PO KWONG MARBLE FACTORY LTD v. WAH YEE DECORATION CO LTD

IN THE COURT OF APPEAL

1997, No. 82
(Civil)

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REASONS FOR JUDGMENT

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Nazareth, V.-P.:

1. On 31 October 1997, having heard counsel's submissions, we allowed the appeal against Deputy District Court Judge Y.W. Yung's order made on 24 January 1997 dismissing the application of the defendant/appellant for an extension of time to file and serve a defence. We also set aside the default judgment secured in consequence and gave the defendant three days within which to file its defence. Having heard submissions as to costs, we gave the plaintiff/respondent its costs of the appeal and below. We now give our reasons.

Introduction

2. On 24 January 1997, Deputy Judge Yung dismissed the defendant's time summons for an extension of 14 days to file its defence. Default judgment was entered on 18 February 1997. The deputy judge refused to give the defendant leave to appeal to this Court, but leave was subsequently granted by Mayo JA.

3. The defendant applied by way of summons for leave to adduce additional evidence at the hearing of the appeal by way of three affidavits (the last in fact was an affirmation but it is convenient to refer to them as affidavits).

Background

4. On 21 March 1996, the plaintiff took out its writ in the District Court claiming a sum of $85,447.26 together with interest and costs. By its Statement of Claim, it claimed that amount as the balance of the contractual price for work done and materials supplied under a construction sub-contract.

5. The writ was served on the defendant on 25 March 1996 and the time in which the defence should have been filed expired on 8 April 1996. On 15 April 1996 the plaintiff entered judgment in default of the defence being filed in time. It appears that the writ had been sent to the wrong address, and the defendant says it first became aware of the action on 17 April 1996.

6. On 4 May 1996 the defendant took out a summons to set aside the default judgment. This came before His Honour Judge Muttrie in the District Court on 15 May 1996. He dismissed it.

7. The defendant then appealed to the Court of Appeal filing its Notice of Appeal on 24 July 1996. On 20 October 1996 the Court of Appeal set aside the default judgment.

8. On 20 December 1996 the plaintiff served the writ by post and on the defendant's solicitors. The defence then had to be filed by 3 January 1997 and on that day the defendant took out a summons for an extension of 14 days within which to file its defence. It was this summons that was dismissed by Deputy Judge Yung on 24 January 1997. Default judgment was entered on 18 February 1997 as I have said.

9. I pause here to note that at the hearing before Deputy Judge Yung, there was virtually no explanation for the delay. In his reasons for decision, Deputy Judge Yung said this:

"On 24 January 1997 the summons came up for hearing. No affirmation was filed to support the application. Ms Fung for the defendant only explained that the delay was due to difficulty in getting instructions because of substantial change in personnel of the defendant company. No details could be given. On being asked Ms Fung could not produce a draft defence or inform me the general nature of defence. The defendant must have been aware of the present litigation for a long time. Twenty days had elapsed since the taking out of the present summons. The granting of extension of time is not automatic and the delay was inexcusable and excessive in the particular circumstances of this case. I therefore refused leave to defendant to file defence out of time."

Leave to adduce affidavits

10. I turn now to the affidavits, for the introduction of which leave was sought. They are designed to provide a better explanation for the delay and also to explain why no draft defence was produced. In his two affidavits, the defendant's solicitor explained that a draft defence and counterclaim was sent for the defendant's approval on 24 December 1996. However, he was not able to obtain the client's approval in time. On 3 January 1997, on the defendant's instructions, he filed the time summons for extension. He was only able to obtain the defendant's approval on the evening of 23 January 1997 in a telephone conversation with Mr Man, the defendant's general contracts manager who was the officer responsible. On the following morning, i.e. of 24 January 1997, Ms Fung, his assistant solicitor, who was unaware of the telephone conversation, proceeded to request the extension of time. Immediately following the dismissal of the summons, the solicitor arranged for the defence and counterclaim to be served on the plaintiff's solicitor at 2.34 p.m. Understandably, they refused to endorse their consent to service as the defence and counterclaim out of time. A copy of the defence and counterclaim were submitted with the solicitor's second affidavit.

11. The affirmation of Mr Man proffered the explanation for the delay. He was new to the company and had to take over from the executive director who previously handled this case on behalf of the plaintiff and who resigned on 8 November 1996. The draft defence and counterclaim was sent to him in the normal course of business for consideration and approval on 24 December 1996. He "was extremely busy at that time having just taken over the post at the defendant's parent company and was for the two months working from another office" at Kowloon. He had no knowledge of the case whatsoever and had to review files and documents. When he noticed that there was an appeal to the Court of Appeal, he was more "cautious" and tried to make sure he knew what the case was all about before he approved anything. He was informed by the defendant's solicitors that a time summons had been taken out, returnable on 24 January 1997. He thus thought that he had until then to consider and approve the draft, which he eventually did on the evening of 23 January 1997. He concluded "in short, the delay in approving the draft defence and counterclaim was caused by pressure of work and the fact that I was new to the post without prior knowledge of this particular case, [and] wanted to insure that everything was in order".

Consideration of submissions

12. It is common ground that as there has not been a trial or hearing on the merits, the Ladd v Marshall conditions do not apply (see The Supreme Court Practice 1997 Vol 1 para 59/10/7).

13. Mr Cheung for the defendant submits that the further evidence should be received as the defendant should be given a chance to explain what had happened, why there was a delay, and what went wrong. In particular, he submits, the evidence relates to what happened shortly before and at the hearing below, and as to how the mistake was discovered afterwards. By the nature of things, he says, all this could only be set out in an affidavit sworn after the event, i.e. after the hearing below. Bearing in mind that there has been no trial and no suggestion that the defence is plainly devoid of any merit, it seems to me there is substance in those submissions.

14. Miss Wong responds that even where there has been no trial or hearing on the merits, the admission of fresh evidence on appeal is not automatic but in the discretion of the Court of Appeal. That is plainly right. An important factor to take into account in exercising that discretion, she continues, is the reason why the evidence was not adduced in the court below (see The Supreme Court Practice 1997 Vol 1 para 59/10/11 at p. 1004). This also is plainly right. It has to be said that almost the entirety of the explanation, which concerns primarily the position and perception of Mr Man, could have been provided to the deputy judge not only by affidavit but, as will be seen, by oral explanation from the bar. The fact remains, however, that the predominant consideration that moved the deputy judge to dismiss the time summons was the absence of any draft defence as can be seen from his reasons for decision. However unmeritorious Mr Man's explanation may appear to be, it is unlikely to have prevented the judge extending time by the short period that was necessary, if he had been shown the draft defence. He was not shown the defence because of a lapse in communication by the solicitor with his assistant. In those circumstances, there being no other good reason for refusing leave to adduce the additional evidence, I am satisfied that leave should be given.

Extension of time to file defence

15. It is common ground that the power to extend time involves the exercise of discretion; and that an appellate court will interfere with the exercise of such discretion only in very limited and well-established circumstances. Virtually no acceptable explanation at all for the delay was given to the deputy judge despite the apparent efforts of the assistant solicitor appearing for the defendant to explain the delay. Plainly upon the material that was placed before him, the deputy judge's exercise of discretion in refusing leave cannot be faulted. It was upon this aspect that Miss Wong placed particular emphasis. Having regard to that matter, the exercise of discretion by the judge ought not to be interfered with, and that to permit this by granting leave to adduce fresh evidence would be to give the defendant a second bite at the cherry and open the flood gates to review the exercise of discretion in that way. In any event, she further submitted, no explanations or reasons for the delay were placed before the deputy judge. The latter contention is not entirely right. An explanation of sorts, not adequate perhaps, but nonetheless some explanation was proffered to the deputy judge in a manner that, it will be seen, cannot be regarded as unacceptable in my view.

16. Be that as it may, the law and applicable principles provide for the admission of fresh evidence on appeal, upon the strict Ladd v Marshall conditions where there has been a trial on the merits, and in the discretion of the judge or court where there has not. Where evidence is so admitted the propriety of the exercise of the relevant discretion falls to be determined in the context of the new material. If the position were otherwise as Miss Wong appears to contend, then a proper exercise of his discretion in the context of the material before him by the judge at first instance would be an absolute bar to remedying injustice that might be caused by relevant material not having been placed before him - even when such material can properly be adduced before the appellate court. That is plainly not right. Besides, the discretion of the courts should, as hitherto, suffice to deal with any flood of applications to review the exercise of judicial discretion upon the basis of fresh evidence. Moreover, it is plain that fresh evidence necessitates the fresh exercise of discretion and in that sense does not involve interference with the exercise of discretion by the judge below. In the present context, it is no reflection upon the proper exercise of his discretion by the deputy judge.

17. I turn then to address the proper exercise of discretion in the context of the material before this Court.

The relevant principles

18. These are helpfully stated in the Supreme Court Practice Vol 1 in the notes to O3 r5, from which the following may be mentioned:

"The overriding objection is 'the avoidance of injustice to the parties'." (para 3/5/1)

"So far as O3 r5 is concerned, therefore, save in special circumstances [such as cases of contumelious default or where a default is repeated or persisted in after a pre-emptory order] it should rarely be appropriate to deny the plaintiff his extension (where denial would stifle his action) because of a procedural default which even if unjustifiable, has caused the defendant no prejudice for which he cannot be compensated by an award of costs." (para 3/5/6)

19. The foregoing reflects the judgment of the Court of Appeal in England in Costellow v Somerset County Council [1993] 1 WLR 256, 263G-264H (which was a case on dismissal of an action for want of prosecution and a cross-summons for extension of time). The following passages from that case were relied by Mr Cheung:

"The first principle is that the rules of court and the associated rules of practice, devised in the public interest to promote the expeditious dispatch of litigation, must be observed ...

The second principle is that a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of procedural default, unless the default causes prejudice to his opponent for which an award of costs cannot compensate. This principle is reflected in the general discretion to extend time conferred by Ord. 3, r.5, a discretion to be exercised in accordance with the requirements of justice in the particular case. It is a principle also reflected in the liberal approach generally adopted in relation to the amendment of pleadings.

Neither of these principles is absolute. If the first principle were rigidly enforced, procedural default would lead to dismissal of actions without any consideration of whether the plaintiff's default had caused prejudice to the defendant. But the court's practice has been to treat the existence of such prejudice as a crucial, and often a decisive, matter. If the second principle were followed without exception, a well-to-do plaintiff willing and able to meet orders for costs made against him could flout the rules with impunity, confident that he would suffer no penalty unless or until the defendant could demonstrate prejudice. This would circumscribe the very general discretion conferred by Ord. 3, r.5, and would indeed involve a substantial rewriting of the rule.

Cases involving procedural abuse (such as the Hytrac case [1983] 1 W.L.R. 44) or questionable tactics (such as Revici v. Prentice Hall Incorporated [1969] 1 W.L.R. 157) may call for special treatment. So, of course, will cases of contumelious and intentional default and cases where a default is repeated or persisted in after a peremptory order. But in the ordinary way, and in the absence of special circumstances, a court will not exercise its inherent jurisdiction to dismiss a plaintiff's action for want of prosecution unless the delay complained of after the issue of proceedings has caused at least a real risk of prejudice to the defendant. ... Save in special cases or exceptional circumstances, it can rarely be appropriate, on an overall assessment of what justice requires, to deny the plaintiff an extension (where the denial will stifle his action) because of a procedural default which, even if unjustifiable, has caused the defendant no prejudice for which he cannot be compensated, by an award of costs. In short, an application under Ord. 3, r.5 should ordinarily be granted where the overall justice of the case requires that the action be allowed to proceed."

20. Miss Wong for her part sought to rely on particular principles which seem to me to do no more than reflect the foregoing general principles, or their application in particular circumstances. Thus, I do not see inconsistency between those general principles and the principle that an extension of time is not to be granted automatically where the delay is not excessive, the party in default offers to pay the costs and no injustice would be done to the other side, for which Miss Wong contends upon the authority of Rivici v Prentice Hall Incorporated [1969] 1 WLR 157 - an authority which was considered in the Costellow case.

21. Miss Wong also sought to rely upon one of the principles helpfully collated by Keith J in Chiu Sin-chung v Yu Yan-yan [1993] 1 HKLR 225, 228(1): that the pre-requisite of an application to extend time is a clear statement as to the reason for the time limits not being observed and for any delay then applying for an extension. Such reliance was, however, in respect of the application before the deputy judge where the reasons were slender. The situation is very different before this Court; the fresh evidence provides a sufficiently clear statement as to the reasons for the time limit not having been observed and likewise for the delay, which was minimal. In that context, Miss Wong also referred to the absence of any affidavit in support of the summons for an extension of time before the deputy judge. Mr Cheung pointed out, however, that the practice has been for masters to accept explanations and reasons from the bar; indeed this is also the understanding of one of the members of this Court. In that respect, there appears to have been some attempt to provide an explanation and reasons before the deputy judge, as I have indicated. Before us it was the affidavit evidence, which, additionally, Mr Cheung was able to supplement and clarify. While I am not called upon to endorse that procedure, I can see its utility and consider that in present circumstances, the defendant is entitled to rely upon it.

22. I would finally mention that Miss Wong also sought to rely upon the statement in the Supreme Court Practice 1997 Vol 1 para 3/5/1 at p. 17, i.e. that in any event, an acceptable explanation requires more than a mere statement that the person in charge of the action forgot about it or was too busy to get on with it. I say no more than that here the explanations and reasons went beyond this.

Application of the principles

23. The delay in this case was minimal, and the defendant was in a position to file the defence on the day of the hearing of its application for leave to extend. There is no suggestion whatsoever of prejudice, particularly prejudice for which costs would not compensate. Likewise, there is no suggestion that the claim lacks merit. There is also no evidence of procedural abuse, questionable tactics or contumelious, intentional or repeated default. Above all, I can see no justification whatsoever for stifling the defendant's defence; the overall justice of this case plainly does not lie that way.

Conclusion

24. For the foregoing reasons I had no hesitation in concluding that leave had to be given for the fresh evidence to be adduced and that the appeal had to be allowed.

Costs

25. As to the costs, although the defendant was not entirely free from blame in the course that Mr Man adopted, the damaging features that afflicted the defence appear to have been the shortcomings of the defendant's solicitor in failing to present a draft of the defence to the deputy judge, to even inform him that it had been prepared and approved and in failing to proffer any explanation or reasons for the failure to meet the time limit or to explain the delay. At this stage I will add only that it seemed to me that he should be called upon to show cause why he should not bear the relevant costs. I am satisfied, having heard counsels' submissions that the proper order, despite the defendant having succeeded is that it should pay the plaintiff's costs of the application below and of this appeal.

26. Before I leave the matter, I have to express my appreciation of counsel's helpful and concise submissions.

Keith, J.:

27. I agree with the reasons given by Nazareth VP for allowing this appeal. I add a few words of my own only to explain that the success of the appeal does not imply any criticism of the Deputy Judge. The explanation which was given to him for the Defendant's failure to file the Defence in time was an incomplete one.

28. It is important not to overlook what the extension of time was sought for. It was sought for the filing of a pleading. There is an obvious difference between an application to extend the time for the filing of a pleading (which is simply a procedural step in the action), and an application, for example, to extend the time for filing a notice of appeal against a final order (in which the rights and wrongs of the dispute have already been finally determined). Indeed, applications to extend the time for taking a procedural step in the action may themselves have very different consequences. For example, an application to extend the time for the filing of a pleading is very different from an application to extend the time for a later procedural step which might have the effect of delaying the trial of the action, or of causing the vacation of the date fixed for the trial of the action.

29. Ms. Lisa Wong for the Plaintiff, in her excellent submission, relied heavily on the principle in Ratnam v. Cumarasamy [1965] 1 WLR 8, pithily summarized in Revici v. Prentice Hall Inc. [1969] 1 WLR 157 at p.160C as follows:

"Prima facie, if no excuse is offered, no indulgence should be granted."

That approach was confirmed and applied in Savill v. Southend Health Authority [1995] 1 WLR 1254. There are two answers to the application of the principle to the present case. First, if "excuse" is read as "explanation" (as the Court of Appeal in England in Erskine Communications Ltd. v. Worthington (CA 725/91) said it should be), there was an explanation given to the judge, albeit not the full one. In any event, the full explanation is now apparent from the fresh evidence. Secondly, the only reported cases in which the principle has been applied are cases in which the extension of time sought related to the filing of a notice of appeal, i.e. cases in which the rights and wrongs of the dispute have been finally determined. That was so in Ratnam, Revici and Savill and in Chiu Sin Chung v. Yu Yan Yan [1993] 1 HKLR 225 which merely sought to identify the principles to be applied on an application to extend the time for appealing an order of a master to a judge in chambers.

30. The fact of the matter is that, although time requirements laid down by the rules and orders of the court are not merely targets to be aimed at, but are directions to be observed, the overriding principle is that justice must be done. The passage in Costellow v. Somerset County Council [1993] 1 WLR 256 of particular significance is that at p.264G-H:

"Save in special cases or exceptional circumstances, it can rarely be appropriate, on an overall assessment of what justice requires, to deny the plaintiff an extension (where the denial will stifle his action) because of a procedural default which, even if unjustifiable, has caused the defendant no prejudice for which he cannot be compensated by an award of costs."

31. I turn to the application of these principles to the present case. For my part, I agree that the fresh evidence should be admitted, not so much for the purpose of giving the court the full explanation which the Deputy Judge was denied, but for the purpose of seeing whether the failure to comply with the time limit amounted to procedural default or procedural abuse. That evidence shows that this was a case of procedural default as opposed to procedural abuse. Moreover, the extension of time was sought merely to enable a procedural step in the action to be taken, and no prejudice would have been caused to the Plaintiff if the Defendant's time for filing the Defence had been extended by the 14 days sought.

Chan, CJHC:

32. For the reasons given by my Lords, I agree that the appeal should be allowed. I have nothing to add.