WELLMART DEVELOPMENT LTD v. CHAN SIU WAN FLORA AND OTHERS

HCA 1888/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1888 OF 2004

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J U D G M E N T

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1.  This is an application by the Plaintiff, Wellmart Development Limited, seeking the uplift of the automatic stay of proceedings that arose as a result of the 1^st Defendant’s application for legal aid, which was duly notified to the Court by a memorandum issued by the Legal Aid Department dated 22 September 2004.

2.  Apart from seeking an uplift of the stay of proceedings, the Plaintiff’s summons also seeks judgment against the 1^st Defendant pursuant to Order 19 rule 7 of the Rules of the High Court, as a result of the 1^st Defendant’s failure to serve a defence in these proceedings.  The judgment sought is for possession of certain premises of which the Plaintiff is the immediate landlord of the 1^st Defendant; injunctive relief to prevent the 1^st Defendant from holding closing down sales at the premises; and a monetary judgment for arrears of rent, mense profits and other sums due under the lease in respect of rates and management and other charges.  There is, it seems, no dispute that rent has been unpaid for some time and that distress has been levied against property of the 1^st Defendant on the premises.  So much is clear from an affirmation of the 1^st Defendant, which was prepared yesterday and handed up to me at the beginning of these proceedings without objection from the Plaintiff.

3.  Very briefly, the history of these proceedings is that the dispute arises out of a tenancy agreement, made between the Plaintiff as the principal tenant and the 1^st Defendant as subtenant, for a two-year term from 16 September 2002.  It appears that, towards the middle of this year, the Defendant fell into arrears of rent, resulting in a warrant for distress being issued on 14 July 2004, and distress being levied at the premises on 3 August 2004.

4.  According to the Plaintiff, apart from being in breach of the terms of the lease for failing to pay rent and other charges, and permitting execution to be levied against her property at the premises, the 1^st Defendant is also said to have been in breach of two further conditions of the lease, first, by failing to keep the premises open for business for a period exceeding 3 consecutive days, and secondly, permitting or causing notices of closing down sales and permitting offensive sales to be held at the premises.  In this context “offensive sales” is, I think, no more than a reference to sales that are described as closing down sales or other sales that are at a substantial discount.  It is also alleged that the 1^st Defendant has parted with possession of the property by permitting certain other persons, the 2^nd to 4^th Defendants to these proceedings, to take possession of the property and carry on business from it.

5.  The writ in these proceedings was issued on 13 August 2004.  On 27 August 2004, the 1^st Defendant filed an acknowledgement of service indicating that she intended to defend the proceedings.  Notwithstanding this, a defence was not in fact filed within the time limited for the filing of the defence.  On 14 September, on the application of the solicitors acting for the 1^st Defendant, an extension of time of 14 days for the service of a defence was granted, thereby extending the deadline for the filing of the defence until 29 September 2004.

6.  According to the 1^st Defendant, upon obtaining the extension of time, she made enquiries with her solicitor as to the costs that would be involved in the preparation and filing of a defence, and on being told of the likely costs involved, decided to make an application for Legal Aid.  She says that she went to the Legal Aid Department on 16 September 2004 and, on being asked for certain documentation and information to be provided, she returned to the Legal Aid Department on 21 September 2004 with the further information and documents requested.  As I have said, on 22 September 2004, the necessary memorandum stating the fact of her application was issued by the Legal Aid Department.  On 30 September 2004, some 8 days after that memorandum was lodged, the Plaintiff took out the present summons to lift the stay and seeking judgment to be entered for the 1^st Defendant’s default in filing a defence.

7.  The Plaintiff did not file any evidence in support of this application.  However, it is clear from the documentation that is before me, including the 1^st Defendant’s affirmation, that there is no dispute that the rent and other money due under the lease have not been paid and that distress has in fact been levied against the Defendant at the premises.

8.  The Defendant does, however, deny that the other alleged breaches of the lease have taken place, and she also asserts in relation to the claim for rent that she has a counterclaim which will operate by way of equitable set off against the Plaintiff for the alleged breach by the Plaintiff of an oral agreement, which she said was made, to the effect that the Plaintiff would not permit any other tenant in the arcade in which the 1^st Defendant’s shop was located to engage in a similar trade to that of the 1^st Defendant, namely the selling of crystals.  It is said that this collateral agreement was breached and that the Defendant has, as a result, suffered substantial losses by reason of a fall off in the sales from her business.

9.  I shall consider first the question of whether or not it would be appropriate in the circumstances of this case to lift the stay that arises as the result of the operation of section 15 of the Legal Aid Ordinance (Cap. 91).  Section 15(2) provides for the Director of Legal Aid to lodge a memorandum of notification of an application for Legal Aid as soon as practicable after the application has been made.  The effect of the lodging of such memorandum is dealt with by section 15(4) which provides that:-

“Where any memorandum is so filed, then, unless otherwise ordered by the Court in which the memorandum is filed, all proceedings in the action or in the appeal or in both the action and the appeal shall, by virtue of this section, be stayed for such period, being not less than 14 days, as may be prescribed, and during such period (unless otherwise ordered by any such court) time fixed by or under any law or otherwise for the doing of any act or the taking of any step in the proceedings shall not run.”

10.  Under the Legal Aid Regulations, the prescribed period of stay is 42 days.  But for this application, the stay would have expired on 2 November 2004.  It seems to me that in considering whether or not the stay should be lifted the two principal factors to which regard should be had are, first, the merits of the proposed defence and, secondly, the reasons for any delay that there may have been in making the application for legal aid.

11.  In this case, it appears clear that the 1^st Defendant has failed to pay the rent which is due under the lease.  The only defence that is put forward to that claim is the assertion of the existence of a collateral agreement in the terms which I have described earlier.  However, when one looks at the affirmation filed by the 1^st Defendant in opposition to the application for the uplift of the stay, it is notable that the 1^st Defendant has declined to provide any particulars or any real detail or information in support of that assertion.  The 1^st Defendant had instructed her solicitors to write to the Plaintiff on 3 September 2004, denying the various breaches that had been alleged and asserting the existence of the collateral agreement which I have mentioned.  However, her solicitors’ letter consisted largely of bare denials, and in relation to the agreement, simply asserted the existence of the alleged agreement, and that there had been a breach of it, without providing any details of how, precisely, the agreement had been made or breached and asserted that substantial losses had been caused to the 1^st Defendant without attempting to provide any indication or breakdown of such losses.

12.  The 1^st Defendant’s affirmation made yesterday does nothing to improve the position, in that she has declined to provide any further information or any further details in relation to her alleged defence, notwithstanding that she was, it seems, advised by her solicitor that it would be desirable for her to do so.  The reason that she has given for her failure to do so is that to do this would involve her in the expenditure of substantially the amount of money that would be necessary to prepare her defence to these proceedings, and that this would defeat the object of her application for legal aid.  I do not think that this is right.  It seems to me, first, that the object of the application for legal aid would have been to provide finance for the balance of these proceedings, of which the preparation of the defence is but one part.   Moreover, in the context of an application for an uplift of the stay, it seems to me that it is incumbent on the 1^st Defendant, if she wishes to suggest that she has merits in her proposed defence of these proceedings, to give the Court at least some indication of what that defence is and to condescend to some level of particularity.  It may not be necessary to descend to the level of particularity of being able to provide, in dollars and cents terms, the amount of the losses that she says she has suffered, which may involve the instruction of accountants or other professionals to prepare some form of estimate, which would no doubt be an exercise that would involve some expense.  However, it seems to me that it would have been possible at least for some details of the alleged defence to have been provided in her affirmation, particularly when very few details had been provided in the earlier letter from her solicitor to those representing the Plaintiff.  For example, it would have been possible to indicate the person to whom the 1^st Defendant is alleged to have spoken, and with whom she claims to have concluded the agreement, and it would, I would have thought, been possible for her to have given details of when and where the agreement was concluded.  Equally, it should have been possible for her to give some indication of the nature of the breach alleged, by giving details of the matter in which the alleged oral agreement had been breached, and to provide some indication, even if not a very detailed one, of the level of losses which she says she has suffered.  Given that the 1^st Defendant has chosen not to put any of this material before the Court, I am left in considerable doubt as to whether or not there is, in fact, a defence with real merits in relation to this part of the Plaintiff’s claim, whatever the position may be in relation to the rest of the Plaintiff’s claims.

13.  Moreover, as the 1^st Defendant has indicated that in the process of applying for legal aid she was asked for and provided further documentation and information which was required by the Legal Aid Department, presumably in order to enable them to assess the merits of her proposed defence and come to a view as to whether or not her application for legal aid should be granted, I can see no reason why that material at least could not have been put before the court for its consideration today.

14.  Having regard to that state of affairs, it seems to me that the 1^st Defendant has failed to establish at this stage that she has merits in her defence, and for that reason I am minded to lift the stay on these proceedings.

15.  So far as the question of delay in the application for legal aid is concerned, it seems to me that although it might be said that the Defendant could have applied earlier for legal aid and could have required an estimate of the costs of preparing her defence at an earlier stage, it seems to me that, all things considered, such delay as there was in not applying for legal aid until after the obtaining of an extension of time for the service of the defence is not such as would of itself lead me to the view that the stay should be lifted.

16.  For those reasons, it seems to me that it would be appropriate in this case to lift the automatic stay on proceedings arising as a result of the lodging of the memorandum of the application for legal aid.  In coming to this view, I have not overlooked the views expressed by the Court of Appeal in Lee Shiu Ming v Yeo Hiap Seng (Hong Kong) Limited (un-reported, CACV 39 of 1993), but it seems to me that that was a very different case in which there was no question of consideration of the merits of the defendant’s defence.  In this case, the merits of the 1^st Defendant’s alleged counterclaim were clearly a matter for consideration, and as the 1^st Defendant has failed to put forward any material, beyond bare assertions, to substantiate the alleged as counterclaim and set off, it seems to me that it is far from clear that the Defendant does have a meritorious defence.  That is not, however, to say that if the Defendant is permitted to file a defence in these proceedings she would not be able to do so, or that there may not, at the end of the day, prove to be a good defence available to her.

17.  However, on the material that I have before me, no such defence has been made out at this stage.  In the circumstances it seems to me that the 1^st Defendant’s application for legal aid would seem to have been calculated to delay the progress of these proceedings and for that reason I would uplift the stay.

18.  Having said that, it does not follow that the consequence of the uplift of the stay would be that the application for judgment should automatically be granted.  As to this, it seems to me clear from section 15(4) of the Legal Aid Ordinance that the effect of the stay is that it operates as a stay of proceedings and suspends the running of time, until such time as the stay expires, or such earlier time that the Court uplifts the stay.

19.  Mr Cheung, who appeared for the 1^st Defendant, did take the point that section 15(4) provided for a minimum stay of 14 days and that since the application for uplift had been made before 14 days had expired, it should be dismissed on that ground alone.  With respect, I do not agree that this is the proper interpretation of section 15(4) of the Ordinance.  It seems to me that on the correct interpretation of section 15(4), the stay is to be for the prescribed period, a period which should not be less than 14 days, subject to the Court’s power to uplift it.  I see nothing in section 15(4) that prevents the Court making an order uplifting the stay at any time after it arises, or before the expiry at least of 14 days.  In any event, 14 days have in fact elapsed since the imposition of the stay in this case, so that, even if there was any merit to this point, as a result of the hearing being heard today, more than 14 days after the stay arose, if it were necessary for the stay to have lasted for at least 14 days it has done so.

20.  That said, however, the effect of the uplift of the stay would seem to me to be that time will now continue to run in relation to the service of the defence, unless I am prepared to accede to the Plaintiff’s application for judgment to be entered in default of defence immediately.

21.  As to this, it does not seem to me that it would be appropriate to enter judgment immediately at this stage.  The reasons that I say this are that, under the order extending time, the 1^st Defendant was to have a period of 14 days in which to file her defence, that period expiring on 29 September 2004.  However, as a result of the stay, time stopped running on 22 September 2004, at which time the 1^st Defendant still had 7 days within which to file her defence.  The uplifting of the stay does not, in my view, have retrospective effect so as to result in the continued running of time from the date when the stay first arose.  On the contrary, it is clear from section 15(4) of the Legal Aid Ordinance that time does not run during the period while the stay is in place.  That being so, it seems to me that unless the Plaintiff can bring itself within some other provision of section 15 which would enable me to make an order entering judgment in its favour, the effect of my order uplifting the stay will simply be that time will continue to run as from today.

22.  Miss Mak, who appeared for the Plaintiff, submitted that default judgment should be entered pursuant to section 15 (5)(c) of the Legal Aid Ordinance.  This provides that the filing of the memorandum shall not operate to prevent the making of any other order which, in the opinion of the Court in which the memorandum is filed, is necessary to prevent an irremediable injustice.  It seems to me that the effect of the lifting of the stay without entering judgment will be that the 1^st Defendant’s defence will be filed some two weeks later than it would otherwise have been filed had no stay been put in place as a result of her application for Legal Aid.  I find it difficult to see that a delay, in this case, of slightly over two weeks in the filing of a defence is a matter that can be said to cause any irremediable prejudice to the Plaintiff.  No doubt there is prejudice to the Plaintiff arising from the fact that the Defendant appears to be remaining in occupation of the premises, carrying on business from them, without paying rent, but this seems to me a prejudice that would have been suffered even if the Defendant had filed a defence within the time originally permitted.  It does not seem to me that the further delay of some two and a half weeks that would arise as a result of the stay having been in place for that period is a matter that can be said to cause irremediable injustice to the Plaintiff.

23.  On the contrary, although I have indicated that I do not on the material before me take the view that the 1^st Defendant has established that she has a meritorious defence to the proceedings for the purposes of considering whether or not to uplift this stay, that is not to say that such a defence may not exist if it is put forward in a proper form.  It seems to me that if I were to enter judgment immediately, that would not only not prevent an irremediable injustice to the Plaintiff, but might well cause an irremediable injustice to the Defendant.

24.  For those reasons, I decline to enter judgment as prayed for in the second paragraph of the Plaintiff’s summons of 30 September 2004.  I therefore make an order in terms of paragraph 1 of that summons, but not in respect of paragraph 2.

25.  The effect of my decision will be that time for the filing of the 1^st Defendant’s defence will continue to run as from today and in the circumstances, the 1^st Defendant’s defence will have to be filed within 7 days from today, that being the amount of time remaining under the extension of time that had been granted at the time that the automatic stay came into effect.