LONG HAI HONG v. CHAN YU LYDIA AND OTHERS

HCMP 3179/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3179 OF 2013

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DECISION
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1.  This is the appeal of the 2nd respondent (“AJK”) against the order of Master S Lo dated 30 April 2015 (“Order”) granting the applicant (“Long”) relief from the sanction imposed under an Unless Order dated 9 April 2015 (“Unless Order”) which required her to file and serve answers to AJK’s requests for further and better particulars (“Answers”) of the Reply to the Defence of AJK (“Reply”).

2.  In AJK’s Notice of Appeal, it seeks :

(a) an order that paras 3.3, 3.4, 4.1, 4.2, 5.3, 5.4 and 7.3 of the Reply be struck out following Long’s default of compliance of the Unless Order;

(b) alternatively, an order that paras 4.2 and 5.4 of the Reply be struck out following Long’s default of compliance of the Unless Order.

3.  AJK objects to the Order on two grounds :

(a) Long never applied for relief from sanction imposed by the Unless Order; and

(b) The Answers are deficient in respect of Requests Nos 4(3), 5(3)-(4) and 6(1)-(2).

Background

4.  By an Originating Summons issued on 25 November 2013 (amended on 20 January 2014), Long seeks, inter alia, an order under s 100 of the former Companies Ordinance, Cap 32 (“Ordinance”) for rectification of the register of members of AJK (“Register”) in respect of 940,000 shares (“Shares”) currently held in the name of the 3rd respondent (“Liu”) by replacing Liu’s name with hers.  On 21 August 2014, pleadings were ordered to be filed in these proceedings. 

5.  There is no dispute that :

(a) The Shares were transferred from Mr Xing Zhi Rong (“Xing”) to Liu on 6 January 2005.  Liu remained the holder of the Shares until they were transferred by her to Long on 2 November 2011 (“2011 Transfer”);

(b) On 14 June 2013, the Shares were purportedly transferred back from Long to Liu (“2013 Transfer”).  Since then, the Shares have been held by Liu.

6.  Long’s pleaded case is that :

(a) On 6 January 2014, she found out that she had ceased to be a member of AJK by virtue of the 2013 Transfer;

(b) She never consented to or authorized the 2013 Transfer, never received any consideration for the Shares and never delivered or authorized the delivery of any proper instrument of transfer to AJK pursuant to s 66 of the Ordinance;

(c) The registration of the 2013 Transfer is therefore without any consideration, unlawful and is null and void.

7.  On the other hand, it is AJK’s pleaded case that :

(a) The 2011 Transfer was effected by an instrument of transfer and bought and sold notes both dated 2 November 2011, which were on their face signed by Liu (as transferor) and one “龙海紅” (as transferee who AJK believed to be Long), and duly stamped on 7 March 2012.  The documentations and formality for effecting the 2011 Transfer were handled by Mr Lee So (“Lee”) (there is no dispute that Lee was Long’s husband and had passed away);

(b) The 2013 Transfer was effected by an instrument of transfer and bought and sold notes both dated 15 January 2013, which were on their face signed by 龙海紅 (as transferor) and Liu (as transferee) and duly stamped on 14 June 2013.  The documentations and formality for effecting the 2013 Transfer were again handled by Lee;

(c) AJK has no knowledge of the alleged invalidity of the 2013 Transfer.  The arrangements between Liu and Long in respect of the 2011 Transfer and 2013 Transfer were private matters between them.  As far as AJK is concerned, both the 2011 Transfer and the 2013 Transfer had been duly effected and are valid and effective, and it appears that they had been signed by the same person;

(d) Alternatively, if (which is denied) the signatures of 龙海紅 on the instruments of transfer and bought and sold notes in respect of those Transfers were not the signatures of Long, they are void and have no legal effect.  Consequently, the registrations made pursuant to the same are invalid, and Long is not and should never have been registered as a shareholder of AJK.

8.  In the Reply, Long elaborated on her case as follows :

(a) Prior to the 2011 Transfer, the Shares were beneficially owned by Lee;

(b) Lee arranged the 2011 Transfer as a gift of his beneficial interest in them to Long;

(c) Although the purported signatures on the 2011 Transfer documents were not hers, Long expressly authorised Lee to handle all documentations and formalities for effecting the transfer;

(d) Long was and is the legal and beneficial owner of the Shares since 2 November 2011;

(e) The Shares were purportedly transferred to Liu on 14 June 2013 in circumstances unknown to Long and without her consent;

(f) The purported signatures on the 2013 Transfer documents were not hers;

(g) Long is therefore entitled to a rectification of the Register.

The Unless Order

9.  The Unless Order required Long to file and serve the Answers by 4 pm on 23 April 2015.  Long filed the Answers in court within time at about 12:30 pm on 23 April 2015.

10.  On the same day at about 2:30 pm, a clerk of Messrs CWL Partners (“CWL”), Long’s solicitors, wrongly served the Answers on Liu (who was and is separately represented) rather than on AJK.  CWL was alerted to this mistake upon receiving a letter from Messrs Carpio, Mak & To (“CMT”), solicitors for AJK, on the following day.

11.  CWL then took immediate steps to serve the Answers on AJK and did so within the same day.  Although there is no dispute that the lateness in serving the Answers on AJK was the result of a genuine mistake made by CWL and could not have caused AJK any prejudice, AJK did not accept the apology tendered by CWL and insisted that the sanction stipulated in the Unless Order (see para 2(a) above) had taken effect.

12.  Long then made an application to the court by summons dated 27 April 2015 (“Summons”) (see below). 

Stance taken by AJK

13.  With respect, these facts very much speak for themselves.  Taking advantage of a genuine mistake by a staff of CWL when there was no prejudice suffered as a consequence of the short delay in receiving the Answers can only be seen as opportunistic (it will be seen below that this court is unable to find any merit in this appeal), and quite contrary to the objectives enshrined in O 1A, r 1 (“Objectives”). 

14.  If CJR has not achieved the desired change in attitude to litigation, this court would be forced to act.  Unfortunately, the most effective, and possibly the only effective, way to enforce the Objectives is to penalise unreasonableness with costs.  If similar or comparable circumstances arise in the future, this court would have to consider making an award of indemnity costs against the unreasonable party. 

Did Long apply for relief from sanction in the Summons[1]?

15.  The complaint here is entirely technical, and perfectly pointless.  The complaint is that the Summons asked for an extension of time to serve the Answers without applying for relief against sanction (AJK relies upon Daimler AG v Leiduck, CA,[2012] 3 HKLRD 199, §50). 

16.  Mr Chan, who appeared for Long, accepted that the Summons could have been better formulated.  However, it is plain that Long was seeking relief from the sanction imposed by the Unless Order.  Neither the parties nor the learned Master were acting under the belief that the application was only a time summons.  Indeed, the Summons referred to O 2, r 4 in the margin note, under which sanctions are to take effect unless the defaulting party obtains relief.

17.  Further, the affirmation in support of the Summons referred to an “application for relief”.  By the Order, relief from sanction was granted to Long.

18.  It should be noted that in Daimler, supra, it was held that shortcomings in the formulation of the summons ultimately only go to the issue of costs (§§52-53).  In this regard, AJK was awarded its costs below.

19.  Plainly, this complaint is entirely without merit. 

The proper approach to an alleged breach of an unless order

20.  Before I deal with the second complaint of AJK (see para 3(b) above), there are a few interesting points of law raised by the parties concerning how the court should approach an alleged breach of an unless order.  Although the resolution of this appeal does not turn upon those points of law, out of deference to counsel, I shall set out my understanding of the same.

21.  I start with Lau Chi Wang & Ors v Ip Fook Chuen & Anr [2003] 1 HKLRD 485.  In that case, there was an unless order for the provision of specific discovery, and there were arguments on whether that order was complied with.  The proper approach was considered by Sakhrani J who applied Reiss v Woolf [1952] 2 QB 557, and held in paras 30-35 that :

(a) An “unless” order would be construed as a time order if it dealt with the time of compliance rather than the mode of compliance;

(b) In such case, a default referred to a default in the delivery of a document within the specified time;

(c) This did not mean that any document would suffice.  It must be a document made in good faith and not illusory.

22.  In other words, where the court is dealing with an unless order which has been construed as a time order, the issue of compliance will turn upon whether the deadline has been met but not on the adequacy of compliance, eg, whether the request for particulars has been sufficiently answered, unless it can be said that the compliance is not made in good faith or illusory.

23.  Reiss, supra, is no longer good law in England.  It was disapproved in QPS Consultants Ltd v Kruger Tissue Ltd [1999] BLR 366 at 371.  It was held in the latter case that the modern approach was that if an unless order was breached, the court had a wide discretion to do whatever was required in the interest of justice.  It was not necessary to find that the particulars was illusory or that no genuine attempt had been made to answer them. 

24.  In other words, even where the deadline has been met under a time order, the court may consider the adequacy of the compliance in the exercise of its discretion to meet the interest of justice. 

25.  However, as Sakhrani J held in para 34 of Lau Chi Wang, supra, the position in Hong Kong is that Reiss remains good law in light of the Court of Appeal judgment in Ka Wah Bank Ltd v Low Chung-song & Anr [1989] 1 HKLR 451, which applied Reiss at 459B and 460B.

26.  Reiss was again applied by the Court of Appeal in Telford Development Ltd v Shui On Construction Co Ltd, CACV 149/1989, unrep, 1 March 1990 at p 10.

27.  In the circumstances, this court must be bound by the principles adumbrated in Reiss.   

28.  I next turn to Daimler.  The relevant point of principle which can be derived from that authority is that where there is a breach of an unless order it would be relevant to the exercise of discretion whether to grant relief from sanction to consider whether the compliance (in that case the answers provided to interrogatories) is sufficient (§54).  The rationale identified was that if the answers were insufficient, relief would be conditional upon compliance with an order to provide further answers.

29.  It is important to bear in mind that Reiss (and QPS Consultants[2])applies to the question whether an unless order has been breached, whereas Daimler is relevant to the question of relief against sanction where an unless order has been breached. 

30.  However, Reiss was not considered in Daimler,and there is no reason to believe that this court is free to apply the “modern approach” of QPS Consultants.   

31.  Further, it may be seen that the analysis in para 44 of Daimler is consistent with Reiss:

“One may test the matter by asking whether, had the answers to the interrogatories been filed within time under the Unless Order, the automatic sanction would have taken effect.  Mr Wong submitted that it would have.  On the facts of this case, we do not agree.  Two of the six answers were sufficient.  The claim to LPP in respect of the other four could not be determined to be inadequate without some further analysis.  Indeed, that would appear to be the reason why the defendants issued their summons dated 27 January 2011 seeking, “for the avoidance of doubt”, an order that the plaintiff’s Points of Defence re Fraud be struck out for failing to file the answers in time.  The summons itself recognised the element of doubt.”

Adequacy of the Answers to Requests 4(3), 5(3)-(4) and 6(1)-(2)

32.  The relevant pleads, requests and answers are as follows :

Request 4(3) (in relation to §4.2 of the Reply)

33.  Para 4.2 of the Reply pleads that “the changes in shareholders … were carried out pursuant to the requests and directions of [Lee]”.

34.  AJK requested Long to identify (1) the date on which, (2) the persons to whom, and (3) the place at which the directions were made, as well as (4) a full description of the contents of such requests and directions.  Long stated in the Answers that :

“[Long] did not know the details of the oral requests and directions made by [Lee]. [Lee] told [Long] that he had made such requests and directions”.

Requests 5(3)-(4) (in relation to §5.3 of the Reply)

35.  Para 5.3 of the Reply pleads that “[Long] expressly authorised [Lee] to handle all documentations and formalities for effecting the 2011 Transfer, including executing any legal documents on her behalf”.

36.  Request 5(3) sought particulars on the (1) date, (2) place and (3) precise words used if the authority was given orally, to which [Long] answered:

“[Long] cannot recall the exact date on which the authority was given or the precise words used. As far as [Long] can recall, it was given in or about October and/or November 2011 in Beijing.”

37.  Request 5(4) asked whether [Long] in fact used the words “legal documents” in giving the alleged authorisation and, if so, what “legal documents” [Long] referred to, to which [Long] answered that she “cannot recall the exact words used”.

Requests 6(1)-(2) (in relation to §5.4 of the Reply)

38.  Para 5.4 of the Reply pleads that “[Long] did not personally execute any instrument of transfer or bought and sold notes in respect of the 2011 Transfer, but [Long] was informed by [Lee] that the formalities and documentation have been duly completed by him on her behalf”.

39.  Requests 6(1)-(2) required [Long], in respect of the first part of para 5.4, to identify the person(s) who signed the 2011 Transfer documents and the date on which they were signed.

40.  Long took the view that these were not proper requests and declined to answer them.

41.  However, a substantially similar request was made under Request 7(4) which Long answered as follows:

“[Long] has no knowledge as to who physically appended the signature of “龙海红” on the 2011 Transfer Documents.  As far as [Long] is aware, [Lee] procured the execution of the 2011 Transfer Documents with the authority of [Long]”.

Analysis

42.  There is no dispute that the Unless Order was breached.  According to Daimler, this court has to consider the sufficiency of the Answers. 

43.  Before I deal with the nature of the exercise to determine the sufficiency of the Answers, I should say that the Answers, taken as a whole, leave no doubt as to what Long’s case is.  As regards the 2011 Transfer, which is the focus of AJK’s criticisms, that transfer was handled by Long’s late husband with her authority, and she knows little of the details. Further, Long can no longer recall what was said between her and her late husband back in 2011. 

44.  I am unable to see anything unfair or lacking in Long’s pleaded case.  She is bound by her pleaded case and particulars.  She cannot be required to provide particulars on matters outside her knowledge or recollection.  I can see no merit in any of AJK’s criticisms of the Answers. 

45.  When the court considers the adequacy of compliance in circumstances of the present type, the exercise is not to put the matters under the microscope thereby turning it, or allowing it to be turned, into a full blown satellite litigation.  I believe that the test is whether the compliance is clearly inadequate.  If so, relief should not be granted. Otherwise, any arguments over the adequacy of compliance should be resolved, eg, with a request for particulars of the particulars provided. 

46.  In this case, if there were real issue over the sufficiency of the Answers, AJK was entitled to seek further and better particulars of the Answers, or even serve interrogatories on Long, instead of trying to take advantage of an insignificant mistake.  It would have avoided the costs and attendant delay of an unnecessary interlocutory battle.  In this regard, there were observations made by Simon Brown LJ in QPS Consultants, at p 371, which are particularly apposite :

“… I would wish to sound two notes of caution. First, an order for further and better particulars (whether or not in Unless form) is not to be regarded as breached merely because one or more of the replies is insufficient. If the answers could reasonably have been thought complete and sufficient, then the correct view is that they require only expansion or elucidation for which a further order for particulars should be sought and made.

Second, although I would regard an Unless Order as breached whenever a reply is plainly incomplete or insufficient, I would not expect the court's strike out discretion to be invoked, let alone exercised, unless the further and better particulars considered as a whole can be regarded as falling significantly short of what was required.  Whether this would be so would depend in part on the number and proportion of the inadequate replies, in part upon the quality of those replies (including whether their inadequacies were due to deliberate obstructiveness, incompetence or whatever), and in part upon their importance to the overall litigation.  Satellite strike out litigation is not to be encouraged and it must be recognised that even to strike out part of a pleading … is essentially penal.”

47.  I can see nothing in Daimler which is inconsistent with the above observations.  In that case, some of the interrogatories which were the subject matter of the unless order were not answered on the basis of a claim of legal professional privilege (“LLP”). Hence, in respect of those interrogatories, there was no answer provided, and thus a clear case of non-compliance if the claim of LPP was unfounded.  In deciding to grant relief on the condition that those interrogatories be answered, the Court of Appeal held that LLP was not engaged. 

48.  It can readily be seen that (a) the Court of Appeal was required to resolve the question whether LPP was applicable and (b) the nature of the arguments over alleged non-compliance in that case is very different to arguments on adequacy of further and better particulars.  There is no reason to believe that the Court of Appeal endorsed of satellite litigation in preference over a further request for particulars. 

Conclusions

49.  For the above reasons, this appeal is dismissed with costs to Long. 

50.  Last but not least, I am grateful to counsel for their able assistance.