MICHEL OF HONG KONG LIMITED v. SELF STRONG LIMITED

1992, No.A6214

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H E A D N O T E

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DOCUMENT ACCEPTED AND RECORDED AS BEING FILED WITH THE REGISTRY OF THE SUPREME COURT SHOULD NOT BE REMOVED FROM THE REGISTRY WITHOUT LEAVE FIRST BEING OBTAINED PURSUANT TO O.63 R.9 - A RECORD OF GRANTING LEAVE MUST BE KEPT ON THE COURT FILE - A RECORD OF THE DATE AND THE IDENTITY OF THE PERSON TO WHOM THE DOCUMENT HAS BEEN RELEASED AND RETURNED MUST BE KEPT - GOOD PRACTICE TO REQUIRE AND UNDERTAKING FOR SAFE RETURN OF THE DOCUMENT PRIOR TO RELEASE

1992, No.A6214

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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REASONS FOR JUDGMENT

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1. This is an appeal by the defendant against a judgment allegedly entered on 19th April 1993, for a failure to comply with an unless order made by a master on 19th April 1993 requiring the defendant to serve further and better particulars of its defence by 4 p.m. of 17th May 1993. The judgment that was entered and filed on 28th May 1993 erroneously stated the date of the judgment to be 19th April 1993 which is in fact the date of the unless order giving rise to the judgment. The appeal was dismissed on 30th July 1993, on the eve of my going on leave, with an order nisi for costs to follow the event. I now hand down the reserved reasons for the decision.

2. Subsequent to the filing of initial pleadings and on 1st December 1992, the plaintiff filed a request for further and better particulars of the defence. The request was answered by further and better particulars of the defence filed on 17th December 1992. Not being satisfied with the particulars so served by the defendant, the plaintiff further requested for further and better particulars of the said answers on 26th January 1993 ("the second request"). In response to the said further request of the plaintiff and on 19th February 1993, the defendant filed a document described as "answers to request for further and better particulars of answers to request for further and better particulars of the defence" ("the purported particulars"). I have described the document as the purported particulars because it did not contain any meaningful answer giving any useful particulars of the defendant's defence at all. Again not being satisfied with the document and on 11th March 1993, the plaintiff took out a summons for an order for the particulars as requested in the second request. The summons came on for hearing before a master on 19th April 1993 when an order was made that unless the defendant do serve and file the further and better particulars sought in the second request by 4 p.m. on 17th May 1993, the defence be struck out and judgment be entered on the statement of claim with costs to the plaintiff. It was apparently the view of the learned master that the purported particulars were not really even worth the paper they were written on. To penalise the defendant for doing that, costs were ordered against the defendant on a common fund basis with certificate for counsel.

3. Instead of serving and filing further and better particulars afresh in answer to the second request as ordered, the defendant served and tried to file a document described as "amended answer to request for further and better particulars of answers to request for further and better particulars of the defence" ("the amended particulars"). The amended particulars appeared to be an attempt to amend the purported particulars by deleting most of the original answers and replacing them by more meaningful new answers. The amended particulars was served, and was delivered to the Registry for filing before the deadline. However, two days later, the Registry returned the amended particulars to a clerk of the defendant's solicitors who was attending the Registry in respect of some other business. It was suggested that as the unless order made on 19th April 1993 did not contain any provision granting leave to the defendant to amend the purported particulars filed on 19th February 1993, no amendments to the purported particulars could be accepted for filing. No complaint can be made against such refusal to accept filing of the amended particulars as a matter of law. Further and better particulars of a pleading, though filed subsequent to the said pleading, become part of the pleading and is to be governed by the provisions in the rules of the Supreme Court relating to the right to amend such a pleading. The defendant had no right to amend the purported particulars without first obtaining leave from the Court. Nevertheless, a few days later, for reasons unknown, the Registry asked for the return of the amended particulars for filing. In the meantime, and probably either on 21st May 1993 or very shortly thereafter, a draft judgment was submitted by the plaintiff's solicitors for approval on the understanding that the defendant had failed to comply with the unless order of the master.

4. I pause here to mention that it is impossible for me to accept the folio numbers given to the documents I am about to deal with as reliable indicators of the chronological order such documents reached the Registry. Neither are the filing dates endorsed on the said documents totally convincing, in view of the alterations made to the filing dates and the fact that such documents appear in the court file out of order chronologically. Doing the best to reconstruct the events, I find the following to be the sequence of occurrence of events.

5. Basing on the pencil endorsement at the corner of the amended particulars, it appears that the document was returned to the Registry on 24th May 1993. The draft judgment was apparently approved by the master's clerk on 25th May 1993 as indicated by an endorsement on the said document. A summons dated 25th May 1993 and stated to have been filed on the same day was taken out by the defendant for the following relief :-

"1. The amended answer to request for further and better particulars of answers to request for further and better particulars of the defence dated the 17th day of May 1993 as per the copy attached hereto stands as the further and better particulars to be filed and served on the plaintiff pursuant to order of Master Cannon dated the 19th day of April 1993.

2. Alternatively, the defendant do have leave to amend the answer to request for further and better particulars of answers to request for further and better particulars of the defence filed herein on the 19th day of February 1993 as per the copy attached hereto.

3. The defendant do have leave to file the amended answer to request for further and better particulars of answers to request for further and better particulars of the defence out of time notwithstanding the order of Master Cannon dated the 19th day of April 1993 and service of the same on the plaintiff be dispensed with.

4. There be no order as to costs."

6. Mystically, the summons, though dated 25th May 1993, also contained a pencil endorsement at the same corner bearing the date of 24th May. It appears that subsequent to the approval of the draft judgment on 25th May 1993, the true position came to the notice of the master's clerk who on 27th May made an endorsement on the draft judgment advising the plaintiff's solicitors to seek direction from a master before judgment can be entered in view of the amended particulars "filed by the defendant on 17th May 1993". By a letter dated 28th May 1993 the plaintiff's solicitors responded by submitting that the amended particulars was rightly rejected by the Registry for filing on 17th May 1993 as there was no leave to amend the purported particulars. The plaintiff's solicitors further relied on the defendant's summons dated 25th May 1993 to argue that the defendant was in fact in agreement with their view that there had been non-compliance with the unless order. Apparently the master's clerk was persuaded by such arguments and the draft judgment was approval on the same day. The defendant's said summons dated 25th May 1993 came on for hearing on 3rd June 1993 when, at the request of the defendant's solicitors, an order was made for the summons to be adjourned sine die with liberty to restore and costs to the plaintiff. The following day, the defendant took out an ex parte summons before a master asking for leave to issue notice of appeal against the judgment pursuant to Order 58 rule 1 of the Rules of Supreme Court. However, when the defendant's solicitors came before the master, the master was informed that the defendant will not pursue with the ex parte application that day and will be taking further advice from counsel. Then by a notice of appeal dated 9th June 1993, the defendant brought the present appeal before me.

7. The notice of appeal sought the following relief :-

"1. The defendant do have leave to issue notice to appeal against the judgment of Master Cannon entered on the 19th day of April 1993 out of time.

2. The judgment of Master Cannon entered on the 19th day of April 1993 be set aside.

3. Costs of and incidental to this application be to the defendant."

8. It has never been explained to me why it should be necessary for the defendant to bring an appeal out of time asking for the said judgment to be set aside. The appeal is not against the unless order itself but is lodged against a judgment entered allegedly for non-compliance with the unless order. The application to set aside such a judgment could have been brought before a master, and without any necessity of seeking leave to make such an application out of time. Though no point was taken on the propriety in bringing the present appeal, I treated the matter as an application to set aside the judgment rather than an appeal.

9. The defendant brought its application on two grounds. Firstly, the defendant complained that the judgment entered on 28th May 1993 is irregular. Secondly, the defendant says that on the merits it ought to be allowed to defend the plaintiff's claim even if the defendant had been guilty of non-compliance with the unless order.

10. The amended particulars was delivered to the Registry for filing on 17th May 1993 prior to the expiration of time for doing so. It is common ground that service of the amended particulars was effected on the plaintiff also prior to the deadline. Pursuant to Order 63 rule 3 of the Rules of the Supreme Court, the staff at the Registry is under a duty to mark on any document filed in the Registry the date on which such document was filed. It is also their duty to enter into a book kept in the Registry the particulars of the time of delivery at the Registry of such document. It is imperative that such provisions should be strictly observed by the staff at the Registry. According to the records kept by the Registry regarding the time of filing of the amended particulars, the document was delivered to the Registry for filing and was so accepted for that purpose on 17th May 1993. In the circumstances, the amended particulars was filed, in law and in fact, on 17th May 1993 before 4 p.m. It is not in dispute that the amended particulars was an attempt to comply with the unless order, at least in substance and spirit if not in form. In view of the wording of the unless order, the worthless answers in the purported particulars and the master's attitude towards them as reflected in her cost order, and in particular the absence of any leave to amend the purported particulars; it would be more reasonable to put on the unless order an interpretation that would require the defendant to serve and file fresh further and better particulars requested by the second request rather than to amend the purported particulars. Thus, the amended particulars failed to comply with the unless order in its form. However, such an irregularity in form should not have been held against the defendant to such a fatal extent that judgment in default can be entered automatically. In particular, staff at the Registry ought not have allowed judgment in default of compliance with the unless order be entered automatically, after they had accepted filing of the amended particulars, without any further direction from a master. It is not for the staff at the Registry to adjudicate upon the sufficiency or otherwise of a document accepted by them for filing in purported compliance with an unless order. They ought to have stood firm on their advice given to the plaintiff's solicitors on 27th May 1993 instead of yielding to the insistence of the plaintiff's solicitors to have the draft judgment approved. I am of the view that the judgment entered on 28th May 1993 is irregular in that such judgment ought not have been entered without direction from a master in view of the filing of the amended particulars in purported compliance with the unless order. An application ought to have been taken out before a master seeking leave to enter judgment for a failure to comply with the unless order.

11. It has been rightly conceded by the defendant that despite the commentary in the White Book at para. 13/9/6 appearing on page 138 of the 1993 edition, as a matter of law and practicality the judgment ought not be set aside even if it had been entered irregularly unless it can also be shown that on the merits the defendant has an arguable defence against the plaintiff's claim.

12. This action arises out of a purchase of a quantity (the exact quantity being in dispute) of lady's cotton T-shirts by the plaintiff from the defendant at a price of US$118,750 to be shipped to Los Angeles. The defendant was to obtain the goods from its suppliers in Sri Lanka. A total of 61,633 (or 61,636) pieces of the goods were in fact delivered, at a total price of US$108,266. Payment for the goods was made to the defendant by the bank upon presentment of the requisite documents under a documentary credit. The plaintiff claims that by presenting the said requisite documents, the defendant had represented that "it had good title to and was able to pass good title to the goods". However, in the event, the said suppliers were late in effecting shipment of the goods pursuant to which the defendant deducted a sum of US$87,920.70 from the money payable to the said suppliers. After the goods arrived at Los Angeles, dispute ensued between the parties and the plaintiff became liable under a guarantee for a sum of US$66,078.80 in order to obtain release of the goods.

13. The plaintiff subsequently paid up on the guarantee, and brought these proceedings against the defendant for fraudulent misrepresentation and a failure to pass a good clean title to the said goods. The only defence raised is that the defendant had good title to the said goods to pass to the plaintiff. The defence as supplemented by the defendant's answers to the first request for particulars dated 17th December 1992 is that the defendant had ordered a total of 78,725 pieces of the said goods from its suppliers under a documentary credit (LC 91200376) out of which 59,375 pieces were the subject matter of sale to the plaintiff. The original latest shipment date of 25th April 1991 was subsequently postponed to 11th May 1991 pursuant to an amendment to the said documentary credit. However, the goods were only shipped by its suppliers between 15th and 25th May 1991, and the quantity was 61,633 pieces. It was alleged that as a result of such late delivery the defendant's "buyers had cut and/or threatened to cut the prices of the goods delivered and also threatened to institute legal proceedings against the defendant". The defendant said out of the total price of US$228,250 for the 78,725 pieces of the said goods, the defendant had already paid US$100,329.30 to the suppliers. It said the suppliers were only entitled to a further sum of US$40,000 in settlement of the payment for the said goods because the outstanding balance (i.e. US$87,920.70) "should be treated as a sum of liquidated damages". And "how the said sum of US$40,000 was fixed is purely a business decision". As to how the said sum of US$40,000 was fixed and agreed, the defendant said :-

"The Defendant, had through its Banker, the Hong Kong Chinese Bank Ltd, of 364-366 Nathan Road, Kowloon, Hong Kong and its agent in Sri Lanka, Mr Pradeep of LP Associates Investment Pte. Ltd, of Galle Road, Colombo, Sri Lanka, informed TNB (the suppliers) that it was only entitled to receive a final sum of US$40,000 in full and final settlement of the unpaid balance. TNB had never made any reply or counter-offer to or contended (sic) with the Defendant. In the premises, TNB had impliedly agreed to such deduction by its conduct".

14. It was alleged that the defendant had waived its right to repudiate the contract with its suppliers by oral representation made by the said Mr Pradeep to its suppliers when they were unable to ship the goods on or before 25th April 1991.

15. In the amended particulars the defendant further alleged that the deduction of US$87,920.70 was made because its buyers had "eventually deducted a substantial amount of money from the original contract sum as penalty and/or damages" and that the defendant had incurred air-freight charges for the goods instead of sea-freight charges. It also alleged that "according to the estimation and judgment of the defendant, the goods would only (be) worth US$20,000 to $30,000 if the same were rejected by the Defendant's buyers and had to be sold in open market".

16. Though the defendant alleged in its defence that the suppliers were guilty of late delivery and "various breach of terms as set out in the original letter of credit"; in the amended particulars, the allegation was reduced to a reliance on late shipment solely. There are in fact 2 occasions of delay in shipment. Firstly, on the defendant's allegations, the suppliers were guilty of failing to ship the goods before the original shipment date of 25th April 1991. Then, again on the defendant's case, the suppliers further failed to comply with the amended shipment date of 11th May 1991.

17. It is the defendant's case, as per the amended particulars, that the demand for a reduction in the contract price in consideration of its forbearance of the breach was communicated to the managing director of the said suppliers through the defendant's agent in Sri Lanka two or three days before 25th April 1991; when it became apparent that the said suppliers would not be able to effect shipment in time prior to the expiration of the original shipment date. It is alleged by the defendant that during this conversation the said suppliers were advised that they "could proceed to produce and ship the goods ordered even though they would be late provided that the price of the goods was to be reduced to US$40,000 to compensate the defendant's loss as a result of the late shipment". Mr Wong for the defendant confirmed to me that the only act relied on by the defendant to allege that there had been acceptance of the defendant's said demand for a reduction in price was the act of shipping the said goods by the suppliers after such a demand was communicated to them.

18. However, subsequent to the alleged demand for a reduction in the contract price, and by an amendment to the original letter of credit made on 9th May 1991, the purchase of the said goods was varied from "44,280 pieces of Style No.155 girl's 100% cotton jersey knitted T-shirt US$2.40 per piece" to "78,725 of girl's 100% cotton knitted T-shirt" at unit prices ranging from US$2.70 to US$3.70. The original restriction against partial shipment and the provision for the latest shipment date of 25th April 1991 had also been amended to allow shipment by three instalments with latest shipment dates between 10th to 15th May 1991. In the premises, not only was there no provision for any reduction in the original contract price, there was in fact an increase in the unit price for the goods from US$2.40 to US$2.70. As a result of the increase in quantity as well as unit costs for the said goods, the original value of the documentary credit in the sum of U$$106,272 was revised upwards by an amount of US$121,978. Such amendments to the original documentary credit by the defendant about a fortnight after the alleged oral demand for a reduction in the contract price inevitably destroys all credibility in defendant's said allegation of an agreement for a reduction in price. The documentary credit as amended is the best evidence of the new contractual terms offered by the defendant subsequent to the said first breach. And it will become a contract in itself for the sale and purchase of the said goods if there had been acceptance by conduct on the part of the said suppliers. Because such acceptance could only be referable to the offer made in the amendments to the documentary credit and not any earlier oral demands/negotiations for a reduction in the contract price ; which, if they were ever made, would have been overtaken by the said subsequent written amendments. Any reliance on an oral demand made prior to the said written amendments to raise an agreement to reduce the price as set out in such written amendments is doomed to fail. In the premises, I found the only defence raised by the defendant to be frivolous, vexatious and totally void of any merits.

19. The defendant has placed no reliance on the second occasion of late shipment, i.e. the failure to ship before 11th May 1991 in accordance with the amendments to the documentary credit, to give rise to the agreement to reduce the price. Neither it is possible for the defendant to capitalise on the second occasion of late shipment to raise such an agreement, for the simple reason that there has not been an allegation of any new demand made for a similar, or any, reduction in price after the written amendments to the documentary credit; i.e. after 9th May 1991. The only incident of oral demand for a reduction disclosed by the defendant occurred before 25th April 1991.

20. I note also that in the original documentary credit, shipment of the goods was to be effected by air and not by sea. I failed to see any justification in the defendant's claim that it had suffered damages as a result of the late shipment, which he sought to deduct from the price payable to the suppliers, partly because it had incurred air-freight charges instead of sea-freight charges. Further, the defendant had admitted in its defence that the plaintiff's order was only "formally" placed on 1st May 1991, i.e. a week after the alleged oral demand for the reduction in price and the suffering of the alleged damage and liability to its buyers. It is difficulty to see how the defendant could have suffered any damage or liability towards the plaintiff, as claimed in its pleadings, at or around 23rd April 1991, prior to the placing of the order by the plaintiff.

21. Any responsible pleader who has taken the time to examine the documentary evidence in this case would have great difficulty in failing to notice the blatant lie in the alleged defence. I am greatly disappointed not only in the amateurish way these proceedings have been handled procedurally by the legal representatives concerned, I am astonished that such a defence could have been raised by them in the face of such undisputable contemporaneous documentary evidence.

22. For the reasons given above, the judgment though entered prematurely was allowed to stand and the appeal was dismissed.

23. I would also like to add that once a document has been accepted and recorded as being filed with the Registry, it should never have been allowed to be removed from the Registry, whether at the initiative of the staff of the Registry or upon the request of any party, without leave first being obtained from a master (see Order 63 rule 9 of the Rules of the Supreme Court). Furthermore, if such leave has been granted by the court, a record of such an incident must be kept on the court file. A record of the date and the identity of the person to whom such a document has been released ought also be kept on the court file. Needless to say a record of the return of such document ought to be kept as well. It is also good practice for an undertaking to be required from the person to whom such document is to be released, for the safe return of the same to the Registry, prior to releasing such document to him. In the present case, not only was the amended particulars removed from the custody of the Registry without any leave of court after such a document had been filed, there is no record of such removal or return at all in the court file. I do not believe I need to emphasize the importance of keeping a good record of such movements of documents kept in the official custody of the Registry.

24. As this decision touches upon a matter of practice at the Registry, as well as the need for due observance of certain provisions in the Rules of the Supreme Court which have a tendency of being easily overlooked, I have, with the agreement of the parties, adjourned the handing down of this judgment from Chambers into open court.