FABRIQUE EBEL SOCIETS ANONYME v. MBO FAR EAST (HK) LIMITED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_____

BETWEEN

________

RULING

________

1. This application arises in "pending" contempt proceedings. It is made by Mr. Liao for the applicants in the proverbial white sheet. On one view of the facts it may be that all the parties should be similarly garbed.

2. It arises in this way. The contempt proceedings were started by a notice of motion dated 19th October 1984. There are four parties named in the notice. The first is a limited company by the name of MBO Far East (Hong Kong) Limited; the second is a director of that company, Mr. Kleiber; the third is another limited company - Hemsley International Watch and Jewellery Limited; and the fourth is a Mr. Auinger who is the director of Hemsley. The notice of motion seeks leave to issue a writ of sequestration against these two companies and orders for committal against the individuals.

3. Subsequent to that, on the 2nd November Hemsley and Auinger applied for an order for security of costs, which stands adjourned generally. On 23rd November all parties came before me. I gave directions for the filing of evidence, and stood the motion over to a date to be fixed with an estimated length of time of four days. That date has now been fixed. Evidence has been filed pursuant to that direction; two affidavits by the first two respondents; three affidavits by the 3rd and 4th respondents, and two affidavits in reply.

4. It was, I think, immediately after the last hearing before me that doubts as to the sufficiency of the procedures which had been followed in this case were expressed, which surfaced in a summons taken out by the first two respondents which was going to be returnable before a Master this afternoon. This was countered by the application returnable before me this morning taken out by the applicants. The problem is that the applicants got away to a false start. Since the 1st June of this year, when the relevant alteration to O. 52 was gazetted, it has been necessary to obtain the leave of a judge under O.52 r.2 before launching any application for committal. There is no similar requirement in respect of sequestration. The two relevant rules there of O.45 r.5 and O.46 r.6. These provide that no writ of sequestration can be issued without leave, and lay down the procedure for obtaining that leave. That procedure does not require the parties to get leave first of all to launch the application far leave.

5. So that there is nothing wrong with the two parts of a notice of motion asking for writs of sequestration. The error arises in respect of the applications for committal, because a distinction is drawn here between applications to issue execution on property, and applications which affect the liberty of the subject. I apprehend that the filter process introduced by O.52 r. 2 requiring a single judge to give leave, is intended to avoid persons being harassed by applications for committal which are either obviously unfounded or oppressive, or perhaps applications which have some suspicion of oppression about them. I will return to that concept later.

6. So that the position is this. The applicants have launched their application without first obtaining leave under O.52. In those circumstances they invite the court, to regulate the proceedings by a necessary assuaging order under O.2 r.1; an order which would retrospectively give them leave and direct that the proceedings are to continue as if leave had initially been granted.

7. Three points have been taken on this. The first is whether or not this is the sort of mistake in respect of which discretion can properly be exercised under O.2. The second is, if it is that sort of case, upon what terms should it be exercised, and particularly should the court say anything in relation to security of costs. Thirdly, have the respondents by their conduct waived the objection having regard to the provisions of O.2 r.2.

8. O.2 r.1 follows verbatim the change in the rules introduced in England in 1965. That came before the Court of Appeal in Harkness v. Bell's Asbestos and Engineering Limited (1967) 2 Q.B. 729. In the course of giving his judgment in that case the Master of the Rolls, Lord Denning says this: -

"This new rule does away with the old distinction between nullities and irregularities ..... Every omission or mistake in practice or procedure is henceforth to be regarded as an irregularity which the court can and should rectify so long as it can do so without injustice."

I should explain that before this alteration was brought about, a body of case law had developed which drew a distinction (a very difficult dividing line it was) between mistakes which rendered the procedural step a nullity, and mistakes which simply constituted irregularities. What Lord Denning was there saying firmly was that that distinction has now gone. That in substance is why the rule says that a number of failures which are set out "shall be treated as irregularities". That is also I think why the M. R. says that the court not only can, but should, rectify such errors, so long as it can do so without injustice.

9. The matter came before another Court of Appeal in England more recently in Bernstein and Another v. Jackson and Another (1982) 2 All E. R. 807 there this passage from the judgment of Lord Denning's judgment in Harkness was in fact cited with approval. But it does seem to me, with the greatest respect to that second Court of Appeal, that they have come very close to reading into O.2, a distinction which bears a striking resemblance to the old rules about nullities and irregularities. Two reasons were given by Dunn L. J. for his decision in that case. The second reason is plainly within the rule because he says that in the circumstances of that case it was not a proper case for the exercise of discretion. One can well understand that. Before expressing that he also says that it was not the type of irregularity which it was envisaged could be dealt with by the provisions of O.2 r.1. That seems to me to come very close to suggesting that you can have two different types of irregularity under this rule; one which falls within and one which does not. With the greatest respect to Dunn L. J. I can see no basis for that in the language of the rule itself. The decision is simple, if looked at as a case where discretion was not exercised, upon the basis that injustice would be down in that case, because it would give to the applicant through the back door of O.2, what could not be obtained through front door in that case which was 0.6.

10. For my part, I believe that the proper test here is that laid down by Lord Denning in Harkness and that is the test I propose to apply. Or to put it the other way, if there is a distinction as the Court of Appeal in Bernstein seem to accept between a mere technicality or slip or mistaken step and something which they call "fundamental"; then in this particular case I would regard what happened as a mistaken step.

11. I accept that this is a procedure which ought to have been followed. It is an important step in so far it is a protection to the liberty of the individual. I believe that when one finds that a failure like this has taken place, the first question which the court has to ask itself is: What would I have done if an application for leave had been made. And if the answer to that is: I would have granted leave without hesitation: then I think that that is the way to approach this particular application. I have no doubt here that had application been made to me for leave, it would have been granted. In those circumstances I ask myself what injustice is there now in validating proceedings which have continued since last October, on the assumption on everybody's part that they were valid and effective. I cannot see any. So my answer to the first question is that this is a proper case for the exercise of the Court's discretion under r. 2.

12. I move on to the question of terms. This is raised particularly by the second group of respondents who already have an application for security of costs before the court. Mr. Fung has drawn my attention to the fact that one of the matters laid down in 0.52 r.2, which the single judge has to consider, is r.2(7) which is in these terms:-

"If the judge grants leave he may impose such terms as to costs and as to giving security as he thinks fit."

Mr. Fung invites me to say in substance that this is a proper case for security of costs. He recognised that he could not ask me to look at any of the evidence already filed in support of his actual application; but I was asked, as it were, to give myself a direction that this is the proper case for security, upon the hypothesis that the application for security, if restored, is likely to come before me at some future date.

13. I believe that there is a fundamental distinction between the sort of substantive application which has already been lodged by these respondents in this case which, if and when it is restored, will have to be dealt with on its merits, which merits encompass both the merits of the claim or the apparent strength of the motion for contempt, and the merits on the figures. There is a fundamental distinction between that and the sort of case where a single judge granting leave might feel minded to exercise the powers given by sub-rule 7.

14. Speaking for myself I think I would only exercise that power in a fairly glaring or obvious case - Where it seemed to me that there was a serious risk of an apparently impoverished foreign applicant seeking an order for committal against a Hong Kong resident who might then be left with a large bill at the end of it, and who might be the victim of an application which could turn out to have been ill-founded or oppressive. In such circumstances I might be minded to say; "Yes, you could have your leave only if you bring a certain sum of money into court to provide some future security fund." But I think it would have to be a fairly glaring or obvious case for the court to make such an order.

15. I therefore apply the same test to this, as to the first question; would I have made such an order if the matter had come before me in the first instance. Again I think the answer is quite plain that I would not. I would have felt that this was not a glaring case for security, but that, of course, if either of the respondents thought it was a proper case, they will perfectly free thereafter to make that application which would then be determined upon its merits. So that I can see no justification for imposing any condition now under sub-rule 7. So I answer those two questions in the applicants' favour. It follows that the third question does not really arise. That is the question of waiver. One has this qualification in O.2 r. 2(1). "An application to set aside for irregularity ...... shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity."

16. One of the bizarre features of this case is that the application is being made at the end of road and not at the beginning. The four days fixed for hearing are not far away. The evidence is already complete. It is quite obvious that the various steps that have been taken by both respondent groups, the second by applying for security, and both by attending before me on the 23rd November and filing evidence is conduct which constitutes waiver within the authorities collected under O.2 r. 2 and not least, Boyle v. Sacker (1889) 39 Ch. Div. 249. The only question is, at what time if ever, were these respondent "aware" of the irregularity. Now aware there must mean actual knowledge. I am also minded to think it covers the constructive knowledge, the law generally imputes to persons from what the law regards as obvious in fact. I have already indicated this is a highly technical matter. The applicants got into trouble because they overlooked an amendment to the rules which I think unfortunately under our procedure came in, on the day of the amendment, without any locus poenitentiae. I suspect the same thing can be said of the respondents. If they had been looking rather carefully at this notice of motion and the accompanying documents, they would have observed two things. First the notice of motion said nothing about the leave of the court having been obtained - a passage which ought to have been there, in the same way as it ought to be in any notice of motion issued under Order 53.

17. Secondly no statement was served with the documents as is required under 0.52 r. 3(3). I have an uncomfortable feeling that that is sufficient to put both respondents on notice, as a matter of law, that leave had in fact not been obtained. So the steps that they both have taken since probably constitute acts of waiver.

18. In the circumstances my ruling is that I give the applicants leave to institute these proceedings. I think I should also direct that the proceedings are to continue as if leave was given ab initio. The intent is that I am making an order validating the proceedings which up to this moment are invalid.