CTB AUSTRALIA LTD v. KUO, KIN LING BETTY

HCA 5435/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5435 OF 2000

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J U D G M E N T

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1. This is the defendant's appeal against the order of Registrar C. Chan made on 6 Jan 2004 whereby he ordered that the defence and counterclaim be struck out and that judgment be entered for the plaintiff on its amended writ of summons for the sum of HK$1,562,921.93 and damages to be assessed with interest and costs.

The claim

2. The plaintiff's claim against the defendant is for payment of the balance of a loan advanced to the defendant for the pre-completion purchase of a residential property then under construction at Lot 214, Nevada Retreat, Bulleen in the State of Victoria, Australia ("the property") and interest thereon. As is pleaded in the amended statement of claim, since 4 June 1998 the defendant has failed to make any repayments required by the loan agreement. By its amended statement of claim the plaintiff claims the sum of HK$1,562,921.93 and damages for breach of contract with interest and costs.

The defence and counterclaim

3. By her defence and counterclaim the defendant alleges, inter alia, that in reliance on certain representations, she entered into the loan agreement with the plaintiff. The alleged representations included a representation that the plaintiff would send its representatives to monitor the performance on the part of the builder, Unique Power Pty. Ltd trading as Denmar Group ("Denmar") under the building contract. It is also alleged that there was a representation that the plaintiff would advise the defendant of the progress of the construction of the property at each stage before the defendant made progress payments and that the plaintiff would ensure that the construction of the property was in compliance with the requirements under the building contract. There are other representations relied on by the defendant.

4. The defendant alleges that she suffered loss and damage by reason of the breach of the plaintiff's representations. It is alleged by para. 7 of the defence and counterclaim that the defendant was told by Denmar on or about 28 February 1997 that the construction of the property had been completed. However, the defendant discovered that the property was not habitable and the construction of the same was in breach of the building contract. It is also alleged that the plaintiff never monitored the progress of the construction of the property and by reason thereof the defendant suffered loss and damage. The defendant's case is that by reason of the breach of the plaintiff's representations she had not discovered Denmar's breach of the building contract before she had made full payment to Denmar. It is also alleged that the plaintiff has overcharged her interest on the loan.

5. There is also a counterclaim for damages to be assessed, interest and costs.

The unless order

6. The defence and counterclaim was struck out and judgment was entered for the plaintiff because the plaintiff failed to comply with an unless order made by the Registrar dated 15 May 2003. This was a consent order which provided as follows:

“ BY CONSENT IT IS ORDERED that :

1.	Unless within 21 days of the service of this Order, the Defendant :
	1.1	serves a supplementary or amended list of documents, verified by affidavit listing all documents in her possession custody or control relating to :
		(a)	any expenditure by the Defendant to make good the defects alleged in her Defence and Counterclaim;
		(b)	any action taken by the Defendant to prevent further damage to the Property; and
			any action the Defendant has taken under the statutory home owners warranty insurance scheme in the State of Victoria, Australia against Denmar in connection with the defects alleged by the Defendant in her Defence and Counterclaim;
		(c)
	or in the alternative :
	1.2	serves an affidavit confirming that the Defendant has no such documents in her possession, custody or control,
	the Defence and Counterclaim be struck out and judgment entered for the Plaintiff with costs."

7. By the unless order which was made by consent the defendant was required to make further discovery of 3 classes of documents, namely, documents relating to (a) any expenditure by her to make good the alleged defects; (b) any action taken by her to prevent further damage to the property and (c) any action taken by the defendant under the home owners warranty scheme in the State of Victoria against Denmar in connection with the alleged defects.

8. The 3 classes of documents are relevant to the defence and counterclaim of the defendant.

Was there compliance with the unless order?

9. The first question to consider is whether there has been a breach of the unless order.

10. In purported compliance with the unless order, the defendant's solicitors filed a list of documents on 5 June 2003 ("the 1st supplemental list"). There was no accompanying verifying affidavit. However, the defendant's verifying affirmation was made on 4 July 2003 and filed on the same day. Although in the correspondence the plaintiff's solicitors took the view that the unless order had to be complied with within 21 days of the making of the order, this was wrong. I am satisfied that the order had to be complied with within 21 days of service as the order clearly stated. Mr. McLeish accepted this. Thus the order had to be complied with by 8 July 2003.

11. It is the defendant's case that by the 1st supplemental list filed on 5 June 2003 and the verifying affirmation filed on 4 July 2003, the defendant has complied with the unless order.

12. By the 1st supplemental list the defendant disclosed a total of 12 documents in Schedule 1 Part 1. These included a number of invoices as well as letters from Home Owners Warranty.

13. The plaintiff's solicitors were concerned that full discovery had not been made by the defendant. They were also concerned that the affirmation of the defendant failed to verify that the defendant did not have or had any other documents in her possession, custody or power other than the documents disclosed.

14. By letter dated 27 June 2003 to the defendant's solicitors, the plaintiff's solicitors requested further documents which were referred to in the documents disclosed. By letter dated 5 July 2003 the defendant's solicitors informed the plaintiff's solicitors that the defendant was searching for the requested documents.

15. The defendant also filed a 2nd affirmation on 16 July 2003 in effect to verify para. 5 of the 1st supplemental list that other than the documents already disclosed, neither the defendant, her solicitors nor any other person had any documents relating to any matter in question in the action.

16. There was further correspondence between the solicitors. By letter dated 4 August 2003 the defendant's solicitors denied that the defendant was in breach of the unless order. They also made the point that the request for further documents made by the plaintiff's solicitors were within the scope of O.24 of the RHC and outside the scope of the unless order. They also indicated that to avoid wasting time and costs they proposed to file a supplementary list verified by affirmation by August 22 2003 if the defendant could locate any further documents. By letter dated 6 August 2003 the plaintiff's solicitors took issue with the defendant's solicitors that the request was a request under O.24 and made the point that the defendant was in breach of the unless order. They also informed the defendant that whilst they were continuing to reserve the plaintiff's rights, the plaintiff was prepared to allow the defendant to file a supplementary list of documents verified by affirmation by 15 August 2003.

17. On 15 August 2003 the defendant's solicitors served the 2nd supplemental list of documents ("the 2nd supplemental list") on the plaintiff's solicitors. They also informed them that the affirmation to verify the same would be filed and served on receipt of the same from the defendant who had dispatched it to her solicitors. The defendant's 3rd affirmation verifying the 2nd supplemental list was filed on 18 August 2003.

18. The 2nd supplemental list disclosed 5 further documents including a copy building inspection report dated 17 October 2000 and a copy claim form dated 16 November 2000. For the first time the defendant's insurance claim form was disclosed. This was clearly relevant to the counterclaim and was discoverable under the unless order. It was only on 15 August 2003 that these further documents were disclosed.

19. In his 1st affirmation, Mr. Robert Siu, the defendant's solicitors, stated, inter alia, that the 2nd supplemental list was not filed pursuant to the unless order. He also stated that the defendant had in her 3rd affirmation mistakenly stated that the same was made pursuant to the unless order and that the mistake was a clerical error on the part of his firm. Mr. Robert Siu also stated that the reason for filing the 2nd supplemental list was in response to the request for further documentation. He was repeating the point made in correspondence that the request for further documents was under the scope of an O.24 application for further discovery.

20. I am unable to accept the submission that there has been no breach of the unless order. By the 2nd supplemental list further relevant documents falling within the 3 classes of documents under the unless order were disclosed. This made it clear that the 1st supplemental list was incomplete and that full discovery had not been made. The 2nd supplemental list was filed well out of time.

21. I am also unable to accept the submission that the plaintiff's request for further documents was within the scope of an O.24 application for further discovery. The starting point is that there had been discovery made by the parties in the action. The defendant's list of documents was filed on 5 March 2002. The defendant's discovery was incomplete. The plaintiff took out an application for specific discovery in relation to 3 classes of documents. Instead of taking out a separate application under O.24; r.7 the plaintiff made the application, as it was entitled to do, under the summons for directions taken out under O.25 dated 28 April 2003 and returnable on 16 May 2003. The parties, however, reached agreement before then and filed a consent summons on 15 May 2003 which resulted in the unless order made by consent. It is clear that by the unless order the defendant was required to disclose all documents in her possession custody or control relating to the 3 classes of documents referred to in the order. By its letters set out in the bundle the plaintiff's solicitors were pointing out to the defendant's solicitors that, inter alia, full discovery had not been made and this was a breach of the unless order. In my view the plaintiff's solicitors were not seeking further discovery under O.24; r.7 but were seeking to obtain full discovery under the terms of the unless order. In the circumstances it seems to me that the view of the defendant's solicitors that the plaintiff should proceed under the provisions of O.24 was misconceived.

22. In my view there was a breach of the unless order as the 2nd supplemental list was only filed on 15 August 2003 with a verifying affirmation filed on 18 August 2003. This was done well out of time.

23. It was submitted by Mr. Stanley Siu, counsel for the defendant, that by 22 August 2003 all the relevant lists and verifying affirmations had been filed and served. He submitted that the plaintiff's solicitors had extended the deadline repeatedly and by their letter dated 18 August 2003 they extended time to 22 August 2003. He submitted that, therefore, there has been a waiver of the non-compliance of the unless order within time.

24. I am also unable to accept this submission. It is clear from the correspondence that the plaintiff's solicitors reserved the plaintiff's rights whilst allowing the defendant time to file supplementary lists. The plaintiff was concerned with getting full discovery as ordered by the unless order and was, therefore, prepared to extend the time for the defendant to do so at the same time reserving the plaintiff's rights. There was no waiver of the plaintiff's rights. The plaintiff maintains that the defendant is still in breach of the unless order as full discovery has not been made. By letter dated 16 August 2003 the defendant's solicitors informed the plaintiff's solicitors that the defendant could not trace the report dated 19 November 1997 and was trying to get a duplicate from the maker. By letter dated 22 August 2003 they informed the plaintiff's solicitors that there were 3 outstanding documents and that the defendant could not locate the whereabouts of the same but was approaching the makers and company for another copy. These documents have not been disclosed. Apart from the letters dated between November 2000 and March 2001 from Home Owners Warranty and the copy insurance claim form dated 16 November 2000, no further documents dealing with the insurance claim have been disclosed.

Should the sanction be enforced?

25. Once it is determined that there has been a failure to comply with an unless order, the next thing to consider is whether to enforce the sanction provided for in the order, namely, to strike out the defence and counterclaim and enter judgment for the plaintiff.

26. The relevant question is whether such failure is intentional and contumelious.

27. The applicable principle is to be found in the case of In re Jokai Tea Holding Ltd. [1992] 1 WLR 1196. Sir Nicholas Browne-Wilkinson V C said at page 1203B that :

“ 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."

28. In PT Bank Pembangunan Indonesia (Persero) v. Tan Eddy Tansil [1997] HKLRD 57 the Court of Appeal adopted this test.

29. As Riberio J (as he then was) observed in Chan Chun Lung Allen and another v. Ryland Limited and others (HCA 4904/96, 26 August 1999), PT Bank Pembangunan is a binding precedent. Referring to PT Bank Pembangunan at page 12K of his judgment, he said :

“ This decision has since been regarded by Courts at first instance in Hong Kong as representing a binding precedent on the principles to be applied (although not without the expression of some reservations): Chow Kai Sang v Toi Samuel [1996] 4 HKC 330; Ming Pao Enterprise Corp Ltd v CIM Co. Ltd. [1999] 1 HKC 497; and Dongguan Dongxian Decoration Co. Ltd. v Universal Right Ltd [1999] 1 HKC 790.

That the PT Bank Pembangunan case represents the law appears also to have been the view of the Court of Appeal in Lessy SARL v Pacific Star Development Ltd [1997] HKLRD 1248. While Godfrey JA in that decision referred to the guidance given by the English Court of Appeal in Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666, and recommended that practitioners bear it in mind, his Lordship expressly pointed out that no such guidance has yet been given by the Court of Appeal here.

In so far as they may be relevant, the reservations which have been expressed in relation to the Jokai approach concern the non-attribution of a solicitor's default to the litigant in question. That is however an issue that does not arise in the present case since it is clear that the non-compliance here resulted entirely from the 5th Defendant's instructions and not through any default on the part of his solicitor.

I pause also to note that a trend is detectable in some of the English authorities to lower the threshold for refusing extensions of time where unless orders have been disobeyed. Thus, in the Hytec case, Auld LJ (at p. 1677) stated (with the agreement of Lord Woolf MR) as follows :-

“ 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."

In the light of the Hong Kong authorities I have cited, I do not consider such an approach as yet to represent the law in this jurisdiction. The test I propose to adopt is that set out in the PT Bank Pembangunan case, taken from the Jokai case."

30. I respectfully agree with Riberio J. I also propose to adopt the test set out in PT Bank Pembangunan taken from In re Jokai. I would observe that the guidance given by the English Court of Appeal in Hytec Information Systems Ltd. has not yet been given by the Court of Appeal here.

31. Where there has been a failure to comply with an unless order the starting position is that the sanction set out in the order will be imposed. It is for the defaulting party to demonstrate that the failure was not intentional and contumelious and was caused by extraneous circumstances.

32. I would also observe that for non-compliance to be contumelious, there is no need to show that there has been a contempt of court. Riberio J said in Chan Chun Lung Allen at page 14 of his judgment :

“ For non-compliance to be contumelious, there is no necessity for it to involve anything akin to a contempt of court. 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 (c.f., Ka Wah Bank Ltd v Lo Chung-song & Anr [1989] 1 HKLR 451), 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)."

33. I respectfully agree with the views of Ribeiro J.

34. Mr. McLeish submitted that the defendant has engaged in a pattern of non-compliance with court orders and that this pattern of behaviour goes to show what her intention is in relation to the non-compliance with the unless order. The evidence shows that in the history of this litigation the plaintiff has obtained other unless orders against the defendant. These include unless orders to file a notice of intention to act in person, to file and serve her list of documents and verifying affirmation, and to provide further and better particulars.

35. However, the defendant seeks to demonstrate that the failure to comply with the unless order was not intentional and contumelious. The defendant relies on the matters contained in the 1st affirmation of Mr. Robert Siu and the defendant's 4th affirmation. As to the defendant's past conduct in this litigation, the point is made that the defendant is not proficient in the English language and that her late husband was the person assisting her with this litigation. However, unfortunately he died on 27 April 2002 making it more difficult for her to deal with the litigation. Between March to May 2002 the defendant focused all her attention on taking care of her late husband. Her former solicitors also ceased to act for her at about that time. But it appears that although her former solicitors ceased to act for her in or about May or June 2002, her present solicitors filed a notice to act on 26 June 2002 and they have been acting for her ever since. Her health also deteriorated at that time after the stressful experience of caring for her late husband and his death. She was admitted to hospital for an operation on or about May 2002. She was not fit to travel for a few months thereafter as she was convalescing. Also, between March and June 2003, it was highly inconvenient and inappropriate for her to travel to Hong Kong because of the outbreak of SARS.

36. The above matters do provide some explanation as to why there was delay in dealing with interlocutory steps leading to the making of the other unless orders. However, the unless order that I am dealing with was made on 15 May 2003. Mr. McLeish submitted that even up to now there has been non-compliance as the defendant has failed to disclose all relevant documents falling within the 3 classes. I agree.

37. In considering whether to grant an indulgence to the defendant by giving her more time to comply with the unless order or to impose the sanction provided for in the unless order, I have taken into account the correspondence and the evidence. I do not get the impression that the defendant's failure to comply was the result of a conscious and deliberate decision on her part to ignore or flout the unless order. Rather, in my view, it was through bad luck and incompetence that she has failed to comply. Her solicitors' mistaken view that the plaintiff's request for further documents was within the scope of an O.24 application and not under the unless order did not help matters.

38. The defendant has filed the 1st and 2nd supplemental lists and verifying affirmations. She has tried to comply with the order but unfortunately she has failed to do so. She stated at para. 4 of her 4th affirmation that the unsatisfactory way in which she has handled the matter was because not all relevant documents were located in the same place as the documents were previously handled by her late husband. She had difficulty in locating all the documents in a short space of time. As stated in her solicitors' letters dated 16 and 22 August 2003 she has been unable to locate certain documents and was trying to get duplicates from the makers. The problem, according to the defendant, has now been solved as her daughter is assisting her with the litigation.

39. I appreciate the fact that the plaintiff has been delayed in obtaining the discovery as ordered by the unless order. In my view, however, it would be just to grant an indulgence to the defendant so that she is given one last chance to comply.

40. In the circumstances, the appeal is allowed. I set aside the Registrar's order. I make an order that unless within 21 days of service of this order, the defendant :

(1) serves a supplementary or amended list of documents, verified by affidavit listing all documents in her possession custody or control relating to :

(a) any expenditure by the defendant to make good the defects alleged in her defence and counterclaim;

(b) any action taken by the defendant to prevent further damage to the property; and

(c) any action the defendant has taken under the statutory home owners warranty insurance scheme in the State of Victoria, Australia against Denmar in connection with the defects alleged by the defendant in her defence and counterclaim;

or in the alternative :

(2) serves an affidavit confirming that the defendant has no such documents in her possession, custody or control,

the defence and counterclaim be struck out and judgment entered for the plaintiff with costs.

41. I also make an order nisi that the costs of the application before the Registrar and the appeal be costs to the plaintiff. As the defendant has been granted an indulgence by the Court it is only right that she should pay the plaintiff its costs.