LEE SHUK YEE v. LEE SUK PING AND OTHERS

IN THE COURT OF APPEAL

1996, No. 132
(Civil)

BETWEEN

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JUDGMENT

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Liu JA:

1.  This is an appeal from a decision of Mrs Justice Bokhary refusing to reverse the Master’s Order striking out the defendants’ Defence and Counterclaim.  The plaintiff seeks a grant of Letters of Administration in the intestacy of her late father.  The plaintiff had hoped to dispose of property in the intestate estate for meeting the provisional estate duty.  Her efforts did not appeal to the defendants who condemned the disposition she set up as one at an under-value.  As a last resort, the plaintiff managed to secure a loan of about $3 million from the intended purchaser and paid the provisional estate duty so as to avoid the very high interest rate charged thereon.  Primarily on account of this, the defendants questioned the fitness of the plaintiff as an administratrix.

2.  The first defendant, supported by the other defendants, competes for a grant of administration.  But the plaintiff challenges the 1st defendant’s application on the grounds that she, together with the other defendants, is accountable to their late father’s intestate estate for unauthorised and improper drawings and that she has, therefore, a conflict of interest.

3.  During his life time, the late father of the parties leased his own land and land let to him to Special Effect Trading Investments Co. Ltd. (“Special Effect”).  The bulk of the income to their late father and to his intestate estate after his death derived from the rentals receivable from these lands.  It was asserted by the defendants that Special Effect ceased to have any business activity since November 1993 and that there had since then been no collectable rental.  It is the plaintiff’s complaint that the defendants helped themselves to the funds of Special Effect and are accountable for these unauthorised and improper withdrawals, hence the 1st defendant is unfit to be appointed an administratrix.

4.  The plaintiff found the defendants uncooperative.  Two Unless Orders had had to be obtained for inspection and production of copies of documents in the defendants’ list.  The income of Special Effect was almost entirely in rental receipts.  In the assertion of the defendants, Special Effect had no business activities and no rental income since November 1993.  The defendants maintained that there was no tenancy or letting agreements.  It is therefore difficult to appreciate what real difficulty there existed for the defendants to produce all the documents of Special Effect, particularly when the company had enjoyed the service of an accountant.

5.  On 4 April 1995, the plaintiff applied by summons for a list of further and specific documents of Special Effect.  A schedule was attached to the plaintiff’s summons.  On 17 May 1995, the defendants were ordered by Master Jennings to file an affidavit within 7 days stating whether they had or had had the documents set out in the schedule in their possession, custody or power.  The defendants failed to make specific discovery as ordered at all.

6.  It was sought to be explained by leading counsel for the defendants that the defendants’ solicitors then held an erroneous view that the Master’s Order of 17 May was ill-founded on two grounds: first, since Special Effect was not a party to the proceedings, the company’s documents were not documents of the defendants for discovery and secondly, these documents of Special Effect were in any case irrelevant.  These views were stated in the letter of the defendants’ solicitors dated 13 June 1995.  There was no evidence whether these views of the solicitors had been communicated to the defendants.  Moreover, it was not suggested that the defendants had been advised to disregard the Master’s Order.  Thus, there did not seem to be any good excuse for disobeying the Master’s Order made on 17 May 1995 on the plaintiff’s summons dated 4 April 1995.

7.  On 16 June 1995, the plaintiff caused to be issued a further summons seeking an order that the Defence and Counterclaim be struck out unless the defendants filed a full list in accordance with the Schedule attached to the plaintiff’s summons dated 4 April 1995.

8.  On counsel’s advice, solicitors no longer held to their aforesaid erroneous view, and on 3 October 1995 an Unless Order was made in terms ordering the defendants to file the list within 7 days.  On 10 October 1995, the defendants purported to comply with the Master’s Order.  Accounts with reference to two lots of land were missing, but the defendants claimed that it was a mistake and further that the relevance of these two lots was questioned.  That is stated in paragraph 13 of Mr Yun’s affirmation dated 31 May 1996 (p. 280 of Bundle 1).  It was made known at the hearing of this appeal that most, if not all, of the receipts, vouchers, cheque stubs or “the like” had not been included in the defendants’ list filed in purported compliance with the Unless Order and that as it was stated in paragraph 14 of the accountant’s affirmation dated 31 May 1996 (p. 239 of Bundle 1), the defendants’ accountant would require a further 4 to 6 months to prepare a comprehensive list for full discovery.  It is inconceivable that such preparation could not have been previously made and completed so as to enable these documents to be duly included in the list or at least referred to in it as a bundle of relevant receipts, vouchers, cheque stubs or “the like”.

9.  Therefore, there were two Unless Orders which had been previously made for enforcing a mere production of copy documents already set out in an earlier list.  No reasonable explanation was given for not filing a full list in compliance with the Master’s Order made on 17 May 1995.  The disobedience was not shown to have been unavoidable, at least not for these receipts, vouchers, cheque stubs or “the like” within 7 days of the Unless Order made on 3 October 1995.  This court was not even informed as to what precisely “the like” documents were.  I shall return to the other non-disclosures.  Disobedience had been persistent and there was no reasonable excuse.  The defendant had ample time to prepare and disclose documents.  It was unsurprising that the Master struck out the pleadings. 

10.  On 4 July 1996, the defendants came before Mrs Justice Bokhary on appeal from the Master’s Order striking out the defendants’ Defence and Counterclaim but the receipts, vouchers, cheque stubs or “the like” had yet to be specifically accounted for. The judge was also not told what documents were covered by the term “the like”. Together with the non-disclosures I shall later refer to, there was sufficient cause for the Master and later the judge to draw the inference that these defendants deliberately intended to ignore or flout the Master’s Unless Order. Both the judge and the Master were right to have the Defence and Counterclaim of the defendants struck out.  On the force of her own determination, the judge affirmed the Order of the Master.  There is also no substance in the submission that the other defendants were different from the 1st and the 5th.  They were taken together without objection together before the Master when they were similarly accused of having depleted the assets of Special Effect.

11.  This is very much plain common sense.  After all, the power to strike out pleadings sprang from the court’s inherent jurisdiction.  See Republic of Liberia v. Roye, (1976) 1 A.C. 139 and the historic survey of Stuart-Smith, L.J. in Lowcho plc v. Fayed & Others (No. 3), Times Law Reports, 24 June 1993.  Is it supportable in law?  At p. 457 of Vol. 1 of the 1997 White Book (marginal reference 24/16/1), the following passage appears:

“Once the order for discovery has been complied with, even the compliance is after the time stipulated in the order, the defaulter will not be excluded from the proceedings unless the circumstances are exceptional and there remains a real risk that justice cannot be done (Logicrose Ltd. v. South end United Football Club Ltd., The Times, March 5, 1988).”

12.  But even up to the hearing before this court, the discovery order made by the Master had not been fully complied with.  There was no evidence of deliberate concealment or suppression of documents, but the Master must have had good cause for requiring filing of the list within 7 days in his Unless Order.  A similar scenario was envisaged by Russell LJ in Husbands of Marchwood v. Drummond Ltd., [1975] 1 WLR 603 and 605 G, viz. “supposing that at the hearing it had emerged that discovery was (so the speak) just round the corner, then it seems to me that the correct and only proper order the judge could have made would have been to say ‘order the defence to be struck out, and judgment for the plaintiff on a claim if the lists for discovery are not produced in,’ say, two days, three days, seven days, some very short time.”  The company allegedly ceased business in November 1993.  On that assertion no or little documents would come in after November 1993.  The defendants must have had in their possession, custody or power receipts, vouchers, cheque stubs or “the like” referred to in paragraph 14 of the accountant’s affirmation filed just before the appeal heard by Mrs Justice Bokhary.  As Sir Nicholas Browne-Wilkinson V-C observed in In re Jokai Tea Holdings Ltd., [1991] 1 WLR 1196 at 1202 G that “disobedience to a peremptory order is ‘generally’ to be treated as a contumelious conduct: Tolley v. Morris, [1979] 1 WLR 592, 603, per Lord Diplock.”  At p. 1203 B, the Vice-Chancellor placed on the shoulders of the defaulter the burden of dissuading the court that disobedience to an Unless Order was to be so treated as contumacious conduct.  The Vice-Chancellor said:

“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.” (Emphasis supplied).

13.  In Caribbean General Insurance Ltd. v. Frizzell Insurance Brokers Ltd., (1994) 2 Ll. R. 32, at p. 37 RHS Leggatt LJ highlighted the view of the Vice-Chancellor:

“It is to be noted that the Vice-Chancellor was specifically expecting that the defaulter would only escape the consequences of judgment given against him if he could demonstrate both that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances.”

14.  At p. 39, LHS, Leggatt LJ drew from persistent failure of a defaulter an inference of contumacious conduct.  The Lord Justice concluded at p. 40 LHS:

“… the need for a defaulter, if he is to escape the consequences of failure to comply with the peremptory order, to show that in the circumstances the relevant beach was excusable if not unavoidable.”

15.  In addition, Leggatt L.J. said this:

“But it is important that breach of such orders should not be incautiously condoned or overlooked. Otherwise the notion that the court will readily allow further time, will encourage those who have not troubled to comply with its peremptory orders to apply to set aside the judgments entered in default. Peremptory orders are made to be obeyed.”

16.  In the context of her judgment, Mrs Justice Bokhary reviewed facts for exercising her discretion and, in consequence, affirmed the striking out Order of the Master.  She did not embrace the Order of the Master nor merely determine whether the Master exercised his discretion correctly.  It was a decision made de novo on appeal. As for the discretion exercised by the judge, nothing has been shown to our satisfaction in this appeal that there is cause for interfering.  I have reached the stage, therefore, to call for a dismissal of this appeal.

17.  It is not necessary to deal with the specific grounds in the Notice of Appeal or in the respondent’s notice.  But in deference to counsel’s efforts, I shall endeavour to cover briefly these grounds.  First, the audited accounts: the original schedule to the summons dated 4 April 1995 referred to all financial statements of Special Effect.  When the plaintiff returned to the Master for the Unless Order, she was invited to specify her complaints and in the Amended Schedule, reference was made to audited accounts of Special Effect.  The accountant of Special Effect deposed to the fact that there were no audited accounts.  An application was contemplated with the view to applying to the authority for dispensation with audited accounts.  Special Effect is said to have had no active business since November 1993.  I am left in serious doubt as to whether there was truly any deliberate flouting of the Unless Order by the defendants in this respect. I need merely refer to a passage at p. 457 of the White Book (marginal reference 24/16/2):

“In approaching an application to dismiss an action, on the basis of non-compliance with an order for specific discovery, a court could give the benefit of any doubt in the construction of the order of the plaintiff whose action was facing the prospect of being dismissed (Triolacan Ltd. v. Medway Power Drivers Ltd., The Times, October 21, 1991, C.A.).”

18.  In effect, I have reached a firm view different from that held by the judge.  These items are 1(a) and 1(b) in the Amended Schedule for specifying the plaintiff’s complaints before the Master for striking out the Defence and Counterclaim.

19.  As for the general journals, books and records of Special Effect for 1994 and 1995, in item 2(a) and 2(b) of the Amended Schedule, in the accountant’s second affidavit of 24 June 1996, which was filed after the striking out order of the Master but before the hearing of the appeal to the judge, he disposed to the following:

“Since the filing of last affirmation on 31 May 1996, I had tried my endeavours and/or cause the staff in my firm in retrieving , reviewing and updating all the accounts and transactions made by Special Effects during this financial years 1993/1994, 1994/1995, 1995/1996. Accounting records for the year 1993/1994, 1994/1995 and 1995/1996 are now accomplished ….”

20.  Records of Special Effect must have been available at the stage of the filing of the ordered list by the Master.

21.  As to the accounting records, receipts, vouchers and ledgers for the year 1990 - 1995 in item 2(c) of the Amended Schedule, there were receipts and vouchers and “the like” undisclosed.  For the “records” in items 2(a) and 2(b) and “accounting records” in item 2(c), it was not open to the defendants through the accountant of Special Effect to seek to legitimately justify the non-production of these documents on the ground that they were not clearly specified in the schedule. In fact, “receipts” and “vouchers” were clearly identified in item 2(c) of the Amended Schedule.  It was less than satisfactory for the defendants through the accountant of Special Effect to merely offer an opportunity to inspect these documents in his office at the hearing of the appeal before Mrs Justice Bokhary, particularly when documents fitting the description of “the like” were left still unspecified.  I agree with counsel for the plaintiff that the defendants were in breach of the item 2(a) and item 2(b) requests.  Unlike the judge, I am of the view that the defendants were also in breach of the request in item 2(c) of the Amended Schedule.

22.  As for the bank’s statements in item 3 in the Amended Schedule, clearly there were statements not disclosed in disobedience of the Unless Order.  I need say no more.

23.  As to item 5 and item 7 of the Amended Schedule, one needs merely to observe that there were admittedly in existence, at least, cheque-stubs and invoices.  These were not disclosed. I differ from the judge in my conclusion that in breach of the Unless Order, the defendant made no full disclosure under items 5 and 7 of the Amended Schedule.

24.  For all these reasons, the appeal should, in my judgment, be dismissed.

25.  Costs should follow the event and I would make an order nisi to that effect.

Mayo JA:

26.  This is an appeal from the order of Mrs Justice Bokhary when she ordered that the decision of Master Jennings should be upheld when he ordered that the Defence and Counterclaim of D1-D5 should be struck out for non-compliance with an unless order made by Master Jennings on 3 October 1995. 

27.  The main issue which arises on this appeal is whether the Master and Mrs Justice Bokhary were right in holding that the defendants were in contumelious disobedience of the unless order.

28.  I accept the validity of Ms Eu’s submissions that the correct test to adopt in determining this issue is the test adopted by Sir Nicholas Browne-Wilkison VC at p1202 of Re Jokai Tea Holdings Ltd. [1992] 1 WLR 1196.

“In Samuels v. Linzi Dresses Ltd. [1981] Q.B. 115 the court did not give any direct guidance as to the approach to the exercise of the court’s discretion in cases where a claim or defence has been struck out by reason of a failure to comply with an ‘unless’ order beyond saying that such a discretion should be exercised ‘cautiously.’ However, Roskill L.J. referred to the analogous case where the question is whether a plantiff’s claim should be struck out for want of prosecution to which the principles laid down in Birkett v. James [1978] A.C. 297 apply. The first class of case considered in Birkett v. James is where the plaintiff has been guilty of ‘international and contumelious conduct.’ Disobedience to a peremptory order is ‘generally’ to be treated as contumelious conduct: Tolley v. Morris [1979] 1 W.L.R. 592, 603, per Lord Diplock. Where there has been such contumelious disobedience not only the plaintiff’s original action but also any subsequent action brought by him based on the same cause of action will be struck out: Janov v. Morris [1981]1 W.L.R. 1389. The basis of the principle is that orders of the court must be obeyed and that a litigant who deliberately and without proper excuse disobeys such an order is not allowed to proceed. The rationale of such penalty being that it is contumelious to flout the order of the court, if a party can explain convincingly that outside circumstances account for the failure to obey the peremptory order and that there was no deliberate flouting of the court’s order, his conduct is not contumelious and therefore the consequences of contumely do not flow.

In Janov v. Morris a plaintiff whose first action had been struck out for failure to comply with an ‘unless’ order brought a second action based on the same cause of action. The basis of the decision was that the failure to comply with the peremptory order was contumacious: see [1981]1 W.L.R. 1389, 1395H, per Watkins L.J. It is clear that the court, in reaching the conclusion that the conduct was contumacious, placed much reliance on the fact that no explanation or excuse had been given by the plaintiff for his disobedience to the order.

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.”

29.  What has to be considered in the present case, assuming that the order was not complied with, was have the defendants been able to demonstrate that they had no deliberate intention of ignoring or disobeying the order on 10 October 1995.

30.  It is true to state that some attempt was made to comply with the order on that date.  It is however clear that there was not complete compliance with the order as it is evident on the face of the schedule to the list of further and better particulars of documents which was filed that various records of Special Effect Trading Investment Ltd. (SET) only included records up to 31.3.93 when it is evident from the Master’s order that it required the discovery to be made up to May 1995.  The bank statements provided only went up to 25.1.94.

31.  More important however than this non-compliance is the overall history of this litigation.

32.  What is patently clear is that the defendants have throughout the proceedings been dragging their feet.

33.  A good example of this is the conduct of the defendants subsequent to the making of the original discovery order.  It would appear from the affidavit evidence which was before Mrs Justice Bokhary that after the master made the order which included discovering documents relating to SET the solicitors representing them formed the view that these documents should not be discovered notwithstanding the clear order of the master that they should.  No attempt was made to either vary the order or to lodge an appeal.  No doubt this was one of the reasons why Master Jennings considered that it was necessary to make an unless order.

34.  It is evident from the material before us that the defendants have every incentive to protract these proceedings.  The deceased had a 75% shareholding in SET and D1 and D5 hold the remaining shares and are Directors of the company.  The main asset of the deceased’s estate is the shareholding in the company.  Until Letters of Administration are granted the company is being managed by D1 and D5 and none of the other issue of the deceased are able to require D1 and D5 to account for their management of the company.  There are already in existence grounds to suspect that the company has not been well managed and indeed D1 and D5 have obtained improper benefits from their stewardship of the company’s affairs.  It appears that the main source of revenue of the company was the receipt of rent from tenants occupying the land belonging to or let to the company and that no rent has been received since November 1993.

35.  It is permissible to have regard to the overall background to the litigation.  As was pointed out by Ms Eu it was necessary for the plaintiffs to obtain unless orders on two separate occasions simply to obtain compliance with the requirement for the defendants to furnish copies of the documents the subject of the discovery order.

36.  I have no doubt that the defendants were in contumelious disobedience of the unless order and they have not discharged the burden referred to by Sir Nicholas Browne-Wilkinson V-C in Jokai Tea Holdings.  I am also satisfied that the judge properly exercised the discretion reposed in her and that her order should not be interfered with.

37.  The defendants complain that the order should only have been made against D1 and D5.  I disagree.  The discovery order and the unless order were both made against all of the defendants.  They did not comply with the terms of the order and did not see fit to appeal against the orders made.  They must abide the consequences of this.  In my view this appeal should be dismissed.

Nazareth V-P:

38.  I agree that for the reasons given by Liu and Mayo JJA, the appeal must be dismissed.  Applying the test identified by Sir Nicholas Browne-Wilkinson VC in Re Jokai Tea Holding’s Limited, it is plain that far from demonstrating that there was no intention to ignore or flout the unless order, D1 and D5’s overall conduct reveals exactly that.  As to D2, D3 and D4, they actively enough associated themselves with that conduct as to warrant the unless order being made against them and being party to the intentional and contumelious failure to comply.

39.  The appeal is accordingly dismissed with an order nisi that the respondent is to have her costs of the appeal, to be taxed if not agreed.