YMKA v. YSM

FCMC 9579/2017

[2019] HKFC 15

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 9579 OF 2017

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Decision
(Relief from Sanction)

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1.   This is the hearing of the Petitioner/Husband’s (“H”) application for relief from sanction for non-compliance with the peremptory order dated 5 June 2018.

2.  The subject peremptory order provides that “Both parties do file and serve their respective Form Fs in respect of any assets alleged to involve third parties’ interest in accordance with PD15.11 by 28 September 2018, failing which the defaulting party shall be debarred from raising any allegation of third parties’ interests in any assets.”

3.  H has filed the first Form F on time on 28 September 2018, but the 2^nd Form F was filed out of time on 9 October 2018, late by 11 days.

4.  Calling it a slight delay, H obviously did not regard the breach serious or significant at all. H firstattempted to seek leaveby an oral application (calling it an informal leave) to file the 2^nd Form F out of time. After the Court has directed and granted time for taking out a proper application for relief from sanction, H is still not cautious of the significance of the breach.

5.  The lack of cautiousness is demonstrated by (1) the quality of evidence and the loose attitude in pursuing an application for indulgence; and (2) the submission made on H’s behalf, casting blame on the Respondent/Wife (“W”) while taking own fault lightly. I disagree with H’s accusation that W is simply taking a procedural point.  It is H who was in breach in the first place, and he is burdened with the duty to show that discretion ought to be found in his favour.

6.  Therefore, it is necessary to reiterate here that a failure to meet the timeframe imposed under an ordinary order must be distinguished from the breach of an unless order. While the former is generally indulged by granting time extension as the court deems appropriate, the latterunderlined the importance of compliance by specifying an automatic sanction in default. Hence, non-compliance of an unless order is undoubtedly a pointer towards seriousness and significance, despite the length of delay albeit by one day.

7.  W opposed the application on the grounds that H failed to discharge his burden to show that discretion should be granted in his favour; and that in light of all relevant factors of this case, the balancing exercise tilts in favour of refusing relief.

Legal Principles

8.  On an application for relief from sanction, the Court shall consider all the circumstances including the factors listed under O 2 r 5 (1)(a) to (j). It is a multi-facet balancing exercise with no single factor being conclusive and much depends on the facts and circumstances of the case in question. It involves a balancing exercise, weighing up the relevant factors that arise and their relative strengths.

See:  Labrador Nolito Blazado [2018] HKCA 720; Miranda Gems (HK) Ltd v Jose Miranda Da Costa Junior & Ors, HCA 156 of 2010 (unreported; 22 August 2014)

9.  O 2 r 5 of the Rules of the District Court Cap 336H provides:-

(1) On an application for relief from sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including –

(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 legal representative;

(g) [applicable only to unrepresented party]

(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

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

10.   The applicable principles were helpfully summarized by Fok J (as he then was) in Top One International (China) Property Group Co Ltd v Top One Property [2011] 1 HKLRD 606, citing what were laid down by Bokhary JA (as he then was) in PT Bank Pembangunn Indonesia (Persero) v Tan Eddy Tansil [1997] HKLRD 57and Riberio J (as he then was) in Chan Chun Lung Allen v Ryland Ltd (unrep., HCA 4904 of 1996):

“34. Thus, the relevant principles applied by Ribeiro J (as he then was) in Chan Chun Lung Allen were set out in paras 45 - 47 of his judgment and are summarized below:

(a) The court will ask whether a defendant’s failure to comply with an unless order was “intentional and contumelious”, or whether, on the contrary, he has been able “clearly [to] demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances”, keeping in mind that the court should not be astute to find excuses for such non-compliance.

(b) As with any other case in which a party approaches the court for an indulgence, it is incumbent on an applicant to adduce evidence upon which an exercise of discretion in his favour may be founded.

(c) Non-compliance is contumelious where it is the result of the litigant’s conscious and deliberate decision to ignore or disobey the court’s order in the absence of any extraneous excuse. Such deliberate conduct may be contrasted, for instance, with cases where the litigant has made a serious effort to comply in good faith but has been unsuccessful through bad luck or incompetence or with cases where the litigant has not complied because of circumstances outside his control (including cases where his solicitor has negligently or otherwise missed the deadline through no fault of the litigant).”

11.  At paragraph 35, Auld LJ’s remarks in Hytec Informaton Sysems Ltd v Coventry City Council [1997] 1 WLR 1666 was also cited:

“In my judgment, there is no need to confine the test to that of an intentional disregard of a court’s peremptory order, whether or not it is characterized as flouting, contumelious, contumacious, perverse, obstinate or otherwise. Such an intent may be the most usual circumstance giving rise to the exercise of this jurisdiction. But failure to comply with one or a number of orders through negligence, incompetence or sheer indolence could equally qualify for its exercise. It all depends on the individual circumstances and the existence and degree of fault found by the court….”

12.   At paragraph 41, Fok J said the passage quoted above from Hytec Informaton Systems Ltd is entirely consistent with the more proactive case management encouraged by CJR, and this Hytec approach should now be applied. Hence, in exercising its discretionary power, the Court should consider all the individual circumstances including those listed in O 2 r 5 (1).  Refusal of relief from sanction is not limited to cases of intentional and contumelious default.

Discussion

13.   O 2 r 4 requires a party to make application promptly for relief from sanction, within 14 days of the failure to comply. Since I have granted H 7 days from 11 October 2018 to do so, the application taken out on 18 October 2018 was within time.

14.   H’s explanation of default is brief, ambiguous, vague and lacks particulars. The handling solicitor Mr Leung by his affirmation deposed that due to the inadvertence of his secretary, only the 1^st Form F was handed over to the filing clerk for filing and effecting service. It was subsequently found out on or about 9 October 2018 that the 2^nd Form F had not been filed and served. That’s all.

15.   It is unclear when were the 1^st and 2^nd Form F prepared and whether they were both ready by 28 September 2018 for filing and serving. Mr Leung’s account seems to suggest that they were, i.e. the secretary could and should have handed over both Form Fs to the filing clerk on 28 September 2018, but she inadvertently only handed over one of them. I find this suggestion doubtful. If that was the case, the 2^nd Form F ought to have been signed and dated just as the 1^st Form F, i.e. 28 September 2018. However, the 2^nd Form F was dated 9^th October 2018 instead.

16.   In W’s affirmation in opposition, Mr Leung’s account of default is  challenged and the lacking particulars and doubts already identified. To my astonishment, H and/or his legal representatives did not see any need to file and serve an affirmation in reply, despite leave to do so was already granted. While H attempted to explain at the hearing why the two Form Fs bear different dates, no evidence should be accepted from the bar table to fill the holes and gaps.

Factors under O. 2 r 5 (1) (a) – (j)

17.   Despite the unsatisfactory account, I still accept that the default is not intentional or contumelious. Since effort was taken to comply with court order by filing and serving the 1^st Form F on time, there is no reason why H and/or his legal representatives would deliberately flout or disregard the same by not filing the 2^nd Form F.    

18.   I accept that the default is not caused by H himself but by his legal representatives. I also note that H has no previous breach of court orders; the unless order was not imposed as a result of H’s default or omission. It is not disputed that there is no feet-dragging in H’s conduct of proceedings. The delay in the present case is not inordinate, no trial date or likely trial date will be disturbed by the grant of relief. Since W all along was well aware of H’s intended s 17 application (subject matter of the 2^nd Form F) and was prepared to oppose, I do not see any significant adverse effect of the default on W.

19.   Although the above are pointing in favour of H, there are two weighty factors which call for serious consideration.  (1) Is it in the interest of the administration of justice to indulge the failure to provide a full, clear, forthcoming and earnest explanation of default? (2) If not, is refusing relief hence debarring H’s intended s17 application disproportionate to the breach?  

Is it in the interest of the administration of justice to indulge the failure to provide a full, clear, forthcoming and earnest explanation of default?

20.   The Court is entitled to full explanation of the default in order to  exercise its discretion properly, but the quality of H’s evidence fell far short of the desirable standard. What is worse is the loose attitude in pursuing the application for indulgence.

21.   While H was well aware of the inadequacy of the affirmation in support, he did not bother to provide the Court with further explanation or clarification. It is probably because H was taking the matter lightly as simply a procedural point. Such loose attitude in seeking indulgence should disentitle H from the relief sought. In the interest of the administration of justice, this Court shall not over-indulge but to express its complete and strong disapproval. 

22.   Although H is not to be blamed for the attitude and conduct disapproved of, legal representatives’ fault is not a trump card.  Refusal of relief is not confined to cases where the litigant is personally at fault.

See: Confetti Records and Ors v Warner Music UK Limited (t/a East West Records) [2003] EWCA Civ 1748, unrep, 26 November 2003; Miranda (supra)

Is refusing relief hence debarring H’s s 17 application disproportionate to his breach?

23.   The 2^nd Form F relates to H’s intended s.17 application to set aside W’s sale of a property holding company to her relative at an undervalue, allegedly made with the intention to defeat his claim for financial provision.

24.   W said the intended s 17 application is without merits; if relief is granted she will suffer prejudice in terms of costs and stress to deal with an unmeritorious application. It is pre-mature to consider merits at this stage, but I do have to consider the nature background and surrounding circumstances of the intended application in order to assess the effect of granting or refusing relief would have on each party.  

25.   W is the sole shareholder and director of the said property holding company. It owns an office premises in Kwun Tong which was purchased in 2011, financed by H and W jointly with their savings and mortgage repayments (“the Kwun Tong Property”).

26.   The Kwun Tong Property was used as the office premises of the  family business, run by a company incorporated in 2007 for the export business of ladies’ handbags (“the Handbag Business”). Since its incorporation H had been the sole shareholder and director until 2008 when W was appointed the other director and was transferred 60% of the shareholding. The Handbag Business has been the prime source of income of the family.

27.   The Petition was filed in July 2017. By an Agreement for Sale and Purchase dated 13 September 2017, W sold the property holding company at HK$11,817,000 to her relative. Valuation by the single joint expert of the Kwun Tong Property as at 13 September 2017 is HK$14,000,000.   

28.   After paying off outstanding mortgage of the Kwun Tong Property and necessary fees and charges, there was a net sale proceeds of HK$9,600,000. W’s account of the sum is summarized as follows:

(a)   HK$3,300,000 was used to pay off the mortgage of the matrimonial home in Taikoo Shing;

(b)   HK$3,000,000 was used to subscribe insurance policies for the two children of the family; and

(c)   $3,300,000 was used as the working capital of the Handbag Business.

29.   W submitted that the sale was not to defeat H’s claim for financial provision as alleged. She has only changed the investment one way to the other; no assets have gone out of the matrimonial pot, and they are still there for division. I do not think the true position is as assuring as suggested. At least the HK$3,000,000 under item (b) can hardly be regarded as in the pot for division.

30.   Although the HK$3,000,000 used to subscribe insurance policies was spent for the benefit of the two children of the family, it is not a complete answer or shield to H’s challenges. Despite any good intent on the part of W for the two children, when such an arrangement involving family funds was made without H’s prior consent, H is entitled to object. I do not think H should be viewed as disgraceful (as W suggested) to hold a different view on the welfare arrangement for his children.

31.   W also submitted that the impact of undervaluation (if any) is limited. Even taking H’s case to the highest, there was just an undervaluation of about $2,000,000 (HK$1,400,000 – HK$ HK$11,817,000 = HK$2,183,000); and even if H is entitled to 50% thereof, the impact on H would at most be about $1,000,000. Therefore, W suggested that instead of pursuing a full-blown s 17 application, H can simply seek to have a deduction of about HK$1,000,000 on W’s side of the balance sheet at the final ancillary relief, if he is so entitled.

32.   This suggestion may in principle be a practical solution to save time and costs of the parties. However, I do not think it is as straightforward and simple as suggested. I cannot easily come to a conclusion that the impact of the undervaluation is limited to HK$2,000,000.

33.   The impact of undervaluation ought not be assessed with reference only to the valuation of the Kwun Tong Property at the time of the sale. Its valuation as at the final ancillary relief is also relevant in determining whether the sale in question is detrimental to H in terms of his fair share of family assets. Needless to say, this exercise will also involve investigation of other relevant factors in the overall circumstances of the case.

34.   Notwithstanding the aforesaid, I still hold the following view. As long as it can be shown with a sufficient degree of certainty that W’s side of the balance sheet is sufficient for clawing back whatever amount H will be entitled to, setting aside the sale indeed serves no practical purpose.

35.   The matrimonial home at Taikoo Shing is worth of  HK$22,000,000 if not more; by now it is free from encumbrances. W’s half share thereof would exceed HK$11,000,000.

36.   Further, there is a sum of HK$1,650,000 already paid into court by W on 19 December 2017 pending resolution of the ancillary relief and/or further order of the court. This was done by consent pursuant to H’s Summons filed on 18 December 2017 seeking to freeze the sum of HK$3,300,000 being part of the sale proceeds standing at the bank account of the Handbag Business.

37.   For the purpose of this application alone, I shall consider H’s detriment hypothetically under an utmost and extreme scenario. Even if W is to be fully responsible for the HK$3,000,000 under item (b), the undervalue of the sale, as well as assets evaporated (if any) as a result of the sale, there should still be sufficient on W’s side of the balance sheet to compensate H. In any event, I find it hardly possible that W would have to claw back a sum beyond  HK$12,650,000 (HK$11,000,000 + HK$1,650,000 in court).

38.   As such, H is not bereft of relief if relief from sanction is not granted. Not only that the effect of refusal is not disproportionate to H’s breach, it actually saves him from incurring costs and time to pursue the s 17 application. It is unnecessary to have the sale set aside and the original position reversed (if ever reversible) in order to secure a fair share.   

39.   H argued that W not having to defend the s 17 application is unfairly a windfall advantage out of H’s breach. As discussed, without having to fight the s 17 application is beneficial to both parties.

40.   Balancing all factors, I refuse to grant H relief from sanction.

Conclusion

41.   H’s Summons dated 18 October 2018 is dismissed.

42.   I make a costs order nisi that H do pay W’s costs of the application in any event, with certificate for one counsel, to be taxed if not agreed.

43.   Unless there is an application within 14 days to vary, the nisi order shall become absolute.