XCHRX 東莞市東莞東祥裝飾有限公司 v. UNIVERSAL RIGHT LTD.

1998, No. A5250

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5250 OF 1998

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J U D G M E N T

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1. This is an appeal by the Defendant against the refusal of a master to set aside a judgment entered in default. The Defendant's principal contention was that the judgment had been entered irregularly because there was outstanding a challenge to the court's jurisdiction by way of a summons issued under the provisions of O.12, r.8.

2. The writ was issued on 2nd April 1998. The Defendant filed an acknowledgement of service on 16th April giving notice of an intention to defend. On 29th April, the Defendant issued a summons seeking an extension of 28 days within which to file and serve its defence. The following day a master granted a period of 21 days. Then, on 20th May, the Defendant issued a summons seeking an extension of a further 14 days. On the following day, 21st May, Master Jones made an order that, unless the Defendant served its defence by 4:00p.m. on 4th June 1998, judgment was to be entered in favour of the Plaintiff. At about 3:30p.m. on 4th June, the Defendant filed a summons under O.12, r.8 seeking a declaration that the court has no jurisdiction on the ground of forum non conveniens. That summons was fixed for hearing on 30th June.

3. On 29th June, without notice, the Plaintiff's solicitors entered judgment against the Defendant, a judgment which it now seems to be accepted was wrongly dated 21st May.

4. Upon learning of the judgment, on 2nd July the Defendant's former solicitors wrote to the Plaintiff's solicitors protesting at what had been done and drawing attention to the editorial notes in the White Book in relation to O.12, r.8 which, at marginal 12/8/3, set out the procedure for making an application under r.8(1) as follows:

"1. A defendant who wishes to contest the proceedings in any of the ways set out in r.8(1) or on the merits must give notice of intention to defend. At this stage that notice is neutral; it does not amount to a submission to the jurisdiction if the defendant makes an application under r.8, even if that application fails. But if he does not make such an application, he will be taken to have chosen to defend the case on the merits and to have submitted to the jurisdiction (r.8(6), (7)).

2. If the defendant gives notice of intention to defend he then must choose whether to make an application under r.8(1) or to contest the case on the merits. If he chooses the former course he must issue an application in the method prescribed in r.8(3) within the time limited for service of the defence.

3. If a defendant chooses to make an application under r.8(1) he should not meanwhile serve a defence of take any step to defend the case on the merits; this may be construed as a submission to the jurisdiction or a waiver of irregularity; but an application to stay pending the outcome of proceedings in a foreign jurisdiction does not amount to a submission to jurisdiction (see Williams & Glyn's Bank plc v. Astro Dinamico Comp. Naviera SA [1984] 1 W.L.R. 438; [1984] 1 All E.R. 760, HL).

4. The plaintiff should in no circumstances seek to enter judgment in default of defence while the application is pending; although there is no express extension of the time for defence, it would be quite inconsistent with the rules to do so and any such judgment would be set aside."

5. The Plaintiff's solicitors did not, as they were asked, consent to the setting aside of the judgment. Accordingly on 10th July, the Defendant took out a summons to set aside the judgment. That summons was heard and dismissed on 20th November. Against that decision, the appeal now lies.

6. To complete the picture, the explanation for what happened is provided by an assistant solicitor with the solicitors now representing the Defendant. In his affirmation, he said among other things:

"4. The Defendant's notice of intention to defend was filed on 16th April 1998.

5. Thereafter, I took instructions from the Defendant and sorted out, perused and translated various Chinese documents relevant to the captioned action. As the subject transactions between the parties took place in The People's Republic of China, I sought the Defendant's instructions and did instruct Counsel to advise on the issue of jurisdiction. To enable us to have sufficient time to take the aforesaid steps, we have taken out 2 Summonses respectively returnable on 30th April 1998 and 21st May 1998 for leave to extend the time for filing the Defendant's Defence.

6. Having been advised by Counsel, the Defendant's Defence was not to be filed in order not to submit to the jurisdiction of Hong Kong Court. Instead, a Summons was taken out on 4th June 1998 being the last date for filing the Defendant's Defence as prescribed by the Unless Order of Master Jones dated 21st May 1998, for a declaration that the Court has no jurisdiction over the Defendant in the captioned action on the grounds of forum non conveniens ("the said application"). The aforesaid Summons together with the Defendant's Affirmation in support was served on the Plaintiff's solicitors on the same date.

7. I am also advised by Counsel that upon making the said application, the Plaintiff should in no circumstances seek to enter judgment against the Defendant in default of defence while the hearing of the said application is pending."

7. For the Defendant, Mr. Mok sought to have the judgment set aside on two grounds. First, he argued that it was irregular because it was obtained while the application under O.12, r.8 was pending and because it was wrongly dated. Second, even if the judgment was not irregular, it should be set aside on the well-established principles concerning non-compliance with an unless order.

8. In dealing with irregularity, Mr. Mok said that O.12, r.8 constitutes a separate code for dealing with a challenge to the court's jurisdiction. This, he said, is clear from a reading of the relevant parts of r.8 which are:

"(1) A defendant who wishes to dispute the jurisdiction of the court in the proceedings by reason of any such irregularity as is mentioned in rule 7 or on any other ground shall give notice of intention to defend the proceedings and shall, within the time limited for service of a defence, apply to the Court for -

(6) A defendant who makes an application under paragraph (1) shall not be treated as having submitted to the jurisdiction of the Court by reason of his having given notice of intention to defend the action; and if the Court makes no order on the application or dismisses it, the notice shall cease to have effect, but the defendant may, subject to rule 6(1), lodge a further acknowledgement of service within 14 days or such other period as the Court may direct and in that case paragraph (7) shall apply as if the defendant had not made any such application.

(7) Except where the defendant makes an application in accordance with paragraph (1) the acknowledgement by a defendant of service of a writ shall, unless the acknowledgement is withdrawn by leave of the Court under Order 21, rule 1, be treated as a submission by the defendant to the jurisdiction of the Court in the proceedings."

9. Mr. Mok contended that the inference to be drawn is that a Defendant who makes an application under r.8 is not at the same time required to file a defence otherwise the scheme would not work. The filing of a defence would be wholly inconsistent with a challenge to the court's jurisdiction. Hence, the editorial note in para. 4 referred to above.

10. Mr. Mok went on to contend that para. 4 applies equally to an unless order requiring filing of a defence by a certain time as in this case. He said that, although expressed in peremptory terms, the order is no more or less an extension of time than the usual order made in response to a time summons. The only distinction is that, in the event of non-compliance, a severe sanction will be imposed. But implicit in the order is that the order may be discharged not only by filing a defence but also by issuing an application under r.8. Mr. Mok said there is no difference in substance between the provisions of the unless order and the provisions of O.19, r.2 which simply allow a plaintiff to enter judgment in default of a defence.

11. Mr. Wong challenged both aspects of this argument. He said that the editorial note at para. 4 is not supported by authority and that the rationale expressed by Mr. Mok is doubtful. He submitted that mere inconsistency does not normally excuse compliance with a rule or order of the court. He cited, as an example, discovery which might have the effect of incriminating the party giving discovery. That does not excuse discovery but imposes on that party an obligation to obtain an order from the court relieving him of the need to discover.

12. Further, Mr. Wong said that if it had been the intention of the Rules Committee to prevent a plaintiff obtaining judgment while an application under r.8 was pending, it would have made express provision. He pointed to O.18, r.2 where, in para. (3), the rules exempt a defendant from filing a defence where he has made an application under r.8.

13. In my view, that last reference simply reinforces Mr. Mok's argument that para. 4 of the editorial note is a correct appreciation of the law and practice. If a defendant is not required to file a defence upon making an application under r.8, I can see no justification whatsoever for suggesting that it is still open to a plaintiff to obtain judgment in default. I reject entirely Mr. Wong's argument that, in order to protect his position, such a defendant must not only make his application under r.8 but at the same time make application for a stay of proceedings.

14. In relation to the unless order, however, Mr. Wong was on stronger ground. In my view, he rightly argued that such an order is not just to ensure compliance with the rules or earlier orders made by the court but confers on the other party an accrued right, in this case to enter judgment. I simply do not see how such an order can be complied with by doing something which is not apparent on the face of the order. If the order here was meant to comprehend an application under r.8, it should have so provided. And in order for it so to provide, the Defendant should have raised with the master the possibility of such an application. The Defendant did not do so. In such circumstances, it seems to me close to an abuse for the Defendant to spring on both the Plaintiff and the court such an unexpected application.

15. Para. 4 of the editorial note is, I am satisfied, restricted in its application to the situation where an application under r.8 has been made within the time prescribed by the rules, within time extended by consent or within time permitted by the court. It does not, however, apply to an unless order which does not expressly contemplate an application under r.8.

16. I also agree with Mr. Wong that the Defendant should have raised the possibility of such an application with the court so that it could be included in the order. Failing that, the proper course for the Defendant to take was either to seek to have the order amended or to have appealed against the order. By failing to do so, the Defendant deprived itself of the opportunity of making the application. In the circumstances, I am satisfied that the judgment was regular.

17. The question then arises as to whether I should exercise my discretion in favour of the Defendant and nonetheless set the judgment aside. It is not in dispute that a party who is in breach of an unless order may succeed in having the consequences of such breach ameliorated if the party can show that breach of the order was neither intentional nor contumelious and that it was because of extraneous circumstances. The issue as I see it which falls to be decided is what constitutes "extraneous circumstances".

18. In Tan Eddy Tansil v. PT Bank Pembangunan Indonesia (Persero) [1996] 1 HKC 231, the Court of Appeal was considering breach of an unless order for the filing of an affidavit of disclosure. After citing Jokai Tea Holdings, Bokhary J.A. at p.234 went on:

"Here the extraneous circumstances were, shortly stated, these. The first defendant was in prison in Indonesia. In the absence of a special permit from the Indonesian courts, his Hong Kong legal advisers could not visit him for the purpose of preparing an affidavit and no notary public could visit him for the purpose of the swearing of the same. There was delay in the obtaining of such a permit. None was obtained until only two clear days before the expiry of the deadline. And, as it turned out, an affidavit was available for filing within the extended period for which Barnett J was asked but had refused.

For the first defendant, Mr Warren Chan QC has conceded that the first defendant's Hong Kong solicitors, and possibility his Indonesian lawyers as well, were incompetent in not managing to obtain a permit earlier. But that, he says, is not the first defendant's own fault and should not be visited upon him if that can be avoided without injustice to the other side. In such a situation, there is, as I pointed out in the course of the argument, the well-known statement of Lord Denning MR in Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 where the Master of the Rolls said at 166C:

We never allow a client to suffer for the mistake of his counsel if we can possibly help it. We will always seek to rectify it as far as we can. We will correct it whenever we are able to do so without injustice to the other side.

I see no difference here between counsel and solicitors. That is made clear, if it needs to be made clear, by the approach of this court in Chiu Butt York v Chiu Kwok Lim [1980] HKLR 459 where Li JA, giving the judgment of the court, said this at 465: 'We see no injustice if the appellant is not penalized for the mistake of his solicitor subject to the question of costs'. In that case, any injustice of the opposite party could be removed by an order as to costs."

19. With some reluctance, Keith J. followed that decision in Chow Kai Sang v. Toi Samuel [1996] 4 HKC 330. The case concerned breach of an unless order to give particulars of claim. At p.334 the judge said:

"Accordingly, Ms Eu submits that since the plaintiff was himself blameless for the failure to comply with the 'unless' order, that failure to comply was not the result of intentional and contumelious conduct on his part but was due to the extraneous circumstances of his solicitor's conduct.

Were the matter free from authority, I would have rejected that argument. It would be tantamount to saying that a blameless litigant would always be able to avoid the consequences of his solicitor's failure to comply with an 'unless' order, however deliberate that failure was and however much it constituted a defiance of the court's authority. That would be contrary to the approach usually adopted by the courts in other areas of litigation. Mistakes on the part of solicitors in the conduct of litigation are not generally regarded as justifying an extension of time. A litigant who is let down by his solicitor is usually left only with his claim for negligence against his solicitor.

However, the matter is not free from authority. In Tan Eddy Tansil v PT Bank Pembangunan (Indonesia) Persero [1996] 1 HKC 231, Bokhary JA expressed the view that a failure by a solicitor to comply with an 'unless' order should not adversely affect his client's interests if that can be avoided without injustice to the other party. Mr Geoffrey Ma QC for the second, third and fourth defendants attacks that view as being contrary both to principle and authority. However, whether that attack on Tan Eddy Tansil is justified or not, I am bound by it, and I must apply it to the facts of this case if Bokhary JA's view represented the view of at least the majority of the court, and if it formed part of the court's ratio decidendi."

20. The judge went on to conclude that it did form part of the court's ratio decidendi. He then continued:

"The explanation given by the plaintiff's solicitor for the failure to comply with the 'unless' order completely exonerates the plaintiff from any responsibility for that failure. The failure to comply with the 'unless' order was due to outside circumstances when looked at from the plaintiff's point of view, namely the conduct of his solicitor. For that reason, therefore, the plaintiff's solicitor's failure to comply with the 'unless' order should not deprive the plaintiff of his right to litigate his claims against the second, third and fourth defendants."

21. Shortly after Keith J. delivered his decision, the Court of Appeal in England had to address the same problem in Hytec Information Systems Ltd. v. Coventry City Council [1997] 1 WLR 1666. After referring to Jokai Tea Holdings and examining other authorities, Ward L.J. at p.1674 attempted to encapsulate the approach to be adopted by the courts:

"(1) An unless order is an order of last resort. It is not made unless there is a history of failure to comply with other orders. It is the party's last chance to put his case in order.

(2) Because that was his last chance, a failure to comply will ordinarily result in the sanction being imposed.

(3) This sanction is a necessary forensic weapon which the broader interests of the administration of justice require to be deployed unless the most compelling reason is advanced to exempt his failure.

(4) It seems axiomatic that if a party intentionally or deliberately (if the synonym is preferred) flouts the order then he can expect no mercy.

(5) A sufficient exoneration will almost inevitably require that he satisfies the court that something beyond his control has caused his failure to comply with the order.

(6) The judge exercises his judicial discretion in deciding whether or not to excuse. A discretion judicially exercised on the facts and circumstances of each case on its own merits depends on the circumstances of that case; at the core is service to justice.

(7) The interests of justice require that justice be shown to the injured party for the procedural inefficiencies caused by the twin scourges of delay and wasted costs. The public interest in the administration of injustice to contain those two blights upon it also weighs very heavily. Any injustice to the defaulting party, though never to be ignored, comes a long way behind the other two.

I turn to the third particular issue, whether or not this defendant is exonerated because the fault was not his personally but that of his legal representatives?"

22. Ward L.J. went on to deal with the arguments of counsel, one of which was that there was no additional requirement of extraneous circumstances. In support thereof he said that counsel:

"relies on the decision at first instance in Pereira v. Beanlands [1996] 3 All E.R. 528 and the judgment of Robert Walker J. I would not wish to express any disagreement with either the statement of the principle or the application of it in the particular facts of that particular case. He held that there was no binding principle which fettered the broad discretion he had to exercise that a default, whether an act or omission of the litigant's solicitor, should always be visited on the litigant himself. This is a perfect example of the exigencies of justice coming to do justice in a particular case.

Ordinarily this court should not distinguish between the litigant himself and his advisers. There are good reasons why the court should not: first, if anyone is to suffer for the failure of the solicitor it is better that it be the client than another party to the litigation; secondly, the disgruntled client may in appropriate cases have his remedies in damages or in respect of the wasted costs; thirdly, it seems to me that it would become a charter for the incompetent (as Mr. MacGregor eloquently put it) were this court to allow almost impossible investigations in apportioning blame between solicitor and counsel on the one hand, or between themselves and their client on the other. The basis of the rule is that orders of the court must be observed and the court is entitled to expect that its officers and counsel who appear before it are more observant of that duty even than the litigant himself.

In my judgment, on the facts of this case, the defendant cannot escape the quite manifest failings of counsel who was instructed on its behalf. She displayed, as I have said, an arrogant disdain to the court's authority. Her sending her pupil was in my judgment contumaciously disrespectful. She had manifestly failed to fulfil her duty to her client and her duty to the court, to settle particulars which were intelligible and her client must pay the penalty for that failure."

23. The other two members of the court agreed with the judgment of Ward L.J. Plainly that court adopted a tougher approach. It accepted that a solicitor's default need not always be visited on the litigant himself. But the court's starting point was that a distinction should not be drawn between the litigant and his advisers.

24. Mr. Wong had tried to persuade me that the Hong Kong court did not in fact diverge from the approach of the English Court. He said that the Hong Kong court expressly found extraneous circumstances, namely the difficulties of dealing with the client in prison in a foreign country, and that those circumstances were aggravated by fault on the part of the solicitors. So fault only arose in the context of aggravation and was not itself the sole extraneous circumstance relied upon.

25. I cannot agree. To me, it is clear that Bokhary J.A., with whom the other members of the court agreed, laid down that a litigant should not suffer the consequences of any fault on the part of his solicitor or indeed counsel provided no injustice would be done to the other party. In other words, a distinction is to be drawn between the litigant and his advisers. The advisers' conduct is to be examined to see whether there was some fault on their part and, if so, that can constitute an extraneous circumstance provided the result is not unjust to the other party.

26. In the present case, the Defendant relied upon the advice of counsel. I accept, as Mr. Wong pointed out, that there is no affirmation filed on behalf of the Defendant in which the Defendant expressly says that there was such reliance but I think there is no room for doubt but that the Defendant did rely upon legal advice which it received. That advice was not capricious. It had a foundation, albeit somewhat shaky as it now proves to be, in the editorial notes. That advice now proves to be wrong and, to that extent, counsel was at fault and is the reason for the predicament in which the Defendant now finds itself. There, then, is the extraneous circumstance as contemplated by the Court of Appeal.

27. Can the judgment be set aside without injustice to the Plaintiff. If the judgment is set aside, it will not be a case of the Plaintiff simply picking up the action and proceeding to trial. There is the possibility that the Plaintiff will be deprived of not only its judgment but also its continued right of access to the courts in Hong Kong. The Plaintiff may have to start all over again in the courts on the Mainland. It seems to me difficult to say that the Plaintiff can be compensated in costs for such an eventuality.

28. I also take into account that the Defendant did not disclose, until after the hearing before Master Jones, that it might challenge the court's jurisdiction. It is clear to me that, by the time of that hearing, the Defendant was at the very least considering such a challenge. In the event, the Defendant effectively ambushed the Plaintiff. As I said earlier, this was tantamount to an abuse of the court's process.

29. In the circumstances, I am not persuaded that I should exercise my discretion in favour of the Defendant.

30. There remains the matter that the judgment obtained by the Plaintiff is wrongly dated. Mr. Mok contended that the dating was done intentionally, that it gives rise to prejudice to the Defendant in terms of interest and that it cannot be corrected under the slip rule. He argued that the judgment must be set aside and, if appropriate, a new judgment bearing the correct date and consequential amendments entered. I indicated to Mr. Mok that, if at the end of the day, this was the only point available to him, I would have no hesitation in making such an order. I do not resile from that position.

31. In all the circumstances, I am satisfied that I should not exercise my discretion in favour of the Defendant so that the judgment is set aside and in due course the application under r.8 heard. I accept, however, that the judgment, because it is incorrectly dated, must be set aside and a new judgment entered.

32. To that limited extent, therefore, I allow the appeal. The judgment is set aside. I give leave to the Plaintiff to enter a new judgment against the Defendant, the date of which should be the date upon which it is entered.

33. I make an order nisi that the Defendant should bear the costs of this appeal but not the costs of the Plaintiff entering a new judgment.

34. Note: after drafting this judgment I had the advantage of reading a further decision of Keith J. in Ming Pao Enterprise Corporation Ltd. v. CIM Co. Ltd. (1998 No. A109) delivered on 10th December 1998. There the judge did refer to Hytec but found himself still bound by Tan Eddy Tansil.