POSTWELL LTD v. CHENG KAP SANG

HCA2799/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2799 OF 1999

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REASONS FOR DECISION

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1. By a Notice of Appeal dated 16 June 2003, the defendant Mr Cheng Kap Sang applied for an extension of time to appeal Master Kwan's order made over four years ago on 29 April 1999, and to appeal that order if the extension was granted. At the hearing on 17 July 2003, I dismissed the defendant's application with costs to be taxed if not agreed. I now give the reasons for my decision.

Background

2. The plaintiff, Postwell Limited, is the registered owner of Shops Nos.7A, 7B and 7C, Ground Floor, Federal Plaza, Federal Mansion, No.471 Castle Peak Road, Kowloon, Hong Kong ("the Shop").

3. By a written tenancy agreement dated 7 April 1998, the plaintiff let the Shop to the defendant for a fixed term of three years from 10 April 1998 to 9 April 2001 at the monthly rent of HK$65,000.00 for the first two years, and at HK$75,000.00 for the third year ("the Tenancy Agreement").

4. The defendant failed to pay rent as from 10 January 1999. The plaintiff instructed Messrs Gallant Y.T. Ho & Co. ("Gallant Ho") to demand payment. By a letter dated 10 February 1999 to the defendant, Gallant Ho stated, inter alia, the following :

"We are instructed to give you notice, which we hereby do, that unless the said sum of HK$173,148.50 is paid into our office or to our client direct on or before 12th February 1999, you will be deemed to have evinced an intention not to be bound by and in wrongful repudiation of the Tenancy Agreement. In that event, our client will accept your wrongful repudiation of the Tenancy Agreement."

5. The defendant failed to respond to the demand. The plaintiff commenced proceedings on 13 February 1999 to claim, inter alia, damages for repudiation of the Tenancy Agreement.

6. Upon the defendant failing to file any notice of intention to defend, the plaintiff successfully applied for a final and interlocutory judgment on 25 March 1999 ("the Default Judgment"), pursuant to which the defendant was required to deliver vacant possession of the Shop, pay specific sums including mesne profits until delivery of vacant possession, and damages for repudiation of the Tenancy Agreement.

7. By summons dated 12 April 1999, the defendant applied to set aside the Default Judgment. The summons was heard by Master Kwan on 29 April 1999. At the hearing, the defendant, who was not legally represented, reached an agreement with the plaintiff through its solicitors and by consent the defendant's summons was dismissed with costs ("the Consent Order").

8. Thereafter, the plaintiff sought to enforce the Default Judgment by issuing a Writ of Possession and Fieri Facias Combined on 21 February 2000. By the time the Writ of Possession and Fieri Facias Combined was executed on 7 March 2000, the defendant was indebted to the plaintiff by way of mesne profit and interests in the sum of HK$180,774.90, which sum was paid by the defendant upon execution of the writ.

9. By a letter dated 8 March 2000 to the plaintiff, the defendant purported to notify the plaintiff that the defendant did not intend to continue the Tenancy Agreement by renting the Shop for the third year and would be surrendering the Shop on 10 April 2000.

10. By a letter dated 15 March 2000, Gallant Ho for the plaintiff replied that the tenancy under the Tenancy Agreement was for a fixed term of three years with no provision for earlier termination, and that the Tenancy Agreement had already been terminated by the plaintiff's instituting legal proceedings.

11. The defendant then instructed solicitors to represent him. By a letter dated 13 April 2000, the defendant through Messrs Ong & Chung informed Gallant Ho that he would deliver possession of the Shop on 18 April 2000, and he did.

12. By a letter dated 16 May 2000, Gallant Ho informed Messrs Ong & Chung, inter alia, that the plaintiff was unable to let the Shop and would be claiming against the defendant damages, part of which were set off by the rental deposit.

13. The plaintiff proceeded with taxation of costs and pursuant to an Allocatur dated 3 December 2001, the defendant was indebted to the plaintiff taxed costs in the sum of HK$44,683.99.

14. Further, the plaintiff proceeded with the assessment of damages for repudiation of the Tenancy Agreement. The defendant continued to be represented by Messrs Ong & Chung who attended various interlocutory hearings in relation to the assessment. Witness statements and expert reports were exchanged between the plaintiff and the defendant. The hearing for the assessment was fixed for 18 and 19 August 2003.

15. As mentioned, by a Notice of Appeal dated 16 June 2003, the defendant through a new firm of solicitors Messrs Knight & Ho applied for extension of time to appeal the Consent Order.

The defendant's grounds in support of the application to extend time

16. In support of his application, the defendant filed an affidavit on 16 June 2003 with the assistance of Messrs Knight & Ho. The defendant alleged that he changed solicitors on or about 14 May 2003 and the new solicitors Messrs Knight & Ho advised him that the plaintiff was not entitled to claim "damages for repudiation of the Tenancy Agreement" since the plaintiff's claim was based on forfeiture of the tenancy. I will describe this as the "Repudiation Issue". He therefore instructed Messrs Knight & Ho to appeal against the Consent Order.

17. At the hearing before me, the defendant was no longer legally represented. By reference to a written document, which was produced for the first time at the hearing, the defendant made the following additional submissions :

(1)	The defendant suffered loss of business and started to default in paying rent and management expenses owing to diminished flow of visitors to the shopping mall, which in turn was caused by the malfunctioning of the mall's air conditioning system.
(2)	The plaintiff sought to recover possession of the Shop on the ground that the use of Shop as a restaurant infringed the relevant deed of covenants.
(3)	The defendant alleged that he was induced to drop his application to set aside the Default Judgment by an oral representation one Mr Chan Kwok Kong of Gallant Ho made to him at the hearing before Master Kwan to the following effect :
	"業主只是要你交租，不會有其他。
	這判令只是業主兩手準備。"
	(roughly translated as : "What the plaintiff wants is payment of rent. There will not be any other thing. The court order sought is only a kind of "belt and braces" preparation on the part of the plaintiff.")
	The defendant said he was further induced by this representation to pay the arrears of the rent by cheque and to continue to pay rent until mid April 2000.
(4)	Under the Tenancy Agreement, there was no agreement on a fixed term of three years. Instead, the defendant was entitled to give notice to terminate the tenancy after the first two years. The provision of a fixed term of three years was added by a subsequent manuscript amendment which was not initialled by the parties. I will describe it as the "Fixed Term Issue".
(5)	The defendant would rely on Barnes J's decision in Hop Woo Cheung Enterprises Ltd v. Intergroup Industries Ltd [1982] HKC 436.

The plaintiff's grounds of opposition

18. Mr Lawrence Ng, counsel for the plaintiff, submitted that the defendant's applications should be dismissed for the following reasons :

(1)	The court should not re-open the compromise embodied in Master Kwan's Order;
(2)	The defendant's application is an abuse of process of the court as the defendant could and should have pursued his arguments at the hearing before Master Kwan;
(3)	The defendant is estopped by his own conduct as he had all along accepted the Consent Order and proceeded with the assessment of damages; and
(4)	There has been inordinate and inexcusable delay in making the application.

The compromise

19. The Consent Order of Master Kwan was made consequent upon the parties reaching a compromise. It is a matter of public policy that the court should enforce compromises which are agreed in good faith. The court will only set aside a compromise in exceptional circumstances where, for example, there was unconscionable conduct on the part of the party seeking to enforce the compromise.

20. In Colchester B.C. v. Smith [1992] Ch 421, at p.435 D-E, Butler Sloss LJ said :

"Where parties to a dispute reach a compromise which brings that dispute to an end and avoids the need for litigation or further litigation, such a compromise is a valuable part of the resolution of disputes within the machinery of the administration of justice. The compromise has to be genuine, entered into freely by all parties to it without concealment of essential information or undue advantage taken by one party of another party, and preferably with the assistance of lawyers. Consequently, an agreement to compromise an action or a dispute which may lead to litigation is binding and is enforceable against the party seeking subsequently to repudiate it. As Roskill L.J. said in Binder v. Alachouzos [1972] 2 QB 151, 160, 'Any other course would cause very great difficulty in the administration of justice.'"

21. If a compromise is induced by a false representation of a material fact, it can be set aside at the instance of the party misled. I have, however, no hesitation in rejecting the defendant's allegation in this regard.

22. Firstly, this allegation of misrepresentation by the solicitor of Gallant Ho was raised for the first time only at the hearing before me. It was not mentioned in the defendant's affidavit filed on 16 June 2003 in support of the application to extend time to appeal. The affidavit was prepared with the assistance of Messrs Knight & Ho and set out the circumstances in which the Consent Order was made. This allegation appears to me to be a recent fabrication on the defendant's part.

23. Secondly, even if the solicitor of Gallant Ho did utter the words alleged by the defendant, these words cannot amount to a representation on behalf of the plaintiff that it would not enforce the Default Judgment by obtaining possession and claiming damages.

24. The court must proceed with great care when the defendant was not legally represented at the time when the compromise was reached. However, the operation of the relevant legal principles cannot depend on whether a litigant is or is not legally represented.

25. In any event, in April 2000, the defendant instructed Messrs Ong & Chung to advise him when he was pressed by the plaintiff to deliver vacant possession of the Shop. It seems to me inconceivable that Messrs Ong & Chung would not have advised the defendant to take steps to impeach the compromise had the defendant informed Messrs Ong & Chung of the alleged misrepresentation.

26. This is sufficient for the purpose of dismissing the defendant's application. However, for completeness, I shall go on to deal with some other issues raised in this application.

Abuse of process

27. Mr Ng argued that the defendant was abusing the process of the court by raising in subsequent proceedings matters which could and should have been brought forward and determined in earlier proceedings (see Henderson v. Henderson 3 Hare 100, Yat Tung & Co. v. Dao Heng Bank Ltd [1975] AC 581, at 590A-B, and Cornhill Insurance Plc v. Barclays and others, 6 October 1992, unreported, at pp.6-7, 8-9, and 11 of the transcript copy).

28. It was submitted that the arguments now raised by the defendant such as the "Repudiation Issue" and "the Fixed Term Issue" could and should have been raised at the hearing before Master Kwan. In this connection, it does not matter whether the hearing before Master Kwan terminated as a result of an adjudication or a compromise. In Johnson v. Gore Wood & Co. [2001] 2 WLR 72, Lord Bingham said at p.91H to 92A :

"The second subsidiary argument was that the rule in Henderson v Henderson 3 Hare 100 did not apply to Mr. Johnson since the first action against GW had culminated in a compromise and not a judgment. This argument also was rightly rejected. An important purpose of the rule is to protect a defendant against the harassment necessarily involved in repeated actions concerning the same subject matter. A second action is not the less harassing because the defendant has been driven or thought it prudent to settle the first; often, indeed, that outcome would make a second action the more harassing."

29. I do not think the present case is one where the rule in Henderson v. Henderson applies. This is not a case of re-litigation where parties are seeking to raise points which could and should have been raised in the earlier litigation which was resolved by way of the Consent Order. It is a case where the defendant is seeking to overturn that very order by way of appeal albeit out of time.

30. However, as was emphasized by Bingham LJ in Johnson v. Gore Wood & Co., ibid, at p.90E, one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. At 90A-B, Bingham LJ said :

"The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole."

31. Looking at the conduct of the defendant as a whole, in particular, in conducting himself on the basis that the Consent Order was binding on him for over four years, and in raising spurious arguments to impeach the compromise underlying the Consent Order after such a long delay, I am of the view that the defendant is abusing the court's process by making the present application, which accordingly must be dismissed.

The court's discretion to extend time to appeal

32. If I were wrong to dismiss this application by reason of the compromise or abuse of the court's process, I would still have dismissed the application by refusing to extend time as a matter of discretion. I can see no good reason why I should allow the defendant to impeach the compromise after such a long and inexcusable delay and after he had been conducting himself on the basis that the Consent Order was binding on him.

33. In considering whether to extend time to appeal, the court has to consider the following factors :

(1)	the length of the delay;
(2)	the reasons for the delay, in terms of firstly why the original time limit was not complied with and, secondly, why the application for extension of time could not have been made earlier;
(3)	the chances of the appeal succeeding if leave given; and
(4)	the prejudice to the other party if application is granted.

The length and reasons for the delay

34. In Mobil Petroleum Co. Inc. v. Registrar of Trade Marks [2001] 1 HKLRD 226, after reviewing some recent authorities regarding the court's discretion to extend time pursuant to Order 3, rule 5 of the Rules of the High Court, Hartmann J said at p.241B-D :

"While there may, at the time when Kaplan J gave his judgment in Bristol-Myers, have been two differing approaches, I am satisfied that with the judgments in Mortgage Corp Plc v Sandoes [1997] PNLR 263 and Finnegan v Parkside Health Authority [1998] 1 WLR 411 the law is now settled as to the correct principle to be adopted in the exercise of the court's discretion under O.3 r.5. It is not the principle adopted by Kaplan J; namely, that before any discretion is exercised, there must first be an acceptable reason for any delay. It is instead the principle that all matters, including the adequacy of any reason for delay, must be considered, the one to be weighed against the other, in the exercise of the court's discretion."

35. In Mobil Petroleum, extension of time was sought to file a notice of opposition to register a trade mark. Here, the time extension sought is to appeal against an order refusing to set aside a final and interlocutory judgment entered into back in 1999. Although I agree with Hartmann J that the absence of an acceptable explanation for the delay does not preclude the court's discretion to extend time, I am of the view that in applications for extension of time to appeal an adverse order or adjudication, as opposed to extension of time to remedy other procedural default, the court should be slow to accede to the application in the absence of an acceptable reason for the delay.

36. Insofar as the defendant was seeking to impeach the compromise to support the present application, no explanation, not to mention satisfactory explanation, has been given as to why he had not applied for extension of time to appeal earlier. In his affidavit of 16 June 2003, apart from alleging his limited education and understanding of court proceedings, the only reason given by the defendant for the lateness in the application was that the defendant only received advice from a new firm of solicitors recently on the "Repudiation Issue".

37. The delay of over four years is very substantial indeed. I am not at all satisfied with the defendant's explanation for the delay. Although the defendant was acting in person before Master Kwan and at the hearing before me, he had in fact been represented by two firms of solicitors in the intervening four years and had the benefit of their advice.

Merits of the appeal

38. As to the relevance of the merits of the appeal, what was said by Keith J (as he then was) in Chiu Sin-chung v. Yu Yan-yan Angela and Another [1993] 1 HKLR 225, at 228, line 25, is instructive :

"As for the merits, they will play little part in the balancing exercise if the delay is short and is wholly excusable, but where the delay is substantial and is not wholly excusable, much more merit is required to overcome it: Steed, p.455G-H, distinguishing Palata Investments Ltd. v. Burt & Sinfield Ltd. [1985] 1 WLR 942 from Rawasdeh v. Lane (Court of Appeal (Civil Division) Transcript No.327 of 1988)."

39. The delay in this case is over four years. It is both inordinate and inexcusable. The burden on the defendant to show merits is a very heavy one indeed. I have already said the defendant's allegation of misrepresentation against Gallant Ho for the purpose of impeaching the compromise is spurious.

40. As to the Repudiation Issue, in the contemporaneous correspondence, Gallant Ho had made it clear that the defendant's refusal or inability to remedy the breach of the Tenancy Agreement by paying the arrears of rent before a stipulated date would be treated as repudiation. I can see nothing which can suggest the Tenancy Agreement was terminated by forfeiture as alleged or at all.

41. In Hop Woo Cheung Enterprises Ltd v. Intergroup Industries Ltd [1982] HKC 436, the very case which the defendant submitted to me at the hearing, Barnes J accepted that the principles regarding acceptance of repudiation applicable to ordinary contracts also applied to the tenancy agreements (see p.440I to 441A). In Hop Woo Cheung, failure to pay two instalments of rent following 24 punctual payments was held not serious enough to amount to repudiation. Here, however, the defendant started to default in rental payment in the first year of the tenancy and had continued to default notwithstanding the plaintiff's specific intimation that failure to pay by the imposed deadline would be treated as repudiation of the Tenancy Agreement.

42. As to the Fixed Term Issue, it was expressly provided in the body of the Tenancy Agreement that the tenancy was one for a fixed term of three years. The same provision in fact also appeared at the front cover of the Tenancy Agreement. I reject any suggestion of forgery or unauthorized additions by the plaintiff. In any event, it was clearly stated in Gallant Ho's letter dated 15 March 2000 that the Tenancy Agreement had a fixed term of three years and that it had already been terminated by the plaintiff's instituting legal proceedings. The defendant's then solicitors Messrs Ong & Chung, who were instructed in April 2000, did not question Gallant Ho's assertions at all.

43. Accordingly, there is no real prospect of success on any of the grounds the defendant is relying on. Even if extension of time is given, I would have dismissed the appeal from the Consent Order.

Prejudice

44. Prejudice to the plaintiff is another ground of my refusal to grant the time extension sought. As Keith J said in Chiu Sin-chung at p.228, line 22-24, the existence of prejudice to a would-be respondent is a ground for refusing an extension of time, but the absence of prejudice to a would-be respondent is not a ground for extension of time.

45. Since the Consent Order was made, the defendant had taken active steps including delivering vacant possession, paying the mense profits demanded, contesting the assessment of damages, which all point to his acceptance of the validity of the Consent Order. The plaintiff has also been proceeding on the same basis, taking active steps and incurring costs to enforce the final and interlocutory judgment. The plaintiff might not have preserved the evidence necessary for establishing the defendant's liability. To grant the defendant the extension of time to appeal now will plainly cause the defendant serious prejudice. This is another ground for refusing to extend time.

46. In connection with the conduct of the defendant in abiding by the Consent Order, Mr Ng sought to rely on "estoppel" as a separate head for dismissing the defendant's application. I have reservation whether estoppel by convention as enunciated by Lord Denning MR in Amalgamated Investment and Property Co. Ltd v. Texas Commerce International Bank Ltd [1982] QB 84, at 122, could give rise to a separate ground independent of inexcusable delay or abuse of the court's process. In Johnson at p.92D-G, when Bingham LJ referred to Amalgamated Investment, the learned judge was dealing with the defendant's argument that the plaintiff was estopped from raising the abuse argument because by conduct he had tacitly agreed to forgo the defence based on abuse. It does not support the wider proposition advocated by Mr Ng that "estoppel" would per se be an independent ground for refusing to entertain this application to extend time. However, in view of my ruling on the other issues, it is unnecessary for me to decide the point.