SCHINDLER LIFTS (HONG KONG) LTD v. OCEAN JOY INVESTMENTS LTD

HCCT81/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.81 OF 2001

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REASONS  FOR  DECISION

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The issue

1. The issue before the court is not an uncommon one : where a party is in default in serving his pleading, what is the proper approach when the court is faced with both an application for default judgment and an application from the defaulting party for an extension of time.

2. At the hearing on 2 January 2002, I made an order giving leave to the defendant to file and serve its Defence and Counterclaim (if any) within 14 days. I now set out my reasons.

The facts

3. The Writ was served on 19 November 2001, Acknowledgement of Service was entered on 3 December 2001 and the Statement of Claim was served on 12 December 2001. The Defence was therefore due to be served on 27 December 2001.

4. On 24 December 2001, the plaintiff's solicitors sent a letter to the defendant's solicitors giving notice under RHC Order 19, rule 8A of its intention to enter default judgment in the event the Defence was not served on time. This letter was not received until the afternoon of that day (on the Christmas Eve). Later that day, the defendant's solicitors wrote to the plaintiff's solicitors stating that more time was needed due to the holiday season and a request was accordingly made for an extension of time of 14 days from 27 December 2001.

5. On 27 December 2001, the defendant issued a time Summons seeking an extension of time of 14 days within which to file its Defence and Counterclaim. The return date stated on the Summons was the next day, but, as no judge was available for the hearing, the date fixed for the hearing of the Summons was 2 January 2002. On the same day, the defendant's solicitors sent a letter to the plaintiff's solicitors requesting that, as the Summons could not be heard until 2 January 2002, the plaintiff should not enter default judgment in the meantime. On the next day, the defendant sent another letter in which the defendant repeated its request to the plaintiff not to enter default judgment, but that if judgment was to be sought, then the defendant would want to be heard at the hearing of the application for default judgment.

6. On 29 December 2001, both parties were present at the hearing of the plaintiff's application for default judgment before Master Cannon. She adjourned the application to 2 January 2002, to be heard at the same time as the plaintiff's Summons for an extension of time to file the Defence.

7. I have dealt with the facts in some detail not because they are in any way extraordinary but they illustrate, on the contrary, a very common situation that practitioners encounter. It is in this context that I deal with the applicable law.

The law and the court's approach

8. Once a party is in default of serving his Defence (or Defence to Counterclaim as the case may be), unlike in the case of a default in giving Notice of Intention to defend, the other party cannot apply for default judgment until he has served a notice giving two clear days' notice of its intention to enter judgment in default : see RHC Order 19, rule 8A. For convenience, I will hereafter refer to the defaulting party as the defendant and the non-defaulting party as the plaintiff.

9. The Notice may be served at any time, whether or not the defendant is already in default : see Ho Yuen Tsan v. Hop Wing Transportation Co. Ltd [1997] 1 HKLRD 46. In other words, the Notice may be served before the default occurs. The purpose of such a Notice is simply to give warning to the other party that no indulgence will be given once default occurs. In practical terms, when such a Notice is served after the default has occurred, this has the effect of extending the time within which the requisite pleading has to be served by two days. Technically, however, it should be stressed that it is not an extension of time as such : only that the plaintiff cannot apply for default judgment until the expiry of two clear days. Where such a Notice is served before the default has occurred, then judgment in default can be entered as soon as the default occurs providing that two clear days have elapsed.

10. An application for extension of time will not stop time running and will not prevent the plaintiff from entering default judgment : see G.P. Vickers & Company Limited v. Humanbo Enterprises Limited, unreported, 16 January 1984, Power J. It has been over the years and continues to be a popular misconception among many practitioners that an application for extension of time will prevent time from running or it would somehow render a default judgment obtained before the application for extension is heard, liable to be set aside. I take the opportunity to reiterate the correct position : an application for extension has neither of these consequences.

11. What then is a defendant to do in a situation when he is or may be in default and the plaintiff has given a Notice under Order 19, rule 8A? Of course, an application for extension of time has to be made but it is often not possible for the hearing of the application for extension to be heard before the plaintiff becomes entitled to enter default judgment.

12. One view is that it is up to the defendant to apply timeously for an extension of time and if he does not, then he must bear the consequences. Accordingly, so the argument runs, where the defendant is in default of serving his Defence, he exposes himself to the appreciable (if not inevitable) risk of default judgment being entered against him under the provisions of RHC Order 19.

13. An application for extension of time will not, as I have said, stop time running nor will it prevent the plaintiff from entering or applying for default judgment under Order 19, rules 1 - 8. I recognize, of course, that under Order 3, rule 5(2), an application for extension may be made notwithstanding that the relevant period has expired but in my view, this does not in any way affect the right of a plaintiff to enter or apply for default judgment under Order 19.

14. In my judgment, a defendant does indeed run a serious risk of default judgment being entered against him if he is in default of serving a Defence. An application for extension of time may not and often will not be heard before the time when the plaintiff becomes entitled to enter or apply for default judgment. Any attempt by the defendant to apply ex parte to a master or judge for an interim extension of time until the hearing of the application for an extension, will probably fail : see the observations of Jerome Chan J in Ho Yuen Tsan at page 50F - H.

15. It may be argued there is some unfairness to the defendant in his being unable to obtain a hearing date before the plaintiff is in a position to enter or apply for default judgment. However, this is not the correct way of viewing the matter. In my judgment, I believe it important to emphasize that it is incumbent on defendants to observe the time limits laid down by the Rules. If a defendant or his legal advisers are of the view that an extension may be required, this should be applied for at the earliest opportunity. If necessary, a summons for extension should be issued applying for an abridgement of time.

16. I recognize that it may very often be the case that a plaintiff will try to seek to enter default judgment while knowing that an application for an extension of time has been taken out by the defendant. However, given the time limits imposed by the Rules and the terms of Order 19 which give a plaintiff the right either to enter or apply for judgment default, this is an inevitable consequence. Litigation, it must be acknowledged, is often a hostile affair and no quarter should be expected to be given too often. It is not the court's role to insist on what it regards as gentlemanly behaviour when this is not required by the Rules. On the contrary, a plaintiff can insist on the defendant having to comply strictly with the timetable laid down by the Rules.

17. I would only add this caveat. The object of the Rules, it has often been said, is to enable the true controversy between the parties to be adjudicated upon efficiently, expeditiously and justly. Litigation and that the tactics associated with it are sometimes treated by parties as a game or a series of strategic manoevures. As far as the court is concerned, however, this is not the function of the Rules. Where a plaintiff enforces his strict legal rights, such as in the present case, by insisting that the defendant complies with the timetable laid down for the serving of the Defence, tactics aside (and I stress I make no criticism of the plaintiff in the present case), as far as the court is concerned, this is indicative that the plaintiff intends itself to prosecute the action efficiently and expeditiously and this will be borne in mind when the court oversees the future progress of the action.

18. In the present case, Master Cannon adjourned the plaintiff's application for default judgment to be heard at the same time as the defendant's application for an extension of time to serve its Defence. Where there is an actual hearing of an application for default judgment, it is perfectly legitimate for the court to adjourn the matter to be heard at the same time as an application for extension of time. This is a matter of discretion and whether the court will do so will of course depend on the prevailing circumstances. A defendant must not assume this will always be the case.

19. Thus, it is logical to consider first the application for extension of time, because if an extension is given, the application for default judgment falls away. On the other hand, if the application for default judgment were first to be dealt with and then granted, the defendant would have to set aside this judgment in accordance with the usual principles before an extension of time could be considered. This would be potentially time consuming and inefficient.

20. On an application for extension of time, the applicable principles are those stated in paragraph 3/5/2 of Hong Kong Civil Procedure 2002. I refer in particular to the decision of Hartmann J in Mobil Petroleum Co. Inc. v. Registrar of Trade Marks [2001] 1 HKLRD 225 for a recent statement of the law in this respect.

Application of law to present case

21. As I have already observed, the Defence should have been filed and served on 27 December 2001.

22. Although there was no affidavit explaining the reasons for the failure to serve the Defence in time, Mr Y.C. Lee for the defendant informed me of the following reasons :

(1) There were voluminous documents in the action that would have to be gone through in order to finalize the Defence.

(2) There has been a recent change in the handling solicitor and it was important for the new handler carefully to go through the facts and documents to acquaint himself with the issues. I was told that the facts were complicated.

(3) The fact it was also the Christmas season made it more difficult than usual to comply with the stipulated time limits.

23. I take into account those reasons as well as the following matters :

(1) This is the first application for an extension by the defendant.

(2) Upon receipt of the notice under Order 19, rule 8A, the defendant acted expeditiously, taking out a time Summons at the earliest date possible and seeking to have a hearing as quickly as possible.

(3) No prejudice is caused to the plaintiff if time were to be extended.

24. Looking at the matter as a whole, I am of the view that time should be extended for the filing and serving of the Defence and Counterclaim (if any).

25. As for costs, the usual order should follow. Accordingly, I therefore ordered that the costs of both summonses be to the plaintiff in any event.