RUSSELL PETER BROWN AND OTHERS v. EDWARD EUGENE LEHMAN

CACV 119/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 119 OF 2012

(ON APPEAL FROM HCA 959 OF 2010)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1.  This was an appeal by the defendant against that part of the judgment of Deputy Judge L Chan (as L Chan J then was) (“the Judge”) dated 27 April 2012, by which the Judge refused to set aside a default judgment which had been entered against the defendant, Mr Edward Eugene Lehman, by the plaintiffs, Mr Russell Peter Brown, his wife Mrs Zhou Han Brown, and Effiscient Limited (respectively the 1^st, 2^nd and 3^rd plaintiffs).

2.  These proceedings are part of an extensive series of legal proceedings involving the 1^st and 2^nd plaintiffs and the defendant and his wife, relating to an apparently successful accounting services business on the Mainland operated by a company called Lehman Brown Limited (“the Company”), in which they were shareholders (either directly, or through companies held by them).  The Company was established in 2001, but by 2004, the relationship between the Lehmans and the Browns had soured, and thereafter deteriorated rapidly.  Each camp took out unfair prejudice petitions against the other, and other proceedings involving alleged misuse or misappropriation of trade marks were also commenced.  According to the Browns, in 2009 and 2010 Mr Lehman made a very extensive series of defamatory statements about them – it is these statements that form the subject matter of the proceedings with which we are concerned.

3.  The writ in these proceedings was issued on 28 June 2010.  It was generally indorsed, and asserted causes of action on behalf of the plaintiffs in libel, slander, malicious falsehood and remedies for alleged breaches of section 5 of the Defamation Ordinance (Cap 21).  Although the 3^rd plaintiff (the vehicle through which the 1^st and 2^nd plaintiffs held their shares in the Company) was named as a plaintiff in the proceedings, the writ does not appear to allege any wrongs done to the 3^rd plaintiff, complaining instead of defamatory statements being made in relation to the Company.  The relief claimed included an injunction to restrain the further publication of defamatory statements by the defendant, claims for general, special and exemplary damages, interest, costs and further and/or other relief.  As will become clear, the claim to an injunction is of particular significance for the purposes of this appeal.

4.  After the writ was issued, the plaintiffs applied ex parte for an interlocutory injunction to restrain the defendant from further publishing or re-publishing various defamatory statements that were detailed in the plaintiffs’ letter before action (which referred to about 22 such statements).  On 23 July 2010, To J granted the injunction sought.

5.  On 2 November 2010, the plaintiffs brought proceedings to commit the defendant for contempt of court, on the basis of alleged breaches of the ex parte injunction granted by To J.  The application was heard on 19 April 2011, when To J found the defendant guilty of contempt, and fined him but declined to imprison him in the light of the defendant’s recognition that he had breached the order and apology.

6.  Meanwhile, on 3 December 2010, the default judgment which is the subject of this appeal was entered against the defendant. The application for default judgment was supported by an affidavit of Miss Greene, an assistant solicitor in the employ of the plaintiffs’ solicitors filed on 12 November 2010, in which she stated (at paragraphs 5 to 7):

“5. Pursuant to the Order of Master Lung dated 2 July 2010, the Plaintiffs issued a Concurrent Writ of Summons on 7 July 2010 for service upon the Defendant out of the jurisdiction. (‘Concurrent Writ’).

6. On 23 July 2010, the Honourable Mr Justice To granted an injunction order inter alia restraining the Defendant from publishing, republishing or making Defamatory Statements about the Plaintiffs and the Company until after the trial of this action or until further order (‘Injunction Order’).

7. The Plaintiffs are now only left with their claim for unliquidated damages under the Writ of Summons and are hereby applying to this Honourable Court for interlocutory judgment against the Defendant for damages to be assessed and costs.”

7.  On 20 January 2011, the defendant brought an application seeking to set aside the default judgment for irregularity, alleging that the writ had not been served.  However, this application was not pursued, leave being given to withdraw it on 21 February 2011.

8.  Thereafter, on 14 November 2011, the defendant again applied to have the default judgment set aside, on different grounds.  As we have noted, this application was dismissed by the Judge on 27 April 2012 and that decision is the subject of this appeal.

9.  While that application was pending, on 8 December 2011, the 3^rd plaintiff brought fresh contempt proceedings against the defendant based on matters that had occurred during the trial of the unfair prejudice petitions which each side had brought against the other.  The allegations made by the 3^rd plaintiff also included allegations that the defendant had again breached the ex parte injunction granted by To J.  These proceedings were heard by Harris J in July 2012, when he committed the defendant for contempt in relation to the further breaches of the injunction, imposing a sentence of six months’ imprisonment, suspended for two years.  The defendant unsuccessfully appealed against this decision in CACV 177/2012.  It will be necessary to consider what implications that decision might have for the present application later in this judgment.

10.  The trial of the assessment of damages for the defamation claims pursuant to the default judgment that is the subject of this application was due to take place in 2013, but it was adjourned for reasons that are not relevant to this appeal.

11.  In this appeal, the defendant contends that the Judge was wrong to refuse to set aside the default judgment.  Before the Judge, the defendant contended that the default judgment was irregular for a number of reasons, the most important of which were:

(1)   As the plaintiffs’ claims included a claim for an injunction, RHC Order 13 did not permit the entry of default judgment in relation to any part of the claim.  The default judgment was therefore irregular because the court did not have jurisdiction to enter it.

(2)   The writ failed to comply with the requirements of RHC Order 82 rule 2 in relation to the necessary particulars which must be provided of the alleged defamatory statements and publications in respect of the libel claim.  It was also suggested that the causes of action relied upon were incomplete, in that the writ failed to provide particulars of special damage to support the slander and malicious prosecution claims, or to identify any viable cause of action pursuant to section 5 of the Defamation Ordinance.

(3)   At least so far as the 3^rd plaintiff was concerned, there were in fact no allegations of defamation that concerned the 3^rd plaintiff, as all alleged defamatory statements related to the 1^st and 2^nd plaintiffs and the Company (as distinct from the 3^rd plaintiff, which was a shareholder in it).

12.  As we have noted, the Judge declined to set aside the default judgment.  He took the view that in the light of what was said by Miss Greene in her affidavit, the plaintiffs should be regarded as having abandoned their claim to injunctive relief, and that being the case, it was open to the plaintiff to apply for default judgment on the balance of its claims.  So far as the complaint about the lack of particulars was concerned, he took the view that this did not amount to an irregularity so as to require the default judgment to be set aside ex debito justitiae, without consideration of the merits.  But in case he was wrong about that, he went on to state that in the light of subsequent developments, and the many steps taken by the defendant in relation to the proceedings, this was one of the relatively rare cases in which the court could and should exercise its residual discretion to refuse to set aside a default judgment, notwithstanding that it was irregular.  The Judge does not, however, appear to have dealt with the position of the 3^rd plaintiff.

13.  In this appeal, Mr Barlow SC, representing the defendant, renewed all three of these arguments.

14.  Before the first occasion on which this appeal was heard (13 June 2013), there were certain developments in relation to the position of the 3^rd plaintiff which resulted in the appeal being adjourned, and eventually being heard on 22 July 2014.  The position can be summarised as follows:

(1)   On 9 May 2013, the plaintiffs served a further (4^th) affidavit of Miss Greene, by which the plaintiffs conceded the ground of appeal relating to the failure of the writ to plead any allegation that the 3^rd plaintiff had been defamed, whether by libel or slander.

(2)   However, at the same time, the plaintiffs applied for leave to amend the writ by deleting the name of the 3^rd plaintiff and substituting the Company as the 3^rd plaintiff.  This application was heard on 13 May 2013, at a hearing that was not attended by the defendant.  At that hearing, the Judge allowed the writ to be amended in the manner sought.

(3)   The next day, 14 May 2013, the defendant took out a summons seeking to re-open the plaintiffs’ application to substitute the 3^rd plaintiff with the Company.  This application was first heard on 22 May 2013, when the application was adjourned for substantive argument.

(4)   As at 13 June 2013, the position was therefore that an order for substitution of the 3^rd plaintiff by the Company had been made, although that order was the subject of the defendant’s application to re-open that matter.

(5)   At the hearing before us on 13 June 2013, Mr Manzoni SC, appearing for the plaintiffs, contended that as things then stood, the writ had been amended, and that therefore by operation of the doctrine of relation back, the Company was to be regarded as having been the 3^rd plaintiff from the date of issue of the writ, and as such, the complaint that there were no allegations of defamation concerning the 3^rd plaintiff must fall away.

(6)   We did not regard this as a satisfactory state of affairs, and adjourned the appeal to enable the defendant’s summons of 14 May 2013 to be heard and determined, so that the question of who was the 3^rd plaintiff could be settled one way or another (and if necessary, be made the subject of an appeal to this court).

(7)   Thereafter, on 22 July 2013, the plaintiffs (apparently having considered the matter further) applied to the Judge to have the substitution order set aside and for leave to withdraw their substitution summons.  As a result, on 24 July 2013, the Judge made the orders sought, and also gave the defendant leave to withdraw his application to re-open the substitution order (this no longer being necessary, as that order had been set aside).

(8)   The plaintiffs then applied for leave for the 3^rd plaintiff to discontinue its claims, but this application was dismissed by Deputy High Court Judge Hartmann, as he considered that he had no jurisdiction to deal with the matter in the light of this pending appeal.  The 3^rd plaintiff therefore remained a party to the proceedings.

(9)   However, on the resumed hearing of the appeal, the plaintiffs (now appearing by Mr Lam) made it clear that they did not seek to maintain the default judgment in favour of the 3^rd plaintiff, and conceded the appeal so far as it concerned the position of the 3^rd plaintiff.

15.  That leaves the question of whether the default judgment in favour of the 1^st and 2^nd plaintiffs should stand, or whether they should be set aside, as the defendant submits.  As noted above, the two main grounds on which it is said that the default judgment should be set aside are first, that it was irregular as being beyond the court’s jurisdiction to enter, and second, that it was irregular because of the alleged defects in the claims formulated in the writ.

16.  We shall deal first with the argument that the default judgment was irregular because the court had no jurisdiction to grant it, in the light of the claim for a permanent injunction contained in the writ.  As we have noted, the Judge concluded that this claim had been abandoned, and so was not an impediment to the entry of the default judgment.

17.  It is convenient first to consider the relevant provisions of RHC Order 13, and pertinent passages in the commentary in the Hong Kong Civil Procedure.  As will be apparent from what follows, the provisions of RHC Order 13 set out a self-contained and comprehensive code for the entry of default judgments where no notice of intention to defend is given.

18.  Thus, Order 13 rule 1 provides that default judgment may be entered against a defendant “where a writ is indorsed with a claim against a defendant for a liquidated demand only”; Order 13 rule 2 provides that default judgment may be entered against a defendant “where a writ is indorsed with a claim against a defendant for unliquidated damages only”; Order 13 rule 3 permits default judgment to be entered “where a writ is indorsed with a claim against a defendant relating to the detention of goods only”; and Order 13 rule 4 allows default judgment to be entered “where a writ is indorsed with a claim against a defendant for possession of land only”.  Where more than one of the types of claims mentioned in rules 1 to 4 are brought under a single writ, Order 13 rule 5 will apply, permitting default judgment to be entered “where a writ issued against any defendant is indorsed with two or more of the claims mentioned in the foregoing rules, and no other claim”.

19.  Read together, rules 1 to 5 make it clear beyond doubt that default judgment can only be entered against a defendant who fails to give notice of intention to defend where the claim against him is for a debt, unliquidated damages, detention of goods or possession of land, or a combination of such claims without any other type of claim being made against him.  This is reinforced by Order 13 rule 6(1), which provides:

“Where a writ is indorsed with a claim of a description not mentioned in rules 1 to 4, then, if any defendant fails to give notice of intention to defend, the plaintiff may … proceed with the action as if that defendant had given notice of intention to defend.”

This makes it clear not just that the default judgment mechanism is not available in relation to any other type of claim, but that whenever such other claims are made, the default judgment mechanism is not available at all, even in respect of other claims in the writ that are of the type mentioned in Order 13 rules 1 to 4.

20.  This is made clear by the commentary in the commentary at paragraph 13/6/1 of the Hong Kong Civil Procedure, which states:

“The effect of para. (1) is to preclude a plaintiff from entering judgment in default of notice of intention to defend in every case in which the indorsement on the writ contains or includes a claim which is not squarely with rr. 1 to 4 of this Order, and to require him to proceed with the action as if that defendant had given notice of intention to defend. If, therefore, there is indorsed on the writ a claim for an account, injunction, specific performance, declaration or rectification or other remedy or relief which falls outside the descriptions specified in rr. 1 to 4, the plaintiff cannot enter judgment in default of notice of intention to defend, unless he expressly and finally abandons every such remedy or relief. … on the effective abandonment of every remedy or relief outside the descriptions specified in rr. 1 to 4 he is entitled to enter a default judgment under these rules (Morley London Developments Ltd v Rightside Properties Ltd (1973) 231 EG 235, CA).”

21.  We think Mr Barlow is right to say that where a writ contains a claim other than of the nature specified in rules 1 to 4, and such claim has not been expressly and finally abandoned, the court does not have power (or jurisdiction) to allow default judgment to be entered in respect of any of the claims in the writ.  A default judgment entered (even in respect of a claim falling within rules 1 to 4) in such a case would clearly be an irregular judgment.  In the present case, the plaintiffs had included in their claims a claim for a permanent injunction to restrain the further publication of defamatory statements against them – that is clearly a claim that falls outwith rules 1 to 4.  Unless that claim was expressly and finally abandoned, default judgment could not be entered in this case.

22.  The Judge considered that what Miss Greene had said in her affidavit referred to in paragraph 6 above constituted an abandonment of the plaintiffs’ claim to an injunction, so that it became possible to obtain default judgment.  With respect, we cannot agree. Nothing in what Miss Greene said indicated that the plaintiffs were intending to give up their claim to an injunction.  On the contrary, Miss Greene appeared to be of the view that the plaintiffs had already obtained the injunction that they were seeking (a view which was mistaken, as the injunction that had been obtained from To J was interlocutory and not final).  But even if the injunction granted by To J had been a final injunction, the approach of the plaintiffs, as explained by Miss Greene, was that having obtained the injunction, they were left only with their claim for damages.  This approach did not involve any abandonment of the claim for an injunction.  On the contrary, it displayed an intention to rely on that claim to keep the fruits of it, which had (at least according to Miss Greene’s understanding, incorrect though it may have been) already been obtained.  So understood, the plaintiffs were not, in our view, abandoning their claim to the injunction at all, let alone expressly and finally.

23.  Mr Lam submitted that the plaintiffs should be regarded as necessarily having abandoned their claim to the permanent injunction by making the application for default judgment.  We do not think this can be correct.  The mere fact that an application for default judgment is made cannot of itself imply that all other claims are abandoned. It is just as possible that the application for default judgment was made in error, on a wrong understanding of the effect of the scheme of Order 13 rules 1 to 6.  In our view, the commentary in the Hong Kong Civil Procedure, to which we have referred above, accurately sets out what is required – an express and final abandonment, as was present in Morley London Developments v Rightside, as opposed to one that might (or might not) be implicit in the making of the application for default judgment itself.

24.  We also note that Mr Lam fairly accepted that what Miss Greene had said in her affidavit was not clear.  It seems to us that a clear and express abandonment of all other claims should be required before default judgment is entered, as to hold otherwise would be a recipe for confusion, as it would be only after the evidence in relation to the plaintiffs’ state of mind when entering default judgment had been considered and weighed by the court that it would be possible to know the status of a default judgment entered in circumstances such as this.

25.  Mr Barlow suggested further that the subsequent application to commit the defendant for contempt for further breach of the interlocutory injunction in the course of the trial of the shareholder dispute proceedings before Harris J also showed that the plaintiffs had never abandoned their clam to a permanent injunction, because if they had, the interlocutory injunction would have ceased to have any foundation (on the basis that it was granted to hold the position pending the trial of the claim to a permanent injunction) and could no longer have properly been relied upon by the plaintiffs to found any further complaint of contempt.  We doubt whether this is correct for the reasons we explain in the next paragraph. Moreover, it seems to us that it would in any event be for the defendant to seek the discharge of the interlocutory injunction if it were of the view that it should no longer be continued in effect, and until this had happened, the injunction remained in force and had to be complied with.  However, as we have already explained, we are of the view that it is clear that the plaintiffs had not abandoned their claim for a permanent injunction (or at least had not done so expressly and finally), so that the defendant has shown that the default judgment was entered without jurisdiction and was irregular.

26.  We would add that we were referred to the decision of another division of this court in CACV 177/2012, in which the defendant appealed against his committal for contempt by Harris J on the basis that the interlocutory injunction was no longer in effect because it had merged in the default judgment (an argument which is different from Mr Barlow’s submission which we have dealt with in the preceding paragraph).  That argument was rejected, on the basis that there could be no merger as the default judgment was merely an interlocutory judgment, and was not a final judgment.  As Fok JA (as he then was) pointed out in paragraphs 23 to 26 of his judgment, the default judgment was liable to be set aside if the defendant could demonstrate that he had a defence on the merits (or, we would add, if he could show that the default judgment was irregular, as in our view he has in this appeal).  The consequence of the setting aside would be that the plaintiff would be free (if it chose to) to pursue its claim for an injunction, and so long as that was a possibility, there would seem to be no reason why the interlocutory injunction should be considered to have come to an end.

27.  We are therefore satisfied that there had in this case been no abandonment of the plaintiffs’ claim to an injunction, so that in consequence the court had no jurisdiction to enter default judgment against the defendant.  The default judgment was therefore irregular.

28.  Where a default judgment is irregular, it is usually said that it will be set aside ex debito justitiae. Mr Barlow submits that this means that it must be set aside.  However, it was established in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 that the court retains a residual discretion to decline to set aside an irregular default judgment, or to impose terms when setting it aside, where the circumstances of the case call for such a course to be taken.

29.  Mr Lam submitted that having regard to the many steps that had been taken in these proceedings after the entry of the default judgment, as detailed in paragraphs 41 to 44 of the judgment below, this was a case in which the court should exercise its discretion to decline to set aside the default judgment.  While we have some sympathy for this submission, we think it important to bear in mind the nature of the irregularity with which we are concerned.  Given that the irregularity arises from the court’s lack of jurisdiction, under RHC Order 13 rules 1 to 6, to enter default judgment against the defendant at all, it seems to us that it would not be proper for us to exercise our discretion so as to allow a default judgment that the court had no power to give to remain in place.  We therefore decline to exercise our discretion in the manner suggested by Mr Lam.

30.  This suffices to dispose of the appeal in favour of the defendant.  It is therefore unnecessary for us to consider Mr Barlow’s alternative argument, based on the alleged inadequacies of the writ in terms of the causes of action pleaded, and the requirements of RHC Order 82.  However, we would indicate that we would not have been inclined to set aside the default judgment on the basis of that argument, both because we are not satisfied that any defects of that nature would render the default judgment irregular, and because even if we had been, had that been the only irregularity, we would have been minded to exercise our discretion so as to allow the default judgment to stand, having regard to the many steps that were taken after the default judgment was entered.

31.  For the reasons we have given, we will allow the appeal, and set aside the default judgment against the defendant.  So far as costs are concerned, we see no reason why these should not follow the event, and make an order nisi that the costs of this appeal, including the costs of the adjournment, should be paid by the plaintiffs to the defendant, to be taxed on the party and party basis if not agreed.