FAR EAST SOURCING LTD v. MAN BOND INTERNATIONAL LTD AND ANOTHER

HCA 1463/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1463 OF 2012

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REASONS FOR JUDGMENT

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1.  By a consent order made by Master S Lo on 30 June 2014 it was ordered, inter alia, that the 2^nd defendant (“D2”) do within 21 days of the date of the order supply to the plaintiff:

(1) true copies of the documents listed as item nos 1‑47 specified in Part 1 of Schedule 1 of D2’s List of Documents filed on 19 March 2014;

(2) a copy of letter of release (“the letter of release”) referred to in paragraph 9 of D2’s witness statement filed on 26 March 2014 (“D2’s witness statement”); and

(3) a copy of “Undertaking for Acceptance of Draft (Promissory Note) dated 7 January 2011 as referred to in paragraph 5 of D2’s witness statement (“the undertaking”).

2.  D2 was in breach of the master’s order of 30 June 2014 to supply the documents set out therein to the plaintiff.  He failed to supply the said documents to the plaintiff within the time stipulated or at all.

3.  This led to the plaintiff taking out a summons on 22 August 2014 for an unless order.  By the order of 12 September 2014 (“the unless order”) Master S Lo ordered that unless within 14 days from the date of the order D2 do file and serve on the plaintiff the documents requested the defence of D2 be struck out and the plaintiff be at liberty to enter judgment against D2 for the sum of US$393,430.56 or its Hong Kong dollar equivalent at the time of payment together with interest thereon.  He also made an order for costs to be paid by D2 to the plaintiff.

4.  D2 failed to comply with the unless order.  That being so, pursuant to the unless order the plaintiff entered judgment against D2 on 14 October 2014 (“the judgment”) for the sum of US$393,430.56 with interest thereon and costs.

5.  By a summons dated 3 November 2014 (“the relief summons”) D2 applied for leave to make the application out of time for relief from the sanction imposed in the unless order.  He also sought retrospective extension of time until within 28 days from the order for D2 to file and serve on the plaintiff the documents as ordered in the unless order.

6.  The relief summons came before Master S Lo for hearing on 11 March 2015.  By his order of 11 March 2015 the master dismissed the relief summons.  He also ordered that the costs of the application be paid by D2 to the plaintiff on an indemnity basis summarily assessed at HK$109,371 and be payable by D2 to the plaintiff forthwith.

7.  By a notice of appeal dated 18 March 2015 D2 gave notice that he intended to appeal against the order of the master of 11 March 2015.

8.  In support of the appeal D2 also sought to rely on further evidence not placed before the master at the hearing on 11 March 2015.  By his summons dated 2 April 2015 D2 applied for leave to adduce as fresh evidence in the appeal:

(1) the 1^st affirmation of Yu Shiu Ming (“Yu”) together with the exhibits referred to therein;

(2) the 2^nd affirmation of Tam Kwok Lai James (“Tam”) together with the exhibits referred to therein;

(3) the 2^nd affirmation of Yu; and

(4) the 3^rd affirmation of Tam together with the exhibits referred to therein.

9.  The appeal and D2’s summons for leave to adduce the fresh evidence came before me for hearing on 15 April 2015.

10.  After hearing submissions, I made an order that leave be granted to D2 to adduce:

(1) paragraphs 14 to 16 of the 1^st affirmation of Yu together with the exhibits therein referred to;

(2) paragraphs 8 and 9 of the 2^nd affirmation of Tam together with the exhibits therein referred to; and

(3) paragraphs 7 to 12 of the 2^nd affirmation of Yu

as fresh evidence in the appeal against the order of the master dated 11 March 2015.

11.  I also ordered that D2’s appeal from the order of the master be allowed and that the master’s order be set aside.

12.  I gave leave to D2 to make his application for relief from sanction in respect of the unless order out of time.  I also granted relief to D2 from the sanction imposed in the unless order and set aside the judgment.

13.  I also ordered that there be retrospective extension of time for D2 to file and serve on the plaintiff the documents set out in the unless order.

14.  At the plaintiff’s request, I also ordered that the plaintiff’s summons dated 13 March 2015 for payment out be withdrawn.

15.  As regards costs, I made an order that the costs of the appeal and of D2’s summons dated 2 April 2015, D2’s summons dated 3 November 2014 and the plaintiff’s summons dated 13 March 2015 be paid by D2’s solicitors to the plaintiff forthwith, agreed at HK$228,586 in total.  I also recorded an undertaking given by counsel on behalf of D2’s solicitors that they will not charge D2 any fees for the work of and related to the said summonses.

16.  I indicated at the time that reasons in writing would be given later.  This I now do.

17.  The plaintiff’s claims against Man Bong International Ltd, the 1^st defendant (“D1”) and D2 for damages for breach of contract in  the sale of goods.  

18.  A default judgment was entered against D1 on 9 October 2012 for the sum of US$392,451.26 or the Hong Kong dollar equivalent with interest and costs as set out therein.

19.  As pleaded in the statement of claim, the plaintiff sues D1 and D2 for damages for breach of contracts for the sale of goods delivered to D1 and/or D2.  The plaintiff’s case is that the first contract was a contract entered into between the plaintiff and D1 and D2 on or around 8 October 2010. The second contract was another contract entered into between Euro‑East Exports Ltd (“EEE”) and D1 also on or around 8 October 2010.

20.  The plaintiff’s pleaded case is that goods were delivered pursuant to both contracts to D1 and/or D2 “at Direktshop”(paragraphs 7 and 8 of the amended statement of claim).  Direktshop Inc (“Direktshop”) was a company incorporated in the USA and the goods under both contracts were shipped to the USA.

21.  The plaintiff’s case is that despite receiving the goods D1 and/or D2 have failed to pay for the price of the goods less the price obtained on re‑sale of some of the goods.  The plaintiff claims the total sum of US$393,430.56 as claimed in the amended statement of claim and particularized at paragraph 14 thereof.  Before the amendment, the plaintiff’s claim was for the total sum of US$392,451.26 as pleaded in the statement of claim.

22.  It is also the plaintiff’s case that EEE assigned to the plaintiff the total sums owing by D1 and/or D2 to EEE and that notice of the assignment was served on D1 and D2.

23.  There is also an alternative claim against D2 namely, that he was liable to the plaintiff under a personal guarantee for the total sum claimed.

24.  It is clear from the evidence that at all material times D2 was represented by solicitors Eric Yu & Co.  Yu is the principal of this firm.  Lam was at all material time the litigation clerk in Eric Yu & Co under the supervision of Yu.

25.  By his defence D2 denies that he is liable to the plaintiff for the sums claimed or at all.  He denies that he was a contracting party either with the plaintiff or with EEE.  It is further pleaded that the contracts entered into by the plaintiff and EEE were contracts between them as vendors and Direktshop as purchaser and not between them and D1 or D2.

26.  There is also the plea in D2’s defence that the goods delivered were defective and rejected by Direktshop and that Direktshop has not taken delivery of the same (paragraphs 9 and 13 of the defence of D2).

27.  D2 also denies that he ever gave any personal guarantee as alleged or at all (paragraph 20 of D2’s defence).

28.  D2’s witness statement was made on 26 March 2014.  Thereafter on 6 June 2014 the plaintiff filed his amended statement of claim pursuant to the order of Master A Ho dated 5 June 2014.

29.  Paragraph 13 of the amended statement of claim made an amendment to the plea that by the assignment of debt dated 30 July 2012 EEE assigned to the plaintiff the total sum of the debt owing to EEE by D1 and/or D2 by adding “and/or Direktshop”.

30.  The plea that D2 had provided a personal guarantee was also amended to include an allegation that D2 personally guaranteed the indebtedness not only of D1 but also “and/or Direktshop” to the plaintiff and EEE under the first and second contracts (paragraph 16 of the amended statement of claim).

31.  A new and further alternative claim was also made against D2 in the amended statement of claim.  By paragraph 17 of the amended statement of claim, the plaintiff claims the said sum of US$393,430.56 claimed in the alternative against D2 as the agent of Direktshop as particularized therein.

32.  There has clearly been default in complying with the court orders for the supply of the documents that D2 was ordered to supply to the plaintiff and which led to the making of the unless order.  An important question to consider is whether this was the fault of D2 or his solicitors.  On the evidence filed on behalf of D2, I am satisfied that D2’s solicitors were responsible for the failure to comply with the unless order.  This is borne out by the affirmation filed in support of the relief summons namely, Tam’s 1^st affirmation.

33.  D2 instructed Eric Yu & Co in September 2012 to act for him in this action.  Lam is the only litigation clerk in the firm.  Yu, the principal of the firm, had asked Lam to handle this action for D2 under his supervision.

34.  D2 resides in the USA.  He appointed one Shamim to be his power of attorney on 23 May 2013.

35.  At paragraph 6 of his 1^st affirmation Lam misdescribed the application for specific discovery and the production of the documents sought by the plaintiff as an application for further and better particulars of documents.

36.  It seems to me to be clear from paragraph 8 of Lam’s 1^st affirmation that D2 had provided to him all the necessary documents in response to the plaintiff’s request.  He also goes on to admit that it was due to his own default that he failed to proceed with D2’s instructions and to file and serve the documents in response to the plaintiff’s request.

37.  Lam also explained that following the making of the unless order on 12 September 2014 he reported the matter to Yu.  He was told to follow up and to deal with the unless order promptly.  He admits that he failed to carry out D2’s instructions and to comply with the time limit imposed by the unless order as a result of which the judgment was entered against D2 on 14 October 2014 (paragraph 8 of Lam’s 1^st affirmation).

38.  Lam emphasised at paragraph 12 of his 1^st affirmation:

“I stress that the entire default was due to the legal representative of [D2] and not himself. [D2] had already given sufficient instructions to reply to the Plaintiff’s request for further particulars and it was the default of myself and my principal that those instructions were not carried out”.

He again misdescribed the request for the supply of the documents as a request for further particulars.

39.  The evidence shows that at the hearing of the relief summons before the master on 11 March 2015 the master was prepared to grant relief to D2 provided that all the requested documents could be supplied to the plaintiff on that day.  Hence he granted an adjournment to enable D2’s solicitors to retrieve the documents from their offices.  After the adjournment all the requested documents except one had been retrieved and supplied to the plaintiff. D2’s solicitors were unable to provided one remaining document namely, the undertaking.  The hearing proceeded after the adjournment and the master dismissed the relief summons and made the order of 11 March 2015.

40.  As I have said, by D2’s summons of 2 April 2015 D2 seeks to rely on the fresh evidence as set out therein in the appeal.

41.  O 58, r 1(5) of the Rules of the High Court (“RHC”) provides that:

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.”

42.  It has been held that “special grounds” mean that the conditions of Ladd v Marshall [1954] 1 WLR 1489 have to be satisfied.  It must be shown:

(1) that the evidence could not have been obtained with reasonable diligence for use at the hearing below;

(2) the evidence must be such that, if given, it would probably have an important influence on the result, though it need not be decisive; and

(3) that the evidence must be such as is presumably to be believed.

(See also Chau Yau v Chan Calvin & another, HCA 666/2007, 15 May 2009; Fortis Insurance Compay (Asia) Ltd v Lam Hau Wah Inneo, CACV 86/2010, 28 October 2010.)

43.  At the hearing before me, Mr Lam, with Mr Sze, for D2, made it plain in his oral submissions that he was only relying on certain paragraphs of the further affirmations and not the entirety of the affirmations.  He also did not seek to rely on the 3^rd affirmation of Tam.

44.  The paragraphs sought to be relied on were:

(1) paragraphs 14 to 16 of Yu’s 1^st affirmation with the exhibits referred to therein;

(2) paragraphs 8 and 9 of Tam’s 2^nd affirmation; and

(3) paragraphs 7 to 12 of Yu’s 2^nd affirmation.

45.  The evidence relied on is in respect of matters that occurred on the day of the hearing before the master and thereafter.  I am satisfied that such evidence could not have been obtained with reasonable diligence for use at the hearing before the master on 11 March 2015.  The first condition of Ladd v Marshall is satisfied.

46.  The second condition of Ladd v Marshall is also satisfied.  The evidence would have an important influence on the result.  The master was prepared to grant relief to D2 provided that all the documents were supplied on the day of the hearing before him.  However, the undertaking was not retrieved despite a search in the solicitors’ offices.  At paragraph 8 of Tam’s 2^nd affirmation he says that he verily believed that he had misplaced it.  And at paragraph 9 Tam says that he received another copy of the undertaking from D2 on 19 March 2015.

47.  The third condition of Ladd v Marshall is also satisfied.  Despite Mr Babani’s submissions that the evidence was not credible, I am satisfied that the fresh evidence relied on is presumably to be believed and ought to be relied on.  Yu, the principal of the firm of solicitors acting for D2, and the litigation clerk have admitted on affirmation that the fault for the non‑compliance of the unless order was entirely the fault of the solicitors acting for D2 and not D2 himself.  It seems to me that the evidence is credible and ought to be relied on.

48.  The sanction for failure to comply imposed by the unless order has effect unless the party in default applies for and obtains relief from the sanction within 14 days of the failure (O 2, r 4 RHC).

49.  It is common ground that on the hearing of the relief summons the court is by O 2, r 5(1) RHC required to 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.”

50.  Mr Lam submitted that the fresh evidence was relevant to the consideration of the factors in (c), (d) and (f) of O 2, r 5(1).

51.  O 2, r 5(1)(f) expressly distinguishes between a failure to comply caused by the party in default and a failure to comply caused by his legal representatives.  As To J said at paragraph 27 in An Zhou and others v Zhou Zheng Kuan and others (HCA 241/2010, 30 August 2012):

“Worth noting is that Order 2, rule 5 (f) expressly distinguishes between default caused by the litigant and that caused by his legal representative. The court is inclined to grant relief to a litigant if he has no deliberate feet dragging and the default was caused by his legal representative.”

52.  In his affirmation evidence Tam made it clear that all the necessary documents to comply with the unless order had been provided to him in around July 2014. It was because of his neglect of his duties to his principal and to D2 that the unless order was not complied with.  

53.  I am satisfied that on the evidence relied on at the hearing before the master as well as the fresh evidence that the failure to comply with the unless order was entirely the fault of the solicitors for D2 and not D2 himself. 

54.  It was only on 19 March 2015 that Tam received another copy of the undertaking from D2 as Tam had misplaced the undertaking that he had received earlier by July 2014.  It was then discovered that there was a discrepancy in the contents of that document and the contents of the undertaking referred to at paragraph 5 of D2’s witness statement.

55.  The undertaking has been produced as exhibit YSM‑11 to the 1^st affirmation of Yu.  Mr Babani made the point that this was not the same document as the one referred to at paragraph 5 of D2’s witness statement and hence D2 was still in breach of the unless order.  However, Tam has explained the situation at paragraphs 8 and 9 of his 2^nd affirmation. He said:

“8. On 11^th March 2015, the day when the 2^nd Defendant’s Summons for Relief from Sanction was being heard, I did search through my case files and computer in an attempt to locate The Undertaking for Acceptance of Draft but the search did not result and I verily believe that I had misplaced it. Hence, on 16^th March 2015, as I gave up on the search of the document, I sent an email to the 2^nd Defendant asking him to provide the firm with its copy.

9. On 19^th March, the 2^nd Defendant whose was in India returned my email with the attached copy of The Undertaking for Acceptance of Draft.  Upon further clarification with the 2^nd Defendant through a telephone conversation on the same day, I was given to understand that the description of the Undertaking for Acceptance of Draft was wrong in its date and interest rate.  The date of the document should be ‘17/11/2010’ (17 November 2010) as shown from the document instead of 7 January 2011; and the interest rate should be 5.5% as shown from the document instead of 8.50% as stated in paragraph 5 of the 2^nd Defendant’s Witness Statement.  Other particulars stated in the said Witness Statement in relation to The Undertaking for Acceptance of Draft corresponds with its actual content, including the 3 invoices that were covered (i.e. FE12/00206 – 208/2010), the sum involved (i.e. US$104,162.40) and that the collecting bank being the Bank of the West.”

56.  Mr Babani, for the plaintiff, submitted that the failure to comply with the unless order was intentional and contumelious conduct on the part of D2 and not of his solicitors.  I am unable to accept his submission.  With the evidence before me and the fresh evidence relied on which I have allowed to be adduced, I am satisfied that the failure to comply was not intentional and contumelious conduct on the part of D2 himself.  The failure to comply was entirely the fault of his solicitors.

57.  Mr Lam confirmed in the course of his oral submissions that he had instructions from the solicitors for D2 to offer to pay to the plaintiff all the costs of and occasioned by the default of the solicitors to the plaintiff.  Mr Lam also gave an undertaking on behalf of the solicitors for D2 that they will not charge D2 for any fees in respect of these matters as the default was entirely the fault of the solicitors and not D2.

58.  If relief is not granted to D2 then the judgment that has been entered against him would be effective.  D2 would be deprived of defending the plaintiff’s claims against him.  It seems to me that he has at least an arguable defence as to whether or not he was ever a contracting party and whether or not he ever gave a personal guarantee as alleged or at all.  In the interests of justice, there should be a trial on the merits.  The prejudice to the plaintiff by granting relief to D2 can to a large extent be compensated by an appropriate order for costs in its favour.  And as I have said, the solicitors for D2 were prepared to pay those costs themselves.

59.  I bear in mind also that the action has not yet been set down for trial and that no trial dates have been fixed.  In fact, the action had progressed to the stage of a third case management conference before a master which was vacated as the judgment was entered against D2.

60.  Mr Babani also submitted that D2 has been engaging in intentional and contumelious conduct virtually throughout the action.  I disagree.

61.  Mr Babani referred to the order made on 30 June 2014 by Master S Lo whereby he ordered, inter alia, that within 21 days D2 to give further and better particulars of the allegation of defective goods as requested by the plaintiff.  By another order made by the master also on 12 September 2014 it was ordered that in default of D2 providing the further and particulars requested within 14 days paragraphs 9 and 13 of D2’s defence be struck out.  Those paragraphs deal with the allegation of the supply of defective goods by the plaintiff and EEE.  D2 did not provide the particulars requested and the consequence of that is that the said paragraphs in D2’s defence are struck out.  Although the allegation of the supply of defective goods is no longer an issue as those paragraphs have been struck out, in my view D2 still has an arguable and viable defence as to whether he is liable as a contracting party or under a personal guarantee.

62.  Mr Babani also submitted that prior to the payment into court pursuant to the order of Recorder Jat SC dated 16 May 2014, D2 had changed his instructions to Wilkinson & Grist, the solicitors for the mortgagee of his property that was sold.  The change of instructions was that instead of the instructions to Wilkinson & Grist to pay the said sum of US$392,451.26 into court, D2 changed his instructions to them to pay him the balance of the proceeds of sale of the property after discharging the mortgage and expenses.  This led to the order made by Recorder Jat SC on 16 May 2014 whereby D2 was ordered to cause the mortgagee bank to make the payment into court of the said sum of US$392,451.26.

63.  The position is that since 30 May 2014 the said sum has been paid into court.  These are monies belonging to D2.  In my view there is every incentive for D2 to proceed to trial of this action and seek a resolution of the dispute sooner rather than later.  He has no incentive to drag his feet since monies belonging to him has been paid into court and are sitting in court awaiting the further order of the court.

64.  I was satisfied that relief should be granted to D2 in the interest of justice.  I therefore made the orders as set out at paragraphs 10 to 13 above as well as the order for costs with the amount thereof which was agreed by counsel as set out at paragraph 15 above.