GRAND PACIFIC EQUITY LTD v. R.S.H. SPORTS (HK) LTD AND OTHERS

CACV 99/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.99  OF 2006

(ON APPEAL FROM HCA 4713 OF 2003 )

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JUDGMENT

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Hon.  Yuen JA:

1.  This is the Plaintiff’s appeal from a decision of Yam J setting aside Master Kwan’s order extending the validity of a writ.  The sole respondent to the appeal is the 3^rd Defendant whose application it was to set aside Master Kwan’s order.

2.  The issue on appeal involves the principles to be applied when a court considers whether to make an order to extend the validity of a writ (commonly referred to as "renewing" a writ).  In connection with that, the Plaintiff has challenged the binding effect of a decision of this court (Nazareth V-P, Bokhary and Liu JJA) in Chow Ching Man and others v Sun Wah Ornament Manufactory Ltd [1996] 2 HKLR 338.

Background

3.  The 1^st Defendant is a Hong Kong limited company.  According to the 3^rd Defendant, it was a joint venture between an Indonesian Mrs I. S. Nursalim and himself, a Singaporean resident. 

4.  In 1997 the Plaintiff made a loan to the 1^st Defendant of US$1m. Mrs Nursalim and her husband were at the time of the loan associated with both the Plaintiff and the 1^st Defendant companies.  Letters of guarantee for the loan were signed by the 2^nd, 3^rd and 4^th Defendants. 

5.  In course of time, the Nursalims gradually dissociated themselves from the Plaintiff.   

6.  The Plaintiff demanded repayment of the loan from the 1^st Defendant as borrower  and from the other Defendants as guarantors.  The judge found that the Plaintiff’s demand on the 3^rd Defendant was made on 8 April 1999 (with the consequence that the limitation period expired on 8 April 2005), a finding against which a respondent’s notice was not filed. 

7.  No repayment was forthcoming.  Mr Nursalim left the board of the Plaintiff in July 2003, and with that, the Plaintiff’s connections with the Nursalims were severed.  On 27 December 2003, the writ in this action was issued.

Proceedings

8.  The course that the proceedings took culminating in the present appeal can be conveniently set out in the following way:

27.12.2003	Writ issued
15.1.2004	3rd Defendant’s Singaporean solicitors write to Plaintiff’s solicitors, alleging that Plaintiff’s loan to the 1st Defendant was actually a shareholder’s loan from Mrs Nursalim and that "it was understood by parties that the guarantees would not be called upon and that Mrs Nursalim would be responsible for settling the loan if necessary".  The Plaintiff was asked to "hold its hand" to enable the 3rd Defendant to give instructions to his solicitors (CYM-4).
Mid-Jan. 2004	Plaintiff’s director C.W. Lau contacted Mrs Nursalim, who said she would revert with comments (Lau I, para. 5).
...	Plaintiff searches for documents and "oral chasing" for Mrs Nursalim’s comments (Lau I, para. 5, Lau II paras. 8-9).
7.6.2004	Plaintiff applies to Court for leave to serve 3rd Defendant out of the jurisdiction
10.6. 2004	Master de Souza’s comments, including:
	‘(1) Is it right to bring 3rd and 4th defendants here as a party? (Please see last para. of 11/4/3 of HKCP, 2004)’.
19.11.2004	- Plaintiff replies to Master de Souza’s comments for leave to serve out.
	- Plaintiff applies to renew writ.
24.11.2004	Master Kwan gives leave to renew writ and to serve out of jurisdiction.
17-23.12.2004	Plaintiff made 4 unsuccessful attempts to serve the 3rd Defendant
3.2.2005	3rd Defendant served.
2.3.2005	3rd Defendant applies to set aside Master Kwan’s orders.
8.4.2005	Limitation period expired.
20.12.2005	Master Lung refuses to set aside Master Kwan’s order.
20.2.2006	Yam J sets aside Master Kwan’s order.

Renewal of writ: Order 6 rule 8(2)

9.  Order 6 rule 8(2) Rules of the High Court provides:

"Where a writ has not been served on a defendant, the Court may by order extend the validity of the writ from time to time for such period, not exceeding twelve months at any one time, beginning with the day next following that on which it would otherwise expire, as may be specified in the order, if an application for extension is made to the Court before that day or such later day (if any) as the Court may allow".  (Emphasis added).

Construction of Order 6 rule 8(2) in Chow Ching Man

10.  Although on a natural construction, the words "the Court may by order extend the validity of the writ" appear to give the court an unfettered discretion, it was held by the court in Chow Ching Man that a 2-stage approach should be adopted. 

-	The 1st stage required the plaintiff to establish matters capable of amounting to ‘good reason’ for renewal.
-	If, and only if, a ‘good reason’ was established, could the court then move to the 2nd stage and consider whether in the exercise of its discretion, leave should be given to renew the writ.

Yam J’s decision

11.  Yam J was of course bound by the judgment in Chow Ching Man.  Applying that authority, he held in respect of the 1^st stage that there was no ‘good reason’ for renewal because the Plaintiff was unable to account for the two periods of delay between the issue of the writ and the application for renewal:

-	the period of more than 5 months between the issue of writ (27 December 2003) and the application to serve out (7 June 2004), and
-	another period of 5 months between Master de Souza’s query (10 June 2004) and the Plaintiff’s reply to it (19 November 2004).

In deciding that there was no ‘good reason’, the judge also held in his extemporary judgment (para. 14):

"Since, from the authorities, I could not read into the authorities that the fact that the Plaintiff could issue a fresh writ at any time of the refusal of the extension for setting aside the extension, that could be a good reason".

I understand from that passage that the judge considered it irrelevant that when the Plaintiff applied to Master Kwan for renewal, it could have issued a fresh writ.  The judge apparently did not consider the fact that in December 2004 (after Master Kwan gave leave to renew the writ but before the writ expired and before the time-bar) the Plaintiff made 4 attempts to serve the 3^rd Defendant, all of which were unsuccessful.  The judge held:

"Accordingly, I cannot go on to the second stage of balancing the hardship".

12.  Having said that, the judge did express his view that had the matter gone to the 2^nd stage, he would have ruled in the Plaintiff’s favour.  In this context the judge considered the issue of prejudice.  He said (para.15):

"There is no prejudice against the 3rd defendant at all if the extension of time should not be set aside.  The prejudice and hardship to the Plaintiff is considerable".

He then held that if he were to exercise his discretion in the exercise of balancing hardship, he would have found against the 3^rd Defendant (para. 15).  But since he did not proceed beyond the 1^st stage, he set aside Master Kwan’s order, with the result that the Plaintiff lost its right to sue the 3^rd Defendant.  The 3^rd Defendant has filed a respondent’s notice against the judge’s decision on the issue of hardship.   

Appellant’s (Plaintiff’s) arguments

13.  On appeal, it was argued on behalf of the Plaintiff by Mr Chan Chi Hung SC that Chow Ching Man was wrongly decided and that this court can decline to follow it as being per incuriam.

14.  Alternatively, if this court were bound by it, the judge was nevertheless in error in his application of Chow Ching Man.

The Rules in England and in Hong Kong

15.  In respect of the first argument, the Plaintiff’s counsel first drew our attention to the difference between the rules of court governing renewal of writs in England and in Hong Kong before 1967.

The English position
-	Before 1962, the relevant rule was Order 8 rule 1 RSC ("the old rule in England").  This provided (where material):
	"(1)	No original writ of summons shall be in force for more than 12 months from the day of the date thereof ... but if any defendant ... shall not have been served therewith, the plaintiff may, before the expiration of the 12 months, apply to the court ... for leave to renew the writ; and the court ... if satisfied that reasonable efforts have been made to serve such defendant, or for other good reason, may order that the ... writ ... be renewed ...".  (Emphasis added).
-	In 1962, the Rules of the Supreme Court were revised.  Order 8 rule 1 was replaced by Order 6 rule 8 ("the new rule in England").  This provides (where material):
	"(2)	Where a writ has not been served on a defendant, the Court may by order extend the validity of the writ ...".  (Emphasis added).
-	I shall discuss below how the House of Lords has construed the new rule in Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597 and Waddon v Whitecroft Scovill Ltd [1988] 1 WLR 309.
The Hong Kong position
-	From 1873 to 1967, although the rule governing renewal of a writ had different numbering, there were essentially only two versions.  In neither version was there an express condition  to be satisfied before a court may renew a writ.  The relevant rule (“the old rule in Hong Kong”) in the Code of Civil Procedure (Order 2 rule 9) provided:
	“(1)	If service of the writ has not been effected within twelve months from the date thereof, the writ shall become void:
		Provided that the court may, before the expiration of the then current writ, in its discretion, from time to time renew the operation of the writ for a further period not exceeding six months at a time”.  (Emphasis added).
-	In 1967, the Code of Civil Procedure was revoked and a new set of rules called the Supreme Court Rules was made by the Rules Committee.  The relevant rule (“the new rule in Hong Kong”) was Order 8 rule 1(2) which is identical to the current Order 6 rule 8(2) which has been set out in para. 9 above.

Chow Ching Man per incuriam?

16.  The court in Chow Ching Man (decided in 1996) expressly followed the decisions of the House of Lords in Kleinwort Benson and Waddon (decided in 1987 and 1988 respectively).  In those English decisions, the House of Lords construed Order 6 rule 8(2) RSC (enacted in 1962) which, as noted above, is identical to our rule (enacted in 1967).

- Kleinwort Benson

17.  In Kleinwort Benson, Lord Brandon (giving the speech of the House) considered the history of the relevant rule and reviewed the decisions given since the new rule in England was made.  In particular, a school of thought had developed that to justify the exercise of discretion to renew a writ, “exceptional circumstances” had to be shown, which was thought to be more stringent than a requirement that required only “good cause” or “good reason”.

18.  The House of Lords in Kleinwort Benson held that the more stringent test was not the proper test.  In rejecting that school of thought, Lord Brandon said, in a passage that the Plaintiff’s counsel has emphasized (p.622A-C):

“I consider, first, the question of construction, apart from authority.  The old rule in force before 1962, then RSC Ord. 8 r.1, expressly made the exercise by the court of its power to renew a writ conditional on the court being satisfied either that reasonable efforts to serve the writ had been made or that there was some other good reason for renewal.  The new rule which replaced that old rule, now Ord. 6 r.8, is silent with regard to the grounds on which the court is to exercise its power to extend the validity of a writ.  How is that silence to be interpreted?  On the one hand I cannot think that it would be right to construe the new rule as imposing some stricter or narrower condition for extension than the old rule.  On the other hand I cannot think that it would be right to construe the new rule as making such a radical departure from the old rule as to authorize extension as a matter of course.  I consider, therefore, that there must be implied in the new rule, as a matter of construction, a condition that the power to extend shall only be exercised for good reason”.  (Emphasis added).

- Waddon 

19.  In Waddon, Lord Brandon again giving the main speech of the House of Lords held as follows:

“In Kleinwort Benson’s case the House, after reviewing a long line of authorities on the present RSC Ord. 6 r.8 and its predecessor, laid down the following principles as applicable to the exercise of the court’s discretion on an application for extension of the validity of a writ in cases where questions of limitation of action are involved.  (1) On the true construction of Ord. 6 r.8 the power to extend the validity of a writ should only be exercised for good reason.  (2) The question whether such good reason exists in any particular case depends on all the circumstances of that case.  Difficulty in effecting service of the writ may well constitute good reason but it is not the only matter which is capable of doing so.  (3) The balance of hardship between the parties can be a relevant matter to be taken into account in the exercise of the discretion. (4) The discretion is that of the judge and his exercise of it should not be interfered with by an appellate court except on special grounds the nature of which is well-established.   (p. 313H-314B)

...

This House was not saying that balance of hardship could of itself constitute good reason for extending the validity of a writ. What it was saying was that, where there were matters which could, potentially at least, constitute good reason for extension, balance of hardship might be a relevant consideration in deciding whether an extension should be granted or refused. In the present case Michael Davies J found, rightly as I think, that there were no matters which could, even potentially, amount to good reason for extension. In those circumstances the question of balance of hardship did not arise”.  (p. 318A-B).

- Chow Ching Man

20.  The decision in Chow Ching Man is well-summarized in those parts of the head notes which follow:

“(1)	RSC O.6 r.8(2) is to be construed so that the discretion to extend the validity of a writ does not arise unless the plaintiff first establishes matters amounting to good reason for extension or at least capable of so amounting.  Matters such as the balance of hardship only fall to be considered if the discretion to extend arises in the first place.  Kleinwort Benson Ltd v Barbrak Ltd [1987] AC 597, Waddon v Whitecroft Scovill Ltd [1988] 1 WLR 309 and Baly v Barrett [1988] NI 368 followed.  (See p.341B-C).
(2)	There can be a degree of overlap between the two stages. Such overlap does not undermine the two-stage approach. It merely shows that the two stages are not watertight compartments for all purposes. Lewis v. Harewood, The Times, 11 March 1996 followed. (See p.341E)
(3)	Where the failure to serve a writ within its normal validity period is the result of a choice, then it is necessary to decide whether the choice was made for a good reason, meaning one which supports a deliberate failure to comply with the time limit involved. No discretion to extend the writ would arise unless the choice was made for a reason which is at least capable of amounting to a good reason. The interests of the general public will not be served if litigants and their advisers can simply presume upon the court’s indulgence. There was nothing in the present case capable of amounting to a good reason for the extension in question. (See p.344C, E, F).
(4)	The evidential aspect in an O.6 r.8(2) application is now well settled. There must be matters, at least, capable of amounting to good reason for extension before the question of balance of hardship between the parties can come into play although relevant circumstances for establishing good reason and balance of prejudice or hardship often overlap. (See p.344I)”.
(Emphasis added).

21.  The Plaintiff’s counsel submits that the decision in Chow Ching Man was per incuriam because the old rule in England (which expressly required “good reason”) was one of the reasons why the House of Lords held, as a matter of construction, that a “good reason” was a condition to the exercise of discretion (which became formalized into a 2-stage approach in Lewis v Harewood) under the new rule in England.  But, as we have seen, the old rule in Hong Kong never had any express requirement of “good reason”.  The Plaintiff’s counsel therefore submits that the decision in Chow Ching Man was per incuriam.

22.  This court is bound by its own decisions, the two exceptions being where its previous decision is in ignorance or forgetfulness of an inconsistent statutory provision or binding authority, or where there is a manifest slip or error.

23.  The Plaintiff’s counsel first submits that in following the construction of Order 6 rule 8 in Kleinwort Benson which was based (in part) on the old rule in England, the court in Chow Ching Man must have been ignorant or was forgetful of the old rule in Hong Kong, which was different from the old rule in England, in that it did not contain any express condition of "good reason". 

24.  Whilst the Plaintiff’s counsel is correct that in Chow Ching Man the court did not refer to the old rule in Hong Kong in its judgments  (and it is unknown whether it was drawn to their attention), I am not persuaded that that is enough to show that the decision was per incuriam.  In my view, assuming that rules of court are statutory provisions, to fall within the first exception to the rule in Young v Bristol Aeroplane Co Ltd [1944] KB 718, it must be shown that the court ignored or forgot a current statutory provision, not an obsolete one.  Discontinued statutory provisions do not bind the court.

25.  The Plaintiff’s counsel then submits that there was a manifest slip or error when the court decided to follow Kleinwort Benson.  With respect, I do not agree.  In my view, a slip or error must be of the clearest kind before a decision can fall within this exception.  I cannot see such a slip or error in any of the judgments in Chow Ching Man (except perhaps in the first and last sentences in the last paragraph of the judgment, when "defendants" were referred to when what was meant was "plaintiffs", but these are not material).

26.  For the reasons discussed, I am not prepared to say that the decision in Chow Ching Man was per incuriam.  That decision is therefore binding on this court.   

Unsuccessful attempts to serve within validity period of writ a "good reason"

27.  I then come to the Plaintiff’s alternative ground of appeal, which is that even applying Chow Ching Man, the judge should not have set aside the renewal of the writ. 

28.  I agree with this alternative ground.  In deciding that there were no "good reasons" in the 1^st stage of his consideration, Yam J considered the two periods of delay before the application for renewal of the writ in November 2004.  However what he failed to consider was the fact that in December 2004, within the original validity period of the writ as well as within the limitation period, the Plaintiff had made 4 attempts to serve the 3^rd Defendant which were unsuccessful.  Therefore the Plaintiff would have been perfectly entitled to apply ex parte to the court, within the original validity period of the writ as well as within the limitation period, for renewal of the writ, had it not already done so a month earlier.  

29.  Had the Plaintiff applied then, I have no doubt that it would have succeeded in obtaining leave to renew the writ.  It matters not whether the inability to serve the 3^rd Defendant was due to deliberate attempts on his part to evade service or not.  The fact remains that the Plaintiff was unable to serve the 3^rd Defendant despite reasonable efforts having been made, which is clearly a good reason for leave to renew a writ.  It was not as a matter of "choice" that the Plaintiff did not serve the 3^rd Defendant within the original validity period of the writ (see Chow Ching Man p.339J and p.344C-D).

30.  Mr Alan Leong SC leading counsel for the 3^rd Defendant submits that the Plaintiff might have thought at the time that the limitation period had expired in May 2004 (being 6 years after a statement of outstanding indebtedness was copied to the 3^rd Defendant), which might have explained why a fresh writ was not issued.  There was no evidence to support this conjecture, but with respect, I do not think it matters in any event what the Plaintiff or its legal advisers thought.  The unsuccessful attempts at service were within the original validity period of the writ and that would have been a good reason for leave to renew the writ in December 2004, had it not been renewed the month before. 

31.  In my view, when considering whether the renewal should be set aside, the judge was entitled to and should have taken this fact into account, even though it occurred after Master Kwan’s order for renewal.  It would be artificial for the court to shut its eyes to what in fact happened within the original validity period of the writ, which would have entitled the Plaintiff to leave to renew, had it not already obtained leave.  Put in the language of another aspect of the law, the later unsuccessful attempts at service during the original validity period of the writ "fed" the earlier grant of leave to renew.  If it were otherwise, procedural law would be reduced to pure gamesmanship.

Exercise of discretion

32.  Having found that there was a "good reason" for the 1^st stage, I then come to the 2^nd stage - the exercise of the court’s discretion.  I have earlier referred to that part of Yam J’s decision where he held that had the matter gone to the 2^nd stage, he would have ruled in the Plaintiff’s favour.

33.  The 3^rd Defendant’s counsel has addressed the court on matters set out in his Respondent’s Notice on matters of hardship.  However it is well-established law that an appellate court should not interfere with the exercise of a judge’s discretion unless it is satisfied that the judge has erred in law or in principle, or if he has taken into account some matter which he should not have taken into account, or has left out of account some matter which he should have taken into account, or if the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account (cf  Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, applied in Lakhan v Wu Wing Tat [1987] 3 HKC 54).  I do not see any such error in the judge’s decision as to how he would have exercised his discretion had he found in favour of the Plaintiff at the 1^st stage. 

Order

34.  For the reasons discussed, I would allow the appeal and make an order nisi that the costs of the appeal and below be paid to the Plaintiff by the 3^rd Defendant.

Hon. Sakhrani J:

35.  I agree.