XCHRX TEAM EASE LTD. v. LAW SHEK PO

1994, No.A1705

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal against the Order of Mr Registrar Betts dated 27 November 1996 whereby the Plaintiff's application for striking out the Amended Defence and Counterclaim was dismissed with costs.

2. The action arose out of a lease granted by the Plaintiff to the Defendant of commercial premises for 3 1/2 years from 1 May 1993 to 31 October 1996 at a monthly rental of $42,000 payable on the 1st day of each month. By its Statement of Claim dated 22 February 1994 the Plaintiff claimed that the Defendant had failed to pay the rent for the month of February 1994 and was in breach of various covenants in the lease and the Plaintiff claims arrears of rent, mesne profit and forfeiture of the lease.

3. By an Order of Master Jennings dated 3 January 1995 the Defendant was ordered to make interim payment of $42,000 per month, payable in advance on the 1st day of each month. The Order is currently in force.

4. Since the Order the Defendant was persistently late in his payments. From the schedule of payments produced by the Plaintiff, the contents of which are not in dispute, I note that the Defendant was never less than 21 days late in making payment and in some months he was up to a month and a half in arrears. It was entirely understandable that in view of the Defendant's conduct the Plaintiff took out a summons on 2 October 1996, returnable on 27 November seeking to strike out the Amended Defence and Counterclaim and to enter judgment. Four days before the hearing all payments were made up to date. On the day of the hearing the Defendant's wife produced an affirmation stating that the Defendant had cashflow problems and therefore he had been late in meeting the Interim Order.

5. The learned Registrar dismissed the Plaintiff's summons at the hearing with costs to the Defendant in any event.

6. The Plaintiff's case on appeal is that the learned Registrar's Order is contrary to principle. Mr Mumford submitted that the Plaintiff, in seeking to enforce the Court's own order, is entitled to some relief but the outcome of the hearing was that not only was Plaintiff's summons dismissed, the Defendant, who was the party in default, had actually been awarded costs. He invited this Court to set aside the learned Registrar's Order and impose an unless order so that if any of the Defendant's future payment is in arrears, his Defence and Counterclaim would be struck out and judgment be entered for the Plaintiff.

7. Learned leading counsel relied on the case of In re Jokai Tea Holdings Limited [1992] 1 W.L.R.1196 in which the English Court of Appeal affirmed the principle of law that a litigant who fails to comply with a peremptory order of the court will not normally be permitted to continue to litigate either that or any other action based on the same claim or defence. Browne-Wilkinson V.C. made the observation at page 1202:

" Disobedience to a peremptory order is 'generally' to be treated as contumelious conduct : Tolley v. Morris [1979] 1 W.L.R.592, 603 per Lord Diplock. ... The basis of the principle is that orders of the court must be obeyed and that a litigant who deliberately and without proper excuse disobeys such an order is not allowed to proceed. The rationale of such penalty being that it is contumelious to flout the order of the court, if a party can explain convincingly that outside circumstances account for the failure to obey the peremptory order and that there was no deliberate flouting of the court's order, his conduct is not contumelious and therefore the consequences of contumely do not flow."

at page 1203 he went on to say:

"In my judgment, in cases in which the court has to decide what are the consequences of a failure to comply with an 'unless' order, the relevant question is whether such failure is intentional and contumelious. The court should not be astute to find excuses for such failure since obedience to orders of the court is the foundation on which its authority is founded. But if a party can clearly demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances, such failure to obey is not to be treated as contumelious and therefore does not disentitle the litigant to rights which he would otherwise have enjoy."

8. In my view the above case dose not support Mr Mumfords's argument. With respect to him the Plaintiff here does not have the benefit of an "unless" order coming to his assistance. The correct remedy, in the absence of such an order, is that the Plaintiff should have taken steps to enforce or execute the relevant order under Order 45, rule 1 of the Rules of Supreme Court just like any other final money judgment. Having said that I must say the remedies under Order 45 does not offer any practical solution to the Plaintiff's problems. The period which the Defendant had been in arrears had never been more than a month or perhaps a month and a half, and it would be suffice for me to say that levying execution is a time consuming process. If past performance of the Defendant is to be a measure at all, by the time the Plaintiff has enlisted the assistance of the bailiffs the Defendant would have made payment up to date.

9. It was argued before the learned Registrar that by reason of the Defendant's conduct he should make an "unless" order against the Defendant so that in the event of any future default by the Defendant the Defence and Counterclaim should be struck out and judgment be entered for the Plaintiff. The learned Registrar declined to adopt the course suggested and similar arguments were advanced before me in the present appeal.

10. I feel that must decline to make an "unless" order for two reasons. The first is that, if in the future the Defendant falls behind in interim payment he may have a perfectly acceptable explanation for it. It does not follow that if he is in arrears he must be deliberately flouting the order. The other reason is, as I understand it, "unless" orders are directed at litigants who are deliberately delaying the proceedings and such orders are usually made when the defaulting party fails to take a particular step in the proceedings in time and thus depriving the other side the opportunity of resolving the dispute expeditiously. If I were to accede to the Plaintiff's request, I think it will be grossly unjust to the Defendant when his Defence and Counterclaim is liable to be dismissed and judgment entered against him without a determination of the merits of the case.

11. The relief of an "unless" order was not prayed for in the Summons and the learned Registrar had acted correctly in refusing to grant such an order in respect of future interim payments. The position of the parties then was that the Defendant was not in arrears as all the interim payments had been paid up to date. The Plaintiff nevertheless still proceeded with the Summons in a situation where arrears in payment was no longer a live issue before the court so that the learned Registrar's decision to dismiss the Summons cannot be faulted in any way. On this appeal I would respectively reach the same decision as he did.

12. What remains to be considered is whether, in the light of the Defendant's conduct, the learned Registrar should not have ordered cost against the Plaintiff. In the normal course of events costs should follow the event and this was what the learned Registrar did in awarding cost to the Defendant. The law is that unless the Registrar had so demonstrably erred in making the cost order, I should decline to exercise my discretion afresh on matters in relation to cost.

13. The frustration of the Plaintiff in this case is quite understandable. They were literally driven to taking out the summons to enforce an order made in their favour. If the court is not prepared to give assistance in enforcing its own orders we are facing anarchy. The only explanation put forward by the Defendant for his persistent delay was by way of an affirmation deposed by the Defendant's wife. In paragraph 3 of the affirmation, which is the only paragraph of any substance, there was reference that the Defendant could have been led into believing that the rental deposits could be used to set off the interim rental payment for the last two months before vacant possession of the premises is delivered. This did not, however, offer any explanation as to why the Defendant had been late ever since the order was made in January 1995. In the same paragraph there is the assertion that "the Defendant had cashflow difficulties in making payment for the rent or interim payment." No details were given as to the precise nature of the problems or whether such problems could be resolved. I can only say that this appears only as an attempt by the Defendant to lead the court into thinking that there was a genuine problem facing the Defendant rather than the Defendant had been deliberately trying to be difficult with the Plaintiff. From the history of the case and the persistent conduct of the Defendant, I am far from being convinced that the Defendant had a genuine cashflow problem.

14. I accept that generally a judge sitting in chambers should be reluctant to allow an appeal from a master's cost order unless it is demonstrated to be unreasonable or that the master erred in law. The case in point is Hoddle v CCF Construction Co. Ltd. [1992] 2 All E.R.550.

15. In the present case the Plaintiff came to the court for protection of its rights as a owner of a property and Master Jennings made an order in favour of the Plaintiff in recognition of that right. Over a period of two years, however, the Defendant had never for once been punctual in their interim payments. There was no improvement in his behaviour pattern even after the appearance before Master Betts. At this appeal the parties agreed that the December 1996 payment was only settled by the Defendant on 16 January 1997, the January payment on the last day of the month and at the date of the hearing, the February payment is still outstanding. It confirms my view that the explanation of impecuniosity is less than convincing and I feel that the court, under these circumstances, should indicate their displeasure in no uncertain terms by requiring the defaulting party to bear the costs of the Plaintiff in having to bring the matter to the attention of the court.

16. For the reasons given, the order for costs by the learned Registrar is set aside and I would award cost of this appeal and of the hearing below to the Plaintiff with certificate for two counsel.