FORTUNE ASSET DEVELOPMENT LTD v. DE MONSA INVESTMENTS LTD

HCA 167/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 167 OF 2009

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J U D G M E N T

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1.  This case poses issues of time extension for filing an affirmation in opposition under the Civil Justice Reform (“CJR”).

The Claim

2.  A preliminary sale and purchase agreement was signed between the parties on 7 December 2007 in relation to properties worth over $200 million.  The Defendant purchaser had investigated and was satisfied with title.  Shortly before the original completion date, the Defendant requested for and was granted an extension of time for completion by 6 months to 31 December 2008 in consideration of a further 10% of the purchase price as part payment.  For no apparent reason, the Defendant failed to complete.  The Plaintiff vendor issued a writ on 20 January 2009 and then an Order 14 summons on 13 February 2009.

The Defence on Affirmation

3.  The only affirmation in opposition was made by the general manager (“the General Manager”) of the Defendant and filed the day before the first call over hearing.  In essence, the defence raised the issue of whether or not the acts of a director who was allegedly mentally unsound could bind a company.  The director in question was one Mr. Lauw senior (aged 84) who held one of 2 shares in the Defendant, the only other shareholder and director being his son.  It was alleged that Mr. Lauw senior might have brain injury when he suffered a fall in March/April 2007.  He then acted abnormally in acquiring 55 properties between 30 March and 6 December 2007 for over $2.6 billion, the subject transaction being the 56^th in the series.  There were also assertions that Mr. Lauw senior was acting under the undue influence of some estate agents which rendered the transaction in question an unconscionable bargain.

The First Call-Over Hearing

4.  At the first call-over hearing, the Plaintiff was in a position to proceed and Ms Li had purported to argue on the merits, seeking to enter judgment there and then.  The Defendant, however, wanted 3 months to file further affirmations to include 2 aspects of evidence: medical reports in relation to Mr. Lauw senior and schedules of transactions to demonstrate the abnormal acquisition of properties.

5.  That request was expressly declined on the ground that though medical report might be needed to substantiate the opposition, there was no indication that Mr. Lauw senior was willing to attend medical examination or that any had been arranged for him.  I directed the Defendant to file and serve all affirmations in opposition within 28 days, i.e. by 6 April 2009.

6.  Aside from that direction, there were various matter that would have put the Defendant on the alert that proper preparation of evidence from an appropriate person in good time was required:

(i)  Ms Li in her submission had pointed out that the defence could hardly be substantiated because throughout the whole process, from the conveyancing transaction to the first call-over hearing, the Defendant was represented by the same firm of solicitors and there had never been any purported act of rescission.

(ii)  I had also pointed out that notwithstanding the issue raised by the Defendant, the persons having direct financial interest in the conveyancing transaction and this action (i.e. Mr. Lauw senior and his son) have not filed any affirmation nor done anything to rescind any of the 56 allegedly problematic transactions.

7.  On 6^th April, the Defendant’s former firm of solicitors sought an extension of 7 days to file the further affirmation in opposition.  It was rejected by the Plaintiff’s solicitor on the same day as being ungrounded. 

8.  On 9^th April (the day before the Easter holidays and 6 days before the 2^nd call-over hearing), the Defendant’s present firm of solicitors filed a notice to act.

The Second Call-Over Hearing

9.  It was only at the present 2^nd call-over hearing that the Defendant’s counsel handed up the following documents to the Plaintiff’s solicitors and me:

(i)  A copy of the solicitors’ affirmation enclosing a draft affirmation (“the Draft Affirmation”) of the General Manger and some medical certificates from one Doctor Leung who had treated Mr. Lauw senior in July 2007 and one Doctor Chiu who had examined Mr. Lauw senior on 2 occasions after the first call-over.  It was said that the General Manager was in Taiwan and would not be back until the day after the present hearing.

(ii)  A further medical certificate from Doctor Chiu which contained no medical findings but only a recommendation that Mr. Lauw go through a formal neuropsychological test by a clinical psychologist.

10.  The Defendant requests for a further month to file “vital medical opinion and schedules of transactions” for the period from 31 March 2007 to September 2008 (note: a longer period than that set out in paragraph 3 above).

11.  Ms. Li for the Plaintiff seeks the following directions:

(i)  that leave for the Defendant to file the solicitors’ affirmation  out of time and to file a further affirmation be refused; or that if leave is granted, time should only be extended for 7 days and on an unless order basis with the sanction of immediate judgment in the event of default;

(ii)  that leave be given to the Plaintiff to file an affirmation in reply to the affirmation previously filed by the General Manager within 28 days;

(iii)  that there be no further call-overs so that the Order 14 summons can be adjourned to a date to be fixed for argument with 3 hours reserved.

The Principles for Seeking Extension of Time

12.  Under the Civil Justice Reform, the Court shall further the underlying objectives by actively managing cases: Order 1A, rule 4(1).  Active case management includes fixing of timetables or otherwise controlling the progress of the case: Order 1A, rule 4(2)(g).  These rules are applicable equally to the main action as for interlocutory applications.

13.  Time laid down by legislation, court order or practice directions should be complied with.  Before a timetable is to be laid down by a court, the parties should give realistic estimates of time.  If a party permits time (however laid down) to lapse without doing anything, the case/application simply moves on to the next step.  Although the innocent party is at liberty to apply for e.g. an unless order with appropriate sanctions, it is incumbent upon the party in default to take the necessary steps to seek any needed extension of time.

14.  The Court has power to extend time even if an application for extension is made after the time for compliance has expired: Order 1B, rule 1(2)(a).  In exercising this power, the court will take into account all the circumstances including but not limited to the following matters:

(i)  What was the original time allowed and when has it expired?  The more the original time allowed, the more difficult it is to justify an extension.

(ii)  Was the original time laid down by consent or at the suggestion of the applicant?  Under the Civil Justice Reform, a party is held more to his own bargain.

(iii)  Why was the original time not adhered to?

(iv)  When was the application for extension of time taken out?  The greater the delay, the more difficult it is to obtain an extension.

(v)  Has the applicant used his best endeavours to secure the attendance of a witness to take instructions and impressed upon that witness the importance of attending on a certain date to affirm?

(vi)  Is a witness’s availability within the “control” of the applicant?  For example, if the witness is an unwilling ex-employee, the court may have more sympathy with the applicant.

(vii)    That a client or witness has to travel frequently out of the jurisdiction is not a good reason in itself given the advanced means of communication these days by email, fax and telephone conference.  It is incumbent upon the applicant to obtain the instructions for drafting the affirmation in good time and to impress upon the witness the need to turn up on a designated date to affirm.

(viii)    If the witness is an expert, has the expert been informed of the time laid down by legislation, PD or the court, and committed himself to provide a report by that time?  If he had not so committed himself, why was that particular expert still engaged?

(ix)  What realistically is the further time needed to complete and file the affirmation?  An applicant should not just casually pick a multiple of 7 days without regard to its adequacy for completing the affirmation.

(x)  Was there any de facto extension of time already enjoyed by the applicant, whether by way of consent, or in waiting for his time summons to be heard?

(xi)  Will the extension of time sought have impact on any hearing date or milestone date?

I will add that last minute change in the legal team in itself can hardly be a good reason for seeking extension of time.

Application of the Principles

15.  Applying the above principles, it can immediately be seen that there was lack of awareness as to those principles on the part of the Defendant.  The Defendant served the first affirmation of the General Manager at the 11^th hour before the first call-over hearing.  They were then given a chance to file a 2^nd round of affirmation(s).  The original request for 3 months time was expressly declined with reasons given.  It was only on the last day for filing the further affirmation(s) that the Defendant sought extension of time without giving any reason.  In the face of instant refusal, the Defendant did not pursue the matter.  The solicitors on record were replaced.  By the time of the 2^nd call-over hearing, the Defendant has enjoyed a de facto extension of 9 days.  Even so, the Defendant clearly demonstrated that those 9 days were not sufficient.  The draft affirmation was nowhere near final.  There was no explanation as to why the General Manager (who was in the “control” of the Defendant) was away at a critical period to prevent finalization of the further affirmation.  The failure to prepare the table of transactions was not convincing, as one would expect there to be internal documentation in support of 56 conveyancing transactions.  As for medical opinion, there was also nothing to show why a medical opinion could not be prepared by Doctor Leung based on historical examination over the relevant period of March to December 2007.   Just why Mr. Lauw senior needed to consult Doctor Chiu is also not clear.   He had promised to provide a more detailed report in 2 weeks’ time from 30 March that report was not ready.

16.  Under the Civil Justice Reform, the Court has to ensure that a case is dealt with as expeditiously as is reasonably practicable and to ensure fairness between the parties: Order 1A, rule 1(b) and (d).  An Order 14 application is meant to be summary in nature for clear cases.  It is unfair for a plaintiff who has been compliant with the rules to be put to wait.  On the other hand, the Court must not overlook its role “to secure the just resolution of disputes in accordance with the substantive rights of the parties”: Order 1A, rule 2(2).

17.  The reason for failure to comply with time was quite unacceptable.  However, I have taken into account that this was the first case of its kind post-Civil Justice Reform.  The amount involved is very substantial ($21 million deposit to be forfeited and $45 million damages claimed).  If the Defendant is barred from adducing evidence now, they will not be able to adduce evidence on appeal: Order 58, rule 1(5).  It would not be just to drive the Defendant away from the judgment seat hastily.  At the first call-over hearing, there was nothing to show that Mr. Lauw senior was willing to attend medical examination or that any had been arranged for him.  He had sought medical consultation since.  At least Doctor Chiu was made aware of the need to prepare the report “to facilitate the lawyer … to proceed with the necessary legal procedures within the time constrain (sic)” and estimation of time for the report was obtained.   There is as yet no hearing date fixed for hearing of the O.14 summons.  Nor has any milestone date been set.  I will therefore give an extension of time to 4 May.  (Considering that Doctor Leung will see Mr. Lauw senior again on 20 April, there will be 14 days for the medical report to be prepared.)  By this extension, the Defendant will effectively have got close to 3 months to file all its affirmations – counted from the date of the Order 14 summons.

18.  I just wish to add for the note of litigants generally that the exercise of discretion in this case should not be taken as a precedent that the Court will do so in a similar situation in future.

Conditions to Be Imposed

19.  There is no dispute that the extension of time should be on an unless order basis.  The dispute is with the appropriate sanction.

20.  I do not agree with Ms. Li that upon default in compliance judgment should be entered for the Plaintiff.  This is because the Defendant has already filed an affirmation of the General Manager.  The Defendant may still rely on it for what it is worth.  The Plaintiff, on the other hand, will still have to prove that they are entitled to summary judgment.  In the premises, I consider that the appropriate sanction should be that the Defendant will be debarred from filing further evidence in the Order 14 application.

21.  I warn the Defendant, however, that the Court may refuse to grant any more extension, even on an unless order basis.  Even if it does, the Court may impose more stringent conditions under Order 2, rule 3 (which was mentioned but not pursued further by Ms. Li).

Costs

22.  The Defendant concedes that the Plaintiff is entitled to costs of the 2^nd call-over hearing.  The Plaintiff seeks a sum of $12,050.

23.  I take into account the correspondence in relation to the extension of time, the need to prepare for this hearing, the court hearing time of 45 minutes.  I summarily assess the costs in favour of the Plaintiff in the sum of $7,000, which includes the time for considering this judgment, attending client for this purpose and drafting up my order.

Order

24.  I order as follows:

(i)  Leave to the Defendant to file and serve the affirmation of Chow Bing Chiu out of time by 4:00 pm on 24 April 2009.

(ii)  Unless the Defendant do file and serve all its affirmation(s) in opposition to the Order 14 application by 4:00 pm on 5 May 2009, the Defendant will be barred from doing so.

(iii)  The Plaintiff is at liberty to file and serve an affirmation(s) in reply within 28 days thereafter.

(iv)  No further affirmation shall be filed without leave of the Court.

(v)  The summons is adjourned to a date to be fixed with 3 hours reserved before a judge in chambers.

(vi)  On a nisi basis, costs of and occasioned by the 2^nd call-over hearing on 15 April 2009 are summarily assessed at $7,000 to be paid by the Defendant to the Plaintiff.