DP PROPERTIES LTD v. E CUBE CLUB (TSUEN WAN) LTD (formerly known as PLAY HOUSE (TSUEN WAN) LTD) AND ANOTHER

HCA 2003/2017

[2020] HKCFI 1252

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2003 OF 2017

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J U D G M E N T

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A. Introduction

1.  In this judgement I address several summonses the overall effect of which, if granted, would extend time for the defendants to appeal against a judgement entered against the defendants, and thereby effectively give leave to pursue the proposed appeal. 

2.  The judgement was entered pursuant to the order of a Master Jeffrey Chau giving the defendants conditional leave to defend.  The defendants failed to comply with the condition and hence judgement was entered.  The defendants seek relief from the sanctions imposed as a result of a failure to comply with the conditions, and all necessary extensions of time to allow them to set aside, and then appeal, the judgement of the Master. 

3.  In addition the defendants seek leave to adduce new evidence in the appeal, if allowed. 

4.  The defendants have now, albeit belatedly, complied with all conditions of the leave to defend, and the money which has been claimed by the plaintiff has been paid into court.

B.  Factual Background

5.  The plaintiff is the owner of a shopping centre formerly known as Discovery Park situated in Tsuen Wan.  The first defendant was a tenant and licensee of a shop and a licensed area outside of the shop on the third floor of the shopping centre. The second defendant was a guarantor in respect of the tenancy and licence.

6.  The first defendant is a children’s entertainment retailer in Hong Kong and one of its businesses is to operate family entertainment centres including a theme park licensed by Hasbro.  The plaintiff was proposing to renovate and rebrand the shopping centre with a focus towards children and that rebranded centre was due to launch in 2015 or 2016.  It is the defendants’ case that the plaintiff invited the first defendant to operate a Hasbro family entertainment centre in the shopping centre, and that invitation has given rise to various representations as well as the tenancy and licence which are the subject of these proceedings.

7.  The representations alleged are that:

7.1.     The shopping centre would not accommodate any additional amusement centre over and above that proposed by the defendants.

7.2.     Shops on the first floor of the shopping centre would not accommodate any business related to a family entertainment centre, but would only accommodate businesses relating to retail sales and food and beverage.

8.  As a result of these representations the first defendant was offered, and accepted, Shop 3001, with a lettable floor area of 7080 sq feet and a low ceiling.  The defendants contended that this was not suitable to operate the Hasbro themed family entertainment centre and consequently the plaintiff offered to grant a licence over an area of 1376 sq feet outside the third floor shop (“the Licensed Area”), for the same tenor as the proposed tenancy of the third floor shop.

9.  Written agreements were entered into for both the tenanted area and the Licensed Area on or around 23 November 2015.  In March 2016 the first defendant commenced operation in the third floor shop and on the Licensed Area.  The official opening of the shopping centre took place on 17 April 2016. 

10.  The defendants contend that the plaintiff began to operate various facilities in the nature of a family entertainment centre in various parts of the shopping centre in breach of the promises that had been made by the representations. 

11.  Further, it became clear that the Licensed Area was within a Pedestrian Route on level 3 which the Lands Department required the plaintiff to keep clear.  Therefore on 13 October 2016 the plaintiff gave the first defendant a 14 day notice to terminate the Licence Agreement under clause 9(a) thereof.  The defendants contend that this was a breach of the Tenancy Agreement, which referred to the Licence Agreement.  The first defendant expressed a wish to terminate the Tenancy Agreement, but ultimately that did not happen and, according to the defendants, the plaintiff continued to increase the scope of its family entertainment centre facilities in the shopping centre in breach of the representations.

12.  The defendants refer to various aspects of the evidence which they say provide support for the propositions and facts that they allege.  In the light of these alleged facts (and I described them as alleged facts because many of them are disputed) the defendants contend that they have counterclaims of substantial merit, including possibly for actionable misrepresentation (which according to Ms Sit SC, may be pleaded as either negligent or possibly fraudulent), the existence of a composite agreement including terms consistent with the representations, and breach of a collateral contract.  They also contend that the plaintiff is in breach of the Tenancy Agreement because it was not possible to use the Licensed Area for a Hasbro themed park.

13.  The defendants stopped paying any rent, service charge, promotion levy and Government rates with effect from 1 April 2017.  Consequently they are in clear breach of clauses 3(A) and 3(B) of the Tenancy Agreement.  But, they say, on an order 14 application the existence of counterclaims and potential set offs are matters which must be taken into account.

C.  Procedural History

14.  On 28 August 2017 the plaintiff commenced the present proceedings against the defendants claiming possession of the premises and payment of all outstanding sums.

15.  On 15 September 2017 the plaintiff issued an Order 14 summons against the defendants and by a partial Judgment on 30 October 2017 the first defendant was required to deliver vacant possession of the premises to the plaintiff, which it did on 6 November 2017.

16.  At a hearing on 20 June 2019, at which the remainder of the Order 14 summons was heard, the Master granted the defendants leave to defend subject to the condition of payment of HK$1,930,413.31 into court by 4 instalments each of HK$482,603.33 on or before 20 July 2019, 20 August 2019, 20 September 2019 and 20 October 2019. The order of the Master provided that if the defendants did not make any or all of those payments the plaintiff was at liberty to enter final judgement against the defendants for the relief sought under paragraph 1(d) of the Order 14 summons.  The time for leave to appeal that judgement expired on 4 July 2019.

17.  The defendants did not make any payment into court on 20 July 2019.  Hence they are, and were, in default of the conditional leave to defend and the plaintiff was free to enter judgement.  Judgement was obtained on 6 August 2019.

18.  On 20 August 2019, having engaged new solicitors on 16 August 2019, two payments were made of HK$482,603.33 each (being the first and second instalments required pursuant to the conditional leave to defend) and on 21 August 2019 a notice of appeal against the decision of the Master was filed out of time.

19.  On 18 September 2019 and 30 September 2019 the defendants made a further 2 payments, each of HK$482,603.33, into court.  Thus by 30 September 2019 the full amount of HK$1,930,413.31 identified in the decision of the Master had been paid into court.

20.  The defendants have now applied for:

20.1.     relief from the sanctions imposed for not complying with the order of the Master (by way of summons dated 23 March 2020 but only filed on 7 May 2020);

20.2.     setting aside of the Judgement entered on 6 August 2019 (by way of summons filed on 22 August 2019);

20.3.     leave to appeal against the order of the Master out of time (by way of summons filed on 22 August 2019); and

20.4.     leave to replace the Notice of Appeal dated 21 August 2019 with a draft Amended Notice of Appeal, and leave to adduce further evidence concerning the plaintiff’s breaches concerning the Licensed Area in the intended appeal (by way of summons filed on 30 September 2019.

21.  The various applications, perhaps with the exception of the leave to adduce further evidence, are interrelated and rely largely upon the same essential submissions, although the applicable principles are slightly different.  I shall address them in the order set out in paragraph 20 above as that is the logical order:

21.1.     If no relief from the sanction is granted, then the Judgment stands and the defendants cannot pursue the counterclaim in these proceedings.

21.2.     If relief from the sanction is granted then logically the court should move on to consider whether the judgement should be set aside, although this latter proposition may follow inevitably from the former.

21.3.     If the judgement is set aside it then falls to be considered whether leave to appeal the decision of the Master to grant conditional leave to defend should be allowed out of time.

21.4.     If, but only if, leave to appeal out of time is allowed the court will need to consider whether to allow the additional evidence and the amendments to the notice of appeal.

D.  Relief from Sanctions and Setting Aside of the Master’s Order

22.  The relief summons was issued out of time.  It should have been filed, and the relief obtained, within 14 days of the failure to comply with the conditions (according to RHC Order 2 Rule 4).  Thus relief should have been applied for (and obtained) by 3 August 2019.  The summons is dated 23 March 2020, and was filed on 7 May 2020, approximately 9 months late.

23.  The excuse for not having issued it earlier is that the defendants were not advised of the need to issue it until new counsel was involved in “March 2020” (see paragraph 6 of Cheung Yee Mei’s seventh affidavit, sworn on 23 March 2020).  That affidavit does not identify when in March that advice was given, and does not identify or explain the period of time between that advice and 23 March 2020 when the Summons was issued. I was told by Ms Sit (who undertook to cause an affidavit to be filed to this effect within three days of the hearing) that new counsel was instructed on 14 March 2020, the advice was given on 20 March 2020 and the summons was issued on 23 March 2020. The reason it was not filed was because of the General Adjournment Period during which the registries were closed and it was not possible to file the summons. In those circumstances I accept that there is no relevant delay between the date on which the defendants were first advised of the need to take out the Relief from Sanctions Summons and the date of it being filed.

24.  But nonetheless the summons is late. It should have been issued by 3 August 2019 of the latest.

25.  The correct approach to considering whether the Relief Summons should be allowed, even when it is out of time, is set out in RHC Order 2 Rule 5:

“ the Court shall consider all the circumstances including [relevantly]:

(a) the interests of the administration of justice;

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

(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;

…

(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.”

26.  This rule has been considered by the court in Top One International China Property Group Co Ltd v Top One Priority Group Ltd [2011] 1 HKLRD 606, per Fok J.  He held that, as mandated by RHC Order 2 Rule 5, the court must look at all of the individual circumstances of the case.  There was no need either to prove, or disprove an intentional and contumelious disregard of a court’s peremptory order, and a failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude that there is an existence and degree of fault which warrants a refusal of an extension of time such that relief should not be granted. Such an approach is consistent with the CJR in which a more proactive case management style is adopted by the courts, and there exists an obligation on the parties to assist to further the underlying objectives of the CJR.

27.  In Daimler AG v Leiduck [2012] 3 HKLRD Fok JA had the opportunity to reconsider a similar issue, although this time as a judge of the Hong Kong Court of Appeal.  At paragraph 57 he stated that:

“ a weighty factor in the weighing exercise to be undertaken by the Court on a fresh exercise of the discretion is the question of proportionality of the sanction in the circumstances of this case.”

28.  And at paragraph 66 he stated:

“ However, the use of this alternative is, in our opinion, in keeping with the spirit of the C JR under which the Court will generally use striking-at as a remedy of last resort and is encouraged to consider other measures that may be more appropriate to be taken; see Wing Fai Construction Co Ltd (in Liq) v Yip Kwong Robert [2012] 1 HKLRD 589 at paras. 33 and 75(1). Mr Wong rightly noted that Wing Fai Construction is a case involving the Court considering whether to impose a strike-out sanction, whereas in the present case the striking-out has already taken effect. We recognise the distinction between these two situations but we consider that the observations of the Chief Justice are of application in circumstances such as the present. If the plaintiff’s order to provide further answers subject to the sanction of striking-out under the Unless Order, we consider that this will provide some mitigation of the effect on the defendants of the plaintiff’s failure to comply in the first place.”

29.  Thus it seems to me that I must carefully consider the question of proportionality, and I should be slow to prevent a party from bringing its case before the court other than as a matter of last resort.  A failure to comply with conditions that has the effect of allowing a judgement to be entered would have that effect unless relief is granted.

30.  Turning then to the various factors listed in RHC Order 2 Rule 5, and considering each of them (albeit compendiously) as against both the delay in making the application for relief, and the default in complying with the condition for leave to defend.

D.1  The Administration of Justice

31.  Insofar as the administration of justice is concerned, it is relevant to note that the covenant to pay rent has been regarded as independent of the other covenants or obligations under a lease; a tenant’s obligation to pay rent is not dependent upon the compliance by the landlord of its obligations under the lease: see Golden Sunrise Ltd v Lee Kwok Hung [2005] 1 HKC 466, at §§37-38 per Chu J.  This has two consequences in the present case:

31.1.     the counterclaims which the defendants wish to bring do not amount to a defence to the claim for rent, although they would amount to counterclaims, and may give rise to a set off (I do not go into the law in this area as it is beyond the necessary scope of this Judgment), which may be relevant to a consideration of whether an order 14 judgement should be granted;

31.2.     as a corollary, the counterclaims which the defendants wish to bring could be brought in separate proceedings commenced at any stage within the ordinary limitation period.

32.  Thus it seems to me that whatever decision I make today these parties are likely to be faced with litigation over the matters which the defendants now raise.  The administration of justice may therefore be best served by considering the route by which these claims can most efficiently and economically be resolved through the courts.

33.  I recognise that it is possible that a party faced with a requirement to issue new proceedings may decide not to do so, and hence a refusal to give relief from sanctions might have the practical effect of putting an end to the claim of the defendants.  However I do not believe that this possibility is a relevant consideration.  The defendants have raised these counterclaims in the court and the court should not be taking actions with a view to discouraging their resolution.  I should consider only what is currently before me.

D.2  Delay in making the application and in performing the conditions

34.  I have no reason to doubt the evidence which has been placed before me to the effect that the defendants were not advised of the need to seek relief from the sanctions (that is beyond setting aside the judgement and an appeal) until they were advised of that need by counsel on 20 March 2020.  The defendants thereafter reacted promptly and issued a summons within three days.

35.  The relevant period of delay in making the application is therefore that between August 2019 and March 2020.

36.  There is in fact no explanation offered for the delay between August 2019 and March 2020.  The defendants current solicitors were instructed on 16 August 2019.  They clearly advised, and caused, the defendants to pay all necessary sums into court in purported compliance with the order.  They also advised the defendants to issue a notice of appeal and seek leave to file that notice of appeal out of time, and to apply set-aside the judgement.  That is why the set aside summons was issued on 22 August 2019.  But no application for relief was made.

37.  It was not until the new counsel were instructed and advised in March 2020 that anybody recognized the need for an application for relief from sanctions.

38.  Thus it is clear to me that whilst there is no explanation set out in the evidence, the real explanation is a failure of any of the various legal representatives of the defendants (with the notable exception of the counsel advising in March) to recognize that an application should be made for relief from sanctions.  I cannot conceive that the failure of the legal representatives was in any sense intentional.  It would be extremely rare for a legal representative intentionally to fail to advise, and the defendants are not suggesting that there was any such intention.  Equally I am satisfied having regard to all of the circumstances that had the defendants been properly advised they would have made the necessary applications as soon as they were advised to do so. Therefore I am also satisfied that there was no deliberate intention on the part of the defendants to delay making the application.

39.  In PT Bank Pembangunan Indonesia Persero v Tan Eddy Tansil [1997] HKLRD 57 Bokhary JA, at 59J-60C confirmed that the court would not allow a client to suffer for the mistake of his lawyers if it could help it.  A court would seek to rectify that mistake so far as it was possible.  Hence, according to the defendants and, they say, as recognised in RHC Order 2 rule 5, the fact that the mistake is of the lawyers and not of the defendants is a relevant consideration which would tend to suggest that relief should be granted.

40.  This can be contrasted with the more recent decision of Tsang Wai Fan v Hui Siu Kwong HCMP 409/2016 Unreported, Judgment dated 12 April 2016, where Chu JA stated at [23], in the context of an application for an extension of time for leave to appeal, that:

“ The defendant’s application for leave to appeal late by 14 days. It is not an insubstantial delay. The reasons given for the delay oversight of the legal representatives, change of counsel in the intervening Chinese New Year holidays. None of them constitutes a reason excusing the delay. It has been pointed out in KNM v HTF at [18] that the fault of the legal representative is not a reason excusing delay.”

41.  KNM v HTF, HCMP 288/2011 Judgment Dated 7 September 2011, was also a case concerning an application for leave to appeal out of time.  Ms Sit accepted that these cases represented the position in respect of any application for leave to appeal out of time, but she said that relief from sanctions was a lower threshold, and the fact that the fault lay with the lawyers rather than with the party, was relevant.

42.  I accept that submission.  Having regard to the proposition that relief from sanctions, and preventing a party from coming to court at all should be a matter of last resort, and to the need for proportionality in imposing sanctions, and in particular having regard to the fact that the legislature has decided expressly (in RHC Order 2 rule 5) to require the court to consider whether the default was caused by lawyers or parties, the court should not equate default of the lawyers with default of the parties for the purpose of addressing relief from sanctions.

43.  To that extent, the test for leave to appeal out of time is higher than for relief from sanctions.

44.  As to the delay in complying with the sanctions, I have been taken through the evidence before the court in terms of the communication between the defendants and their former lawyers and between their former lawyers and solicitors for the plaintiff. There are two aspects.  First in relation to the obligation to make payment of the installments, and secondly in relation to the timing of an application for leave to appeal the Judgment of the Master.

45.  As to the need to make payments it is clear from that evidence that the defendants were asking their lawyers when payment needed to be made, and they were advised that no payment needed to be made until after the sealed Judgment was produced.  This also seems to have been the advice of an officer from the Accounts Office of the High Court given to the former lawyers, as that is recorded in both emails to the defendants and a letter from the former lawyers to Deacons, acting for the plaintiff.  In the circumstances I am satisfied that the defendants are not substantially at fault in this respect.

46.  I say not substantially, because I accept that the defendants were in court when the Master handed down judgment, and it would be surprising to me if the defendants had not understood that payment was required on the dates that he specified.  I do not believe that parties can be excused simply because they blindly follow the advice of their lawyers.  Lawyers are not always right and they make mistakes even within their own field of expertise (as this case amply demonstrates).  Hence I would have expected that the defendants should have seriously questioned any advice that they were given which appeared on its face to be contrary to what must have been obvious at court. 

47.  But I do not think that this level of default should be visited with the full force of the sanctions.  The defendants were clearly asking about payment, and were being wrongly advised.  I also note that in an email dated 8 August 2019 the lawyers have stated that:

“We recalled that the learning master did not specify that if the defendants are in default of the first instalment, the plaintiff would be entitled to enter final judgement against the defendant automatically. However, we wish to stress that payment in four instalments in four months was conditions imposed by the court, and that failure to follow the conditions will mean that you will not be allowed to continue this action. This is always the basic understanding of a “Condition” for the two defend a case.”

48.  The Transcript of the hearing before the Master seems to support that understanding.  In the circumstances there may have been some doubt as to the precise scope of the order which the Master made.

49.  Insofar as leave to appeal is concerned Mr Maurellet SC says that there is less evidence as to the extent to which the defendants were  questioning the need to appeal, and the time in which any appeal should be launched.  That may be correct, but does not seem to me to be a relevant consideration when assessing relief from sanctions for two reasons.  First, the leave to appeal, or any appeal, would not relieve the obligation to comply with sanctions, and hence is not directly relevant to the question of relief from sanctions.  Secondly, the test for leave to appeal does not distinguish between the actions of lawyers and the actions of defendants and so it is not relevant whether any delay in appealing was the fault of lawyers or of the defendants themselves.  Hence I do not address that issue further in this context.

50.  Finally on this issue, Mr Maurellet suggests that the defendants ought to have waived Legal Professional Privilege over their communications with their former lawyers on this issue so that the court had the benefit of a full account of what advice was being given.  He says that I should place little weight on the limited evidence because better evidence was available to the defendants but they chose not to adduce it because they chose to maintain their claim to privilege. 

51.  Without deciding the issue because I have not had full argument upon it, I have very serious doubts that Mr Maurellet’s submission is correct as a matter of principle.  In my view there is an overriding public interest in protecting the right to confidential legal advice during the course of litigation.  It would take some considerable persuasion to convince me that a refusal to waive privilege should reduce the weight of the evidence that was placed before a court simply on the basis that had privilege been waived a fuller picture, which might be slightly different, might emerge.  A defendant is perfectly entitled to maintain his privilege and I do not believe that any adverse consequences should be visited upon him for doing so.  If there were such adverse consequences it would have the effect of seriously undermining the policy behind privilege. 

52.  But I do not need to decide that point, because there is external communication between the lawyers and the solicitors for the plaintiff which is consistent with the internal emails that have been disclosed.  Hence I am satisfied that any default in this respect rests with the lawyers on the face of the evidence that I have seen.

D.3  Effect of Relief, or No Relief, on the Parties

53.  If relief is granted and the judgement is set aside, the money paid into court will remain in court (subject to the question of leave to appeal and any subsequent appeal) and the parties will litigate their disputes in these proceedings on the basis of a conditional leave to defend.

54.  If relief is not granted the money currently paid into court will, presumably, be paid out to the plaintiff in satisfaction of the judgement and, assuming they decide to proceed, the defendants will issue new proceedings in order to litigate the counterclaims which they have indicated.

55.  Thus the only real difference, other than the need for more than one set of proceedings, is that the money will be paid directly to the plaintiff rather than remaining in court. I accept that this would amount to some prejudice to the plaintiff in the event that relief is granted, but in my view it is not that significant.  The money is secure and earning interest and there is no evidence that the plaintiff is in a difficult financial position such that it needs the money immediately.

D.4  The Merits

56.  When considering the question of relief the court is required to take into account all the circumstances.  That seems to me to include the question of whether or not, if I would otherwise grant relief, I would set-aside the judgement.  If I do not set aside the judgment there is no point in granting relief.

57.  Ms Sit has identified that there are two lines of authority at first instance level in Hong Kong as to whether it is necessary, when seeking relief from the consequences of an Unless Order, for a party to demonstrate by credible evidence that he has a real prospect of success:

57.1.     In Chow Kai Sang v Toi Samuel [1996] 4 HKC 330 Keith J decided that when the application to set aside was effectively just an application for an extension of time, it was not necessary to establish that there were good prospects of success.  This was followed in China International Water & Electric Corp v Talford Development Ltd & Another (unreported HCA 36 of 2004, 6 July 2005).  This line of authority is quoted in the White Book (2020 Edition) at note 42/2/8.

57.2.     In Golden Tech Asia) Ltd v Po Yuen (To’s) Machine Factory Ltd HCA 4517/2001 (unreported 19 June 2002), followed in China Dragon International Ltd v Pang Hong [2007] 2 HKLRD 655 at [26] it was held by Deputy High Court Judge Poon that it was necessary to demonstrate real prospects of success.  This line of authority is not quoted in the White Book (2020 Edition).

58.  Ms Sit urges the reasoning of Keith J upon me.

59.  This issue is relevant because the Master has granted conditional leave to defend, and hence has already decided that the defence is “more than shadowy, but less than probable”.  In my view, that expression suggests of a defence which would not ordinarily satisfy the test of “real prospects of success”.  It is not open to me on this application to go behind the decision of the Master, as that would in itself amount to an appeal of that decision, and hence for the purposes of considering this issue I am bound to accept that as the court’s current assessment of the strength of the defence.

60.  I accept that the Judgment entered is a regular judgment.  The precise juridical basis for setting it aside however is less clear.  The application has been made under RHC Order 42 rule 2 and the commentary at paragraph 42/2/6 of the White Book, which cites PT Bank Pembangunan Indonesia (Persero) v Tan Eddy Tansil & others as authority for the proposition that the court has jurisdiction to set aside a Judgment entered in default of an unless order.  That case was an appeal against a decision of Mr Justice Barnett to extend time for compliance with conditions of an Unless Order, and an appeal against a decision of Mr Justice Findlay refusing an adjournment of an application to enter Judgment.  Both appeals were allowed, and the consequence was that the Judgment entered by Mr Justice Findlay was set aside.  There was no discussion in the case of the juridical basis on which that set aside was ordered. Equally there was no discussion at all as to the underlying merits of the defence, and yet the judgment was set aside.

61.  The PT Bank case was not cited in the judgement of Fung J in China Dragon International Ltd v Pang Hong.  It was cited in all of the other cases referred to in paragraph 57 above, but not in the context of whether a real prospect of success needed to be shown.

62.  The cases which establish that a real prospect of success needs to be shown when setting aside a regular default judgment are generally cases in which there was an application made under RHC Order 13 rule 9 to set aside a Judgment entered in default of Notice to Intention to Defend.  I do not think that RHC Order 13 Rule 9 is relevant to the current circumstances.  Both Keith J and DHCJ Poon have referred to a “general rule” that on an application to set aside a default judgment the applicant needs to show that his case has a real prospect of success.  But in my view if there is such a “general rule” it is a rule that relates to applications made under RHC Order 13 Rule 9.  I do not accept that it is a general rule which applies to each and every application to set aside a regular judgment. 

63.  With respect to DHCJ Poon, and Fung J, I do not accept that when seeking to set aside a judgment entered in default of compliance with an Unless Order it is necessary for the applicant to demonstrate that he has real prospects of success on his case.  In my view setting aside such a judgment is a necessary consequence of the court deciding to grant relief from sanctions under RHC Order 2 rule 5. 

64.  That rule already dictates what the court needs to consider when making its decision, and I do not think that it is correct to impose any additional hurdle, such as meeting the “real prospects of success” threshold.  Had such a threshold been appropriate then it would most likely have been referred to in the rule, and picked up in all (or, at the very least, some) of the cases concerning the consequences of a failure to comply with an Unless Order, such as Re Jockai Tea Holdings Limited [1992] 1 WLR 1196, and Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 166, Top One International, Daimler Benz v Leiduck, and PT Bank (supra).  It does not matter whether those cases directly concern setting aside a judgment entered in default of non compliance or simply the consequences of non compliance.  The issue of principle is whether the merits need to be such as to demonstrate a real prospect of success, and that issue of principle cannot depend upon the factual question of whether the innocent party moved fast enough to obtain a judgment before the matter came to court.

65.  In addition, although really as a matter of supporting my conclusion, I note that if such a threshold did exist it would be effectively impossible for the court to grant relief from a failure to comply with a sanction giving conditional leave to defend.  I cannot accept that a general rule (even if it exists) can be used to effectively remove discretion that the rules expressly give to the court under RHC Order 2 Rule 5. 

66.  This conclusion is not to say that the merits can never be a consideration under Order 2 Rule 5.  I recognize that Keith J stated in Chow Kai Sang at page 337 that “the merits …have no relevance in the present case”, but I do not think that he was laying down a rule that they can never be relevant.  RHC Order 2 rule 5 expressly requires the court to take into account all of the circumstances. The merits, to the extent that they can be ascertained at the time the application comes before the court, are clearly one of the circumstances that the court may wish to take into account.  In some cases the merits may hold greater weight than in others.  But that does not impose a threshold level of merits before effective relief can be granted.

67.  In this case, the merits have already been determined by the Master, and he has determined that they are such that the defendants ought to be allowed to defend the case, albeit on terms.  I do not go behind that assessment, and if the case is one in which, on all other considerations, relief from sanctions ought to be granted, then I do not think that his assessment of the merits should prevent that relief from being granted in a way which means that it is effective.

D.5  Conclusions on Relief

68.  Having weighed all of the various matters that I have addressed above, I have come to the conclusion that this is a case in which relief should be granted. I am not satisfied that it is appropriate in this case that the defendants should suffer from the consequences of the failings of their previous lawyers.  The overall prejudice on either side is minimal whatever decision I reach on this point and on balance therefore, having regard to proportionality and the principal that the claim should not be struck out other than as a last resort in my view relief should be granted.

69.  Consequently I grant relief from the sanction, and I set aside the Judgment entered in default of compliance with the conditions.

70.  The rules do not expressly provide for the court to make any relief the subject of conditions. However it seems to me that the court has a flexibility in designing the relief which it grants. I do not think that it could be correct that the court is bound simply to grant whatever relief is sought or not at all. Under the inherent jurisdiction the court is able to make the order which is appropriate in all of the circumstances.  In my view that is also inherent within RHC Order 2 rule 5 and the concept of “relief”.  Thus the court must the entitled to, for example, set aside a judgement entered in default but only on condition that the full sum, or any part of it, was to be paid into court. Other conditions in other circumstances may also be appropriate but I do not seek to address all such circumstances.

71.  In this case the Master has already decided that conditional leave to defend should be granted subject to payment of the full amount sought into court.  It has now been paid into court.  The defendants are not only seeking relief from their failure to pay into court, but they are also seeking to appeal the decision of the Master in granting only conditional leave to defend.  That appeal is also out of time, and I address that issue next in this Judgment. 

72.  However, irrespective of my conclusion on the question of leave to appeal, I have considered the appropriateness of requiring the defendants to leave the amount claimed in court as a condition of the relief sought.

73.  In my view that is an appropriate condition.  The plaintiff has legitimately obtained a judgment for its rent and, as a result of the relief that I have granted, is being deprived of that judgment.  The obligation to pay rent is an independent obligation, and the defendants have not asserted any real defence other than the existence of counterclaims (which may or may not amount to a set off defence). The financial strength of the defendants is not in evidence, and I do not think that it would be appropriate to deny the plaintiff its judgment, and in addition, to place it in a further retrograde position by allowing the defendants to remove from court the money which has now been paid in.  The defendants are seeking an indulgence from the court, and whilst the court is prepared to grant that indulgence it is proper in the circumstances of this case that the price of such indulgence is a requirement that the money in court remains in court pending trial or further order.

E.  Leave to Appeal, and new Evidence

74.  In the light of my conclusion on the conditionality of the relief I have granted, it is strictly unnecessary for me to address this issue, because the end result even if any appeal is successful, will be the same, in that the money now paid into court will in any event have to remain.  But in case I am subsequently shown to have been wrong to have ordered conditions, I briefly address the question of Leave to Appeal out of time.

75.  An appeal ought to have been brought by 4 July 2019.  The application for leave to appeal was filed on 21 August 2019.  The delay was therefore 48 days.

76.  In considering whether to extend time the court usually has regard to: (1) the length of the delay, (2) the reason for the delay, (3) the merits of the intended appeal, and (4) the degree of prejudice to the other side if time was extended.  Normally leave to appeal will not be granted unless it is shown that the intended appeal has a reasonable prospect of success, but the test on the merits increases in difficulty the more substantial the delay becomes and the more inexcusable it is.

77.  As identified in paragraphs 40 and 41 above in the context of an application for leave to appeal out of time, the default of legal representatives is not a reason excusing delay.

78.  In my view the delay in this case is substantial.  For the reasons I have already addressed above it appears to have been caused by the default of the former lawyers, but for these purposes that is not an excuse.  Therefore it seems to me that the real test concerns the merits of the proposed appeal, with prejudice and other factors being relevant, but of lesser significance.

79.  The appeal would be a de novo hearing before a judge, and so the reality of the exercise that I must undertake is to make an assessment of whether there is a real prospect of a judge, on a de novo hearing, giving unconditional leave to defend. I’m not concerned about errors that may or may not have been made by the Master in his own consideration of the matter.

80.  This is not a case in which one can look at any one point of law or of fact and make a decision as to whether it has good prospects of success such that the appeal is likely to succeed.  It will be a question of impression having regard to the entirety of the evidence, against which the Judge will have to decide whether the defence is such that unconditional leave to defend ought to be given. I cannot say now whether there are good prospects of a Judge reaching that conclusion.

81.  I am prepared to say that the appeal is arguable, but I have not been addressed by either Ms Sit or Mr Maurellet in any detail about the merits of the appeal, and indeed Ms Sit herself stressed that this was not the occasion to do so as this was not a hearing of the appeal. 

82.  As a result, I am not in a position to say that the appeal is any more than merely arguable, and in my view that is not sufficient to obtain leave to appeal against the Judgment in the context of a substantial period of delay for which there is no excusable reason.

83.  Hence, I dismiss the application for leave to appeal.

84.  As a result, I do not address the application to adduce new evidence.  However, if I was to consider it, I think it likely that I would have dismissed that too, on the ground that it did not satisfy the test for adducing new evidence on appeals against Master’s decisions.  However, I have not reached any final conclusion on this as I do not think that it is necessary for me to do so.

F.  Costs

85.  The parties have agreed that I should make a costs order nisi.  I make an order that the defendants should pay the plaintiff’s costs to be taxed if not agreed, with a certificate for two counsel.  That order is made on the basis that whilst the defendants have been successful on their application for relief, they were obliged to come to court to seek the indulgence and there is no reason why they should not pay the costs of doing so.  The costs may have been increased by the plaintiff’s resistance, but that resistance is entirely understandable, particularly in circumstances where the defendants were also seeking leave to appeal the Master’s decision, such that unconditional leave to defend might have been the end result.  The plaintiff has been successful in resisting that application.  It is just overall, in my view, that the defendants should pay the costs.

86.  If either party wishes to vary the costs order nisi they should apply in writing, with a page limit of 5 pages, within seven days of the handing down of this Judgment. The other party has a right of reply within a further 3 days, with a page limit of 3 pages.  No further submissions, and the matter will be resolved on the papers.

87.  The parties should draw up appropriate orders on all summonses to reflect this Judgment.