ALIBABA GROUP HOLDING LTD AND ANOTHER v. ANT FINANCIAL GROUP CO, LTD

HCA 2797/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2797 OF 2016

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R E A S O N S   F O R   D E C I S I O N

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A.  Introduction

1.  There were two applications before me at the hearing on 26 January 2017:-

(a)  the plaintiffs' summons dated 23 December 2016 for judgment in default of defence ("the plaintiffs' summons"); and

(b)  the defendant's summons dated 6 January 2017 for extension of time to file its defence ("the defendant's summons").

2.  Having heard the parties' submissions, I made the order that:-

(a)  unless the defendant do file and serve its defence by 5pm on 13 February 2017, default judgment in terms of the draft order attached to the plaintiffs' summons (as amended) be entered against the defendant in favour of the plaintiffs; and

(b)  costs of the plaintiffs' summons and the defendant's summons be forthwith paid by the defendant to the plaintiffs, to be assessed summarily on indemnity basis at HK$60,000.

3.  I now give my brief reasons for the said decision.

B.  Procedural history

4.  In this action (which was commenced by a writ of summons issued on 26 October 2016), the plaintiffs claim against the defendant for trade mark infringements and passing off.

5.  The writ of summons was served on the defendant, a company incorporated in Hong Kong, at its registered office on 26 October 2016.

6.  The Statement of Claim was filed and served on 23 November 2016.  Pursuant to Order 18 rule 2, the defendant should have filed its defence on or before 21 December 2016.

7.  On 23 December 2016, the plaintiffs issued their application for judgment in default of defence, which was returnable to be heard by this court on 26 January 2017.

8.  Before the hearing of the plaintiffs' summons, on 5 January 2017, the defendant filed its acknowledgement of service giving notice of its intention to defend.

9.  On 6 January 2017, the defendant's summons was taken out whereby the defendant asked for extension of time of 28 days to file its defence.

10.  The defendant's summons for extension of time was heard on 13 January 2017 before Master H Au-Yeung, who adjourned it to be heard together with the plaintiffs' summons for default judgment at the hearing before me on 26 January 2017.

C.  Discussions

11.  In The Decurion [2012] 1 HKLRD 1063, the Court of Appeal (comprising Yeung VP, Cheung JA and Yuen JA) was called upon to decide whether it should allow an appeal against a default judgment which was entered by the court below after refusing the defendants' application for extension of time to file their defence.  In that case, the Court of Appeal emphasized (at §11) that:-

"1)  It is clear that the applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case. A rigid mechanistic approach is not appropriate: see Nantong Angang Garments Co. Ltd v. Hellmann International Forwarders Ltd, CACV 64/2005. There are two conflicting principles at play. First, a party being required to observe the procedural rules, the default of which may result in judgment being entered against it. Second, a party should not be deprived of an adjudication on the merits due to a procedural default unless there is prejudice to the other party which cannot be compensated by costs. These two principles are not absolute. A rigid application of the first principle may lead to dismissal of actions without consideration of whether the defendant has been prejudiced by the default. But, the Court has treated the existence of such prejudice to be crucial and often decisive. Likewise a rigid application of the second principle without exception may enable a wealthy litigant to flout the rules. The resolution to these two conflicting principles is to consider all the circumstances of the case and not confine the decision to the application of a universally applicable rule of thumb : see Costellow v. Somerset County Council [1993] 1 WLR 256, per Sir Thomas Bingham M.R. at 263.

2)  I do not consider this approach has been drastically changed by the introduction of the Civil Justice Reform in Hong Kong since 2 April 2009.  An expeditious disposal of a case has to be considered together with the equally salutary objective of ensuring fairness between the parties."

12.  In the present case, Mr Wheare for the plaintiffs stressed that despite the long lapse of time after the commencement of this action, the defendant had not filed any defence and had not even produced a draft defence.  It is unclear what defence (if any) that the defendant seeks to raise in opposition to the plaintiffs' claim in this action.  It is therefore in the interest of justice to enter default judgment against the defendant.

13.  In this regard, Mr Wheare drew my attention to the commentary at §19/7/4 the Hong Kong Civil Procedure 2017 and the decision of DHCJ A Cheung (as he then was) in California Insurance Co Ltd v Choung Suk Wah (HCA 172/2002, 19 September 2002) and argued that in the absence of any draft defence, this court should enter default judgment against the defendant.

14.  As to the Court of Appeal decision of The Decurion, Mr Wheare submitted that while it is unclear whether a draft defence was prepared, the Court of Appeal nevertheless considered the merits of the case and came to the view that the defendants in that case had shown a real prospect of success.

15.  In short, the main thrust of Mr Wheare's submission is that this court should exercise its discretion to enter default judgment in light of the fact that no defence (not even draft defence) had been produced by the defendant and there is nothing to suggest that the defendant has any defence to the plaintiffs' claim in this action.

16.  Even though I see some force in Mr Wheare's submission, I do not think it is right to regard the production of a draft defence as a "must" before this court can exercise its discretion to grant extension of time for filing of defence and to refuse granting default judgment.  In my view, given that the circumstances can vary vastly from one case to another, this court must consider all the circumstances and conduct a balancing exercise in light of the two conflicting principles identified by the Court of Appeal in The Decurion.

17.  Mr Yan for the defendant submitted that the defendant would need more time to prepare for its defence and that the granting of the extension of time would not cause any prejudice to the plaintiffs which cannot be compensated by costs.

18.  In explaining why the defendant would need more time to prepare its defence, the defendant had filed an affirmation made by a legal manager of the Defendant.  In that affirmation, the deponent explained that the sole director of the defendant is a PRC citizen who is ordinarily resident in the PRC, and that that sole director only became aware of these proceedings on 20 December 2016 when he received an envelope containing the Statement of Claim sent to his address in the PRC.  Hence, Mr Yan's firm was only retained by the defendant to represent it in this action on 4 January 2017.

19.  Mr Wheare was highly critical of the defendant's affirmation.  He pointed out that the defendant's legal manager did not state his source of information in his affirmation and also did not explain why the court documents served at the defendant's registered office did not reach its sole director.

20.  I see the force of Mr Wheare's submission.  However, there remains the fact (which I have no reason to disbelieve) that Mr Yan's firm was only instructed to handle this case on behalf of the defendant on 4 January 2017, and that it is not unreasonable for Mr Yan to say that his firm would need more time to prepare a proper defence.

21.  In the course of the hearing, I asked Mr Yan to enlighten this court of the potential line(s) of defence on which the defendant may rely to resist the plaintiffs' claim in this action.  Mr Yan made some points in response.  I do not intend to go into any details of those points, fearing that doing so may have the effect of prejudicing the further conduct of this action.  Suffice it to say, I was not impressed by what I was told by Mr Yan.

22.  But again, while I need to bear this in mind in the exercise of my discretion, I cannot ignore the fact that Mr Yan and his firm only came into the picture very late.  For the avoidance of doubt, I am acutely aware that the defendant needs to bear the blame in failing to instruct lawyers in good time.  That said, I must ensure that the case is dealt with fairly between the parties.

23.  As to the issue of prejudice, Mr Yan submitted that any prejudice that would be suffered by the plaintiffs as a result of any extension of time can be adequately compensated by costs. Mr Wheare disagreed.

24.  Mr Wheare submitted that the plaintiffs would suffer prejudice in the sense that any extension of time would cause delay in the resolution of these proceedings and that not every penny thrown away would be recovered from the defendant.

25.  In my judgment, the submission made by Mr Wheare on the issue of prejudice can effectively be made in every single case involving extension of time.  I do not consider them to be factors of any significant weight.  That said, I do agree with Mr Wheare that the lack of prejudice to the plaintiffs is not determinative of the issue of extension of time.

26.  Applying the relevant principles and balancing all the above factors, I am minded to give further time to the defendant to file and serve its defence, instead of entering default judgment straight away. 

27.  However, bearing in mind the underlying objectives set out in Order 1A rule 1, I am of the view that it is fair and appropriate in the circumstances to impose the condition that if the defendant fails to file and serve its defence on or before certain date, default judgment will be entered in favour of the plaintiffs.  In light of the defendant's conduct in this action, I cannot help but harbour the healthy skepticism that the defendant may seek to delay the filing of the defence.  In such a case, it will be a complete waste of time and resources for the plaintiffs to come back with another application for default judgment if the defendant fails to take its final chance to put in its defence.

28.  In this regard, I am satisfied that I have the power to impose such condition under Order 1B rule 1.  Order 1B rule 1(1) provides that "the list of powers in this rule is in addition to and not in substitution for any powers given to the Court by any other rule or practice direction or by any other enactment or any powers it may otherwise have".  One of the powers is, as stipulated in Order 1B rule 1(3), that "when the court make an order, it may (a) make it subject to condition... and (b) specify the consequences of failure to comply with the order or a condition".

29.  Regarding the time for the filing of the defence, Mr Yan asked for 28 days from the date of the hearing to file it; whereas Mr Wheare suggested that this court should only give the defendant 7 days to do so.

30.  Having heard the parties' submissions, I decided to fix the deadline on 13 February 2017, which would give the defendant slightly more than two weeks from the hearing to file and serve its defence. I consider that this is fair and appropriate in the circumstances, particularly in light of the fact that the defendant only sought 28 days' extension in its own summons issued on 6 January 2017. 

31.  On the question of costs, I cannot see any reason why the defendant should not bear the costs of both the plaintiffs' summons and the defendant's summons.  Mr Yan did not suggest otherwise.  The only difference between the parties was the basis of assessment.

32.  Mr Wheare asked for the costs to be assessed on indemnity basis.  I agreed with him.  In Town Planning Board v Society for the Protection of the Harbour Ltd (2004) 7 HKCFAR 114, the Court of Final Appeal (at §17) endorsed the view that it is undesirable to define the circumstances in which order for indemnity costs may be made and the discretion to make such order should not be fettered or circumscribed beyond the requirement that such order must be "appropriate".  Having considered all the above circumstances, I am satisfied that it is appropriate to assess costs on indemnity basis.

33.  Having considered the plaintiffs' statement of costs and the parties' submissions, I summarily assessed the plaintiffs' costs of the plaintiffs' summons and the defendant's summons at HK$60,000.

34.  For the above reasons, I made such order as set out in para 2 above.