A reminder that sanctions for non-compliance with an Unless Order are automatic

The recent case of Daimler AG v Leiduck Herbert Heinz Horst & Anor, [2012] 3 HKLRD 119 serves as a reminder that since implementation of the Civil Justice Reforms in Hong Kong on 2 April 2009 and by virtue of the new Order 2, rule 4 of the Rules of High Court ("RHC"), brought in by those reforms, where a party fails to comply with an Unless Order, the sanction for such failure takes effect automatically, unless the defaulting party applies to court for (and obtains) relief from the sanction, within 14 days of the failure.

In the Daimler case, the Unless Order in question provided that unless the Plaintiff answered interrogatories by 4 pm on 4 January 2011, the Plaintiff's Points of Defence regarding fraud be struck out and there be an inquiry as to damages, as sought by the Defendants. The Plaintiff's affirmation answering the interrogatories was filed an hour late and served on the Defendants' solicitors almost two hours late.

On 25 January 2011, the Plaintiff issued a summons seeking a time extension to file and serve the answers to interrogatories. The Defendants issued a summons on 27 January 2011, seeking orders that the Plaintiff's Points of Defence regarding fraud be struck out and there be an inquiry as to damages. The Plaintiff then issued a further summons seeking an extension of time in which to make its application for relief from the sanction flowing from its failure to comply with the Unless Order. The Court of First Instance held that the Plaintiff should (in the circumstances of this case) be granted a time extension to apply for relief from sanction. However, it held that the Plaintiff should not be granted relief from sanction because (i) it was not permissible to claim (as the Plaintiff had) legal professional privilege as a reason for not answering an interrogatory; and (ii) the answers given were grossly insufficient and evasive. The court therefore ordered that the Plaintiff's Points of Defence regarding fraud be struck out and there be an inquiry as to damages.

The Plaintiff appealed to the Court of Appeal. The Court of Appeal pointed out that under the new procedural regime, it was not for the party seeking to take advantage of a default (in this case the Defendants) to apply to court in order to render a sanction for that default effective. Instead, the sanction took effect immediately and it was for the party in default to apply for relief from the sanction. The Plaintiff had overlooked the requirement in RHC O.2 r.4 to apply for relief from sanction within 14 days of failing to comply with the Unless Order. Further, the Plaintiff's summons had been drafted as if the automatic sanction under the Unless Order had not in fact taken effect, whereas the position was that upon the Plaintiff failing to file and serve the answers to interrogatories by 4 pm on 4 January 2011, the Plaintiff's Points of Defence regarding fraud were automatically struck out. The Plaintiff's summons should therefore have in addition sought an order for reinstatement of the Points of Defence regarding Fraud.

Notwithstanding the above, the Court of Appeal found that the Court of First Instance had erred in holding that answers to certain interrogatories claiming legal professional privilege were "no answers at all" and it was therefore entitled to exercise afresh the discretion whether or not to grant relief from the sanction flowing from failure to comply with the Unless Order.

The Court of Appeal allowed the Plaintiff's appeal, granting it relief from the sanction, conditional upon it providing further answers to a number of the interrogatories (without invoking legal professional privilege, which the Court of Appeal found not to be engaged). The answers to interrogatories had been filed and served out of time by only a matter of hours and there was no basis for assuming that the claim to legal professional privilege had been advanced in bad faith. This was not, the Court of Appeal said, a case of intentional and contumelious disregard of a court's peremptory order. Further, an allegation of fraud was one which, pre-eminently, should be the subject of a trial and it was not in the interests of the administration of justice that serious findings go by way of default against a party.

After weighing up the effect on the Defendants of the Plaintiff's failure to comply with the Unless Order (delay and having to argue the insufficiency of answers, which could be remedied by the court requiring the Plaintiff to provide further answers and compensating the Defendants in costs) against the effect on the Plaintiff if relief was not granted, the Court of Appeal allowed the appeal. The Court of Appeal said that this was in keeping with the spirit of Civil Justice Reforms under which the court will generally use striking out as a remedy of last resort and is encouraged to consider other measures that may be more appropriate. The Plaintiff was ordered to pay the Defendants' costs in the Court below and of the appeal.

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