AN ZHOU AND OTHERS v. ZHOU ZHENG KUAN AND OTHERS

HCA 241/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 241 OF 2010

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BETWEEN

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REASONS FOR DECISION

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Introduction

1.  This is the plaintiffs’ application by summons dated 5 June 2012 to enter judgment against the 1^st defendant and for such relief as claimed in the statement of claim, pursuant to two unless orders of this court made on 4 May 2012.

The plaintiffs’ pleaded case

2.  In this action, the plaintiffs claim against the defendants   for damages for certain defamatory statements made against them and  for malicious falsehood. Concisely put, the allegations were that the plaintiffs, by falsely asserting their connection with the government and senior state officials, forced the sale at under value of a villa in Jun Yuan Xiao Qu (臻園小區) in Shanghai belonging to a foreign property developer, namely the 1^st defendant; dispossessed the 1^st defendant from the villa and refused to pay decoration fee of more than $7 million.  The 1^st defendant was allegedly the maker of the defamatory statements.  The other defendants are news media and their employees who published the defamatory statements.  The plaintiffs filed a statement of claim on 17 February 2010. 

3.  The 1^st defendant filed his defence on 6 May 2010.  He pleaded, inter alia, that the market price of the villa was RMB31.93 million; that the 1^st plaintiff claiming to be connected with the government and senior state officials pressurised the 1^st defendant to enter into an agreement to sell the villa for RMB27 million; then further bargained the purchase price down to RMB26 million which was split into two portions of RMB17 million for the property and RMB9 million for decoration fee; and that decoration fee in the region of RMB7 million remained outstanding.

4.  The plaintiffs filed their amended reply on 27 July 2010. 

The 1^st Unless Order and the 2^nd Unless Order

5.  The two unless orders pursuant to which the plaintiffs’ application for judgment is now made arose under the following circumstances. 

6.  On 9 November 2010, the plaintiffs issued a request for further and better particulars (“F&BP”) of the defence (“1^st Request”).  The 1^st defendant consented to the application and filed his answers to  the 1^st Request (“1^st Answer”) on 20 December 2010.

7.  On 11 May 2011, the plaintiffs requested for F&BP of the 1^st Answer (“2^nd Request”).  The 1^st defendant consented to the application and filed his answers to the 2^nd Request (“2^nd Answer”) on 9 June 2011.

8.  On 22 July 2011, the plaintiffs further requested for F&BP of the 2^nd Answer (“3^rd Request”).  On the same day, the plaintiffs issued a summons to strike out part of the 1^st Answer and 2^nd Answer.

9.  On 20 August 2011, the 1^st defendant filed a notice to act in person.  Until then, he was represented by George Chan & Co.

10.  At a hearing on 5 September 2011 in which the 1^st defendant did not appear, Master Levy ordered the 1^st defendant to provide answers to the 3^rd Request.

11.  At a hearing on 21 October 2011, Master Wong struck out some paragraphs of the 1^st Answer and 2^nd Answer.  Though the 1^st defendant did not appear, his representative attended the hearing throughout.

12.  On 12 December 2011, John W Wong & Co (“JWW”) filed a notice to act for the 1^st defendant.  Thus as at that date, the 1^st Answer, 2^nd Answer and answer to the 3^rd Request were incomplete or outstanding.

13.  At the hearing of the case management summons (“CMS”) on 14 December 2011, JWW indicated that the 1^st defendant might take out  an application to amend his defence. Hence, Master Ko granted a further and longer extension of 28 days for him to amend his defence and at the same time to comply with Master Levy’s Order to provide answers to the 3^rd Request.

14.  Despite the long extension, the answers to the 1^st Request, 2^nd Request and 3^rd Request remained outstanding.  On 20 February 2012, Master De Souza made an unless order ordering the 1^st defendant to provide answers to the 3^rd Request (“Master De Souza’s 1^st Unless Order”) and another unless order to provide answers to the 1^st Request and 2^nd Request (“Master De Souza’s 2^nd Unless Order”).   JWW did not object to the making of the two unless orders but only asked for more  time to comply with the same.

15.  On 12 March 2012, the 1^st defendant filed one set of answers to the 1^st Request and 2^nd Request and another set of answers to the 3^rd Request (“3^rd Answer”) pursuant to the two unless orders of Master De Souza.

16.  The plaintiffs considered the answers inadequate.  On 19 April 2012, the plaintiffs took out a summons seeking to strike out the answers to the 1^st Request, 2^nd Request and 3^rd Request and for judgment  to be entered against the 1^st defendant.  The application was fixed to be heard on 4 May 2012.

17.  On 30 April 2012, the 1^st defendant took out a summons seeking extension of time to comply with the two unless order of Master De Souza.  The application was not supported by any affirmation.  The supporting affirmation was filed on 2 May 2012 which was just two days before the hearing of the plaintiffs’ striking out summons.  

18.  At the hearing on 4 May 2012, Mr Jeremy Cheung, counsel for the 1^st defendant, admitted that the 1^st defendant’s solicitors were at fault in dealing with the requests and assured that proper answers would  be given and the defence amended.  He consented on behalf of the 1^st defendant to two further unless orders to be made on similar terms as those given by Master De Souza.  Accordingly, I made two unless orders (“1^st Unless Order” and “2^nd Unless Order”) giving the 1^st defendant another fourteen days, ie by 4:00 p.m. on 15 May 2012, to provide the outstanding answers to the three requests.  The 1^st Unless Order related to the 3^rd Request and was a replicate of Master De Souza’s 1^st Unless Order.  The 2^nd Unless Order related to the 1^st Request and 2^nd Request and was a replicate of Master De Souza’s 2^nd Unless Order.  On that day, the 1^st defendant also filed a summons for amendment of the defence.  With that, the 1^st defendant had a clean plate to start anew.

19.  On 14 May 2012, the 1^st defendant issued a summons for amendment of some of the answers in the 1^st Answer and 2^nd Answer. 

20.  On 15 May 2012, JWW filed answers pursuant to the 2^nd Unless Order at 2:30 p.m. but served it on the plaintiffs’ solicitor out of time at 5:01 p.m.  No answer pursuant to the 1^st Unless Order was filed.

21.  On 5 June 2012, the plaintiffs made an ex parte application for judgment pursuant to my two unless orders together with supporting affirmation.  The application was ordered to be heard inter partes on 6 July 2012.

22.  On 25 June 2012, the 1^st defendant issued a summons to apply for leave to file an answer pursuant to the 1^st Unless Order.  The affirmation in support was only filed two days later.

23.  The answers pursuant to the 2^nd Unless Order was filed in time though served marginally out of time.  If this were the only breach, I would be inclined to grant the 1^st defendant relief from the sanction of  the unless order.  I therefore would not take that breach into account in the plaintiffs’ application.  But the 1^st defendant was in clear breach of the 1^st Unless Order.  I shall therefore focus on the breach of that unless order.

The applicable legal principles

24.  Under Order 2, rule 4 of the Rules of the High Court, the sanction under an unless order applies automatically upon breach of the order unless the party in default applies to court within 14 days of the default for relief from the sanction.  That rule provides:

“Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.”

Under Order 2, rule 5, the application must be supported by evidence.

25.  In Daimler AG v Leiduck, Herbert HeinZ Horst and Another CACV 172/2011, 3 May 2012, the Court of Appeal at paragraphs 47 and 48 accepted as an accurate summary of the effect of Order 2, rules 4 and 5 that:

“It is not for the party seeking to take advantage of a default to apply to the court in order to render a sanction for that default effective. Instead, the sanction takes effect immediately and it is for the party in default to apply for relief from the sanction. Only if there is an application for relief from the sanction is the court required to consider whether, in all the circumstances, it is just to make an order granting relief from the consequences that would otherwise follow.”

26.  A court order is meant to be obeyed and the sanction to be applied automatically in the event of breach.  However, the court has discretion to grant relief from the sanction.  But this jurisdiction may only be exercised upon an application for relief from the sanction made pursuant to that rule by the party in default.  The court will then decide whether in all the circumstances it is just to relieve the party in default from the consequence of its breach.  The burden of proving entitlement to the relief is on the party seeking the relief.  But, not unusually, as an act of prudence and depending on the seriousness of the consequence of the sanction, the court invites, as in the present case, the defaulting party to show cause why the sanction should not be applied against him.  If appropriate and necessary, the court will give direction and grant extension of time for making an application under Order 2, rule 4.

27.  Order 2, rule 5(1) sets out the circumstances which the court shall consider on an application for relief.  These include:

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.

The list is not exhaustive.  Basically, the court considers the reasons for the default, explanation for the delay in applying for relief, whether there was a history of default, whether the sanction is out of line with the consequence of the breach and whether the breach was intentional and contumelious: see Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at 616.  Usually the court would have considered the appropriateness of the sanction at the time of making of the unless order.  However, circumstances may change.  The extent of the breach as it turned out may not be as serious as anticipated and there may be mitigating circumstances.  Worth noting is that Order 2, rule 5(f) expressly distinguishes between default caused by the litigant and that caused by his legal representative.  The court is inclined to grant relief to a litigant if he has no deliberate feet dragging and the default was caused by his legal representative. 

The requests under the 1^st Unless Order

28.  Many requests were made and many answers given.  Some were irrelevant.  One series of requests and answers was occasioned by the 1^st defendant introducing a company known as “Shanghai Woodland Real Estate Co Ltd, Canada”.  Probably, there was no such company and the word “Canada” was inserted by inadvertence and not a deliberate attempt to mislead, but it led to a series of requests, answers, striking out applications and Master De Souza’s unless orders.  But This also indicated a total want of care on the part of the 1^st defendant and his legal representative in attending to the requests.  I shall just focus on the outstanding requests which are relevant to the 1^st Unless Order: one was related to the decoration fee, the other to the purchase price.

29.  The 1^st defendant produced a list of invoices in respect of decoration fee identified as Annexure A.  The plaintiffs requested the following F&BP on 11 May 2011:

“(b) Whether the sum of RMB7,865,019.82 stated as grand total costs … was the total decoration fees of the decoration works by the Decoration Company for the Property;

if yes, please confirm whether the said sum of RMB7,865,019.82 was partly settled by the RMB5 million mentioned in paragraph 15.7 of the Defence of the 1^st defendant (being the 1^st Instalment of Decoration fees as mentioned in paragraph 28(5)(v) of the Statement of Claim;

if not, please provide the particulars and breakdowns of the total decoration fees of the decoration works by the Decoration Company for the Property”

30.  On 9 June 2011, the 1^st defendant filed the following answer:

“(b) Yes, the decoration fee has not partly been settled by the RMB5 million and the decoration fees has not been settled. The particulars and breakdowns of the total decoration fees had been provided in Annexure A.”

31.  His answer that the decoration fee has not partly been settled by the RMB5 million was equivocal and invited a further request       on 22 July 2011 for the particulars, details and the nature of the payment  of RMB5 million.  That request was not answered and provoked an application before Master Levy.  On 5 September 2011, Master Levy ordered the 1^st defendant to provide an answer within 14 days.  That order was not complied with.  At the CMS hearing on 14 December 2011, upon JWW’s indication that the 1^st defendant will apply to amend his defence, Master Ko granted a further extension of 28 days for the 1^st defendant to amend the defence and to comply with Master Levy’s order.  No application to amend was made.  Nor did the 1^st defendant supply the F&BP. Accordingly Master De Souza granted an unless order on 20 February 2012 compelling the said F&BP from the 1^st defendant.   That order was not complied with.  That led to the 1^st Unless Order.  There was a history of persistent disregard of three court orders prior to  the issue of my 1^st Unless Order.

32.  The 1^st defendant now seeks leave to file the following answer:

“The 5 million was paid pursuant to the ‘臻園17號別墅裝修協議’ [decoration agreement], the particulars, detail and nature are not relevant to the issues in dispute in this suit.”

This answer did not actually answer the request.  Further, the 1^st defendant now seeks to withdraw his agreement to provide the F&BP on the ground that they are irrelevant.  That is tantamount to an avowed refusal to provide the F&BP, ie to comply with my 1^st Unless Order.

33.  A further development is that on 14 May 2012, the 1^st defendant issued a summons seeking to amend his answer in paragraph 30 above as follows:

“Plaintiffs pursuant to a document labelled ‘臻園17號別墅裝修協議’ acknowledged to pay RMB9 million. The RMB9 million was intended and agreed by both parties of which RMB6 million was in fact designated for as the remaining purchase price of the property and the remaining RMB3 million was designated for decoration works. Upon full payment of the RMB9 million, the plaintiffs would have settled the remaining purchase price and the original decoration fees as agreed. There was no consensus between the parties as to how that RMB5 million was to be allocated. Hence, the breakdown of that RMB5 million is not material to the dispute in issue.”

Again, the refusal to provide breakdown of the RMB5 million is tantamount to an avowed refusal to provide F&BP or to comply with my 1^st Unless Order.  It is also inconsistent with the defence as it now stands.

34.  Miss Tang, counsel for the 1^st defendant, argues that there is no dispute that the sum of RMB5 million was paid and hence the nature and details of the payment is irrelevant.  One of the plaintiffs’ complaints against the defamatory statements is the wrongful allegation that the plaintiffs have unjustifiably refused to pay decoration fee of about RMB7 million.  In this regard, the plaintiffs’ case is that the decoration fee was in the sum of RMB9 million of which RMB5 million was paid, leaving a balance of RMB4 million unpaid on justifiable grounds due to the fault on the part  of the development company and/or the decoration company.  The 1^st defendant relied on the defence of justification.  As such, it is only relevant and indeed the burden of the 1^st defendant to prove that the plaintiffs were in default of payment of the decoration fee in the sum of RMB7 million and that the same was not paid on unjustifiable ground. 

35.  Whether the plaintiffs paid the decoration fee and how much was outstanding is highly relevant to the action.  There is no dispute that RMB5 million had been paid. Up till then, the 1^st defendant kept shying away from the issue what the payment of RMB5 million was for: whether it was to be applied in whole or in part towards payment of the decoration fee or property price.  Incidentally, that also puts in issue the amount of outstanding payment of the purchase price.  The answer which he now seeks leave to file suggests that the said sum was solely in payment of decoration fee as it was paid pursuant to the decoration agreement.  It is inconsistent with the amendment he is seeking to make, which says that there was no consensus between the parties as to how that sum was to be allocated.  But, in view of the plaintiff’s case that only RMB4 million of the agreed decoration fee of RMB9 million was outstanding and in view of the 1^st defendant’s allegation that the plaintiffs were in default of payment of RMB7 million decoration fee, the breakdown of the payment of the RMB5 million is clearly relevant.

36.  By his application dated 14 May 2012, the 1^st defendant sought to introduce yet a new case that the decoration fee of RMB9 million was to be split into two portions with RMB6 million being allocated to the property price and RMB3 million to decoration fee and that there was no consensus about how the payment of RMB5 million was to be allocated.  That is also inconsistent with the answer which he now seeks leave to file.  This new case would all the more call for a breakdown of the payment of RMB5 million to be given.

37.  After almost a year, the request has not been properly answered, despite four court orders including two unless orders.  Now, the 1^st defendant even disputes if the F&BP relating to particulars and details of the payment of RMB5 million is relevant, indicating his intention not to comply with my 1^st Unless Order.

38.  Another outstanding request was related to the purchase price of the villa.  In the 1^st defendant’s answer filed on 20 December 2010, he gave an answer about demanding payments from the 1^st plaintiff from  time to time starting from on or about the second half of 2006.  On 11 May 2011, the plaintiffs requested:

“(a) the nature, particulars and details of payments demanded from the 1^st plaintiff on or about the second half of 2006.”

39.  On 9 June 2011 , the 1^st defendant filed the following answer:

“(a) The balance of the purchase price and the decoration fees.”

Obviously, particulars are missing.  Such an answer only invited further requests, which it did on 22 July 2011.  But the 1^st defendant did      not answer.  That led to Master De Souza’s 1^st Unless Order and my   1^st Unless Order.

40.  The 1^st defendant now seeks leave to file the following answer:

“The plaintiffs did not make any payment pursuant to the ‘臻園17號別墅裝修協議’ [decoration agreement] after the 5 million was paid. The particulars of the amount of the balance of the purchase price are not relevant to the issues in dispute in this suit.”

This intending answer does not really answer the request.  It took a year for the 1^st defendant to come up with such a brief answer.  Now, he even seeks to dispute the particulars of the amount of the balance of the purchase price relevant to the dispute in this action, indicating his clear intention not to comply with the 1^st Unless Order. 

41.  The F&BP the 1^st defendant has given, the answers which  he now seeks leave to file and the amendments to the answers he had  given are confusing and contradicting.  They will be embarrassing to the plaintiffs such that they will not know how the 1^st defendant is going to meet their case.

Explanation for the breach

42.  Mr John Wong, the principal of JWW filed his 2^nd affidavit  to explain the reason for the non-compliance of the 1^st Unless Order.  He said that he had full instructions from the 1^st defendant for the answers  well before the hearing before me on 4 May 2012.  Indeed, the answers sought to be filed were dated 2 May 2012.  He waited until 15 May 2012 and then instructed his clerk to file the two sets of answers pursuant to  my two unless orders.  At the close of business that day, he was assured by his clerk that the two sets of answers had been filed and served.  It  was only until 6 June 2012 upon receipt of the 8^th affirmation of Chiu Liang from the plaintiff’s solicitors that he was informed of the non-compliance.  He immediately checked with his clerk and then discovered that the answers pursuant to the 1^st Unless Order were not filed.  He was informed by his clerk that the clerk misunderstood his instructions that by two sets of answers he meant the two parts of the answer pursuant to the 2^nd Unless Order.  He admitted his incompetence and negligence.  On 25 June 2012, he wrote to the plaintiff’s solicitors to apologise and offered to pay costs for their indulgence.  But the offer was rejected.  On the same day, he took out a summons to apply for leave to file the answer pursuant to the 1^st Unless Order.  But he did not explain why it took him 19 days to take remedial action for the breach.  In any event that application was not made pursuant to Order 2, rule 4.  Miss Tang submits that the fault, if any, could only be attributed to the 1^st defendant’s legal representative and there was no deliberate feet dragging on the part of the 1^st defendant.

43.  Mr Chan SC, counsel for the plaintiffs, submits that it is for the 1^st defendant to apply for relief from the sanction within 14 days of his inability to comply, ie on or before 29 May 2012.  Forty-five days lapsed after the breach.  The 1^st defendant did nothing.  It was not until 19 days after he was informed of the hearing of the plaintiffs’ application for judgment that he applied for leave to file the answer under the 1^st Unless Order out of time.  There was gross neglect on the part of JWW.  Putting aside the wrong procedure and the somewhat dubious explanation of a misunderstanding between Mr Wong and his clerk, JWW sat on the matter for another 19 days after becoming aware of the default.  There was a complete lack of explanation from the 1^st defendant or JWW for the delay in taking remedial action. 

44.  Mr Wong said that he had full instructions for the answers which were prepared as early as 2 May 2012.  If so, what was it that prevented him from making the application to file the answer immediately when he became aware of the default.  That makes me feel very sceptical about the explanation offered by Mr Wong. 

45.  Mr Wong said that the 1^st defendant had furnished him full instructions to answer the requests for F&BP long before I made the 1^st Unless Order on 4 May 2012.  But on that very day, the 1^st defendant filed an affirmation in support of his application for further time to comply with Master De Souza’s unless orders.  He suggested in that affirmation that due to some documents not being made available to JWW as a   result of his change of solicitors, he was unable to comply with the two unless orders of Master De Souza.  Had he in fact given full instructions to Mr Wong and had the draft answers been ready by 2 May 2011, he  would have said so and not otherwise.  If that was true, what was it that prevented JWW from filing the answer on 4 May 2012 or soon after the 1^st Unless Order was made? Why Mr Wong had to wait until the last day to instruct his clerk to file and serve the answers?  Why did he not apply for leave to file the answer immediately upon receipt of the affirmation of Chiu Liang on 6 June 2012. 

46.  The explanation based on misunderstanding between Mr Wong and his clerk is inherently incredible.  One would have readily assumed that one set of answers would be contained in one set of documents.  There must be two sets of documents to be filed for the two sets of answers.  It is unconvincing that the clerk would have taken the trouble to read the set of answers made pursuant to the 2^nd Unless Order, found that there were two parts in that document and then to assume that  to mean two sets of answers. It also remains for Mr Wong to explain how he instructed his clerk to file the two sets of answers, whether the clerk was given two sets of documents, who was responsible for handling the two sets of answers, and more importantly, the explanation for the delay in taking remedial action?  There are more particulars which are required to be filled in his 2^nd affidavit to give a credible explanation.

47.  For the above reasons, I am sceptical of Mr Wong’s explanation for the non-compliance of the 1^st Unless Order.  The questions I raised cast serious doubts on the veracity of Mr Wong’s explanation and his allegation that the 1^st defendant had given him full instructions on the answers.  Quite on the contrary, the answers which the 1^st defendant now seeks to file and the amendments to the earlier answers which he now seeks to make, his new argument that the answers are not relevant and the unexplained delay for taking remedial action point to the inference that he had never actually made up his mind what answers to give and does not have a good or bona fide defence.  I do not accept that the default was not due to the fault of the 1^st defendant but due solely to the neglect of his legal representative.

Conclusion

48.  The requests are simple requests.  Yet, the 1^st defendant failed to provide the F&BPs after almost a year.  He now even seeks    to withdraw his consent to provide the particulars by disputing if the particulars requested are relevant. That is tantamount to an affirmed intention not to comply with the 1^st Unless Order.  The 1^st defendant is not going to comply with the 1^st Unless Order even if I grant him extension of time to comply.  The 1^st defendant had been in persistent breach of three court orders.  My unless orders are the last indulgence.

49.  On the face, the request for particulars of the payment of RMB5 million and purchase price had little bearing in an action for defamation and malicious falsehood and the sanction might appear out of line with the seriousness of the breach. However, the requests are in fact related to one of the central issues in dispute.  A year has lapsed, but the requests remain outstanding.  Now, it is clear that the 1^st defendant had  no intention of answering them. The answers as they now stand are embarrassing to the plaintiffs and the plaintiffs do not know what defence they have to meet.  Prejudice is certainly caused to the proper conduct of the proceedings by a denial of such particulars. The sanction is not out of line with the breach.

50.  It also does not appear to me that the 1^st defendant had been serious in the conduct of his litigation.  It is obvious that the 1^st defendant has been evading answering questions which are central to the dispute.  This reflects a lack of genuine intention to conduct this litigation or a  lack of proper defence.  There was inexcusable delay by the 1^st defendant to take remedial actions.  There was no explanation for the delay.  I am not satisfied that the default was not feet dragging.  There was another incident of breach of another unless order to provide a list of documents made by Master Ho.  Having rejected Mr Wong’s explanation, I am left with the conclusion that the breach was intentional and contumelious.

51.  In conclusion, the 1^st defendant has failed to discharge the burden of showing that he is entitled to the relief.  The sanction having already taken effect, I enter judgment against the 1^st defendant pursuant to my two unless orders made against him on 4 May 2012 with costs on party and party basis with certificate for one senior counsel.  Such costs are to be payable forthwith.