CHAN CHUN LUNG ALLEN AND ANOTHER v. RYLAND LTD. AND OTHERS

CACV 284/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 284 OF 1999

(ON APPEAL FROM HCA 4904/1996)

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J U D G M E N T

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Hon Mayo VP:

1. This is an appeal from part of an order made by Ribeiro J (as he then was) who declined to make an order extending time to D5 to comply with an "unless order" made by Master Barnes on 28 May 1999.

2. Master Barnes' order was that unless D5 by 4:00 p.m. on Friday 4 June 1999 supplied particulars of his Amended Defence & Counterclaim in response to the plaintiffs' request for further & better particulars dated 13 March 1999 and supplemental request dated 17 March 1999, his Amended Defence & Counterclaim be struck out, judgment in the terms as sought in the Amended Statement of Claim be entered for the plaintiffs against D5 and D5's Counterclaim be dismissed with costs.

3. However the only relief sought against D5 by the plaintiffs was by way of declarations. The plaintiffs then took steps (ex parte) which the Judge rightly held to be "procedurally misconceived" to have the award of judgment deleted but to retain the striking out of the Amended Defence and dismissal of the Amended Counterclaim. Master Barnes purported on 22 June 1999 to amend her original order (which by then had been sealed) and on the same day purported to make a second order striking out D5's Amended Defence without entering judgment whilst dismissing the Counterclaim.

4. The Judge dealt with the irregularities by discharging both orders of Master Barnes of 22 June 1999 as well as discharging that part of Master Barnes' original order which purported to give to the plaintiffs the right to enter judgment (for the declaratory relief) upon default.

5. However the effect of the order made by the Judge was to strike out D5's Defence and Counterclaim.

6. This litigation concerns a longstanding and unhappy family dispute. D5 who has been an extremely successful businessman set up four Discretionary Trusts which were designed to benefit members of his family. P1 is one of D5's sons and P2 is a daughter. They both allege that the Trusts were shams and seek to set them aside. D5 seeks to uphold the validity of the arrangements which were made.

7. The further and better particulars in question go to matters of central importance in the litigation.

8. A number of attempts were made by the solicitors representing the plaintiffs to obtain the particulars sought. The request was initially made in March and on any fair reading of the papers it would be difficult not to obtain the impression that D5 was deliberately procrastinating.

9. It was accepted before the Judge that D5 was fully aware of the order made by Master Barnes and the necessity to comply with it.

10. The explanation given by D5 for his failure to comply with the order was that he had been informed by one of his other sons Thomas that he had had a conversation with his mother and she had indicated to him that the plaintiffs wished to settle the case. As this was a family matter D5 had hoped that a settlement could be concluded between members of the family without using the services of the lawyers engaged on their behalf.

11. The other main point made by D5 was that he found the dispute to be stressful and distasteful and was extremely anxious that the case should be settled. Hence his instructions to his solicitors not to comply with Master Barnes' order.

12. The Judge summarised correctly and in some detail all of the evidence which lay before him in this connection from pages 7 to 11 of his judgment. He then concluded his summary in this way:

"In my judgment, while such points are legitimate matters of comment, they do not justify my rejecting the 5th Defendant's evidence as incredible. He may have been grasping at straws and his conduct may be described as unrealistic or even to an extent irrational. However, I am prepared to accept that he reached his decision not to comply with the unless order for the sorts of reasons I have described above.

The fundamental question is whether, given his conduct as described above, and applying the legal principles that have developed in this area, I should now exercise my discretion in favour of granting the 5th Defendant an extension of time to comply with the unless order."

13. The Judge then went on to consider the legal principles applicable to a situation of this nature.

14. The first case he considered was PT Bank Pembangunan Indonesia (Persero) v Tan Eddy Tansil [1997] HKLRD 57 where Bokhary JA (as he then was) adopted Sir Nicholas Browne-Wilkinson VC's test in Re Jokai Tea Holdings Ltd [1992] 1 WLR 1196 at p 1203 B:

"In my judgment, in cases in which the court has to decide what are the consequences of a failure to comply with an 'unless' order, the relevant question is whether such failure is intentional and contumelious. The court should not be astute to find excuses for such failure since obedience to orders of the court is the foundation on which its authority is founded. But if a party can clearly demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances, such failure to obey is not to be treated as contumelious and therefore does not disentitle the litigant to rights which he would otherwise have enjoyed."

15. The Judge also considered the test laid down by Auld LJ at p. 1677 of Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666:

"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 characterised 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 after hearing representations to the contrary by the party whose pleading it is sought to strike out."

16. For the reasons he gave the Judge preferred to adopt the test in Re Jokai Tea Holdings Ltd.

17. In applying this test to the facts as found by him he was satisfied that D5 had made a deliberate decision not to comply with Master Barnes' order and that there were no extraneous circumstances to excuse his conduct. This being the case he declined to extend the time for D5 to comply with the order.

18. Mr Denis Chang SC for D5 submitted that the Judge had erred in in effect rejecting D5's affirmation evidence. In the grounds of appeal and his written skeleton argument Mr Chang attempts to deal in some detail with much of the evidence which was before the Judge. I do not consider this to be a valid exercise. Clearly the Judge did not reject the evidence. As was pointed out by Mr Benjamin Yu SC for the plaintiffs the Judge was not satisfied that D5 had demonstrated to him sufficient grounds to enable him to exercise his discretion in his favour. A good example of this is that no affirmation was obtained from his son Thomas to corroborate his evidence that he had had the conversation with his mother when she had indicated that Allen and Karen wished to settle the case.

19. Perhaps even more important than this all of the evidence was to the contrary. It appears to have been accepted that D5 himself had not initiated any settlement negotiations and the correspondence between the solicitors was inconsistent with any contemplated settlement. In particular Messrs Herbert Smith the solicitors representing the plaintiffs had seen fit to communicate a reminder to Messrs F. Zimmern & Co. the former solicitors for D5 reminding them on 3 June 1999 that the time for complying with Master Barnes' order expired on the following day and criticising them for the manner in which they had been conducting the litigation. In his affirmation D5 states that when he instructed Messrs F. Zimmern & Co. not to send the particulars to Messrs Herbert Smith they expressed surprise.

20. All of this is consistent with D5's subsequent evidence that he was tired of the litigation and wished to take no further part in it.

The other substantial issue argued by Mr Chang was the effect of the order made by the Judge. He submitted that the plaintiffs had joined D5 as a party to the proceedings on account of the fact that he had been the original settlor and clearly it was within the contemplation of all parties that he was a necessary party to the litigation. He suggested that the Judge had overlooked this fact.

21. I do not think that there is much merit to this submission. Although this was only an interlocutory application the Judge summarised the cases being advanced by the parties in some detail. Clearly he was fully acquainted with what this case involved and it is inconceivable that an issue of this importance would not have been weighed and considered by him. One of the matters he would have considered when exercising his discretion was whether it was right that D5 should be permitted to continue to run his defence and counterclaim in view of his almost total disregard of the rules of the court and his propensity to proceed in any way he liked regardless of court orders. I am by no means convinced that the Judge's order will necessarily inflict any significant hardship upon D5.

22. Mr Chang raised one other matter. When referring to the wording of the costs order made by the Judge he expressed the view that one interpretation of the wording of the order was that D5 was being required to pay the costs of the action rather than those thrown away by the filing of the defence and counterclaim. Counsel representing all the other parties to the proceedings confirmed that this was not their construction of the order. If necessary the wording of the order can be amended under the slip rule if it is thought that further clarification is required.

23. In conclusion it is my view that the Judge's analysis of the evidence cannot be faulted. In addition to this he adopted the correct legal principles and no grounds have been made out justifying us to interfere with the exercise of his discretion. This being the case I think that the appeal should be dismissed.

Hon Keith JA:

24. The 5th Defendant, Chan Tai Ho ("Mr Chan"), is in his late sixties. By June 1999, the litigation in which he had been embroiled with his children over the years had taken their toll on him. He was feeling the strain and his health was affected. Indeed, by July 1999, he described himself as "more tired" of the litigation by then than ever. His own words eloquently reveal his state of mind at the time:

"I was at my wits end to find a resolution to these legal proceedings that would allow these bitter waters of family contention to subside."

It is against that background that Mr Chan's reasons for allowing the unless order to expire without complying with it have to be seen.

25. Mr Chan set out those reasons in his affirmation of 13 July 1999. As Mayo V-P has noted, the judge did not reject those reasons as incredible. He was prepared to accept that Mr Chan had decided not to comply with the unless order for "the sorts of reasons" which Mr Chan had given. It is important to identify what those reasons were, bearing in mind that by 4 June 1999 (when the unless order was due to expire) the particulars sought by the Plaintiffs had been drafted by Mr Chan's solicitors and needed only Mr Chan's approval before they could be served (see para. 16 of Mr Chan's affirmation and his solicitors' letter to the Plaintiffs' solicitors of 26 May 1999).

26. Mr Chan's evidence was as follows. Some time in May 1999, he received a telephone call from his son Thomas. Thomas told Mr Chan that his mother (Mr Chan's estranged wife) had told Thomas that she believed that she could convince the Plaintiffs to agree to a settlement of the action. Mr Chan told Thomas to encourage his mother to explore the possibility of such a settlement. It is what Thomas reported back to Mr Chan which is critical. Some time before 4 June 1999, Mr Chan received another telephone call from Thomas. Mr Chan did not identify precisely when this call was, but Thomas told Mr Chan that his mother had confirmed that the Plaintiffs had agreed to settle "the disputes" on terms along the lines of a proposal which they had presented to Mr Chan on a without prejudice basis two years earlier. It is safe to assume, I think, that the phrase "the disputes" included, but was not necessarily limited to, the current action.

27. The effect of what Thomas told Mr Chan was that the Plaintiffs were prepared to agree to a settlement on the basis of terms which they had previously proposed. The Plaintiffs were confirming that their previous offer of settlement was still open. Whether the disputes would be settled depended on whether Mr Chan was now prepared to accept those terms. Presumably, he had not been prepared to accept them in the past. He does not say in terms that he was now prepared to accept those terms, or that he gave instructions for the Plaintiffs to be told that. But it is safe to assume that he was prepared to accept those terms, because he added that he was "greatly relieved to have learnt from Thomas that the family disputes that had started six years ago are finally coming to [an] end." He could only have thought that the dispute was over if he was prepared to settle the dispute on the Plaintiffs' terms.

28. I have summarised the effect of Mr Chan's evidence in some detail, because this was not simply a case in which Mr Chan hoped that a settlement would soon be reached. This was a case in which, on Mr Chan's evidence, he believed that a settlement had been reached, because he was now prepared to accept terms which he now knew were still open to him to accept. It is true that he did not state in his affirmation what instructions he gave, if any, to let the Plaintiffs know that their terms were now acceptable to him, but the fact remains that he believed that the dispute was over. Although a hope that the action would soon be settled accurately describes Mr Chan's state of mind after his first telephone conversation with Thomas in May, it does not, in my opinion, accurately describe his state of mind after his second telephone conversation with Thomas shortly before 4 June. His state of mind then was that the dispute was over since the Plaintiffs had simply to be told that he was now prepared to accept their terms.

29. It is in the light of his state of mind at that time and of something else that Thomas told him that Mr Chan's subsequent conduct has to be seen. Mr Chan claims that when Thomas gave him the news about the Plaintiffs being prepared to settle on the terms which they had previously proposed, Thomas also told him that

".... if the family members had come to a settlement agreement, then it would not be necessary for me to take any further part in the action."

Mr Chan said that that was why he decided to take no further part in the action. He therefore instructed his solicitors not to take any further step in the proceedings. There was no need for him to be "involved" any further, as "the details of the settlement" could be sorted out by others. In the light of his belief that the action had been settled, and of the advice which Thomas gave him that he would not have to take any further part in the action, the instructions which Mr Chan gave his solicitors (subject to one important reservation to which I shall return in a moment) becomes understandable when seen in the context of the distress which the litigation was causing him.

30. I have not ignored the fact that as late as 24 June Mr Chan was maintaining his wish not to take any further part in the proceedings: see his solicitors' letter of that date to the Plaintiffs' solicitors which was copied to Mr Chan. That was despite his solicitors having been told by the Plaintiffs' solicitors on 17 June that no settlement had been reached: see the Plaintiffs' solicitors' letter of that date to Mr Chan's solicitors. It is fair to assume that his solicitors told him that. That suggests that Mr Chan had decided by 24 June that he was going to walk away from the litigation despite the fact that no settlement agreement had been reached - though he changed his mind a few weeks later when he instructed his solicitors to apply for an extension of time to comply with the unless order. I appreciate that his attitude to the litigation on 24 June might cast doubt on what Mr Chan claims his state of mind was at the time he allowed the consent order to expire, but the fact remains that the judge was prepared to proceed on the basis that his evidence was true. It does not, therefore, assist on the critical question which focuses on why at the time Mr Chan allowed the consent order to expire.

31. However, it is here that I must return to the one reservation which I have. Mr Chan's evidence was that when he instructed his solicitors not to take any further step in the proceedings, he also instructed them to notify the other parties that he would be taking no further part in the action. Mr Chan's affirmation is silent as to what his solicitors' reaction was, save that they expressed surprise. It is, I think, inconceivable that they would not have raised with him the question of the outstanding particulars, and told him that if they followed his instructions literally the effect of not serving the particulars would be that he could no longer take any further part in the action. Their surprise at his instructions that the other parties should be told that he would not be taking any further part in the action should have brought it home to Mr Chan that the advice which he had got from Thomas was unwise, and that it was necessary for him to continue to take part in the action until the agreement to settle the action had been signed, sealed and delivered. His decision to opt out of the action at that stage,

(a) despite his solicitors' surprise at his instructions,

(b) despite, therefore, the fact that he should have appreciated that, contrary to Thomas' advice, he should have waited until the ink was dry on the settlement agreement, and

(c) despite his instinctive desire to turn his back on litigation which he found so distressing,

was in the circumstances conduct which in my view justified the order which the judge made.

32. Finally, I should add this. I accept that it is difficult to apply the principles in either Re Jokai Tea Holdings Ltd. [1992] 1 WLR 1196 or Hytec Information Systems Ltd. v. Coventry City Council [1997] 1 WLR 1666 to the unusual facts of the present case. Mr Chan plainly decided not to comply with the unless order, but his decision was not, on his evidence, a defiance of the court's authority. It was because he thought that it was unnecessary to continue to comply with orders made for the fair and efficient disposal of the action because the action had already been settled. Nor can this be characterised a case in which Mr Chan was guilty of negligence, incompetence or sheer indolence, which were the examples given by Auld LJ in Hytec of other forms of conduct which might justify the refusal to extend the time for complying with an unless order. This was a case in which, despite what his solicitors must have been telling him, Mr Chan obstinately decided not to involve himself in the litigation any further. In my opinion, there is a danger in identifying too precisely the circumstances which might or might not qualify for the non-implementation of an unless order according to its terms, because of the danger of those circumstances being regarded as exhaustive. For my part, I agree with the comment of Auld LJ at p. 1677G-H:

"It all depends on the individual circumstances and the existence and degree of fault found by the court after hearing representations to the contrary by the party whose pleading it is sought to strike out."

I have borne that in mind in concluding that the order which the judge made was justified.

33. For these reasons, I agree that this appeal must be dismissed.

Hon Godfrey VP:

34. I have had the advantage of reading in draft the judgment of Mayo VP in favour of dismissing this appeal. I agree with him, for the reasons he gives.

35. I would add only this; that if a judge hearing an application to strike out a pleading has considered "the individual circumstances and the existence and degree of fault found by the court after hearing representations to the contrary by the party whose pleading it is sought to strike out" (see the passage quoted by Mayo VP in citing the judgment of Auld LJ in the Hytec case) and has decided in the exercise of his discretion to accede to the application, it is most unlikely that this court will consider it appropriate to reverse him, or a fortiori, to allow the applicant an extension of time in which to make his application, unless the interests of justice demand that we take that course. In the present case, D5 is not a necessary party to the action nor, in my opinion, a proper one; he has no interest in the funds the subject of the proceedings and, as I think, should never have been joined as a defendant in the first place. Certainly, the interests of justice do not dictate that he should remain a party to the action.

36. Accordingly, this appeal will be dismissed. As to costs, we will make an order (subject to the provisions of Order 42 rule 5B(6) of the Rules of the High Court) that the plaintiffs' costs of the appeal be taxed (if not agreed) and paid by D5 to the plaintiffs. We do not think fit to make any order as to the costs of the other parties attending the appeal.