XCHRX SECRETARY FOR JUSTICE v. THE HONG KONG & YAUMATI FERRY CO. LTD. AND ANOTHER

CACV 819/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 819 OF 2000

(ON APPEAL FROM HCA No 15329 of 1999)

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D E C I S I O N

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Hon Le Pichon JA:

1. This is an application to extend the time for serving a notice of appeal by 11 days.

2. On 18 September 2000 the judge dismissed the plaintiff's applications made under Order 14A as well as under Order 18 rule 19 of the Rules of the High Court ("RHC"). The order was sealed on 16 October 2000 by the plaintiff.

3. It is common ground that the correct test to be applied in determining for the purposes of the time limit set out in Order 59 Rule 4(1)(a) of the RHC is the "applications" test referred to First Pacific Bank Ltd v Robert HP Fung [1990] 1 HKLR 527 at 529H, approved by the Court of Final Appeal in Wai Hung Stationery Co. v HKSAR [1998] 1 HKLRD 445 at 446H and that, applying that test, the order made in the Order 14A application was an interlocutory rather than a final order. There was never any question that the order made dismissing the Order 18 rule 19 application was anything but an interlocutory order. Time for appealing the order dismissing both the Order 14A application and the Order 18 rule 19 application therefore expired on 30 October 2000. The notice of appeal was filed and served on 10 November 2000 and was therefore 11 days late.

The court's discretion

4. A convenient summary of the guiding principles which govern how the court should exercise its discretion to extend time may be found in the judgment of Keith J (as he then was) in Chiu Sin-chung v Yu Yan-yan, Angela and another [1993] 1 HKLR 225 at p. 227 line 37 - p. 228 line 29:

"(i) 'The rules of court must prima facie be obeyed, and in order to justify a court in extending the time during which some step in procedure requires to be taken there must be some material upon which the court can exercise its discretion. If the law were otherwise, a party in breach would have an unqualified right to an extension of time which would defeat the purpose of the rules, which is to provide a time table for the conduct of litigation': Thamboo Ratnam v. Thamboo Cumarasamy & Cumarasamy Ariamany [1965] 1 WLR 8 at p. 12A-B, applied in Revici v. Prentice Hall Inc. [1969] 1 WLR 157 and in Re Adhiguna Meranti [1988] 1 HKLR 410.

(ii) Accordingly, the prerequisite of an application to extend time is a clear statement as to the reasons for the time limits not having been observed and for any delay in then applying for an extension.

(iii) 'Once the time for appealing has elapsed, the respondent who was successful in the court below is entitled to regard the judgment in his favour as being final. If he is to be deprived of this entitlement, it can only be on the basis of a discretionary balancing exercise, however blameless may be the delay on the part of the would-be appellant': Norwich & Peterborough Building Society v. Steed [1991] 1 WLR 449 at p. 454G.

(iv) The factors which are normally to be taken into account in that balancing exercise are (a) the length of the delay, (b) the reasons for the delay, (c) the chances of the appeal succeeding if an extension of time for appealing is granted, and (d) the degree of prejudice to the would-be respondent if the application for an extension is granted: Steed, p. 454H.

(v) As for the reasons for the delay, 'the fact that the omission to appeal in due time was due to a mistake on the part of the legal adviser, may be a sufficient cause to justify the court in exercising its discretion': Gatti v. Shoosmith [1939] 3 All ER 916 at p. 919G. Indeed, in that case, the Court of Appeal extended the time without consideration of the merits at all: the period involved was only a matter of a few days, the appellant's solicitors had informed the respondent's solicitors within time of the appellant's intention to appeal, and the mistake was one 'which, to anyone who was reading the rule without having the authorities in mind, might very well have arisen'.

(vi) Although the existence of prejudice to a would-be respondent is a ground for refusing an extension of time, the absence of prejudice to a would-be respondent is not a ground for extending the time: Re Adhiguna Meranti, p. 411H.

(vii) As for the merits, they will play little part in the balancing exercise if the delay is short and is wholly excusable, but where the delay is substantial and is not wholly excusable, much more merit is required to overcome it: Steed, p. 455G-H, distinguishing Palata Investments Ltd. v. Burt & Sinfield Ltd. [1985] 1 WLR 942 from Rawasdeh v. Lane (Court of Appeal (Civil Division) Transcript No. 327 of 1988)."

5. I now turn to consider the relevant factors identified in (iv) above other than the length of delay which, as noted above, was 11 days.

Reasons for the delay

6. An affirmation was filed in support of the plaintiff's application. Mr Hill deposed to the fact that the plaintiff's notice of appeal was issued and served on 10 November 2000 "within 28 days of the sealing of the Order on the basis that the appeal was against a final judgment." But how the "mistake" arose or the reasons that led to the erroneous conclusion that the order was a final order remained unexplained.

7. In the Chiu Sin-chung's case, the plaintiff was wrongly advised by his solicitors that he had 14 rather than 5 days to appeal from the Master's Order. As Keith JA pointed out in Tridant Engineering Co. Ltd v Mansion Holdings Ltd CACV 311/2000 (at p. 8 of the judgment), although the delay in Chiu Sin-chung's case was explained on the basis that the solicitor had mistaken the time for filing the notice of appeal, how the mistake arose was unexplained. The solicitor did not explain how he came to think that the time for filing the notice of appeal was 14 days, when it was 5 clear days. Keith JA concluded that the lack of an explanation for the matter made the solicitors' conduct inexcusable.

8. That analysis appears to be equally applicable to the facts of the present case. The absence of any explanation of how the plaintiff's solicitor came to think that the time for filing the notice of appeal was 28 days rather than 14 days made the solicitor's conduct "inexcusable". By way of contrast, in Tridant Engineering Co. Ltd v Mansion Holdings Ltd, there had been a recent change in the law and the period for an appeal which had for many years been 6 weeks was reduced to 4 weeks shortly before the sealing of the order in that case which rendered the mistake "understandable". No such mitigating factor appears to exist in the present case.

9. Although the affirmation referred to a "lack of clarity" on the timeliness of the notice, that conclusion only came about after the defendants had reserved their right to assert that the notice was out of time. It has every appearance of being an ex post facto rationalisation of why the notice was served out of time. No evidence has been put forward to suggest that the question of when the notice ought to be served was ever actively considered by the plainitiff's legal advisers. Rather it would appear that an erroneous assumption was made that the time period was 28 days rather than 14 days.

10. So, despite the assertion in the supporting affirmation that there was a "lack of clarity" concerning the timeliness of the notice of appeal, interestingly, that position is no longer maintained by the plaintiff. As noted above, it is accepted by the plaintiff that the judge's order dismissing the Order 14A application was "interlocutory" for the purposes of Order 59.

11. The plaintiff relied on Gatti v Shoosmith [1939] 3 All ER 916 which was also a case of a mistake on the part of the plaintiff's legal advisers. Although time was extended in that case, the procedural error that occurred was purely technical since the respondent's solicitors were informed of the intention to appeal "within the strict time". The fact that the notice of appeal was not served within the strict time was due entirely to a misunderstanding on the part of the managing clerk, a misunderstanding which the judge found "to anyone who was reading the rule without having the authorities in mind, might very well have arisen." On those facts, the court in Gatti v Shoosmith was prepared to extend the time without considering the merits of the case or the probability of success or otherwise. Gatti v Shoosmith is thus distinguishable and does not assist the plaintiff. In any event, it is not authority for the proposition that where the delay is insubstantial but inexcusable, it is appropriate to grant an extension without considering the merits of the appeal.

12. The plaintiff has not proffered any excuse for the delay in appealing against the dismissal of the Order 18 rule 19 application which was clearly an interlocutory order for the purposes of Order 59. The reason for the delay given at the hearing was that the focus had been on the Order 14A application rather than the striking out application. However, that does not render the delay any more excusable.

Merits of the appeal

13. Where the delay is inexcusable, the party seeking an extension of time must show a real prospect of success on the merits. See the Chiu Sin-chung's case at 229 line 45. Counsel for the plaintiff, resiling from his original stance, agreed that the merits of the appeal is a relevant consideration in the exercise of the court's discretion. But a curious feature of the present appeal is that the court has not been provided with any of the documents in the case, not even the key agreements and affidavits. The only source of information is the judgment itself.

14. A summary of the background to the underlying action, the key provisions and the parties' respective contentions derived from the judgment appears below.

15. Background facts

16. In April 1990, the government gazetted its proposed reclamation along the waterfront affecting ferry piers being used by the 1st defendant, the Hong Kong & Yaumati Ferry Co. Ltd ("HYF"). HYF lodged an objection. Subsequently, after the reclamation was authorised, HYF lodged its claim for compensation. Discussions regarding the redevelopment of the ferry piers ensued.

17. The reclamation works were entrusted by the Government to the Mass Transit Railway Corporation ("MTRC") under an Entrustment Agreement entered into on 26 August 1993. MTRC was the employer for the reclamation works which were awarded to the contractor and part of the works included the relocation and reprovisioning of the ferry piers used by HYF. HYF and its parent, the Hong Kong Ferry (Holdings) Co. Ltd ("HKF") presented a proposal for development above the new piers ("the HYF Proposal"). An alternative piling design was also proposed in the event that the Government accepted the HYF Proposal. The timetable was tight and the parties recognised that to instruct a change from the original design to the alternative piling design after work had started based on the original design would be much more costly.

18. Against this background, the Government agreed to implement the alternative piling design upon HYF's agreement to indemnify the Government for any additional costs which may be incurred as a result of implementing it irrespective of whether the HYF Proposal would ultimately be accepted. The Government therefore entered into an Indemnity Agreement on 28 September 1993 with HYF/HKF. The parties also entered into a contemporaneous Side Letter. Pursuant to the Indemnity Agreement, MTRC entered into Supplemental Agreement No. 1 with the Contractor under which the Contractor agreed to carry out additional works to implement the alternative piling design.

19. In the event, the Government and the defendants could not arrive at an agreement on the amount of premium payable for the redevelopment rights over the new piers. The Government therefore brought this action to recover from the defendants approximately $55.4 million under the Indemnity Agreement.

20. In paragraph 68 of the counterclaim, the defendants pleaded as follows:

"Further, the defendants averred that upon a proper construction of the Side Letter and the Indemnity Agreement as amended, the Government was obliged to ensure that MTRC would duly and properly supervise and the Contractor would duly and properly execute such works under the Supplemental Agreement No. 1, or as would be required to implement the HYF Proposal."

Paragraph 69 went on to plead that the Government was in breach of the obligation pleaded in paragraph 68 in that certain bored pile extensions (as particularized in Schedule B to the counterclaim) were defective.

21. The proceedings below

22. The plaintiff's Order 14A application raised two issues. The only one relevant to the present appeal relates to its contention that on a proper construction of the Side Letter and the Indemnity Agreement, the obligation pleaded in paragraph 68 of the counterclaim does not and cannot exist for following reasons: First, HKY/HYF have not specified which clause or provision of the Side Letter or Indemnity Agreement gave rise to such an obligation on the part of the plaintiff. Second, clause 3 of the Side Letter only obliges the Government to ensure that it will closely monitor claims for payment under the Reclamation Contract. Whilst accepting that the Government undertook some additional obligation under clause 3 of the Side Letter, the Plaintiff submitted that that obligation was very different from one which requires the Government to ensure that the MTRC would duly and properly supervise the works, or that the Contractor would duly and properly carry out the works. In brief, the plaintiff's contention was that no proper construction of the Side Letter or Indemnity Agreement can produce the result contended for by the defendants.

23. Apart from the Order 14A application, the plaintiff also sought to strike out paragraphs 72 to 77 of the counterclaim under Order 18 rule 19. Under those paragraphs, the defendants contended that some of the bored pile extensions were defective, that the defects were such that the foundation constructed by the Contractor would not be sufficient or suitable for the implementation of the HYF Proposal and consequently the defendants were not obliged to indemnify the plaintiff under the Indemnity Agreement and were entitled to be refunded the sums already paid.

24. Whilst for the purpose of the striking out application, the plaintiff was prepared to assume that the bored pile extensions were defective and unsuitable for the implementation of the HYF Proposal, it contended that the Government's entitlement to be indemnified was not dependent on the quality of the work carried out by the Contractor because no warranty was given that the works would be free from defects or would be suitable for the implementation of the HYF Proposal. The plaintiff submitted that the defendants were not entitled to a refund simply because the works carried out by the Contractor were defective or unsuitable. Put shortly, the plaintiff's case is that the Government never guaranteed the Contractor's due performance of the works and as that was the effect of paragraph 68, it has no foundation as a matter of law and so ought to be struck out. Consequentially, paragraphs 72 to 77 of the defence should also be struck out.

25. The defendants relied on clause 3 of the Side Letter by which the Government undertook:

"to ensure that it will closely monitor all such claims by the Contractor in order to ensure that any payment by MTRC is justified, and is strictly in accordance with the terms of the Reclamation Contract and Supplemental Agreement No. 1."

The defendant contended that this meant that the Government's obligation was to ensure that payment by MTRC to the Contractor was justified. That in turn presupposed that the works had to be executed in accordance with the Reclamation Contract and the Supplemental Agreement No. 1.

26. The gravamen of the plaintiff's complaint is that the judge erred in failing to decide a short and discrete point of construction. At pages 14 to 15 of his decision, the judge referred to three areas of factual dispute. The plaintiff's case is that none of those areas was relevant to the proper construction of the contract.

27. Merits

28. The burden is upon the plaintiff to establish that it has real prospects of success. The first issue raised in the Order 14A application which is not the subject of the present application was whether certain terms had to be implied into the agreement. The judge took the view that in deciding that question and also in deciding the proper construction of the contract, the court had to have regard to all these surrounding circumstances in order to determine the true intention of the parties in entering into the agreement. He took the view that there were disputed facts which might affect the surrounding circumstances and which in turn might be relevant for the court's consideration in, inter alia, construing the contract and that he could not properly construe the contract before such factually disputed issues had been resolved.

29. The first factual issue related to a telephone conversation between Mr Colin Lam, Vice Chairman of Henderson Land Development Co. Ltd (both defendants being part of the Henderson Land Group) and Mr Kevin Mak, deputy to the Secretary for Transport at the relevant time, namely 21 September 1993. Mr Mak is alleged to have told Mr Lam that Mr Lam should "trust the Government". A week later the parties entered into the Indemnity Agreement. The allegation made is hotly disputed. The judge took the view that that disputed fact was relevant to the surrounding circumstances in which the parties entered into the Indemnity Agreement and the Side Letter.

30. Prima facie, it would appear to be a fact which, if established, might conceivably affect the construction of the Indemnity Agreement and the Side Letter. The plaintiff has not explained why this allegation, if established, cannot be relevant. Nor has the plaintiff sought to explain how clause 3 of the Side Letter ought to be construed and its implications. It is not sufficient for the plaintiff simply to allege that it cannot have the meaning contended for by the defendants: it has to go further and state what clause 3 actually means which makes construction put forward by the defendants unarguable.

31. As regards the Order 18 rule 19 application, it is again for the plaintiff to demonstrate that the defendant's case as pleaded in paragraphs 72 to 77 is clearly unarguable. Its case comes to this: although the additional works may be so defective as to render it wholly unsuitable to receive the HYF Proposal, the defendants are nonetheless obligated to indemnify the plaintiff. The plaintiff simply has not begun to demonstrate that it has merits.

Prejudice

32. The plaintiff submitted that the respondents would in no way be prejudiced by the extension of time. As to this submission, I make two observations. First, as stated in Chiu Sin-chung, although the existence of prejudice to a would-be respondent is a ground for refusing an extension of time, the converse is not true: the absence of prejudice to a would-be respondent is not a ground for extending time. Second, the absence of a prejudice to the would-be appellant is also relevant. In the present case, the refusal of an extension would not preclude the plaintiff from having the question raised in the Order 14A application from being determined at trial.

Conclusion

33. In summary, the delay whilst insubstantial was inexcusable and the plaintiff has not shown any real prospects of success on the merits. Coupled with the absence of prejudice to the plaintiff, the case against exercising my discretion in the plaintiff's favour is overwhelming. Accordingly, the application for an extension of time to file the notice of appeal is dismissed. I also make an order nisi that the costs of the application be to the defendants.