PIPER JAFFRAY ASIA SECURITIES LTD v. LAM YING YU

HCA 38/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 38 OF 2009

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BETWEEN

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D E C I S I O N

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1.  The Registrar made an unless order on 14 September 2009, requiring the defendant to serve her list of documents on the plaintiff no later than 4 pm on 28 September 2009, failing which the defence and counterclaim dated 19 March 2009 be struck out and judgment be entered for the plaintiff.

2.  The defendant failed to serve her list of documents at all.  Judgment dated 28 September 2009 was duly entered against her, requiring her to pay the plaintiff HK$2,855,697.35 with interest.

Striking out of appeal against judgment for breach of unless order

3.  The defendant issued a notice of appeal on 2 June 2010 seeking to set aside the judgment.

4.  The plaintiff then issued a summons on 13 September 2010, seeking to strike out the notice of appeal on the grounds that it is frivolous, vexatious, or an abuse of the process of the court.

5.  The plaintiff argued that the judgment was not entered by the adjudication of the Registrar on 28 September 2009.  It was the result of a self-executing unless order taking effect automatically upon default by the defendant.  Hence it is wrong for the defendant to appeal to set aside the judgment.  If the defendant wanted the judgment to be set aside, she should have appealed for setting aside the unless order or to seek relief under Order 2 rule 4 from the sanction imposed for her failure to comply with the unless order.

6.  The defendant then issued a summons today under Order 2 rule 4 for relief from sanction.

7.  The plaintiff’s stance that the defendant should not have appealed to set aside the judgment is clearly correct.  The judgment was not entered by the exercise of judicial authority on the day when it was entered.  It was entered pursuant to the defendant’s default in complying with the unless order made on an earlier occasion.  There is no judicial decision in the entry of the judgment that can be appealed against.  What is subject to appeal is the unless order, which is a judicial act.  I therefore accede to the plaintiff’s summons to strike out the notice of appeal.

8.  I further make a cost order nisi that the defendant do pay the plaintiff the costs of the its summons to strike out, with certificate for counsel, and such costs to be paid forthwith upon summary assessment by me at a 9.30 am hearing to be fixed by the parties.

Application for relief from sanction for breach of unless order

9.  I now deal with the defendant’s application for relief from the sanction of the unless order.  I do not refer this matter to a Master, as the arguments raised for and against relief are the same as those for and against the appeal, and have all been raised in the affirmations and counsel’s submissions.  It would be a waste of time and resources to refer the matter to a Master for it to be dealt with on another day.

10.  The plaintiff is a licensed stockbroker.  Its claim against the defendant is for payment by the defendant for the shortfall upon liquidation of the defendant’s share-trading account maintained with the plaintiff and operated with margin credit facilities provided by the plaintiff.

11.  The statement of claim pleaded that the defendant was given margin credit facilities at HK$5 million on 17 July 2007. She commenced trading on 16 October 2007 through to 18 March 2008.  On 18 March 2008 there was a margin call of HK$6,058,558.07.

12.  The plaintiff sent the defendant a demand letter requiring her to lower the margin loan balance by settling the margin call or selling part or all of the securities in her account.

13.  The defendant paid the plaintiff two sums each of HK$300,000 on 11 April 2008 and 7 May 2008, but did not satisfy the margin call completely.  The plaintiff therefore did not allow her to purchase any more securities in her account.  She then sold some of the securities but not fully settled the margin call.

14.  On 13 August 2008 the margin loan and outstanding interest totalled HK$3,480,033.65 and the factored value of the defendant’s securities was at HK$500,160.  The margin call was the difference at HK$2,979,873.65.

15.  The plaintiff issued a final reminder to the defendant requiring her to settle the margin loan plus interest at HK$3,480,033.65 on 18 August 2008.

16.  On 27 November 2008 the plaintiff began to liquidate the defendant’s account by disposing of the securities therein.

17.  On 5 January 2009 the outstanding balance in the defendant’s account was at HK$2,855,697.35 plus interest at HK$7,921.65.

18.  The plaintiff issued a writ of summons against the defendant on the next day.

19.  The defendant’s solicitors filed a defence and counterclaim on 19 March 2009.  The gist of the defence is that for the total trading value of HK$75,026,343.06, the bulk of the trading transactions were not placed by the defendant personally but were trading transactions executed without her authority.  The defendant also put the plaintiff to strict proof of all the authorisations for each and every transaction.

20.  In relation to the payment of HK$300,000 on 11 April 2008, the defendant pleaded that in early April 2008, one Wong of the plaintiff had misrepresented to her that HK$100,000 to HK$200,000 was required to cover the deficit in her account.  She had no idea that her account had traded into millions of dollars then.  She was misled into thinking that the trading was not too bad and she thus agreed to deposit HK$300,000 into her account on 11 April 2008.

21.  In early May 2008, Wong of the plaintiff again asked her for HK$100,000 to HK$200,000 to put the account right.  She was again misled into believing that the margin deficit was HK$100,000 to HK$200,000.  She then deposited another HK$300,000 into her account on 7 May 2008.

22.  Thereafter, no one from the plaintiff contacted her by phone again.  She also denied that the plaintiff had stopped her from buying securities from 7 May onwards, and asserted that she had traded in a usual manner since that day.

23.  She denied receipt of the plaintiff’s demand letter of 18 March 2008 or the final reminder of 13 August 2008.  However, she did receive a letter from the plaintiff’s solicitors dated 2 October 2008, and her solicitors replied on 5 November 2008, alleging that she had not authorised all the transactions.  Her solicitors also sought from the plaintiff the audio recording of all the transactions.

24.  I note that it is the plaintiff’s case that there was no more purchases allowed in the defendant’s account since 7 May 2008, and the plaintiff’s obligation was to keep the recording of the transactions for no less than 3 months after the transaction.  The 3-month period from 7 May 2008 expired on 7 August 2008.  The defendant’s request for recording on 5 November 2008 was too late.  It is indeed the plaintiff’s case that the audio recording for the transactions was destroyed outside the 3-month period.

25.  The defendant then counterclaimed HK$5 million from the plaintiff for the unauthorised transactions, which she has not particularised even up to today.

26.  The plaintiff then filed a reply and defence to counterclaim on 9 April 2009, and pleadings were then closed.

27.  The plaintiff’s solicitors then issued a case management summons on 29 May 2009.  An order was, however, made by a Master on 5 June 2009, allowing the defendant’s then-solicitors to cease to act for her, subject to complying with the requirements of order 67, rule 6(1) of the Rules of the High Court.

28.  The case management hearing took place on 22 June 2008.  The defendant herself did not appear at the hearing.  Master Ko gave a number of directions at the hearing, including the service of lists of documents by the parties to each other within 21 days, and inspection of documents within 14 days thereafter.

29.  The plaintiff then served Master Ko’s order on the defendant on 6 July 2008 by inserting the same through her letterbox at her last-known address.  The date of service was thus deemed to be on 13 July 2008. 

30.  The plaintiff duly served its list of document on the defendant on 3 August 2008.  But the defendant did not serve her list of documents on the plaintiff on or after that day.

31.  On 27 August 2008, the plaintiff issued a summons seeking an unless order to compel the defendant to serve her list of documents on the plaintiff, failing which her defence would be struck out and judgment be entered for the plaintiff.   The summons was duly served on the defendant.

32.  The summons was heard on 14 September 2008 by the Registrar.  The defendant attended the hearing by herself.  The Registrar made the unless order abovementioned.

33.  The transcript of the hearing shows that the Registrar had explained to the defendant in simple layman terms in Chinese the meaning of “a list of document” and that the defendant had to give a copy of the same to the plaintiff, and the defendant showed her understanding (page 119, M to O).

34.  The Registrar also explained in simple terms in Chinese to the defendant for five times the serious consequence to her if she did not serve the list of document on the other side.  She was told that her defence would be struck out and she would lose the case.  She showed her understanding on each occasion (page 118, S to T; page 119, P to T; page 120, M to O; page 121, C to F; and page 121, S, to page 122, B).

35.  The Registrar also asked her if 14 days would be enough for her to prepare the list and her reaction was in the affirmative (page 121, J to L).

36.  The Registrar also told her twice that if she had any doubt on the procedure to follow or on the form of the list of document, she could approach the Resource Centre for Unrepresented Litigants at the LG1 Floor of the High Court Building, and she again showed her understanding (page 120, T to U; and page 122, B to D).

37.  Despite the detailed, plain and repeated explanations in Chinese by the Registrar to her, and her expression of understanding of the explanations, she did not serve a list of documents on the plaintiff on or after 28 September 2008.

38.  The plaintiff’s solicitors duly filed an affirmation on 30 September 2009, confirming that there was no list of documents from the defendant and asked for the striking out of the defence and counterclaim, and entry of judgment against the defendant. Judgment dated 28 September 2009 was duly entered for the plaintiff, pursuant to the defendant’s default.

39.  On 17 December 2009 the defendant’s present solicitors filed a notice to act for the defendant.

40.  However, the defendant on 5 February 2010 filed a notice to act in person.  Despite her being legally represented from 17 December 2009 to 4 February 2010, nothing was done on her behalf by her solicitors.  The defendant herself also did nothing from 5 February 2010 onwards.

41.  On 31 May 2010 her solicitors filed a notice to act for her for the second time.  The notice of appeal was then issued on 2 June 2010.  The notice also seeks extension of time to lodge the appeal. 

42.  I have already struck out the notice and the hearing was for the purpose of the defendant’s application for relief under Order 2 rule 4.  The defendant’s summons for relief also asks for extension of time for it to be made, as it should have been made within 14 days of the default (see Order 2 rule 4).  Her affirmation filed for the appeal is also used for the application for relief.

43.  She said in paragraphs 10 and 11 of her affirmation:

“10. Although I did attend the hearing of the summons dated 14 September 2009 in person, I did not understand the proceedings in relation thereto. I did not understand the nature, gravity and effect of unless order and default judgment towards my defence and counterclaim at that time. Further, I did not know what is ‘list of documents’. In fact, I was perplexed about such order and the nature of list of documents until advised by my legal advisers recently.

11. I have been advised by my legal advisers and note that the ignorance of law is no excuse. However, as a layperson, I did not understand the procedural rules, even if the court interpreter had stated some court procedures to me very briefly at the hearing for the summons on 14 September 2009. I recall that the court interpreter just asked me to study the order of Master Ko made on 22 June 2000. As the order was written in English, I did not understand and appreciate the nature and effect of the same at that time.”

44.  However, the transcript shows that the defendant was merely lying on her affirmation.  There was no court interpreter at the hearing and it was the Registrar herself who gave the defendant the painstaking explanation of what was a list of documents, and the serious consequence to follow if she did not serve it on the plaintiff’s solicitors on or before 28 September 2009.

45.  The defendant also said on affirmation that she was unaware of the judgment until she was represented by solicitors in December 2009.  She learnt of the judgment from her solicitors on 30 December 2009.  Her solicitors urged her to make up her mind on what to do about this action.  She was advised that she had a strong and meritorious defence and counterclaim if her appeal should be allowed.

46.  She then decided to appeal, but she did not want to sell her residual investments to raise the legal costs as she would suffer substantial loss in so doing.  She then told her solicitors that she did not have the legal costs and she then acted in person.

47.  The stock market later improved.  She then sold some investments in May this year and got the funds to instruct solicitors and counsel to pursue this matter.  She felt aggrieved for having lost the case only due to procedural default, as she said she had a strong case.

48.  Order 2 rule 5 provides:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the court shall 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.”

Decision

49.  The defendant learnt of the judgment at the latest on 30 December 2009.  She would have been told by her solicitors that the 14 days for appeal or application for relief from sanction had already expired. She was already out of time for over 2 months, but she did not want to sell her investments then to raise the legal costs. She did not want to sell when the price was low. It was her conscious decision not to lodge the appeal or application then with full knowledge that she was already seriously out of time. Instead, she waited for another 5 months to pass before putting in her notice of appeal.

50.  I also find that she had, from the detailed explanations of the Registrar, obtained a full understanding of what she had to do under the unless order and the consequence of default.  That means she had just allowed the time to pass, well knowing the consequence of so doing.

51.  I am sure that to allow her to make the application for relief out of time and to grant her the relief sought in these circumstances is against the interests of administration of justice.

52.  The application was also made after a long delay and the failure to comply with the unless order was intentional.  What she said about the hearing before the Registrar is also a pack of lies and she has no good explanation for her failure to comply with the unless order.

53.  The plaintiff, on the other hand, has complied with all the rules and orders.

54.  With these findings, I cannot allow her application for relief.  I dismiss her application.  I also make an order nisi that she should pay the plaintiff the costs of this application, with certificate for counsel, such costs to be payable forthwith after summary assessment by me at a 9.30 hearing to be fixed by the solicitors for the parties.