GUANGXI STORA ENSO FORESTRY CO, LTD v. WU JUN WEI ALBERT

HCA 1432/2018

[2021] HKCFI 3637

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1432 OF 2018

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JUDGMENT

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Introduction

1.  There are before this court:

(1)  The Plaintiff’s summons dated 7 January 2021 (“Judgment Summons”) for an Order that (i) the Defence filed herein on 25 October 2018 be struck out pursuant to the Unless Order of Master Dick Ho dated 25 May 2020 (“Unless Order”) and judgment be entered against the Defendant and (ii) the Injunction against the Defendant dated 20 June 2018 (“Injunction”) be continued against the Defendant after judgment is entered.

(2)  The Defendant’s summons dated 22 January 2021 (“Relief Summons”) under RHC O 2 r 5 and O 3 r 5 for (i) relief from sanction of the Unless Order and (ii) an Order that the Supplemental List of Documents of the Defendant filed on 5 November 2020 (“Supp List”) do stand as the formal List of Documents of the Defendant. 

Procedural History

2.  On 20 June 2018, the Plaintiff issued the Writ of Summons in the present action.  In the General Indorsement of Claim, it is stated that the Plaintiff is engaged in the business of maintenance of forests in the PRC and the sale of stumpage to local buyers in Guangxi for harvesting timber at its forests.  The Defendant was employed by the Plaintiff as its Head of Sales and Marketing.  The Plaintiff’s claims against the Defendant are based upon, inter alia, the following actions by the Defendant during his employment with the Plaintiff:

(1)  manipulation of the bidding process of the Plaintiff’s sale of stumpage in order to award stumpage sale contracts at an undervalue to pre-determined companies in exchange for benefits; and

(2)  obtaining and receiving secret profits, secret commissions and/or bribes.

3.  On 6 September 2018, 25 October 2018 and 4 March 2019, the parties filed the Statement of Claim, Defence and Reply respectively.  There was no application for summary judgment by the Plaintiff.

4.  At the time of the Defence, the Defendant was legally represented and he put up a defence against the Plaintiff’s claims by inter alia denying he had breached any duties owed to the Plaintiff and averring that the subject contracts were all approved by his superior and the Plaintiff. 

5.  On 28 March 2019, the Defendant filed his Notice to Act in person.

6.  At the hearing of the 1st case management summons (“CMS”) on 22 July 2019, Master A Ho ordered the Defendant[1] to file and serve a List of Documents on or before 6 September 2019, with inspection within 7 days thereafter (“A Ho Order”).  In breach of the A Ho Order, the Defendant failed to file his List of Documents on or before 6 September 2019. 

7.  On 25 May 2020, Master Dick Ho granted the Unless Order[2] in terms that unless the Defendant do file and serve a List of Documents by 4:00pm on 29 June 2020 in compliance with the A Ho Order, the Defence herein be struck out and the Plaintiff be at liberty to apply for judgment to be entered against the Defendant.

8.  On 25 May 2020, Master Dick Ho also granted an Order against the Defendant (“Specific Discovery Order”) requiring him to make and file an affirmation stating whether the documents specified in it have been in his possession, custody or power and, if not, what has become of them.

9.  On 29 June 2020, the Plaintiff’s solicitors Messrs King & Wood Mallesons (“K & WM”) received an email from the Defendant[3] attaching, inter alia, a homemade affirmation and a homemade list of documents dated 29 June 2020 (“Purported List”) “in response to your letter dated 18 June 2020 and court orders”. 

10.  On 31 July 2020, K & WM wrote to the Defendant informing him that the Purported List did not comply with the A Ho Order and RHC O 24 r 5 and had not been properly filed and served.  RHC O 24 r 5 prescribes the form of a list of documents made in compliance with a Court Order made under RHC O 24 r 3.  K & WM further requested inspection of the documents in the list within 7 days.  No reply was received from the Defendant.

11.  Also on 31 July 2020, the Plaintiff issued a summons[4] for an unless order requiring the Defendant to comply with the Specific Discovery Order within 14 days, failing which the Defence shall be struck out, the Defendant shall be debarred from defending this action, and the Plaintiff shall be at liberty to enter judgment against the Defendant (“2nd Unless Order”).

12.  On 1 September 2020, Messrs Kelvin Cheung & Co (“KCC”) filed a notice to act on behalf of the Defendant. 

13.  On 14 September 2020, Master Chow granted an Order extending the time for the Defendant to comply with the Specific Discovery Order within 7 days. 

14.  On 21 September 2020, the Defendant filed and served an Affidavit of Luk Wing Hung[5] exhibiting a signed copy of the Defendant’s 3rd Affirmation (“Wu 3”) in purported compliance with the Specific Discovery Order.  Wu 3 was sworn before a notary public in Canada on 22 September 2020.  In paragraphs 1 and 2 of Wu 3, the Defendant stated that the affirmation was made for the purpose of complying with the Specific Discovery Order and to replace the homemade affirmation he sent to K & WM by email on 29 June 2020.  At paragraph 11 of Wu 3, the Defendant indicated that a Supplemental List of Documents would be filed giving discovery of the documents which were in his possession. 

15.  On 25 September 2020, K & WM sent a letter to KCC stating that Wu 3 failed to comply with the Specific Discovery Order. 

16.  On 6 October 2020, the Defendant filed his sworn Wu 3. 

17.  On 5 November 2020, the Defendant filed and served the Supp List. 

18.  On 14 December 2020, Master Kot ordered that pending the Plaintiff’s application for judgment pursuant to the Unless Order, the CMS hearing be adjourned sine die with liberty to restore and that the Plaintiff’s solicitors do inform the Master within 7 days upon determination of the application for judgment. 

19.  On 7 and 22 January 2021, the Plaintiff and the Defendant filed the Judgment Summons and the Relief Summons respectively. 

Deliberation

20.  RHC O 2 rr 4-5(1) provide:

“4. Sanctions have effect unless defaulting party obtains relief (O. 2, r. 4)

Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.

5. Relief from sanctions (O. 2, r. 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.”

21.  An unless order is peremptory in nature in that it directs a party to perform a certain act by a certain date and specifies the consequences of default.  Such an order is, by its nature, intended to mark the end of the line for a party who has failed to comply with it and any previous orders of the Court: Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666, 1676 per Auld LJ.

22.  The effect of RHC O 2 r 4 is that it is not for the party seeking to take advantage of a default to apply to the Court in order to render a sanction for that default effective.  Instead, the sanction takes effect immediately and it is for the party in default to apply for relief from the sanction.  Only if there is an application for relief from the sanction is the Court required to consider whether, in all the circumstances, it is just to make an order granting relief from the consequences that would otherwise follow: Daimler AG v Leiduck [2012] 3 HKLRD 119 at [47] per Fok JA (as he then was).

23.  In Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606, Fok J (as he then was) set out the relevant legal principles as follows:

“ 35. Ribeiro J [in Chan Chun Lung Allen & Anor v Ryland Limited & Ors, unrep, HCA 4904/1996, 26 August 1999] 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.’

…

38. … 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)).” (emphasis added)

24.  It is not in dispute that by reason of the terms of the Unless Order, the Defence has been struck out since the sanction imposed by it takes effect immediately.  The question is whether relief from sanction should be given.

25.  Going through the list of circumstances in RHC O 2 r 5(1), this court’s view is as follows.  

26.  As for (a), the interests of the administration of justice require that Orders of the Court must be complied with and that the parties are held to their obligation to assist the Court in furthering the underlying objectives of the CJR. 

27.  It is true that, at the material time, the Defendant was not legally represented and out of the jurisdiction.  It is also true that the Defendant had tried to comply with the Unless Order by emailing to the Plaintiff’s solicitors the Purported List.  But even in cases involving litigants in person, the same procedural discipline applies as with litigants who are legally represented: AXA China Region Insurance Co Ltd v Leong Fong Cheng [2016] 6 HKC 220 at [53].  To hold otherwise would encourage litigants who can afford legal representation to act in person with the unrealistic expectation that they can flout the Rules of the High Court with impunity.  This is clearly not conducive to furthering the underlying objectives of CJR. 

28.  Further, when one looks at the Purported List, it merely provides a generic description of the documents said to be in the Defendant’s possession and is fairly useless to the Plaintiff for the purpose of eg inspection or monitoring whether the discovery given by the Defendant is adequate.  As a layman, the Defendant may or, as submitted by Mr Cheung in his skeleton, may not know the proper format or the legal requirements associated with a list of documents.  But if he were in doubt, common sense would dictate that he should seek legal advice and assistance before sending out the Purported List to K & WM, instead of months afterwards.  There is no explanation as to why the Defendant delayed in seeking legal assistance when he clearly could afford it. 

29.  As for (b), the Relief Summons was issued way out of time.  Instead of 14 days from the deadline imposed by the Unless Order, it was issued only on 22 January 2021, notwithstanding KCC had been on the record as the Defendant’s solicitors since 1 September 2020.  The Defendant’s summons for an extension of time to apply for relief from sanction was filed even later ie on 22 June 2021, 2 days before the hearing.  It was only in view of Mr Wong’s frank admission that no prejudice would be occasioned to the Plaintiff that an extension of time was granted at the beginning of the hearing. 

30.  As for (c), it seems to this court that the failure to comply with the Unless Order, by failing to file and serve a proper list of documents on or before the deadline, was either intentional or at least reckless. 

31.  The Defendant was obviously aware of the terms of the Unless Order, and the consequences of his failure to comply; otherwise, he would not have sent the Purported List to K & WM.  As this court notes earlier, if the Defendant were in doubt as to how to properly comply with the Unless Order, he should seek legal advice and assistance immediately.  But he had not and there was no explanation, financial or otherwise, why he did not instruct a solicitors firm to act on his behalf, especially when he was out of the jurisdiction.  The inference must be that the Defendant did not care whether his Purported List complied with the Unless Order and took a conscious risk that it might not.  Whether or not one describes that attitude as intentional, reckless or sheer indolence, it is clearly culpable. 

32.  As for (d), the Defendant’s explanation for non-compliance with the Unless Order ie he was acting in person and out of the jurisdiction, he did not understand the court procedure relating to compliance with the Unless Order or the formality regarding the filing of a list of documents, and he thought he had duly complied with the Unless Order[6], is clearly not good enough.  The reasons have already been set out above in relation to (a) and (c).

33.  As for (e), the Defendant has also failed to comply with the Specific Discovery Order, resulting in the Plaintiff’s summons for the 2nd Unless Order. 

34.  As for (f), the failure to comply with the Unless Order was caused by the Defendant himself, as he had chosen to be unrepresented at the time.

35.  As for (g), for reasons explained earlier, the Defendant was obviously aware of the terms of the Unless Order and the consequences of his failure to comply.  To give the Defendant the benefit of the doubt, this court is prepared to assume he was unable to comply with it without legal assistance. 

36.  As for (h), the CMS hearing had been adjourned sine die and no trial date has been fixed.

37.  Lastly, regarding (i) and (j), the effect on the Plaintiff of the Defendant’s failure to comply with the Unless Order is that the progress of this action has been delayed.  However, by 5 November 2020, the Defendant has filed and served the Supp List.  While the Plaintiff complains, in the 4th Affidavit of Cheng Wah Kin Alex at paragraph 20, that there are problems with the Supp List, there is no elaboration as to what those problems are.  Even if the Supp List is defective, the Plaintiff is not without remedy.  This is not to say that delay per se is not prejudice to the Plaintiff - it obviously is.  But one must assess and compare the severity of the prejudice to the Plaintiff by reason of the delay with the severity of the prejudice to the Defendant by refusing relief from sanction. 

38.  As for the effect of the grant of relief, the Plaintiff will have to prove its claims at trial, given that it did not see fit to apply for summary judgment against the Defendant.  This is a task that every plaintiff has to undertake in similar circumstances.  On the other hand, the effect of refusing relief is that the Defendant will be denied the opportunity to defend himself against the very serious allegations made against him of receiving secret profits, secret commissions and/or bribes.  According to the draft Judgment annexed to the Judgment Summons, the quantum of the Plaintiff’s claims against the Defendant is over RMB35 million.  The Plaintiff is also seeking various declaratory reliefs on the basis that the Defendant had received secret profits.  Mr Cheung submits that the consequences are too harsh and disproportionate to the Defendant’s failure to file a proper list of documents. 

39.  Considering the matters set out above, and looking at them in the round, this court is of the view that, in the exercise of its discretion, relief should be granted to the Defendant under RHC O 2 r 5 and shall so rule. 

40.  For the avoidance of doubt, this ruling in no way condones the culpability of the Defendant which will be reflected in this court’s Order on costs - it simply reflects this court’s agreement with Mr Cheung that the consequences of refusing relief are too harsh and disproportionate. 

41.  As for paragraph 2 of the Relief Summons ie the Supp List filed on 5 November 2020 do stand as the formal List of Documents of the Defendant, Mr Wong accepts that if this court were to grant relief from sanction, he would not dispute the grant of paragraph 2 as well. 

Disposition and costs

42.  There shall be an Order in terms of paragraphs 1 and 2 of the Relief Summons and no Order on the Plaintiff’s Judgment Summons.

43.  The parties have made submissions to this court on costs at the hearing.  Suffice it to say that Mr Cheung does not resist costs in the event this court grants relief from sanction but he opposes that costs should be taxed on an indemnity basis, as sought by Mr Wong.  Having considered the parties’ submissions, this court agrees with Mr Wong that this is an appropriate case for granting indemnity costs and shall so order.  

44.  There shall be an Order that costs of and occasioned by the Relief Summons and the Judgment Summons be to the Plaintiff, to be taxed on an indemnity basis if not agreed, and paid by the Defendant forthwith, certificate for counsel.