HO YUEN TSAN AND OTHERS v. HOP WING TRANSPORTATION CO LTD

1996, No.A2237

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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R U L I N G

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RULING ON ORDER 19 RULE 8A

1. The parties in this appeal from a master are seeking, as a preliminary issue, a ruling from this court on the construction of Order 19 r.8A of the Rules of the Supreme Court.

2. Order 19 r.8A provides :

(1) No party shall enter judgment under the provisions of this Order against a party who has filed an acknowledgement of service giving notice of intention to defend, or on a counterclaim, unless :-

(a) after such acknowledgement of service or counterclaim has been filed, and not less than 2 clear days before entering judgment, the party intending to enter judgment has served notice in writing of his intention to do so on the party against whom judgment is sought or, if that party is legally represented, on his solicitor;

(b) evidence of such service by way of affidavit has been filed in the Court.

3. The statement of claim was served and filed on 28 February 1996, and the acknowledgement of service was filed on 11 March 1996. On 12 March 1996, the day immediately following the filing of the acknowledgement of service, the Plaintiffs served the notice of intention to enter judgment in default of defence under O.19 r.8A on the Defendant. The last day for service of a defence, 27 March 1996, went by with no defence having been served. On the following day, 28 March 1996, the Defendant took out a time summons for service of a defence. Judgment in default of defence was entered by the Plaintiffs on 2 April 1996, about an hour prior to the hearing of the defendant's time summons. On 9 April 1996, the Defendant applied to set aside the default judgment. The default judgment was set aside by Master Cannon on 23 July 1996. By this appeal, the Plaintiff sought to set aside the master's order and restore the default judgment.

4. By way of a preliminary issue of law, the Defendant submitted that the Plaintiffs' notice of intention to enter judgment in default of defence was invalid in that it was prematurely served. The Defendant submitted the statutory scheme under O.19 r.8A only permits service of such notice when a default has occurred. In the premises, it was submitted the judgment entered in default was irregular and should be set aside ex debito justitiae.

5. It is common ground that O.19 r.8A came into existence to replace what used to be the voluntary scheme operated by the Law Society to give notice of intention to enter judgment in default of defence. The voluntary scheme was a reciprocal arrangement between solicitors who had joined the scheme. Such solicitors had agreed to serve a 48 hour notice on fellow solicitors of the scheme prior to entering judgment for default against their clients. Presumably, it was to prevent solicitors becoming liable for negligence for overlooking the filing of a defence for their clients, though in theory it can also benefit cases where it was the client who had delayed the filing of the defence. I shall have more to say on this later when I deal with the absence of practical benefit to a defaulting client as opposed to a defaulting solicitor. The limitation of the scheme is its reciprocity based on voluntary participation. The benefit of the voluntary scheme was only available to litigants represented by solicitors who had joined the voluntary scheme. Litigants acting in person would not have the benefit of such second warning from solicitors acting for the opponent.

6. It is also undisputed that under the voluntary scheme, it was possible for solicitors to serve the requisite notice immediately upon filing of the acknowledgement of service. By so doing the solicitor would have discharged his obligation to warn the other solicitor without having the true purpose of the scheme achieved. The solicitor at the receiving end would not receive any further warning after he has defaulted to enable him to redress the default. The only benefit he would have obtained in that case was but the same warning as in the acknowledgement of service, i.e. judgment would be entered forthwith upon a default. The intended second chance envisaged by the scheme would never have materialised. The existence of this pitfall, or mischief, in the voluntary scheme is uncontroversial.

7. I have no hesitation in accepting the wisdom of Mr Justice Steyn's observation, in "Libanbois" v. Fama Shipping Ltd. [1992] 1 LLR 1997 at 199, that :

"Rules of Court must be construed not in the fashion of the blackletter man but in a purposive manner. The purpose of rules of Court is to provide a fair, efficient, expeditious and economical framework for the resolution of civil disputes consistent with the public interest. The Court must reject an interpretation which results in wasteful procedures unless the language of the rules compels such an undesirable result with precision and clarity."

8. By adopting the purposive approach in the widest possible manner, what was the purpose O.19 r.8A set out to achieve?

9. It was submitted by the Defendant that O.19 r.8A was enacted to redress a mischief. Heavy reliance was placed by the Defendant on the effect of the explanatory note gazetted in L.N.223 of 1995. There was no objection to such explanatory note being considered by the court in the interpretation of O.19 r.8A. It provided that "The amendment to Order 19, rule 8A is to give notice to parties to proceedings who are liable to have judgment in default entered against them, and replaces the voluntary undertaking given to the Law Society by some firms of solicitors to the same effect" (emphasis provided by the Defendant). It was submitted that until the occurrence of a default, the Defendant cannot be described as one "liable to have judgment in default entered against" him. However, explanatory notes cannot be construed as if they were the statute, or forming part of the statute. They can aid in the understanding of the statute, but not to replace the plain meaning of the statute. No matter how clear the purpose was stated in an explanatory note, if the plain and clear words of the statute are incapable of admitting such an interpretation; the stated purpose cannot be taken in substitution of the statutory provisions. That is the limited extent references can be made to explanatory notes. The only purpose as can be seen from the said explanatory note is that the new rule was to replace the voluntary scheme. There was no indication therein of any intent to redress any mischief. In the premises, I do not find a reference to the explanatory note of any assistance to the determination of the intended legislative scheme devised by the new rule. However, upon a consideration of the provisions of the new rule, it becomes obvious that the purpose was to redress mischief in the voluntary scheme.

10. The first and most obvious mischief redressed by the new rule, is that it turns what used to be a voluntary scheme, binding only on those solicitors who had joined, into a compulsory statutory scheme binding upon all solicitors as well as all litigants in person who had an address for service. Pursuant to O.19 r.8A(2)(b), the benefit would only be withheld to a litigant acting in person if he had failed to provide an address for service. A litigant who has dutifully provided an address for service would not be deprived of the benefit of the written notice. The prime motive of the voluntary scheme was to give a defaulting solicitor, not the litigants, a second chance to avoid liability for negligence towards his client. This self-interest motivated leniency in the profession is clearly self-evident from the restriction of the benefit to participating solicitors only. A litigant acting in person, who needed most such a repeated warning, was not to be conferred this second chance under the voluntary scheme. The improvement to the voluntary scheme by extending the benefit to all solicitors and litigants in person must have been motivated by considerations of public interest and fairness. It was clearly an attempt to redress an obvious mischief.

11. However, it would be a matter of speculation and witch-hunt to seek from the words of O.19 r.8A further mischief for eradication when none was ever intended by the Rules Committee. Was the narrow application limited by participation the only mischief in the Law Society scheme intended to be eradicated by the new rule? The Defendant said "no" and submitted that an important motive behind the new rule was to give a defaulting party a real second chance.

12. Did O.19 r.8A set out to redress the further mischief in the voluntary scheme that allowed such notice to be served immediately after filing of the acknowledgement of service, and before any default had occurred? In other words, truly giving the party who has defaulted a second chance.

13. The only express restrictions on the time for service of the written notice stipulated by the new rule are that : (i) it has to be after the filing of the acknowledgement of service, and (ii) that it must not be less than 2 clear days before entering judgment. Any further restrictions would have to be a matter of inference or implication from the words of the provision. It was the Defendant's submission that the words not only admit such inference or implication, but a consideration of the purpose of the new rule would demand it.

14. It was submitted that the reference to "the party intending to enter judgment has served notice in writing of his intention" in the rule is indicative that the notice can only be served after the right to enter default judgment has accrued to the party serving the notice. It was submitted that no such intent could be formed until the right to enter judgment has accrued. I am not persuaded that those words could or should assume such significance. There is no general prohibition in law against a person forming a present intent to insist on his legal right when such right would accrue to him upon the occurrence of a future event. A present intent can be formed though the right may be contingent upon a future event. The said reference in the rule to an intent does not lend support to any suggestion that the contingent event giving birth to the future right so intended must have occurred before notice of the intent can be served. The reference is merely of a descriptive nature identifying the person serving the notice. It is incapable of being understood to have any prescriptive significance to define the right to serve the notice.

15. I fully appreciate that no improvement would have been made to the voluntary scheme if the new rule does not restrict service of the notice to until after a default had occurred. The absence of such further restriction on the time for service would mean the notice can immediately be served, as in the present case, upon the filing of the acknowledgement of service. In such case, no real reminder would have been given to the defaulting party. He would have received the same warning as contained in the notice annexed to the writ that was served together with the acknowledgement of service. A reminder sent within a short time after the first warning and well before the occurrence of a default would confer little benefit on the defaulting party; and can hardly be a real reminder in the true sense. It must be taken that this notorious mischief was known to the Rules Committee. It would have been the easiest thing, if they had ever intended to redress this mischief, to stipulate the condition to be "after such acknowledgement service or counterclaim has been filed and no defence or defence to counterclaim has been served in accordance with these rules". The words of the new rule are clear and the meaning is plain. They are incapable of admitting a further restriction of a failure to serve the defence. No matter how noble the cause maybe, an imposition of such further restriction would be an unforgivable violation of the plain words of the new rule, and an attempt by the court to legislate. It is a matter for the Rules Committee to cure this mischief by appropriate amendment to the rule.

16. Upon a careful analysis of the High Court procedural framework and reality in the Registry, I cannot but observed that giving the two clear day notice, even after a default had occurred, would not be of any real benefit to a litigant who finds himself in difficulty in filing a defence. The two extra days would probably only benefit a careless solicitor who has overlooked the filing of a defence for his client. It would not have prevented default judgment being entered against a litigant who, for one reason or another (whether justifiable or otherwise), is unable to file a defence in time. The reality is, there is absolutely nothing the defaulting defendant can do within the said two clear days to stop default judgment being entered against him immediately after the time has lapsed. The extra time given is wholly inadequate to redress any real difficulty a defaulting defendant may have. Without consent from the party serving the notice, the only thing a defaulting defendant can do within the time, falling short of filing the defence, is to take out a time summons. It is impossible for such time summons to be heard within the said two clear days. It is difficult to envisage a master agreeing to entertain an ex parte summons for time or for a stay of proceedings pending the hearing of an inter partes time summons. To do so would effectively be granting an extension of time to the defaulting party without hearing the party who is entitled as of right to enter default judgment. It would also make a mockery of the time requirements for filing defences. As the issue of the time summons would not operate as a stay of proceedings, the party serving the notice is at liberty to enter judgment notwithstanding the issuance of the same. In the premises, I fail to see what a defaulting party could effectively achieve within the said two clear days save to try to secure the sympathy of the other side for consent. This reinforces my conclusion on the absence of any attempt of the Rules Committee to give the defaulting party any real second chance.

17. The conclusion that only a careless solicitor would truly benefit from the new rule may, on one view, be prima facie inconsistent with the clear intent to extend the benefit of the voluntary scheme to litigants in person. I am fully conscious of this possible anomaly. However, I am unable to strain the clear meaning of the plain words to resolve any deficiency in the rule by "judicial legislation". I can only conclude that all that was intended, and clearly enacted in the new rule, was to give another warning to the party having to serve the defence that they should comply with the time requirement for so doing. The only purpose to be served by the written notice is to indicate to the party having to serve the defence that the opponent is insisting on strict compliance with the rules and no indulgence would be given upon a default. It is clear from the legislative scheme as enacted that only this very limited benefit was intended to be conferred upon the defaulting party. There was, as the Plaintiffs put it, no intent to rewrite the rules to extend generally the time for filing defence by two clear days, or to give a litigant a second chance.

18. For reasons given aforesaid, I am satisfied that judgment was entered regularly and it is now incumbent upon the Defendant to show a real prospect of a good defence on merits.

19. At the joint request of the parties, and in view of the guidance this ruling may give to the profession on a matter of some importance, I have agreed to publish the ruling in court.