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HCA36/2004
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO.36 OF 2004
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BETWEEN
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CHINA INTERNATIONAL WATER & ELECTRIC |
Plaintiff |
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CORP. |
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TALFORD DEVELOPMENT LIMITED |
1st Defendant |
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YEUNG WING KEUNG WILSON
formerly known as YEUNG KANG LAM
formerly known as YEUNG WING KEUNG |
2nd Defendant |
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Before : Deputy High Court Judge Fung in Chambers
Dates of Hearing : 6 July 2005
Date of Delivery of Judgment : 6 July 2005
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J U D G M E N T
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1. The 2nd defendant is appealing out of time against the order of Master B. Kwan, dated 14 March 2005, in:
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striking out the remaining paragraphs, i.e., line 1 to line 11 of paragraph 1 and the entire paragraph 3 of the Defence of the 2nd defendant dated 2 February 2004; |
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entering judgment against the 2nd defendant in the sum of HK$11,895,000 with interest. |
2. Mr Yuen, for the 2nd defendant, did not argue against the exercise of the jurisdiction to strike out for non-compliance of an “unless” order, but submitted that the striking out was too wide in scope and should be restricted to line 5 to line 8 of paragraph 1 of the Defence, the subject only of which the underlying unless order on giving of further and better particulars of the Defence related.
3. The delay in filing the Notice of Appeal was about two weeks. The reason was that the 2nd defendant had hitherto not been represented.
Background
4. The plaintiff is suing the 1st defendant for repayment of HK$11,895,000 under a loan agreement dated 16 September 1994. The plaintiff is suing the 2nd defendant for the same sum for breach of a guarantee, alternatively for damages for fraudulent misrepresentation contained in the recital in the loan agreement with the 1st defendant.
5. Default judgment has been entered against the 1st defendant.
6. The 2nd defendant filed his home-made Defence. In paragraph 1 of the Defence, the 2nd defendant admitted to the loan agreement and averred that the real intention of the parties was that the $11 million referred to in the loan agreement was not a loan but part-payment of an investment fund on the part of the plaintiff.
7. In line 5 to line 8 of paragraph 1, it was further averred that the plaintiff was owned by the Chinese Government, and according to Chinese Government policies the plaintiff was not permitted to participate in real estate development in Hong Kong, and could only participate in the construction business in Hong Kong. Further in paragraph 1, the defendant referred to two documents for support of the above allegation:
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a letter dated 28 March 1996 from Wang Bin, the General Manager of the plaintiff, to the 1st defendant; |
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a Co-operative Agreement dated 3 April 1996 between the plaintiff and the 1st and 2nd defendants, whereby the plaintiff agreed to purchase shares in Benedict Development Limited in the sum of $24 million whereby the plaintiff was in breach of the agreement. |
8. In paragraph 2 of the Defence it was averred that the loan agreement was settled pursuant to an agreement dated 8 February 2000 signed by Wang Bin on behalf of the plaintiff. The defendants also referred to an agreement dated 22 September 1999 signed by the plaintiff in support of the settlement.
9. By a Notice to Produce Documents dated 6 February 2004, the plaintiff requested the 2nd defendant to produce:
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the letter dated 28 March 1996 referred to in sub-paragraph (a) of paragraph 1 of the Defence; |
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the Co-operative Agreement dated 3 April 1996 referred to at sub-paragraph (b) of paragraph 1 of the Defence; |
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the settlement agreement dated 8 February 2000 referred to in paragraph 2 of the Defence; and |
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the agreement dated 22 September 1999 referred to in paragraph 2 of the Defence. |
10. On 29 March 2004, Master Levy made an unless order that the 2nd defendant produce for inspection and for taking copies of all the original documents referred to in paragraphs 1(a) and 1(b) and paragraph 2 of the Defence, and failing which, paragraphs 1(a) and 1(b) and paragraph 2 of the Defence of the 2nd defendant be struck out (“1st Unless Order”).
11. On 18 June 2004, pursuant to the 1st Unless Order, Master Levy ordered that paragraphs 1(a) and 1(b) and paragraph 2 of the Defence of the 2nd defendant be struck out.
12. On 22 April 2004, the plaintiff served a Request for Further and Better Particulars of the Defence of the 2nd defendant, requesting the 2nd defendant to:
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state each
of the names of the Chinese Government policies according to which the plaintiff was not permitted to participate in real estate development in Hong Kong; |
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to produce a copy of each of the said policies; |
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state each of the names of the Chinese Government policies according to which the plaintiff could only participate in the construction business in Hong Kong; and |
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to produce a copy of each of the said policies. |
13. On 10 May 2004, Master Hui ordered the 2nd defendant to serve further particulars pursuant to the request dated 22 April 2004. The 2nd defendant did not comply with the order of Master Hui.
14. On 7 June 2004, Master J Wong made an order that unless the defendant do within 21 days served further and better particulars pursuant to the request dated 22 April 2004, line 1 to line 11 of paragraph 1 (i.e., the remaining part of paragraph 1) and the whole of paragraph 3 of the defence of the 2nd defendant be struck out (“the 2nd Unless Order”).
15. On 14 June, the 2nd defendant served a reply to the request for further and better particulars. He stated that he was not aware of the names of the Chinese Government policies according to which the plaintiff was not permitted to participate in real estate development in Hong Kong and he was doubtful whether there was a name for such policies. He further stated that it was public knowledge at the time that companies owned by the Chinese Government were not allowed to participate in real estate development or speculate in Hong Kong. This policy was widely published in newspapers. In any event, this fact was confirmed by Mr Wang Bin, General Manager of the plaintiff. It is likely that real estate development is not included as one of the permitted business activities for the plaintiff according to the plaintiff’s Memorandum and Articles of Association. As to Request 3, the 2nd defendant said that he was not aware of the name of the Chinese policy. As to the relevant documents, the 2nd defendant said he did not have such documents in his possession.
16. On 4 September 2004, Master J Wong made an order that the 2nd defendant do within 21 days serve adequate particulars as per the request for further and better particulars of the defence dated 22 April 2004.
17. On 25 October 2004, the 2nd defendant served particulars pursuant to the Order dated 4 October 2004. The 2nd defendant referred to an article in the Beijing Daily on 30 October 2001, reporting on Chinese companies operating ultra vires the Memorandums, and Articles of Association of the companies. The report cited the example of offences by Wang Shuo Hao and Wang Bin, apparently of the parent company of the plaintiff.
18. The 2nd defendant also exhibited the Company Registration and Regulation Law of the People’s Republic of China, and in particular section 71 on ultra vires activities of companies. He said he had instructed lawyers to investigate into the plaintiff in the mainland, and asked for three to four months’ time.
19. On 12 October 2004, Master de Souza made an order that unless the 2nd defendant do within 14 days serve adequate particulars as per the request dated 22 April 2004, the defence of the 2nd defendant be struck out (“the 3rd Unless Order”).
20. On 24 November 2004, the 2nd defendant filed further particulars of the Defence as follows:
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regarding the allegation that the plaintiff was not permitted to participate in real estate development in Hong Kong it was said by Wang Bin, the plaintiff’s former General Manager, to the 2nd defendant on various occasions; |
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the plaintiff’s lawyer can make inquiries and requests to Wang Bin, the plaintiff’s former General Manager; |
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regarding the allegation that the plaintiff was only permitted to participate in construction business in Hong Kong, it was said by Wan Bing, the plaintiff’s former General Manager, to the 2nd defendant; |
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as to the document of the policies, the plaintiff’s lawyer can make inquiries and a request to Wang Bin. |
21. On 14 March 2005, Master B. Kwan struck out the remaining parts of paragraph 1, i.e. line 1 to line 11, and the entire paragraph 3 of the defence of the 2nd defendant, and entered judgment against the 2nd defendant for the sum mentioned.
Fresh Evidence
22. The 2nd defendant sought to rely on his Third Affirmation and his Fifth Affirmation, and the plaintiff also filed an affirmation in reply. There is no objection to the reception of new evidence.
23. It is noted that in the Third Affirmation of the 2nd defendant, copies of the four documents sought in the 1st Unless Orders were exhibited. Mr Yuen explained that only copies were retained by the 2nd defendant. The originals were given to the 2nd defendant’s former solicitors, Messrs Francis K.W. Ho & Co. (“the Firm”). Copies of three of the four documents, except the Co-operative Agreement, were previously disclosed. There is no explanation as to the non-production of the copy of the Co-operative Agreement.
24. The firm ceased practice in August 2002. Mr Yuen produced correspondence with Mr Alfred Fung, Intervention Agent of the Firm appointed on 6 August 2002. The correspondence shows that some unverified files and documents had been returned to the 2nd defendant in June 2002 with acknowledgement of receipt by him. Mr Fung said if the 2nd defendant were suggesting there were other files or documents retained by the firm, he should give the relevant reference for further checking.
Contumelious or intentional conduct
25. It is trite law, as cited in the Hong Kong Civil Practice 2004 at 42/2/6, that:
“Setting aside judgment - The court has a discretion to set aside a judgment entered in default of an unless order if the non-compliant party can demonstrate that his breach of the order was neither intentional or contumelious, and that the failure to obey was because of extraneous circumstances (PT Bank Pembangunan Indonesia (Persero) v. Tan Eddy Tansil & Others [1997] H.K.L.R.D. 57)”
26. In Tan Eddy Tansil v. PT Bank Pembangunan Indonesia (Persero) [1996] 1 HKC, Bokhary JA (as he then was) cited at 234C-E Re Jokai Tea Holdings Ltd [1992] 1 WLR 1196, where Sir Nicholas Browne-Wilkinson VC said at 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.”
27. Mr Chan for the plaintiff referred to Tolley v Morris [1979] 1 WLR 592 per Lord Diplock at 603F-H:
“In contrast to this, it must not be forgotten that once an action has been started a remedy for inordinate delay by the plaintiff in proceeding with it lies in the defendant’s hands. Under rules of court he can take steps to compel the plaintiff to comply with the timetable of procedural requirements preliminary to setting the action down for trial; and he himself can set it down if the plaintiff fails to do so. Where the delay by the plaintiff in taking a necessary procedural step is excessive he may obtain a ‘peremptory order’ which, unless it is obeyed, attracts the sanction that the plaintiff’s action is dismissed. Disobedience to a peremptory order would generally amount to such ‘contumelious’ conduct as is referred to in Birkett v. James [1978] A.C. 297 and would justify striking out a fresh action for the same cause of action, as an abuse of the process of the court.”
28. Mr Chan’s point was that the disobedience of the peremptory order would amount to contumelious conduct and attract the sanction of striking out. With respect, Lord Diplock was speaking in the context of striking out for want of prosecution whether contumelious conduct or abuse of process limb in Birkett v James. Those cases will invariably involve delay on the part of the plaintiff as part of the factual matrix. I do not see that case as helpful in the present context. Contumely or intention, albeit that it may be established by way of inference, must be to the state of mind of the party in default or non-compliance.
29. Mr Chan submitted that as the 3rd Unless Order was translated into Chinese for the benefit of the 2nd defendant he should know exactly what was asked for.
30. Prior to the 3rd Unless Order, the 2nd defendant did attempt to serve particulars, though they might not have answered the description of the ones sought. It could not be said that he ignored or flouted the order of the court.
31. It is noted that the terms of the 3rd Unless Order was to give adequate particulars. The 2nd defendant’s response was that it was Wang Bin who told him about the restriction against the plaintiff on investment in Hong Kong. That certainly did not comply with the third unless order. But Mr Yuen submitted that a proportional and sufficient remedy would be to strike out that part of the Defence referring to the Chinese Government policies on outside investment by state-owned enterprises.
32. I note that the 2nd Defendant had hitherto been unrepresented. His default might be said to be of ignorance rather than contumelious and intentional. I would have thought that to strike out any reference to the Chinese Government policy would be sufficient sanction in the circumstances.
33. Mr Chan further submitted that the Order of the Master in striking out the Defence and entering judgment for the plaintiff is akin to the entering of a regular default judgment, and the 2nd defendant must show a credible defence and real prospect of success in order to set aside the judgment.
34. With respect, I disagree. In the Hong Kong Civil Practice 2004 at 42/2/8:
“Prospect of Success - The rule that on an application to set aside a default judgment it was necessary for the party to default to demonstrate by credible evidence that he had a real prospect of success does not apply to judgments entered for failure to comply with an ‘unless’ order (Chow Kai Sang v. Toi Samuel [1996] 4 H.K.C. 330).”
35. In Chow Kai Sang v. Toi Samuel, Keith J (as he then was) stated at 336I to 337B:
“The relevance of the merits:
The skeleton arguments of Mr Ma and Ms Eu, addressed the merits of the plaintiff’s claim against the second, third and fourth defendants. That is because of the rule that on an application to set aside a default judgment, it is necessary for the party in default to demonstrate by credible evidence that he has a real prospect of success. I question whether that principle has any application to the present case. The primary relief sought by the plaintiff on his summons was for leave to file and serve particulars despite the expiry of the time limit. It was, in effect, an application for extension of time.”
36. After citing from Sir Nicholas Browne-Wilkinson in the Jokai Tea case, his Lordship said at 337F-G:
“In order words, once the failure to obey an ‘unless’ order is not regarded as contumelious, the action should proceed as it would have done if the default had not taken place. After all, Sir Nicholas Browne-Wilkinson had already said ‘the relevant question is’ (and the use of the singular suggests that it is the only relevant question) ‘whether such failure is intentional and contumelious’.”
37. Mr Chan referred to Golden Tech (Asia) Limited (Joint and Several Interim Receivers & Managers Appointed) v. Po Yuen (To’s) Machine Factory Limited (HCA No. 4517 of 2001)where a default judgment was entered against the defendant who failed to comply with an unless order to file and serve its defence by a certain time. Deputy Judge Poon considered Chow Kai Sang and found it distinguishable on the facts. With respect, Golden Tech is again distinguishable on the facts from the present case.
38. At any rate, what Mr Chan wished to do was to argue that on the evidence, the 2nd defendant was not entitled to rely on the settlement between the 1st defendant and the plaintiff, and to demonstrate by affidavit evidence that the Co-operative Agreement and the settlement agreement were forged documents, or at any rate the 2nd defendant was not credible. I do not wish to say any more on the matter but just that it would not be appropriate to pursue the matter on the present occasion.
39. Mr Yuen indicated that he wished to amend the Defence, no doubt to reintroduce the reference to the documents struck out in the 1st Unless Order. Likewise, that would be a matter for another occasion, and matters of the return of the document to the 2nd defendant by the Intervention Agent might become relevant.
Conclusion
40. In the premises, I shall vary the order of the Master in that “line 1 to line 11 of paragraph 1 and the entire paragraph 3 of the defence of the 2nd defendant” be substituted with “line 5 to line 8 of paragraph 1 of the defence of the 2nd defendant”. I shall set aside the judgment entered in favour of the plaintiff.
(Submissions on costs)
41. The plaintiff is to pay half of the costs occasioned by appeal to 2nddefendant.
42. The 2nd defendant is to pay half of the costs of the hearing before Master B. Kwan on 14 March 2005 to the plaintiff.
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(B. Fung)
Deputy High Court Judge |
Mr Alex Hor-yee Chan, of Messrs Chui & Lau, for the Plaintiff
Mr Bernard Yuen, instructed by Messrs Gary Lau & Partners, for the 2nd Defendant
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