CHINAKONG MANUFACTORY LTD. v. UNIDEN HONG KONG LTD.

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H E A D N O T E

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Practice & Procedure - whether court can be satisfied by Defendant under 0.14 without affidavit - whether on appeal to Judge in chambers a cross-appeal is necessary.

1991 No. A8146

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal from a Master which raises the question whether a defendant should be given leave to defend an action when he has put in no affidavit evidence. It also raises the issue whether a respondent to an appeal before a Judge in chambers has to serve a cross-appeal or whether he can take advantage of the fact that the hearing before the Judge on appeal from.the Master is a rehearing.

2. The plaintiff claims an installment of $240,000 due under a Consultancy Agreement entered into between the parties on 22nd October 1990 which was clearly part of an Asset Purchase Agreement entered into on the same date. The plaintiff also alleges that the defendant has repudiated the Consultancy Agreement and also claims damages of $480,000 or a quantum merit or damages for repudiatory breach of the Consultancy Agreement. The defendant seeks leave to defend on the basis of breaches of the Consultancy Agreement and the Asset Purchase Agreement.

3. The Writ was issued on 25th October 1991.

4. The 0.14 summons was issued on 5th November 1991 with a return day of 2nd December 1991.

5. Mr. Leung of the plaintiff's made an affirmation in support on 18th November, 1991.

6. On Saturday, 30th November 1991, the defendant's filed their defence and counterclaim.

7. On Monday, 2nd December 1991, Master Woolley adjourned the 0.14 summons and gave leave to both parties to file further evidence within 21 days.

8. Mr. Leung made his second affirmation on 21st December 1991 within the 21 day period. He made a corrective affirmation on 23rd January 1992.

9. By summons dated 12 March 1992, the defendant sought leave to amend their defence and counterclaim. This summons was returnable before Master Cannon before whom the adjourned 0.14 summons had also been fixed.

10. On 14th March 1992, Mr. Leung made his 4th affirmation in response to the new allegations sought to be introduced into the draft amended defence and counterclaim.

11. On 16th March 1992, Master Cannon:

    (1)    Granted the defendant leave to amend in accordance with the draft attached to their summons; and

    (2)    Gave the denfendant leave to defend conditional upon paying into court the sum of $320,000 within 14 days.

12. The plaintiffs have appealed against both orders and they seek from me final judgment for the sums claimed . and/or the reverse of the Master's decision giving the defendant leave to amend.

The procedural point

13. On 11th May 1992, Mr. Nicholas Stone, the partner in the defendant solicitors having conduct of this matter, filed an affirmation in support of an application by the defendant to appeal out of time against the condition imposed by the Master. His initial inclination had been that as the appeal was by way of rehearing, I could, if I thought it right, vary the Master's order by deleting the condition. After consultation with counsel he took the view that this might not be so and thus sought leave to appeal out of time in accordance with a Notice of Appeal dated 11th May 1992.

14. Mr. Whitehead who appeared for the defendant before me, but not below, referred me to Europa Property and Finance Service Ltd. v. Stubbart, The Times Law Report, November 25th 1991 where the Court of Appeal held that on a defendant's appeal against a Master's order under 0.14 giving conditional leave to defend, the Judge in chambers, if satisfied that there was a defence to the claim, was entitled, in exercise of his discretion under 0.14 r.3 to give summary judgment for the plaintiff nothwithstanding that no formal notice of cross-appeal had been given by the plaintiff.

15. Balcombe L.J. pointed out that 0.58 which dealt with appeals from the Master to a Judge in chambers contained no provision for a formal notice of cross-appeal.

16. He went on to point out that the Judge's discretionary jurisdiction under 0.14 r.3 was not hindered by the previous exercise of discretion by the Master (Evans v. Bartlam (1937) A.C. 423 at 428).

17. Although this case was only cited to me from the Times Law Report, I think the point is sufficently made, and I accept, that in circumstances such as those before me, the defendant did not require to serve a formal cross-appeal. However, whatever might be the technical position it seems to me to be sensible and courteous for a party in this position to inform the other side and the court that they will in fact be seeking an order different to that made by the Master and different to that being sought by the appealing party. Such a notice, whilst not strictly required by the rules, would be of assistance to the opposing advocate and to the court and would reduce the risk of anyone being taken by surprise or being embarrassed. Good practice requires that such notice should be given.

The affidavit point

18. The startling omission from the short chronology which I have given above is the lack of any evidence whatsoever from the defendant. Four affirmations of the plaintiff have gone completely unanswered and the time scale given clearly shows that the defendant has had every opportunity to file evidence if so advised. Indeed Master Wooley's order gave the defendant 21 days in which to do SO.

0.14 r.3(1) provides:

"Unless on the hearing of an application under Rule 1...the defendant satisfies the court ... that' there is an issue or question in dispute which ought to be tried ... the court may give judgment for the plaintiff against that defendant..."

0.14 r.4(1) provides:

"A defendant may show cause against an application under rule 1 by affidavit or otherwise to the satisfaction of the court."

The relevant notes in The White Book appear at pp. 147-8 and state:

" The defendant may show cause by "affidavit or otherwise." In practice the Masters will generally require an affidavit from the defendant before they will feel "satisfied" that the defendant is entitled to leave to defend save in exceptional or obvious cases, e.g. in a small claim, a letter from the defendant acting in person living a long way from the Court raising a genuine issue may be sufficient. The use of the term "or otherwise" is not intended to open wide the door for giving leave to a defendant who has no real defence; the primary obligation remains on the defendant to "satisfy" the Court that there is a triable issue or question or that there ought to be a trial for some other reason.

Thus, the fact that he has served a defence may be sufficient to enable a defendant to get leave to defend, but not if it is a sham defence served at or soon after acknowledgment of service. See McLardy v. Slateum (1890) 24 Q.B.D. 504, where the plaintiff successfully applied for judgment under 0.14 one month after the defence was served.

"A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to, enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism" (per Megarry V.-C. in The Lady Anne Tennant v. Associated Newspapers Group Ltd. [1979] F.S.R. 298).

Defendant's affidavit - The defendant's affidavit must "condescend upon particulars," and should, as far as possible, deal specifically with the plaintiff's claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it. It should also state whether the defence goes to the whole or part of the claim, and in the latter case it should specify the part.

    A mere general denial that the defendant is indebted will not suffice (Wallingford v. Mutual Society (1880) 5 App.Cas. 685, per Lord Blackburn, p. 704; Re General Rail Syndicate, Whiteley's Case [1900] 1 Ch. 365, per Lindley M.R., p. 369; Anon. [1875] W.N. 249, per Quain J., p. 250) unless the grounds on which the defendant relies as showing that he is not indebted are stated (ibid.). If the affidavit commences with a statement that the defendant is not indebted to the plaintiff in the account claimed, or any part thereof, it should state why the defendant is not so indebted, and state the real nature of the defence relied on (Re General Rail Syndicate, above)."

19. In my experience both at the bar and on the bench, I have come across 3 methods by which defendants seek to show cause against an application under 0.14 r.l.

20. The most common method is for the defendant to file an affidavit(s) deposing to the fact that there is a defence on the merits and setting out the matters which give rise to the defence.

21. A variation of the first method is, in addition to this narrative, to exhibit to the affidavit a draft defence which it is proposed to file.

22. The third method is simply to exhibit a defence and verify its truth and content by affidavit.

23. I cannot recollect an 0.14 application where there has been no evidence whatsoever from the defendant. However, I can conceive of circumstances where it would not be necessary to file an affidavit but still be able to satisfy the court that leave to defend should be granted. There must be cases where the defendant can show on the face of the Statement of Claim itself that there is no cause of action against him. This could arise in a number of ways. The pleading may fail to set out the necessary ingredients. of the cause of action. The plaintiff may plead an agreement terminable by notice but not plead that notice has been given. The plaintiff's cause of action may be unknown to law. The defendant may enjoy immunity from suit such as if a Judge or arbitrator were sued for negligent decision making. In these examples, the. defendant would not require an affidavit or for that matter a defence as the defect in the plaintiff-'s case would be apparent from the face of the pleading. In cases where it is plain from the Statement of Claim that the cause of action is outside the limitation period all the defendant needs to do is to put in a defence taking the point. An affidavit would serve little purpose in the circumstances but from an abundance of caution may be put in. A further example is where the cause of action is not within the scope of 0.14 such as an action for libel. One could, of course, think of many other examples, such as 0.14 applications against the Crown.

24. However the present case falls into none of the above examples. I have no evidence before me verifying any of the allegations made in the amended defence and counterclaim and yet I have strong denials on affidavit from the plaintiff that the allegations in the defence and counterclaim are completely untrue.

25. Mr. Whitehead, whilst conceding that an affidavit would have been desirable, took his stance on the submission that I should be satisfied on the material contained in the amended defence and counterclaim. He.submitted that I should give vent to, what he submitted had to be, my gut reaction that there clearly was a dispute between the parties and that there was nothing to suggest that the defence and counterclaim was a sham.

26. Mr. Whitehead submits that this is one of those cases where I may be satisfied simply by the amended defence and counterclaim without the need for any evidence. He submits that the defendant has pleaded breaches of the Consultancy Agreement and Asset Purchase Agreement and although some of the pleading is sparse on particulars, a triable issue has been made out.

27. Mr. Shieh, who appeared for the plaintiff here and below, relied heavily on certain observations of the Court of Appeal in Muriani v. Bank of India (1990) HKLR 586.Hunter J.A. referred to Ackner L.J.'s statement in Banquet de Paris v. De Naray (1984) 1 Lloyds Rep. 23 that "It is also trite that the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not ipso facto, provide leave to defend." Hunter J.A. went on to say this:

"It is important to my mind to notice here the fairly obvious proposition that 0.14 r.3 puts an onus upon a defendant. The onus is upon the defendant 'to satisfy the court with respect to the claim.... that there is an issue or question in dispute which ought to be tried'. It might be described as a threshold onus upon a defendant to show that there is a triable issue in the case. That onus can only be satisfied on the balance of probabilities, and this is the only way in which a court can consider it. This explains some of the language Ackner L.J. used which is particularly criticized. In approaching that question, all the court can possibly do is to consider all the circumstances, to put the affirmation in its context, and to consider whether that threshold onus is discharged in that context."

28. Cons V.P. agreed with Hunter J.A.'s analysis of 0.14 and added this at page 597:

"The defendant has a full opportunity to put before the court as much evidence as he wishes whether from himself or from others. That is normally done as was in the present instance, by affidavit or affirmation. What 0.14 does does then, is to say that the defendant shall have no further opportunity unless he satisfies the court by that initial evidence that there is an issue or question in dispute which ought to be tried. It is to be noted that unlike criminal proceedings, there is a positive burden placed upon the defendant. It is he who has to show  that such an issue or question does arise."

29. Both judgments make clear that the defendant has to establish the "threshold' onus and satisfy the "positive burden". Clearly both judgments assume that this will be attempted to be done by affidavit. I accept that neither Judge was considering a situation where there was only a defence and counterclaim and that must be because one has an affidavit, or more than one, in virtually all cases. The reference to assertions in affidavits not providing, ipso facto, leave to defend is significant because the position must be a fortiori in the case of a defence and counterclaim only.

30. There are no unusual features in the present case. It is, as Mr. Whitehead submitted, a simple case. If a defendant could decline to file evidence in such a case and merely put in defence, the same would apply to countless other cases. 0.14 r.4 refers to an affidavit and although for reasons which I have given this is not the only way a court can be satisfied, nevertheless, the practice of the court, save in these unusual cases, is to require an affidavit before it can be satisfied. If I were to sanction what has been done in this case I would be permitting, in effect, the defendant to circumvent the rule and the clear practice of the court. There may be many reasons why a defendant wishes not to go on affidavit, the most obvious being that he is fearful of being caught out in a lie with all the consequences that may entail.

31. In the present case, I have evidence from the plaintiff to the effect that the allegations made against them are completely untrue and nothing but a defence and counterclaim signed by the defendant's solicitors on the other side. I think Mr. Shieh is also able to rely upon his submissions that the allegations which are made are themselves rather on the thin side lacking in particulars. Indeed, Mr. Leung, in one of his affidavits has said "Ideally, I would like to deal with the defendant's allegations one by one. However, paragraphs 11 to 14 (in particular paragraphs 13 and 14) are grossly lacking in particulars, and in the absence of full particulars of all facts, matters, incidents and documents relied upon by the defendant, it is difficult for the plaintiff to answer the allegations fully." In all the circumstances, how can I feel satisfied within the terms of the rule? Am I not entitled to feel uneasy, as I do, that the defendant has failed to produce any evidence to support their counterclaim? I should add that I made my unease known to Mr. Whitehead but he did not make any application for an adjournment in order to file any evidence.

32. I have given considerable thought to Mr. Whitehead's attractive submissions that I should not shut out the defendants from defending this action merely because there is no affidavit because he submits it is apparent that there is a dispute between the parties. However, I have come to the conclusion that I cannot be satisfied merely on the basis of the defence and counterclaim that there is a question or issue which ought to be tried.

33. This case does not in my judgment come within the category of cases where the court can be otherwise satisfied. The defendants have only themselves to blame for the situation because Mr. Whitehead told me quite frankly that a tactical decision had been taken not to file any evidence. Having taken that decision they will have to face the consequences of it. The fact that defence was amended at the 11th hour and the fact that in some areas the amended defence is thin on particulars makes^-it even more essential that an affidavit should have been put in.

34. On this basis, therefore, I propose to allow the plaintiff's appeal, set aside the decision of the Master, and give the plaintiff's judgment for $240,000 in resepct of the installment due and judgment for damages to be assessed in respect of the remainder of the claim. I propose to make a costs order nisi in favour of the plaintiff. To tidy matters up (and on the basis of the Europa case above-cited) I will formally refuse the defendant's leave to appeal out of time.

Leave to amend

35. Having decided that the plaintiff should have judgment on their claim, it is unnecessary for me to consider the plaintiff's appeal against the Master's order giving leave to amend the defence and counterclaim. It may be helpful lest this case goes further if I indicate very briefly my view on that matter.

36. Mr. Shieh attacked the amendments on the basis of irrelevance and lack of particularity. He submitted that as the defendant was seeking the indulgence of the court, it was necessary for the amendment to be sufficiently particularized so as not to cause embarrassment to the plaintiff. He relied heavily on certain observations of the Court of Appeal in Perak Pioneer Ltd. v. Carrian Holdings Ltd. (1985) CA 59 judgment delivered on 13th June 1985, where Fuad J.A. (as he then was) made it clear that an applicant who seeks to amend a pleading "is seeking an indulgence and has to comply with the relevant rules. The opposing party is fully entitled to object to the amendments on' principles laid down by practice and the R.S.C. It was incumbent on a judge to decide, once he did not adjourn the matter, each issue raised as to the propriety of the amendments, on its merit." The learned judge then went on to make it clear that it was no answer to an objection that a proposed amendment lacks particularity to say that particulars can be given. The learned judge went on to say this:

"... but where an amendment is applied for it would be an unusual case where the court will consider it appropriate to allow an amendment to be made which lacks particularity, and might cause embarrassment."

37. I have looked very carefully at the amendments sought to be made to para. 11 of the defence and bearing in mind all the points that Mr. Shieh has made, I am just, but only just, persuaded that the master was correct to allow these amendments to be made. The Consultancy Agreement is a somewhat nebulous document and it does not surprise me that the allegations of breach thereof reflect the nature of the document itself. However, although I am certain that further and better particulars would have been requested of the particulars to para. 11, I do not feel able to conclude that the plaintiff did not know what was being alleged against him. Whether he was, in fact, asked to assist the defendants in their negotiations with the villagers and whether he was obliged to do this without being asked is really a question of construction of the Consultancy Agreement itself. If this had been the only point before me, I would have dismissed the appeal from the master's decision to give leave to amend the defence and counterclaim.