th June 1997 when an application was made for the action to be set down for trial. The judge who heard that application took the view that if the Defendants were going to apply for further security, they should do so soon. He therefore ordered that any application for further security be filed by 4:00 p.m. on 4th July. I rather doubt whether the judge had the power to make that order. The Rules of the High Court do not prescribe the time by when an application for security for costs must be made, and there is authority for the proposition that an order for security for costs may be made at any stage of the proceedings: see The Supreme Court Practice 1997, Vol. 1, para. 23/1-3/28. Indeed, an application for security may be made even after the trial has commenced. I am inclined to the view, therefore, that it was not open to the judge to limit the time for the application for security for costs to be made.

3. Be that as it may, the Defendants' solicitors prepared the application for further security. The solicitor handling the case drafted the summons and the affidavit in support, which he sent to counsel to settle. Eventually, on the afternoon of 4th July (the last day for the filing of the application for security), the solicitor went to the High Court where he swore the affidavit at about 3:30 p.m., and gave instructions to his filing clerk to file the summons and the affidavit in the Registry which is on the same floor. However, the filing clerk did not file either the summons or the affidavit. The summons bore a time estimate of 1/2 day on it, and when the clerk was told by staff in the Registry that it had nevertheless to be filed in the three minutes list, the clerk decided not to file the summons at all.

4. It was therefore necessary for the Defendants' solicitors to apply for an extension of time for the filing of an application for further security. That application came before the same judge on 23rd July. He refused to extend the Defendants' time. The Defendants now appeal against that refusal, because the upshot of the refusal is that they cannot now obtain further security for their costs.

The reasoning of the judge

5. The reasoning of the judge was as follows. At the hearing of the application to set the action down for trial, he had ordered that the action be set down for trial within 56 days. He had taken the view that the Plaintiff should know "precisely where they stood" in relation to whether they had to provide further security for the Defendants' costs. To that end, he had placed a time limit on when the Defendants could apply for further security, and he had "deliberately" prevented the Plaintiff from setting the case down before then by directing that the Plaintiff could not do so until 7th July. By 23rd July, when the application to extend the time was made to the judge, the Plaintiff had set the action down for trial: it had been set down on 19th July. I take the judge to have thought that to extend the Defendants' time would undermine the rationale for imposing the time limit in the first place, which had been to ensure that the action would not be set down until the Plaintiff knew whether further security had to be provided.

The flaws in the judge's reasoning

6. I have considerable sympathy for the judge. He wanted the action to proceed speedily, while at the same time ensuring that all outstanding interlocutory issues were disposed of as early as possible. In that way, both sides could devote their energies to preparing for the trial, and the Plaintiff would know sooner rather than later whether it would be required to provide further advance funding for the action. However, I have come to the conclusion that the judge's approach was nevertheless flawed for two reasons.

7. First, even if the Defendants had applied for further security by 4th July, the Plaintiff would still not have known where it stood on the issue by 7th July, which was the first day on which it could have set down the action for trial. The Plaintiff would simply have known that an application for further security had been filed, but it would not have known whether it would be granted or for how much. Accordingly, the judge's order of 4th June would not have enabled the Plaintiff to know, by the first day on which the action could have been set down for trial, precisely where it stood as to whether it would have to provide further security.

8. Secondly, it is undoubtedly the case that any delay in applying for security for costs is relevant to the exercise of the court's discretion as to whether security should be ordered. The closer to the trial that an application for security for costs is made, the less likely it is to be granted. Accordingly, if an application for further security is made after an action has been set down for trial, that is a factor to be taken into account in deciding whether security should be ordered.

9. But it is important to remember that the application to the judge was simply an application for an extension of time. It is axiomatic that orders of the court are there to be observed, but a defendant should not normally be deprived of the opportunity to apply for further security for its costs because of a failure to comply with a time limit, unless either the failure amounted to procedural abuse as opposed to procedural default, or the failure causes prejudice to the plaintiff for which the plaintiff cannot otherwise be compensated. No question of procedural abuse as opposed to procedural default arose in this case. And the only relevant prejudice to the Plaintiff which I can discern was that the Plaintiff would have had to face an application for further security for the Defendants' costs a few weeks closer to the trial than would otherwise have been the case if the application for security for costs had been filed on or before 4th July. If that fact had been regarded by the judge who would have heard the application for security for costs as militating against the making of an order for security, then he could have reflected that by refusing the application. I do not regard the judge who heard the Defendants' application on 23rd July as having addressed the question of prejudice to the Plaintiff at all.

The fresh exercise of discretion

10. I do not overlook the very limited circumstances in which an appellate court can interfere with the exercise of the discretion of the judge at first instance on an interlocutory issue, such as one relating to an extension of time. But the flaws I have sought to identify in the judge's approach were, in my view, such as to entitle the court to set aside the judge's discretion, and to exercise an original discretion of its own.

11. In the exercise of that discretion, I would have extended the Defendants' time for applying for further security for their costs. I appreciate, of course, that another 3 months or so have now elapsed. I do not know whether a date for the trial has been fixed. I recognise that if it has been fixed, the issue as to whether the Plaintiff should provide further security will be decided even closer to the trial, but I would nevertheless still extend the Defendants' time. Accordingly, the order which I would make on this appeal is that the appeal be allowed, the order of the judge be set aside, and that there be substituted for his order an order extending the Defendants' time for applying for further security for their costs by a further 7 days from today.

Godfrey, J.A.:

12. I agree that we must set aside the order under appeal and substitute for it the order which Keith, J. has proposed.

13. I share the doubts expressed by Keith, J. as to the propriety of the earlier order made by the judge purporting (as I understand it) to limit the defendants' time for applying for further security for costs. But I think we should now dispose of the appeal on the basis that that order was properly made, and that the defendants' application on 19 July 1997 which gave rise to the order under appeal was (although indirectly expressed) an application for an extension of time for them to comply with the judge's order of 4 June 1996.

14. What approach should the court adopt to a failure by a litigant to adhere to a time limit prescribed by the rules or by a direction of the court?

15. The authorities have spoken often but unfortunately not always with the same voice on this vexed and difficult question. In The Mortgage Corporation Limited v. Sandoes, Blinkhorn & Co. and Gibson, reported in "The Times", 27 December 1996, the Court of Appeal in England and Wales attempted to answer it. In that case, the judge had refused to grant the plaintiff an extension of time for exchanging witness statements. The court allowed the plaintiff's appeal. The court was not content to deal with the short point arising on the appeal. After consulting the Master of the Rolls and the Vice-Chancellor, the members of the court (Millett and Potter LJJ and Sir Christopher Slade) restated the approach which litigants could expect the court in England and Wales to adopt to a failure to adhere to time limits contained in the rules or directions of the court. The guidance which the court gave was as follows :

"1. Time requirements laid down by the rules and directions given by the Court are not merely targets to be attempted; they are rules to be observed.

2. At the same time the overriding principle is that justice must be done.

3. Litigants are entitled to have their cases resolved with reasonable expedition. Non-compliance with time limits can cause prejudice to one or more of the parties to the litigation.

4. In addition, the vacation or adjournment of the date of trial prejudices other litigants and disrupts the administration of justice.

5. Extensions of time which involve the vacation or adjournment of trial dates should therefore be granted only as a last resort.

6. Where time limits have not been complied with the parties should co-operate in reaching an agreement as to new time limits which will not involve the date of trial being postponed.

7. If they reach such an agreement they can ordinarily expect the court to give effect to that agreement at the trial and it is not necessary to make a separate application solely for this purpose.

8. The court will not look with favour on a party who seeks only to take tactical advantage from the failure of another party to comply with time limits.

9. In the absence of an agreement as to a new timetable, an application should be made promptly to the court for directions.

10. In considering whether to grant an extension of time to a party who is in default, the court will look at all the circumstances including the considerations identified above."

16. Similar problems arise from time to time in relation to what are called "unless" orders. These, too, have been the subject of consideration by the Court of Appeal in England and Wales; see: Hytec Information Systems Ltd. v. Coventry City Council, reported in "The Times", 31 December 1996. Counsel for the respondent in the appeal before us accepted, when it was put to him, that if the order made by the judge here fixing a time limit was to make any sense, it would have to be construed as an order having the same effect as an "unless" order; in other words, an order which on the face of it, it was intended to debar the party against whom it was made from taking any further step in the matter if it were not complied with.

17. The guidance which the Court gave is the Hytec case who as follows:

1. An "unless" order is an order of last resort, not made unless there is a history of failure to comply with other orders. It is the party's last chance to put its case in order.

2. Because it is the last chance, a failure to comply will ordinarily result in the sanction being imposed.

3. The sanction is a necessary forensic weapon which the broader interests of the administration of justice requires to be deployed unless the most compelling arguments are advanced to exonerate the failure.

4. It seems axiomatic that if a party intentionally flouts the order he can expect no mercy.

5. A sufficient exoneration will almost invariably require that he satisfies the court that something beyond his control has caused the failure.

6. The judge will exercise his judicial discretion whether to excuse the failure in the circumstances of each case on its own merits, at the core of which is service to justice.

7. The interests of justice require that justice be shown to the injured party for procedural inefficiencies causing the twin scourges of delay and wasted costs. The need for the public administration of justice to contain those blights also weighs heavily. Any injustice to the defaulting party, though never to be ignored, comes a long way behind the other two.

18. No such guidance has been given by the Court of Appeal here. I hope that consideration will be given to the possibility of giving such guidance (modified, if necessary, in such way as may be appropriate to suit local conditions). But, in the meantime, I venture to suggest that practitioners should bear in mind the guidance given in the English cases.

Nazareth, V.-P.:

19. I also share the doubts expressed by Keith J as to the propriety of the judge's order for the reasons he has given.

20. If that order was not valid as being beyond the judge's powers, then the appeal must succeed, the judge having plainly proceeded upon the basis of his order. If the order was valid, then the question arises as to whether the discretion the judge would have to exercise in dealing with the application to extend was properly exercised. The prejudice that may or may not have been sustained by the extension sought was obviously a matter that had to be considered in the proper exercise of the discretion. On the record of the proceedings before the judge and his judgment, I am satisfied that the matter of prejudice was not considered. It seems clear that there would not have been any prejudice occasioned to the plaintiff by the grant of extension.

21. The discretion was in that way vitiated or not exercised and the appeal must be allowed.

22. It would fall then to this Court to exercise the discretion. Having regard to the matters mentioned by Keith J, in particular to the absence of any time requirement in O23 for the making of an application for security, to the accepted judicial authority that such application can be made at any time, to the unfortunate events that led to the application not being made in time, to Mr Glass's undoubted efforts to meet the timetable, and to the absence of prejudice, I would not only allow the appeal and set aside the order below but make the order proposed by my Lord Keith J.

(After argument as to costs)

Keith J.:

23. We do not propose to disturb the order as to costs which the judge made below. It is entirely appropriate for the costs of the application for an extension of time to be paid by the Defendants in view of the failure of the Defendants to file the application by 4th July. So far as the costs of the appeal are concerned, the order we make is that the costs should be in the cause. The reason why we depart from the usual order that the costs of the appeal should follow the event is that during the submissions of the Defendants' solicitor the judge was strongly expressing the view that the application to extend time should not be permitted. When the Plaintiff's solicitor was called upon, he did little more than tell the judge that he shared the judge's view that there had been delay in applying for security for costs. He made no other submission to the judge in support of the view which the judge was expressing. In these circumstances, to the extent that the judge fell into error, we do not think that that was as a result of any submission made to him on behalf of the Plaintiff.

(After further argument as to costs)

24. The "cause" in which the costs of the appeal should be is the application for security for costs, but the parties are to have liberty to apply in the unlikely event of an application for further security not being made.