CHUNG SUET WAN v. CHUNG SUET HUNG

DCCJ 4296/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4296 OF 2013

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DECISION

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1.  This is an appeal against Master D Ho’s Order dated 14 April 2015 (“the Impugned Order”) whereby the master ordered the time for the defendant to serve his witness statements be extended to 4:00 pm on 28 April 2015, which had the effect of granting leave from sanction of the unless order made by the same master on 12 December 2014 (“the Unless Order”).

BACKGROUND

2.  The plaintiff and the defendant are natural sister and brother.  The main dispute in this case revolves around 195,000 ordinary shares of a company set up by the plaintiff with her sister Chung Suet Han.  The company carries on the business of selling and buying of electronic parts.  The plaintiff's case is that the defendant was merely acting as a trustee for holding the shares on the plaintiff's behalf, which was fully paid up by the plaintiff.  It is the plaintiff's case that the defendant has wrongfully refused to convey the legal title of the shares to the plaintiff.  The defendant on the other hand contends that the shares were paid by his own money and he was the rightful owner of the shares.

3.  By a Consent Order dated 1 September 2014, the master ordered that each party was to mutually serve and exchange witness statements on or before 28 October 2014.  He further ordered that there was to be a case management summons hearing to be held on 12 December 2014. 

4.  At the case management summons hearing on 12 December 2014, the master imposed the Unless Order in the following terms:-

“Unless the parties do file and serve witness statements as to facts by 4:00 pm on 9 January 2015, the party in default shall be debarred from adducing such evidence at trial.”

5.  The master also ordered that there was to be a case management conference ("CMC") to be held on 24 March 2015.

6.  While the plaintiff has duly served her witness statement on the defendant by the specified deadline under the Unless Order, the defendant has failed to serve his in time.  The plaintiff’s solicitors recorded the defendant's failure in a letter dated 12 January 2015 to which the defendant has not replied or contested.

7.  On 15 January 2015, Registrar Lui granted the defendant’s solicitors application to cease to act for the defendant.

8.  The defendant was absent from the CMC held on 24 March 2015.  By an order in Chinese on the same date, Master To ordered, inter alia, that:-

“(1) The defendant do within 14 days explain in writing the reason of absence from the CMC and whether he intended to defend the action against him; and

(2)     there would be a CMC re-fixed on 14 April 2015 if such explanation was provided.”

9.  The defendant has failed to provide an explanation within the time imposed by Master To.  However, just one day before the re-fixed CMC, the defendant by a letter written in Chinese dated 13 April 2015, explained to the court that he did not attend the CMC because (1) he had to work in the Mainland on a long term basis; and (2) his application for legal aid filed in January 2015 was rejected on 30 March 2015.  The defendant therefore asked the court’s indulgence for him to instruct solicitors to handle the matter on his behalf and to defend the action.

10.  The defendant attended the re-fixed CMC before the master on 14 April 2015.  At the end of the CMC, the master imposed the Impugned Order purportedly pursuant to Order 2, rule 4 of the Rules of the District Court, Cap 336H ("RDC").  

DISCUSSION

The Issue in dispute  

11.  The central issue in dispute in this appeal is whether the court ought to have exercised its discretion to grant relief to the defendant from sanction which had flowed from his non-compliance of the Unless Order.  Further, there is a dispute as to whether the defendant had asked for relief from the sanction at the CMC under Order 2, rule 4 or the court had on its own motion made the Impugned Order under Order 1B, rule 2(4).

Relevant principles involved

(a)      Nature of an “unless order”

12.  Order 2, rule 4 of the RDC provides as follows:-

“Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.”

13.  Hence, an “unless order” is pre-emptory in nature in that it prescribes not only the period within which the act is to be performed, but also stipulates the sanction that will follow unless the pre-emptory order is complied with.

14.  Further, the sanction of an “unless order” is automatic and “self-executing”.  In other words, the sanction takes effect immediately upon default.  It is for the party in default to apply to the court within 14 days of the default for relief from sanction. 

See: (i) Order 2 rule 4, RDC; (ii) Daimer AG v Leiduck [2012] 3 HKLRD 119 at §47 per Fok JA; and (iii) Lee Sai Nam v Li Shu Chung & Another (HCA 1711/2009, unreported, 31 May 2013) at §72 per DHCJ Ng.

15.  I agree with Mr Anthony Cheung, counsel for the plaintiff, that there is a distinction between the operation of the sanction which is automatic and the exercise of the court’s discretion to grant relief.  I further agree with him that this distinction is crucial because different issues are involved at different stages of the analysis:-

(1) In considering whether the sanction has become operative, the question is simply whether there has been any breach of the “unless order”.  The court should neither embark on the exercise of examining whether there is any plausible explanation or justification for the default, nor question the suitability of the sanction vis-à-vis the default, nor to re-write the sanction imposed under such order.

See: Lee Sai Nam v Li Shu Chung & Another (HCA 1711/2009, unreported, 31 May 2013) at §71 per DHCJ Ng.

(2) In considering whether to exercise the discretion to grant relief, the post-CJR approach is that the court shall take into account all circumstances, including the factors set out in Order 2 rule 5(1) of RDC, in order to consider whether it is just to make an order granting relief from the consequences that would otherwise follow.

See: (i) Order 2 rule 5(1) of RDC; (ii) Daimer AG v Leiduck [2012] 3 HKLRD 119 at §47 per Fok JA; and (iii) Lee Sai Nam v Li Shu Chung & Another (HCA 1711/2009, unreported, 31 May 2013) at §71 per DHCJ Ng.

(b) When the court should consider exercise its discretion to grant relief from sanction?

16.  Under Order 2, rule 4, the court could only consider exercise its discretion to grant relief from sanction upon the application by “the party in default” and “within 14 days of the failure”.  Further, the application for relief must be supported by evidence: See Order 2, rule 5(2).

17.  As part of the case management powers introduced by the CJR, the court may by order extend or shorten the time for compliance with any rule, court order or practice direction (even if any application for extension is made after the time of compliance is expired) unless provided otherwise: See Order 1B, rule 1(2)(a).

18.  The court has power to make order on its own motion unless provided otherwise: Order 1B, rule 2(1).  Further, the court could make an order of its own motion either with or without hearing the parties: Order 1B, rule 2(3) & (4).  Where the court has made an order without hearing the parties, a party affected may apply to have it set aside and the order must contain statement of the right to make such an application: Order 1B, rule 2(5).

19.  It has been said that the jurisdiction of the court to act on its own initiative is one which ought to be exercised rarely because it will usually be necessary for evidence to be placed before the court to enable it to consider the various matters to which Order 2, rule 5(1) refers: See Marcan Shipping (London) Ltd v Kefalas & another [2007] 1 WLR 1864, at 1876 §33.

What happened in this case

20.  In this case, it is clear that the defendant has failed to apply for any relief from the sanction within the 14 days required under the rule.  The last day which he could have applied for such a relief for sanction would have been 23 January 2015.  However, the defendant chose to do nothing about it and allowed the Unless Order to operate.  In the meantime, his solicitors applied to court to cease to act on his behalf. 

21.  Despite of that, the defendant was given a second chance by Master To on 24 March 2015 to explain his absence from the originally scheduled CMC and whether he still intended to defend the action against him.  Again, the defendant flouted the order and failed to provide any explanation until the day before the re-fixed CMC.

22.  The explanations provided by the defendant on 13 April 2015 are in my view not at all convincing.  In my judgment, his claim that he could not attend the CMC hearing because he was working in the Mainland is not a good excuse.  With modern technology and transportation, I do not accept that as a good reason for his failure to attend the CMC back in December 2014.  Further, his assertion that the Legal Aid Department would handle the case on his behalf just because he had submitted his legal aid application at the end of January 2015 (which was subsequently refused) simply beggars belief. 

23.  But the more important point being that the defendant has failed to apply, with supporting evidence, for any relief for sanction within the prescribed 14 day period under Order 2, rule 4.  That being the case, the Unless Order will take effect and the court does not have to consider the factors set out in Order 2, rule 5 of the RDC, namely, whether in all the circumstances it is just to make an order granting relief from the consequences that would otherwise follow: See Order 2, rule 5(1) (a) - (j).

24.  In this appeal, the plaintiff proceeded on the basis that the defendant did not apply to the court for an extension of time at the hearing on 14 April 2015 and the master had exercised the discretion under Order 1B, rule 2(4) of the RDC. 

25.  Having heard the audio recording of the CMC hearing on 14 April 2015, albeit not very apparent from the beginning, I am satisfied that the master did make it clear to the defendant towards the end of the hearing if he was asking for a relief from the sanction of not compiling of the Unless Order and the defendant’s response seemed to be a positive one.  Thus, there is no doubt that the discretion the master was purportedly exercising was under Order 2, rule 4, as specifically mentioned in para 1 of the Impugned Order, and not under Order 1B, rule 2 of the RDC.

26.  However, I am not sure if this is permissible as a matter of law.

27.  In my view, the language of Rule 2, rule 4, as well as the authorities referred to above, has made it clear that the sanction under an unless order will take effect automatically and it is for the party in default to apply for relief from the sanction.  In this case, the defendant has failed to do so within the specified 14 day period. Hence, the only logical result is that the Unless Order will take effect unless if the court on its own motion decides to extend or shorten the time for compliance with any of its order under Order 1B, rule 1(2)(a) & Order 1B, rule 2(1).

28.  As said, I do not think the master has exercised his power under Order 1B, rule 2(1).  Otherwise, I would expect that this would be mentioned by him either at the hearing or in the Order itself.  Instead, Order 2, rule 4 was specifically mentioned.  In any event, the authority suggests that such power to act on its own motion should be exercised rarely and with evidence placed before the court only.  In other words, it is only when there are exceptional circumstances when the court should act on its own initiatives: See eg Keen Philips v Field [2007] 1 WLR 686 and Nelson & Others v Circle Thirty Three Housing Trust Ltd [2014] EWCA Civ 106.

Fresh exercise of discretion 

29.  As this appeal is made pursuant to Order 58 of the RDC, it takes the form of an actual rehearing of the application which led to the order under appeal and I am entitled to treat the matter as thought it has come before me for the first time: see §58/1/2 of Hong Kong Civil Procedure 2015.

30.  I therefore will exercise the discretion afresh and look at the matter as it has come before me for the first time.

31.  Looking at the matter objectively, I think the following views can be formed in regard to the breach of the Unless Order by the defendant:-

(1) There is no suggestion that the defendant did not know about the Unless Order and the importance of complying with the same when it was first issued by the master in December 2014;

(2) The defendant’s default of the Unless Order was made at a time while he was still legally represented, therefore it could not be said that he had not had notice of the same or the default was due to some oversight by his then legal representative;

(3) The defendant had almost an entire month between the case management conference hearing and the deadline to prepare his witness statements;

(4) The defendant ignored the warning by the plaintiff’s solicitors after they filed her witness statement by the deadline on 9 January 2015;

(5) There was a pattern of deliberate flouting of the court orders by the defendant, including the Order made by Master To which effectively gave him a second chance to explain himself;

(6) The defendant’s default had been left unremedied for a long time; it was not until towards the end of April 2015 (almost 5 months after the deadline imposed under the Unless Order) that the defendant filed the witness statements in this case;

(7) The defendant had failed to apply within 14 days to seek relief from the sanction as required under Order 2, rule 4 of the RDC; 

(8) It was only 1 day before the re-fixed CMC on 14 April 2015 that the defendant finally tried to explain the default but without seeking for any relief from the sanction;

(9) The explanations were totally unconvincing and not supported by any evidence; and

(10) As of today, there is still no formal application to apply for any relief from the sanction imposed under the Unless Order.

32.  Given the above, I am of the view that there was a deliberate ignoring if not intentional flouting of the Unless Order on the part of the defendant and, in the absence of any application to seek relief from the sanction within the time limit specified under the rule, the sanction should be allowed to take effect and the defendant should be debarred from adducing any evidence based on such witness statements at trial.

Should relief be granted under Order 1B, rule 2(4)?

33.  Although the court is entitled to act on its own initiative to make any order of its own motion under Order 1B, rule 2(4) and to either extend or shorten the time for compliance with any rule, court order or practice direction under Order 1B, rule 1(2)(a) of the RDC, I agree with the plaintiff’s counsel that such power ought to act exercised rarely and in exceptional circumstances only.  Since no credible evidence has been placed before the court to explain why the defendant could not have filed his witness statements in time, I therefore conclude that the court should not act on its own motion to extend the time specified under the Unless Order.   

34.  Even if I were to exercise the discretion under Order 1B, rule 1(2) of the RDC, I would still exercise my discretion against the defendant when considering the list of circumstances specified under Order 2, rule 5:-

(1) The interests of the administration of justice require the parties to comply with the court orders in a prompt and efficient manner, particularly when it is in the form of an unless order;

(2) The application for relief has not been made promptly or at all in this case;

(3) I consider the failure to comply was either intentional or at least with the defendant’s eyes wide open without caring about its effect;

(4) There is no good explanation for the failure to comply;

(5) The defendant has not been complying or observing other court orders in this case also;

(6) The failure to comply the Unless Order was not caused by his legal representative;

(7) There is no evidence to suggest that he was unaware of the contents of the Unless Order or its effect and that he could not have complied with it without legal assistance;

(8) The trial date will not be affected whether the relief will be granted or not; and

(9) The effect of the failure to comply with the Unless Order means that the defendant will not able to adduce any witness statement(s) (and hence live evidence) but he can still produce other documentary evidence and challenge the plaintiff’s evidence at the trial.

35.  Thus, I would still not exercise my discretion in favour of the defendant if I were to exercise the power under Order 1B, rule 2(4) of the RDC.

CONCLUSION

36.  In conclusion, I would allow the plaintiff’s appeal and hold that the Unless Order of the master dated 12 December 2014 should take effect and the defendant be debarred from adducing any witness statements at the trial in this case.

37.  Costs should also follow the event.  I shall make an order nisi that the defendant do pay the plaintiff’s costs of the appeal with certificate for counsel, such costs to be taxed if not agreed.  The order nisi will become absolute after 14 days in the absence of any application to vary the same.