DAIMLER AG v. LEIDUCK, HERBERT HEINZ HORST AND ANOTHER

HCA 4089/1994

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4089 OF 1994

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D E C I S I O N

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1.  This application concerns relief against the sanction imposed by an unless order and the right of a party to raise legal professional privilege (“LPP”) in answer to interrogatories.

BACKGROUND

2.  In1994 the Plaintiff obtained a Mareva injunction against the Defendants.  The Plaintiff’s case then was that D1 had allegedly misappropriated US$20 million advanced by the Plaintiff under a contract for the sale and purchase of cars.  Its case against D2 was that a sum of US$6 million out of the US$20 million had been wrongfully used to discharge a loan owed by D2 to a bank when the loan was not yet due.  Part of the $20m went to private bank accounts of D1.  The application for the Mareva injunction was supported by an affidavit of one Mr Paul Carolan (“the PC Affidavit”) who was then a solicitor.  Paragraph 13 of the PC Affidavit referred to information obtained from an investigating Magistrate of Monaco (Lefort).  The Plaintiff’s Paris lawyer was said to have inspected the documents which were in the possession of Lefort.

3.  It turned out that the information was false and that the relevant loan owed by D2 to the bank had not been discharged as alleged.  Seventeen days after the grant of it and by consent, the Mareva injunction against D2 was discharged.  D2 was awarded costs on indemnity basis on condition that it waived its right to enforce the Plaintiff’s undertaking under the injunction (“the Settlement Agreement”).  The action against D2 was also discontinued. 

4.  The Mareva injunction against D1 was also discharged by the Court on other grounds. 

5.  The Mareva injunction was said to have a devastating effect on D2’s business.  It was later found out that the Settlement Agreement was procured by fraud.  Allegedly, Lefort provided false information which led to the obtaining of the Mareva injunction against D2 in return for a new Benz car (“the Lefort fraud”).    In addition, the Plaintiff induced one Mr Yip (a shareholder of D2) to agree not to claim damages when the Mareva injunction was discharged against D2, by promises of future business dealings with the Plaintiff; and subsequently, Mr Yip received an order through a company he controlled from the Plaintiff for the manufacture of rear axles in Shenyang to be used in Mercedes-Benz trucks (“the Yip fraud”). 

6.  By a summons dated 23 July 2007, the Defendants applied to Court to enforce the Plaintiff’s undertaking given under the Mareva injunction.   In respect of this application, the central issue was whether the Settlement Agreement was vitiated by fraud and could not be relied on by the Plaintiff to spare itself from honouring the undertaking.

7.  Point of Claim in respect of fraud, Points of Defence and evidence by way of affirmations were filed.  Amongst the affirmations was one by a senior legal counsel of the Plaintiff by the name of Rene von Samson-Himmelstjerna dated 30 March 2009 (“the RVS Affirmation”). 

8.  Paragraph 17 of the RVS Affirmation stated that,

“I also note that the Mareva against [D2] was based on the findings of an investigating magistrate in Monaco, [Lefort], that US$6 million (out of the US$20 million advanced under the IRSAM Agreement) was used by Banque Nagelmackers 1749 Luxembourg to settle a loan of the same amount granted to [D2] and another party. Such findings were later found to have been misunderstood by the Plaintiff’s solicitors in Paris, who conveyed the same to the Plaintiff’s solicitors in Hong Kong.” (emphasis added)

9.  In respect of the “misunderstanding” by the Plaintiff’s solicitors, the Defendants sought to administer the 6 subject interrogatories (“the Interrogatories”) on the Plaintiff:

“(a) State the exact wording that was used by Lefort in conveying his findings of the usage of US$6 million (out of the US$20 million advanced under the IRSAM agreement) to the Plaintiff’s solicitors in Paris;

(b) Identify the documents that were used or referred to by Lefort in conveying his findings of the usage of US$6 million (out of the US$20 million advanced under the IRSAM agreement) to the Plaintiff’s solicitors in Paris;

(c) State the understanding of the Plaintiff’s solicitors in Paris of such wording used by Lefort;

(d) State why and how such findings were misunderstood by the plaintiff’s solicitors in Paris;

(e) State the exact wording that was used by the Plaintiff’s solicitors in Paris when conveying such findings to the Plaintiff’s solicitors in Hong Kong; and

(f) State how the Plaintiff later found out about such misunderstanding.”

10.  On 11 March 2010, Master Lung ordered that the Interrogatories be withdrawn.  At the same time, he refused the Defendants’ application to amend the Points of Claim re Fraud by pleading the Lefort fraud.   His decision was upheld by Deputy Judge L. Chan on appeal.

11.  Leave to appeal was granted by the Court of Appeal.

12.  Two months afterwards and by consent, the appeal was allowed, the Defendants were granted leave to amend the Points of Claim to plead the Lefort fraud and the Plaintiff was to provide answers to the Interrogatories within 28 days (“the Consent Order”).

13.  By an order dated 7 December 2010, which formed the subject of the present application, Master Ko ordered that unless the Plaintiff do answer the Interrogatories by 4:00 pm on 4 January 2011, the Plaintiff’s Points of Defence re Fraud be struck out and there be an inquiry as to damages sought by the Defendants (“the Unless Order”).

14.  RVS of the Plaintiff swore an affidavit on 22 December 2010 which purported to answer the Interrogatories (“the Answers”).  Four of the Answers raised LPP.  Two of them alleged that the “misunderstanding by the Plaintiff’s solicitors in Paris” referred to in paragraph 17 of the RVS Affirmation did not in fact mean what it said.

15.  The Answers were only filed at about 4:30 pm and served on the Defendants’ solicitors at 5:47 pm on 4 January 2011.

16.  On 25 January 2011, the Plaintiff issued the present summons (“the Plaintiff’s Summons”) to obtain an extension of time for filing and serving the Answers.   In explaining the need for this Summons, T of the Plaintiff’s solicitors took all the blame upon himself.

17.  The Defendants oppose the Plaintiff’s summons.  They issued a summons 2 days later seeking to confirm, for the avoidance of doubt, that the terms of the Unless Order held good and that the Defendant was entitled to have an inquiry as to damages with consequential directions (“the Defendants’ Summons”). They contended that the Plaintiff must be taken to have waived all objections to answering the Interrogatories, and was precluded from raising LPP in the Answers; the Answers were simply not answers at all.

18.  Broadly, the issues are:

A.  Whether the Plaintiff has good explanation for the delay;

B.  Having consented to provide answers to the Interrogatories, whether the Plaintiff is entitled to rely on LPP in its Answers;

C.  Whether the Plaintiff should be granted relief from sanction.

A.    WHETHER THE PLAINITFF HAS GOOD EXPLANATION FOR THE DELAY

19.  Order 2 rule 4, of the Rules of the High Court requires the party in default of an unless order to apply to the Court for and obtain relief from the sanction within 14 days of the failure.

20.  The refusal to grant relief from sanctions is not limited to cases of intentional and contumelious disregard of a court’s peremptory order.  The Court should consider all the individual circumstances including those listed in Order 2, rule 5(1)(a) to (j).  Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be sufficient to deny relief: Top One International (China) Property Group Co. Ltd. & another v. Top One Property Group Ltd & others, HCA 1244/ 2009, unreported, 9.12.2010, Fok J.

32.  The relevant legal principles governing the circumstances in which the court will extend time to permit compliance with an unless order were thoroughly analysed and discussed by Ribeiro J (as he then was) in Chan Chun Lung Allen & Anor v Ryland Limited & Ors, unrep., HCA4904/1996, 26.8.99 at §§38 to 47.

33.  The test he applied was that laid down by Bokhary JA (as he then was) in PT Bank Pembangunan Indonesia (Persero) v Tan Eddy Tansil [1997] 1 HKLRD 57 at p.59E-G:

“The test to be applied here is, in my judgment, the one laid down by Sir Nicholas Browne-Wilkinson VC giving the leading judgment in the case of In re Jokai Tea Holdings Ltd [1992] 1 WLR 1196 when he said this at p.1203B:

‘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.’”

34.   Thus, the relevant principles applied by Ribeiro J in Chan v Ryland were set out in §§45 to 47 of his judgment and are summarised below:

(1) The court will ask whether a defendant’s failure to comply with an unless order was “intentional and contumelious” or whether, on the contrary, he has been able “clearly [to] demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances”, keeping in mind that the court should not be astute to find excuses for such non-compliance.

(2) As with any other case in which a party approaches the court for an indulgence, it is incumbent on an applicant to adduce evidence upon which an exercise of discretion in his favour may be founded.

(3) 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 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 though no fault of the litigant).

35.  Ribeiro J declined to lower the threshold, a trend which he noted was detectable in some of the English authorities, in particular Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666 where, at p.1677, Auld LJ said:

“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.”

He noted that PT Bank Pembangunan case was regarded as representing a binding precedent so far as the Court of First Instance was concerned (§40) and he did not consider that the Hytec approach “as yet to represent the law in this jurisdiction” (§44).

36.  Mr Douglas Lam, counsel for the plaintiffs, submitted that, in the light of the Civil Justice Reform (“CJR”), the time had come to adopt the English approach in Hytec.

…

38. In my view, Mr Lam is right in his submission.  It is noteworthy that, in Chan v Ryland, Ribeiro J simply said that the Hytec approach did not “yet” represent the law in this jurisdiction.  Since his decision in that case, in August 1999, the CJR has since come into effect.  There is now a trend towards the greater use of orders to specify automatic consequences of non-compliance and for placing the onus on a party guilty of non-compliance to seek relief from those consequences.  The rules themselves reflect this trend: see, for example, RHC O.25 r.1C (failure to appear at case management conference or pre-trial review).

39.  To this end RHC O.2 r.4 now specifies that where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or order has effect unless the party in default applies to court for relief from the sanction within 14 days of the failure.  Relief is not automatic and RHC O.2 r.5 specifies the circumstances which the court shall consider on an application for such relief.

…

41.  In my view, the passage quoted above from Hytec is entirely consistent with the more pro-active case-management approach encouraged by the CJR and, in my view, the CJR has had the effect that the Hytec approach now reflects the approach that should be applied in this jurisdiction.  That is to say, although intentional and contumelious disregard of a court’s peremptory order may be the most usual circumstance leading to the refusal of an extension of time to comply with a peremptory order, the exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default.  As directed by RHC O.2 r.5, the court should consider all the individual circumstances including those listed in r.5(1) at sub-paragraphs (a) to (j).  Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted.  Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (RHC O.1A r.3) and on the court to do so by actively managing cases (RHC O.1A r.4(1)).”

21.  In the present case, the Plaintiff’s Summons was filed well beyond the 14-day limit imposed by rule 4 because, according to Mr Jat SC for the Plaintiff, T was not aware of that rule.   It was also only during the period when the Plaintiff’s Summons was adjourned part-heard that the Plaintiff filed yet another summons for extension of time to file the first.

22.  In considering whether there are good reasons to grant extension of time to file the Plaintiff’s Summons and to explain the delay in compliance with an unless order, the Court is not confined to look only at what happened on the day of the filing and service of the document in question but also the surrounding circumstances.

23.  Even pre-Civil Justice Reform, without rule 4, a party should have acted promptly in seeking relief.  Moreover, 3 days after being served, the Defendants’ solicitors have already reminded the Plaintiff of the breach of the Unless Order, still the Plaintiff did not come to Court.  The lateness in taking out the Plaintiff’s summons and failure to seek extension of time to do so was inexcusable.

24.  On the last day of compliance, T effectively gave instructions only 2 hours before the deadline.  He did not impress upon the person receiving his instructions that there was a 4:00 pm deadline imposed by an unless order. At that time, only one out of 3 clerks was available and he had to attend to urgent filing and service in at least 2 other cases.  The clerk had to run between 2 offices of the Plaintiff’s solicitors situated in Pacific Place and Hutchison House, and finally proceed to the High Court for filing and then service.  In the meantime, it was only at about 3 p.m. that T instructed the paralegal handling filing and service that there was an unless order.  Even so, the paralegal did not recall being informed of the 4 p.m. deadline but only repeated the urgency of the filing to the clerk concerned.  The clerk obviously was not aware of the deadline of 4 p.m. and attended to other services before serving the Defendants’ solicitors. The delay was certainly avoidable if things were not left till the last day.

25.  What is more bewildering was that the Answers were prepared 13 days in advance of the deadline and there was no explanation at all for 13 days’ inaction before they were filed and served.

26.  The circumstances speak of negligence, incompetence or sheer indolence which I find to exist on the part of T.  But should this be laid at the door of the Plaintiff?

27.  I do not think so in the circumstances of this case.  Order 2 rule 5(1)(f) clearly makes a distinction between the conduct of the party and his legal representative.  The affidavit containing the Answers was sworn well ahead of the deadline imposed by the unless order. There was no evidence of deliberate feet dragging.  The Plaintiff should be completely exonerated in such circumstances: Chow Kai Wang v. Toi Samuel [1996] 4 HKC 330.  Even for T, despite ignorance of rule 4, he has not shown conscious and deliberate decision to disobey the unless order.  This was very different from the situation in Hytec Information Systems Ltd v. Coventry City Council [1997] 1 WLR 1666.  There the particulars were found not to have been properly served and the Defendant was found to have flouted the court’s order.  The barrister refused to attend a hearing but sent her pupil to apply for an adjournment. The defence was struck out.  The defendant’s application to set aside the order and extension of time to serve the particulars was refused.

28.  Late as it was, leave ought to be given for the filing of the Plaintiff’s Summons out of time.  I accept that the delay giving rise to breach of the Unless Order and failure to file the Plaintiff’s Summons in time was caused by T and not the Plaintiff.

B.    HAVING CONSENTED TO PROVIDE ANSWERS, WHETHER THE PLAINTIFF IS ENTITLED TO RELY ON LPP IN ITS ANSWERS

The Statutory Position

29.  Order 26, rule 5(1) permits a party to assert LPP in answering interrogatories:

“Without prejudice to rule 3(2), where a person objects to answering any interrogatory on the ground of privilege he may take the objection in his answer.”

30.  In Reuben Import Export Company Limited v. Wong Cheong Fung Company [1957] HKLR 81, by consent, the plaintiff agreed to provide answers to interrogatories.   The plaintiff then deposed on affidavit that he objected to answering the interrogatory on the ground that the answer might tend to incriminate it.  It was held to be a sufficient answer.

31.  The issues are:

(i)  Whether LPP can be engaged;

(ii)  Whether, if LPP is engaged, the Plaintiff has waived it.

Whether LPP Can Be Engaged

32.  LPP does not attach to documents which had been brought into existence before litigation was contemplated and had not previously been in the possession, custody or power of a party of that of his legal adviser but which had been obtained by him or his legal adviser from a third party for the purposes of the litigation.  They cannot become privileged simply because they were subsequently handed over to the Plaintiff’s lawyers: Ventouris v. Mountain [1991] 1 WLR 607.

33.  Mr Jat SC submits that the assertion that there were pre-existing documents prior to the communication between the Plaintiff’s Paris lawyers and Lefort was no more than a speculation.  The Paul Carolan Affidavit stated that the Lefort files were not seen by the Plaintiff’s Paris lawyers until 22 and 26 April 1994 which was more than 2 weeks after his meeting with Lefort.

34.  Even if Mr Jat SC is correct, the burden is still on the Plaintiff who claims LPP to show that legal skill was involved in the bringing into existence of those documents sought.  In LMH v. KLH, [2006] 4 HKLRD 649, the question was whether a schedule of unprivileged documents prepared by the solicitors as an aide memoire to facilitate him in advising his client was subject to LPP.  Yuen JA held, 

“19….A party who claims legal professional privilege has the burden of establishing it. But there is no evidence from Mr Mok the Husband’s Hong Kong lawyer (whose firm is still acting for the Husband) that any legal research or skill was involved in making the list, or that he added to it any legal advice or communications to his client. Mr Pilbrow counsel for the Husband said there is no evidence what was written on the Schedule. But Mr Mok would of course know what he had written on the Schedule. If he had done anything beyond making a clerical list, he need only have gone on affirmation to say so, and no-one could have gainsaid it.

20.  It may well be that on the basis of that Schedule, the Hong Kong lawyers later advised the Husband whether to pay Dr S for the documents.  If there was a letter of advice from the Hong Kong lawyers to the Husband, that letter would of course be privileged but it is not that document that is sought for disclosure.”

35.  In the present case, the files were Lefort’s.  The findings were his. There was nothing to show that the Plaintiff’s Paris or Hong Kong lawyers had applied legal skill to bring them into existence.  In my view, LPP was not proved to be engaged at least in respect of  interrogatory (b).

Whether, If LPP Was Engaged, the Plaintiff Had Waived It

36.  There was clearly no express waiver of LPP even though the initial objection of the Plaintiff was merely on the ground of irrelevance.  Mr Wong SC for the Defendants submits that the Plaintiff should be deemed to have waived it.

The Principles

37.  Waiver of LPP is to be judged objectively.  A party’s subjective intention to waive privilege is entirely irrelevant: Liu Ma Cheung and others v. Liu Yin Fu, HCA 181/2004, unreported, 26.10.2007, at para 81.

38.  Waiver must be unequivocal and any doubt should be resolved in favour of upholding waiver.  There is a difference between relying on the contents of alleged privileged materials and their effect.  There is waiver in the case of the former but not the latter: Goldlion Properties Ltd & Ors v Regent National Enterprises Ltd [2006] 1 HKLRD 793 at 805-807.

“31. …the approach to statutory interpretation employed by the courts in dealing with fundamental human rights should be adopted in the application of the law of waiver of legal professional privilege. If there is any doubt as to whether there was any waiver of the privilege, the question should be resolved in favour of upholding the privilege.

…

35. In Paragon Finance Plc v Freshfields [1991] 1 WLR 1183 Lord Bingham also commented on waiver at p.1188C:

A client expressly waives his legal professional privilege when he elects to disclose communications which the privilege would entitle on the scope of the waiver. Practical difficulties occur in determining such issues, as in Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corp (No 2) [1981] Com LR 138, General Accident Fire and Life Assurance Corp Ltd v Tanter [1984] 1 WLR 100 and R v Secretary of State for Transport, ex p Factortame (1997) 9 Admin LR 591. But the law is clear. While there is no rule that a party who waives privilege in relation to one communication is taken to waive privilege in relation to all, a party may not waive privilege in such a partial and selective manner that unfairness or misunderstanding may result. (Emphasis added.)

36. As for the proper test to be applied for considering whether there is waiver, para 10-17 of Matthews and Malek, Disclosure (2^nd ed., 2000), adopted by the Judge is repeated below:

The key word here is “deploying”. A mere reference to privileged document in an affidavit does not of itself amount to a waiver of privilege, and this is so even if the document referred to is being relied on for some purpose, for reliance in itself is said not to be the test. Instead, the test is whether the contents of the document are being relied on, rather than its effect. The problem is acute in cases where the maker of an affidavit or witness statement has to give details of the source of his information and belief, in order to comply with the rules of admissibility of such affidavit or witness statement. Provided that the maker does not quote the contents, or summarise them, but simply refers to the document’s effect, there is apparently no waiver of privilege. (Emphasis added.)

…

44. The test whether there is waiver in its practical application can be found in Hollander, Documentary Evidence (8^th ed., 2003) para.17-41, which reads:

     There is a distinction to be drawn between a reference to the fact of legal advice and to its contents.  Referring to the fact that legal advice has been taken will not normally give rise to a waiver of privilege.  Similarly, reference to the existence of a privileged document will not be sufficient; there must be reference to or reliance on its contents.  Thus to state that before attending interview with the police I had taken legal advice is not a waiver of privilege.  But to say that I did not tell the police where I was on Tuesday because my solicitor advised me not to, does rely on the contents of the legal advice; here the point of the reliance on the privileged advice is to provide an explanation or justification for the failure to provide an answer to the police.  What is important here is not whether legal advice was taken, but what was the content.”

Analyses

39.  For 3 broad reasons, I find that there has been deemed waiver:

(i)  Deployment of the contents of the alleged privileged materials;

(ii)  Inconsistent evidence of the Plaintiff showing a shift in stance;

(iii)  Submission to the consent order before the Court of Appeal.

Deployment of the Contents of the Alleged Privileged Materials

40.  In paragraph 13 of the PC Affidavit, it was said that Lefort has seized files relating to the bank accounts of IRSAM and D1.  The Plaintiff’s Paris lawyer met with Lefort who believed that he had found “evidence of the following movements of money”.  Paragraph 14 then described the movements.   

41.  Mr Jat SC submits that all that was in those 2 paragraphs was a statement of fact that the Plaintiff’s Paris lawyer had met with Lefort, followed by a statement of fact as to Lefort’s apparent belief as to the movement of the US$20 million. 

42.  With respect, the information in paragraphs 13 and 14 allegedly obtained by the Paris lawyers from Lefort formed the very foundation of the Plaintiff’s application for ex parte injunction against the Defendants.  It particularized how much money went through each Defendant and its use.  There is no doubt that the Plaintiff had deployed the contents and not just the effect of the alleged privileged communication between Lefort and the Paris lawyer.

43.  On 14 May 1994, the Plaintiff’s solicitor by letter asserted that information contrary to Lefort’s findings was located.  It was on that basis that the Mareva injunction against D2 was discharged.  Upon request by the Defendants’ solicitors, a report of the Paris lawyer dated 13 May 1994 was disclosed.  Again, there was deployment and reliance on contents.

44.  The Plaintiff has selectively provided part of the documents and communications that allegedly took place among Lefort, the Paris lawyer, its Hong Kong lawyer and the Plaintiff itself. 

Inconsistence Evidence of the Plaintiff Showing a Shift in Stance

45.  Not only was the basis for seeking the Mareva injunction found to be false but that fifteen years later, on 30 March 2009, RVS by affirmation asserted that the findings were not wrong but they “were later found to have been misunderstood by the plaintiff’s solicitors in Paris, who conveyed the same to the Plaintiff’s solicitors in Hong Kong.”

46.  In the Answers about 2 years later, RVS disowned his own explanation and claimed that there was no misunderstanding by the Plaintiff’s Paris lawyers. He claimed what he meant was that the Paris lawyers later discovered that Lefort’s findings were mistaken.

47.  Mr Wong SC submits that there was a shift in stance.  Mr Jat SC disagrees and says that all that RVS had sought to do was to cure the Defendants of their own mis-reading of his evidence. 

48.  I disagree with Mr Jat SC.  The plain meaning of RVS’ version reveals a complete change in directions: the 2009 version showed the fault to be on the Plaintiff’s lawyers in Paris; the 2011 version, on Lefort.  That begs the very questions that the Interrogatories aim to ask.  What was Lefort’s original finding?  What was the mistake in that finding?  Who had the misunderstanding? What was the misunderstanding and how did it come about?  Their purpose was to weaken the explanation of Paul Carolan and RVS on how the Mareva injunction was obtained and discharged, and strengthen the Defendants’ case on fraud.

49.  The question of LPP aside, the Answers as filed were so contradictory as to amount to no answers at all.

50.  In Wing Fai Construction Co Ltd (in Liquidation) v Benefit Holdings Int’l Ltd & ors, HCA 810/ 2003, unreported, 16.9.2004, the defendants alleged that a letter written by their solicitors was issued without their proper instructions and did not represent the truth of the situation.  Reyes J had to deal with the question of whether the defendants had waived LPP in respect of those instructions.

“8.   Mr. Smith SC (appearing for the defendants) submits that on a fair reading of the witness statements it is not possible to contend that there has been waiver of LPP.  I disagree.

…

10.  Accordingly, the defendants squarely raise the issue whether the letter truly reflected their instructions.  In raising such issue the defendants must be deemed to have waived LPP.  The issue cannot be fairly explored at trial unless the liquidators are allowed access to relevant material to enable them to deal in cross-examination with the defendants’ case of an alleged mismatch between instructions and the contents of the letter.  The defendants cannot both assert that JSM did not act on instructions and refuse discovery of those instructions.

…

12.  Mr. Smith says that mere service of a witness statement does not amount to waiver of privilege.  He cites Hong Kong Civil Procedure 2004, Note 38/2A/12 (p.600) in support of this proposition.  However, this matter involves more than just mere service of a witness statements.  The defendants are expressly challenging the obvious meaning of their own agent's letter.  The defendants are saying that the letter should be ignored because it was written in error.  They may be right that there is a perfectly innocent explanation for how the alleged error came about.  That explanation needs to be tested at trial and fairness demands that the liquidators should be given discovery in relation to the defendants' contentions.”

51.  Fairness demands that in such circumstances, the Plaintiff must be taken to have waived privilege and the Defendants should be allowed to investigate the bases of the Plaintiff’s assertions.

Submission to the Consent Order Before the Court of Appeal

52.  The Plaintiff had won at 2 levels (before the Master and Deputy Judge L Chan) in having the Interrogatories withdrawn and yet they consented to an appeal being allowed and consented to provide the Interrogatories (“the Consent Order”).  It came about after Hon. Rogers VP gave leave to appeal and upon 2 invitations from the Defendants’ solicitors.  Hon. Rogers VP held, in Daimler AG (formerly Mercedes-Benz AG) v Herbert Heinz Horst Leiduck & anor , HCMP 960/2010, 14.9.2010,

“9. It seems to have been the kernel of the decision in the court below, at paragraph 32 of the judgment of the Deputy Judge, that he said, in refusing the application for leave:

“I do not think the Plaintiff was then under any duty to explain to the 2nd defendant how or why the Mareva injunction was wrongly obtained and its solicitors did not do so.”

10. First of all, the solicitors have attempted to do so twice, in two different ways, and secondly, it certainly is the responsibility of a plaintiff who obtains a Mareva injunction and has to have it discharged to explain, both to the court and to the defendants, as to how and why that injunction was obtained. I wish to take this opportunity to disabuse anybody of any misconception that that is not the requirement.

11. …Simply that a mistake was made in obtaining an injunction does not let the plaintiff out of his requirement to honour the undertaking as to damages.

12.  In my view, what has gone wrong in this case is that this is being viewed as discrete frauds and discrete conspiracies.  Really what it is, is it is a global thing which must be looked at as a whole.  These are not discrete conspiracies; they are not discrete frauds.  The whole thing has to be looked at together.  …”

53.  Clearly the Plaintiff owed a duty to the Court to make full and frank disclosure as to why mistakes had been made causing a discharge of the Mareva injunction.  The Answers go nowhere near the discharge of this duty and were nothing short of being evasive.  They are against the spirit of the judgment of Hon. Rogers VP and the Consent Order. 

54.  Based on the 3 reasons I am of the view that the Plaintiff is deemed to have waived LPP.  The consequence is that the Answers are so insufficient as to amount to no answers at all.

55.  Mr Jat SC for the Plaintiff submits that if the Defendants maintain that the Answers are insufficient the proper course is to issue a summons under Order 26, rule 5(2) which provides:

“(2) Where any person on whom ordered interrogatories have been served answers any of them insufficiently, the Court may make an order requiring him to make a further answer, either by affidavit or on oral examination as the Court may direct.”

That, he submits, is a separate matter from the issue of whether the unless order has been breached as a result of raising LPP.

56.  The question of sufficiency of the Interrogatories is best resolved at this interlocutory stage than at the inquiry itself.  Where the issue is defined and before the Court, I cannot see why one should insist on the technicality of taking out yet another summons under Order 26, rule 5(2). 

C. WHETHER THE PLAINITFF SHOULD BE GRANTED RELIEF UNDER ORDER 2 RULE 5 OF THE RULES OF THE HIGH COURT

57.  I am prepared to extend time for the Plaintiff to take out the present summons but I find the Answers to be so insufficient as amount to no answer to the Interrogatories.  The next step is to consider the factors under Order 2, rule 5(1):

“5. (1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including-

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.”

All but item (g) are relevant.

58.  With regard to (a), it is in the interests of the administration of justice that orders are to be obeyed, particularly since an unless order is a final opportunity for a party to carry out an act ordered by the Court.  The sanctions should take effect and the innocent party should not lightly be deprived of the fruits of the unless order unless the defaulting party is able to satisfy the Court that discretion should be exercised in its favour. However, it is always important to bear in mind that it is also in the interests of the administration of justice that substantive rights of the parties are resolved instead of being brushed aside on pure technical grounds or inadvertence.

59.  With regard to (b), the application for relief has not been taken out timeously.

60.  With regard to (c), Mr Jat SC submits that raising LPP was entirely in good faith and no deliberate breach was intended.  I take a different view. The Answers display a deliberate attempt to avoid revealing the true picture. There was no acknowledgement of the insufficiency of the Answers as can be seen from the fact that the Summons asked for an order to rely on those Answers. There was no alternative prayer for filing another set of answers.

61.  With regard to (d), there was no good explanation for the delay in filing the Summons.  There was no good explanation for failing to answer the Interrogatories properly.

62.  With regard to (e), the Points of Defence was filed after 3 extensions of time for a total of 115 days.  With regard to the Answers, even disregarding the period from the time they were served until the Consent Order, the Plaintiff was unable to comply with the 28-day limit set by consent.  Even under compulsion of the unless order, the Answers were out of time.

63.  With regard to (f), the fault lies with the Plaintiff’s solicitors in taking out the Summons for relief late and not taking out the time Summons until the first Summons was part-heard.  The Plaintiff is exonerated.  However, insufficiency of the Interrogatories is another matter.  One simply does not know what information has been imparted by the Plaintiff to its solicitors and what advice has been given or taken.  Despite receiving legal advice, the Answers are the Plaintiff’s answers.  The Answers are expected to form part of the evidence.  It is unacceptable for a client to disown a set of answers prepared by its solicitors and ask for another chance to comply with a court order.  It violates the theme of having legal representation.  It is impossible to apportion the blame between the client and the solicitors.

64.  With regard to (h), no date has yet been fixed for inquiry of damages but that should not weigh heavily in favour of reviving the Points of Defence which has been struck out.

65.  With regard to (i) and (j), failure to properly answer the Interrogatories undermines the Consent Order.  The Defendants have served the Interrogatories as long ago as January 2010.  They have waited long enough for the Answers.  Because of the Plaintiff’s objections to them and failure to answer them properly, much costs and time are wasted.  On the other hand, refusing to grant relief would deny the Plaintiff of a core defence.

66.  I have also considered what would happen at a trial if LPP were raised in the course of cross-examination and the judge ruled against it. Usually the witness will be given the opportunity to answer the question again.  However, having considered all the circumstances in this case, the gross insufficiency and evasiveness of the Answers, the fact that despite the Plaintiff having months to consider the overall position after the judgment of Rogers VP tip the balance against giving the Plaintiff another opportunity.  I therefore decline to grant relief from sanction.

CONCLUSION

67.  Since it was the fault of the Plaintiff’s solicitors in failing to take out the Summons for relief against sanction within time, the Plaintiff is exonerated.  I give leave to file the Summons out of time.

68.  Although the delay was explained, the Answers were grossly insufficient.  LPP was not available to interrogatory (b) and there was deemed waiver of LPP in respect of the Interrogatories.  The Plaintiff should not be permitted to make selective disclosure.  The Answers were also evasive and against the spirit of the judgment of Rogers JA and the Consent Order.  I therefore dismiss the Plaintiff’s Summons.

69.  I grant an order in terms of the Defendants’ Summons.  I direct that the inquiry for damages be set down within 28 days for hearing.  Parties shall each lodge a counsel’s certificate as to estimation of hearing time within 7 days.

70.  As for costs, I make an order nisi, that the Defendants should have the costs of both summonses to be assessed summarily, with certificate for 2 counsel. 

71.  There shall be summary assessment of costs on the papers on 19 August 2011 at 9:30 am.  No attendance is required. The Defendants shall file and serve its statement of costs by 11 August 2011.  The Plaintiff shall file and serve its grounds in opposition by 18 August 2011.

72.  I thank counsel for their very thorough preparation and able assistance.