XCHRX MING PAO ENTERPRISE CORPORATION LTD. v. CIM CO. LTD.

1998 No. A109

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. This is another case in which judgment was entered for failure to comply with an "unless" order. In this case, the order was for the filing of Further and Better Particulars of the Defence, and the failure to file them resulted in judgment being entered for the Plaintiff.

The facts

2. The relevant facts can be shortly stated. The Plaintiff's action against the Defendant was based on a deed of indemnity, under which the Defendant agreed to indemnify the Plaintiff in respect of a large sum which the Plaintiff had lent to a company on the Mainland ("the borrower"). The sums lent amounted to $185m. odd. In the Defence, it was pleaded on behalf of the Defendant that the loan agreement pursuant to which the Plaintiff had made the loan to the borrower had been entered into by the borrower "illegally and/or unlawfully", as the borrower had not been authorised by the relevant Mainland authority to enter into the loan agreement.

3. Further and Better Particulars were sought of that allegation. On 28th April, the Defendant was ordered to provide those particulars within 7 days. The particulars sought included the following particulars:

"State precisely the alleged legal effect(s) of the PRC Loan Agreement being 'illegal or unlawful'."

The response was that the Plaintiff was not entitled to those particulars. I do not wish to be judgmental, but that was the Defendant's solicitors' first mistake. That was not a response which the Defendant was entitled to make, since the Defendant had been ordered to give the particulars. It could only be relieved of that obligation if the order was set aside on appeal.

4. Not surprisingly, the Plaintiff returned to court for a further order for the particulars. On 29th May, it was ordered that if the Defendant did not provide the particulars by 12th June, the Defence would be struck out, and the Plaintiff would be at liberty to enter judgment against the Defendant with costs. The particulars which the Defendant purported to give as a result of that order were:

"The legal effects are all those effects that flow from the PRC Loan Agreement being illegal and unlawful."

That was the Defendant's solicitors' second mistake. Those particulars were not particulars at all. They amounted to no more than a repetition of the assertion of which particulars had originally been sought.

5. Not surprisingly, the Plaintiff then applied for an order striking out the Defence, and an order that it be at liberty to enter judgment against the Defendant, on the ground that the Defendant had failed to comply with the "unless" order. The application was heard on 7th October. The Defendant's solicitors argued that the further particulars provided had been adequate. That was their third mistake. It should have been acknowledged that the particulars were inadequate. The mistake should have been explained, and the court's indulgence to extend the time for the service of proper particulars should have been sought. In the event, the master ordered the Defence to be struck out, and he entered judgment for the Plaintiff for the sum of $185m. odd plus the interest which had accrued on it. It is from that order that the Defendant now appeals.

The relevant principles

6. There has developed over the years a considerable body of learning as to the principles to be applied when a failure to comply with an "unless" order occurs. Until recently, the most authoritative statement as to the court's approach was that of Sir Nicholas Browne-Wilkinson V.-C. (as he then was) in Re Jokai Tea Holdings Ltd. [1992] 1 WLR 1196. At p.1203A-B, he said:

"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."

However, all the modern authorities were comprehensively reviewed in the impressive judgment of Ward L.J. (delivered apparently ex tempore) in Hytec Information Systems Ltd. v. Coventry City Council [1997] 1 WLR 1666. He identified the relevant principles at pp.1674H-1675B as follows:

"(1) An unless order is an order of last resort. It is not made unless there is a history of failure to comply with other orders. It is the party's last chance to put his case in order. (2) Because that was his last chance, a failure to comply will ordinarily result in the sanction being imposed. (3) This sanction is a necessary forensic weapon which the broader interests of the administration of justice require to be deployed unless the most compelling reason is advanced to exempt [its] failure. (4) It seems axiomatic that if a party intentionally or deliberately ... flouts the order then he can expect no mercy. (5) A sufficient exoneration will almost inevitably require that he satisfies the court that something beyond his control has caused his failure to comply with the order. (6) The judge exercises his judicial discretion in deciding whether or not to excuse. A discretion judicially exercised on the facts and circumstances of each case on its own merits depends on the circumstances of that case; at the core is service to justice. (7) The interests of justice require that justice be shown to the injured party for the procedural inefficiencies caused by the twin scourges of delay and wasted costs. The public interest in the administration of justice to contain those two blights upon it also weighs very heavily. Any injustice to the defaulting party, though never to be ignored, comes a long way behind the other two."

7. These principles were referred to by Godfrey J.A. in Lessy SARL v. Pacific Star Development Ltd. [1997] HKLRD 1248 at p.1253. Having set them out, Godfrey J.A. said at p.1253C-D:

"No such guidance has been given by the Court of Appeal here. I hope that consideration will be given to the possibility of giving such guidance (modified, if necessary, in such way as may be appropriate to suit local conditions). But, in the meantime, I venture to suggest that practitioners should bear in mind the guidance given in the English cases."

It is important to note that this observation did not amount to an endorsement of the principles. Godfrey J.A. was simply expressing the hope that guidance on similar lines (suitably modified to reflect the nature of the practice of law in Hong Kong and local attitudes towards the obligations of litigation) would be given in due course. So far as I know, the Court of Appeal has yet to give its endorsement to these principles, but I propose to apply them for the time being.

The blamelessness of the litigant

8. An issue which has been much debated in the cases is the extent to which a litigant who is not to blame for the failure to comply with an "unless" order should nevertheless bear the consequences of it. In Chow Kai Sang v. Toi Samuel [1996] 4 HKC 330, it was argued that the intentional and contumelious conduct which Sir Nicholas had had in mind in the Jokai Tea case was that of the litigant, and a solicitor's failure to comply with the "unless" order would therefore have been due to the extraneous circumstances of the solicitor's own conduct. The court said at p.334H-335A:

"Were the matter free from authority, I would have rejected that argument. It would be tantamount to saying that a blameless litigant would always be able to avoid the consequences of his solicitor's failure to comply with an 'unless' order, however deliberate that failure was and however much it constituted a defiance of the court's authority. That would be contrary to the approach usually adopted by the courts in other areas of litigation. Mistakes on the part of solicitors in the conduct of litigation are not generally regarded as justifying an extension of time. A litigant who is let down by his solicitor is usually left only with his claim for negligence against his solicitor."

9. Ward L.J. took a similar view in Hytec. He referred to the judgment of Robert Walker J. (as he then was) in Pereira v. Beanlands [1996] 3 All E.R. 328 and said at p.1675F-G:

"I would not wish to express any disagreement with either the statement of the principle or the application of it in the particular facts of that particular case. [Robert Walker J.] held that there was no binding principle which fettered the broad discretion he had to exercise that a default, whether an act or omission of the litigant's solicitor, should always be visited on the litigant himself. This is a perfect example of the exigencies of justice coming to do justice in a particular case."

Ward L.J. then went on to say at pp.1675G-1676A how he thought the discretion should normally be exercised:

"Ordinarily this court should not distinguish between the litigant himself and his advisers. There are good reasons why the court should not: first, if anyone is to suffer for the failure of the solicitor it is better that it be the client than another party to the litigation; secondly, the disgruntled client may in appropriate cases have his remedies in damages or in respect of the wasted costs; thirdly, it seems to me that it would become a charter for the incompetent ... were this court to allow almost impossible investigations in apportioning blame between solicitor and counsel on the one hand, or between themselves and their client on the other. The basis of the rule is that orders of the court must be observed and the court is entitled to expect that its officers and counsel who appear before it are more observant of that duty even than the litigant himself."

10. However, I cannot give effect to these views. That is because the Court of Appeal in Hong Kong has taken a different view. In Chow Kai Sang, the court went on to say at p.335A-E:

"In Tan Eddy Tansil v. P.T. Bank Pembangunan (Indonesia) Persero [1996] 1 HKC 231, Bokhary J.A. expressed the view that a failure by a solicitor to comply with an 'unless' order should not adversely affect his client's interests if that can be avoided without injustice to the other party. [Counsel for the defendants] attacks that view as being contrary both to principle and authority. However, whether that attack on Tan Eddy Tansil is justified or not, I am bound by it, and I must apply it to the facts of this case if Bokhary J.A.'s view represented the view of at least the majority of the court, and if it formed part of the court's ratio decidendi.

There is no doubt that his view represented the view of at least one other member of the court: at the conclusion of his judgment, Godfrey J.A. agreed that the appeal should be allowed 'on the grounds stated' by Bokhary J.A. I was troubled for a while as to whether their view was part of the ratio decidendi, but in the final analysis I have no doubt that it was. A careful reading of Bokhary J.A.'s judgment shows that it was the only reason given for allowing the appeals. Although Bokhary J.A. spent some time considering the arguments of [counsel] for the plaintiff, those arguments were the arguments in favour of upholding the judgments being appealed. The fact that the arguments did not justify the judgments appealed from being upheld did not amount to the reasons why the judgments appealed from were set aside. It follows that the observations of Bokhary J.A. represent the law which I must apply."

Mr. Robert Tang S.C. for the Plaintiff has not persuaded me that the court's view there of Tan Eddy Tansil was incorrect.

The application of these principles

11. Was the Defendant to blame for its solicitors' failure to comply with the "unless" order? The only blameworthiness alleged is that the Defendant allowed a relatively inexperienced solicitor to have the conduct of the case. I do not think that that makes the Defendant in any way blameworthy for the failure to comply with the "unless" order. As for prejudice, I can discern no injustice to the Plaintiff if a few days is now given to the Defendant to give the particulars sought. I can ensure that the Plaintiff will not be out of pocket at all by suitable orders for costs. I appreciate that the trial of the action will now take place about six months later then it would have done if proper particulars had been given by 12th June. But that delay can be met by an appropriate award of interest on any judgment which the Plaintiff obtains. I appreciate that that award of interest is no compensation at all if the Defendant does not have the funds to pay it. But if the Defendant does not have the funds to pay it, it will not have the funds to pay the judgment debt either. The Plaintiff will not therefore have been out of pocket because of the delay, but because of the Defendant's inability to pay.

12. But even if, contrary to the view taken by the Court of Appeal in Tan Eddy Tansil, the focus has to be shifted to the Defendant's solicitors, the position is this. As I have said, the assistant solicitor who had the conduct of the case on behalf of the Defendant is relatively inexperienced. He only qualified in August 1997. He was concerned not to give too much away for fear of prejudicing the way in which the case would be argued at trial. He candidly accepts now that the particulars provided were inadequate. It is true that he does not say in terms that he thought at the time that the particulars were adequate. But he does say that he did not intend to "flout" the order, and that the "mistake" was a "totally honest" one on his part.

13. In these circumstances, it cannot, I think, be fairly said that there was an intention to ignore or disobey the "unless" order. It was a genuine attempt albeit one which failed dismally, to comply with the order. I accept that a failure to comply with an "unless" order will ordinarily result in the implementation of the sanction which the order imposed for its non-compliance. But in my judgment, the circumstances in which the order in this case was not complied with are sufficiently compelling to warrant a departure from the usual consequences of non-compliance.

14. There is one other factor which I have taken into account. The Defendant wishes to argue that the Plaintiff was not entitled to sue the Defendant until it had exhausted all its remedies against the borrower. That was not pleaded in the Defence, and it was therefore not a matter which the master could have taken into account. However, it has been pleaded in the draft Amended Defence, and I would be very reluctant to permit a Defence to be struck out for a failure to comply with an "unless" order relating to the failure to give the particulars relating to one defence, if the effect of striking out the Defence is to prevent the Defendant from relying on another defence which it could have relied upon by amendment.

Conclusion

15. For these reasons, this appeal must be allowed, the order of the master must be set aside, and I order that the Defendant's time for filing the particulars ordered be extended. I shall hear from counsel as to how long that extension should be for, because it may be that the Defendant will want a few days longer than the 7 days sought in the Notice of Appeal. I say that because the draft Amended Defence purports to contain the particulars ordered. Leave is needed to file that draft Amended Defence, and if that is not granted within 7 days, the particulars contained in it will not have been filed. Moreover, it is, I think, questionable whether the draft Amended Defence does contain the particulars ordered. What the Plaintiff wants to know is what the Defendant contends are the consequences of the loan agreement being illegal or unlawful. Is the agreement void? Is it voidable? Or is it merely unenforceable? Or is the consequence something else entirely? It may be argued that the draft Amended Defence does not spell that out. For that reason also, it may be that the Defendant will want a few more days to file the particulars ordered.