RUSSELL PETER BROWN AND OTHERS v. EDWARD EUGENE LEHMAN

CACV 119/2012

[2020] HKCA 528

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 119 OF 2012

(ON APPEAL FROM HCA 959 OF 2010)

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JUDGMENT ON COSTS

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Hon Barma JA (giving the Judgment of the Court on Costs):

1.  This was an application by summons dated 26 August 2016 seeking to vary the costs order nisi in the judgment in this matter handed down by the court (Lunn VP, Barma JA & McWalters JA) on 29 July 2016, by which we allowed an appeal by the defendant against a judgment of Deputy Judge Louis Chan refusing to set aside a default judgment entered against him by the 1^st, 2^nd and 3^rd plaintiffs, on the ground that the default judgment was irregular, in that the court did not have jurisdiction to enter it for the reasons explained in our judgment. The defendant also sought the dismissal of the 3^rd plaintiff’s claim against him. The parties agreed that the application should be dealt with on paper, on the basis of their respective written submissions. We now hand down our decision on the application. The delay in handing down this decision is much regretted.

2.  The costs order nisi dealt with the costs of the appeal, including the costs of an adjournment of the appeal when it first came on for hearing, and ordered that these should be paid by the plaintiffs to the defendant, to be taxed on the party and party basis if not agreed (see paragraph 31 of our judgment).

3.  The defendant sought a variation of the costs order nisi in the following respects:

(1)  In place of a taxation of his costs, the defendant sought a gross sum assessment of his costs of the appeal, and provided a statement of costs for that purpose in which the costs sought to be recovered were quantified at HK$753,155.00.

(2)  To make provision for the costs of the hearing in the court below, by:

(a)  setting aside the costs order made in favour of the plaintiffs by the deputy judge and directing the repayment to the defendant of any sums he had paid to the plaintiffs pursuant to it;

(b)  ordering that the costs of and incidental to the defendant’s summons dated 14 December 2011 in HCA 959/2010 (i.e. the summons seeking the setting aside of the default judgment against him), including any reserved costs, be paid forthwith by the plaintiffs to the defendant, to be taxed if not agreed;

(c)  ordering that the general costs of the action in HCA 959/2010 (other than those in respect of which specific orders had been made) including and subsequent to the entry of the interlocutory judgment dated 3 December 2010, including all reserved costs, be paid forthwith by the plaintiffs to the defendant, to be taxed if not agreed; and

(3)  In the light of the 3^rd plaintiff’s acceptance that it had not in fact alleged that the plaintiff had defamed it, that the 3^rd plaintiff’s claims against the defendant should be dismissed, and the 3^rd plaintiff should pay the costs of its action to the defendant forthwith.

4.  The plaintiffs accepted that the costs of the defendant’s application to set aside the default judgment in the court below should be paid by the plaintiffs to the defendant on the party and party basis, to be taxed if not agreed.  They also accepted that the 3^rd plaintiff’s claim should be dismissed with costs to the defendant, to be taxed if not agreed.  We will therefore vary our order on the appeal to cover these matters.

5.  However, the plaintiffs opposed the other orders sought, contending that:

(1)  The costs of the appeal should not be made the subject of a gross sum assessment, but should be taxed in the normal way, because the defendant succeeded on the basis of grounds raised in its Amended Notice of Appeal filed on 22 May 2013, three weeks prior to the original date fixed for the hearing of the appeal.  The plaintiffs contended that in the light of this, the defendant should be regarded as having sought and obtained an indulgence, and that consequently the costs of and occasioned by the Amended Notice of Appeal should be paid by the defendant to the plaintiffs, or alternatively that the defendant’s costs attributable to the Amended Notice of Appeal should be disallowed.  As the defendant’s statement of costs did not differentiate between the costs of the “appeal proper” and those attributable to the Amended Notice of Appeal, such costs would need to be differentiated or apportioned, and this meant that it was not a suitable case for a gross sum assessment.

(2)  If, contrary to the plaintiffs’ submission, the court determined that a gross sum assessment was appropriate, the plaintiffs took a number of objections to the amounts claimed by the defendant and contended for a reduction of the costs to be allowed by about HK$240,000.00.

(3)  The suggestion that costs subsequent to the entry of the default judgment against the defendant should be paid by the plaintiffs to the defendant was inappropriate as the action remained on foot and would be proceeded with by the 1^st and 2^nd plaintiffs against the defendant.  There was therefore no basis for holding that the plaintiffs should be responsible for the defendant’s costs of the action generally when the action was continuing and had yet to be finally determined.

6.  In the light of the plaintiffs’ acceptance that the 3^rd plaintiff’s claim against the defendant should be dismissed with costs to the defendant, to be taxed on the party and party basis, the defendant was content to leave the question of costs subsequent to the entry of the default judgment to be determined in the action in HCA 959/2010.  In our view this was a sensible approach as, having conceded the costs of the application to set aside the default judgment in the costs below, the question of whether, and if so what, further costs should be paid by the 1^st and 2^nd plaintiffs to the defendant in respect of steps taken after the entry of the default judgment could at best relate only to such steps (if any) taken by the defendant that were rendered unnecessary and wasted as a result of the default judgment being set aside.  There is at present little or no information as to what such steps and the costs relating to them might be, and it would in our view be more sensible for these matters to be dealt with at the end of the day, in a taxation of the costs of the action as a whole after it has been concluded.

7.  That leaves as the only questions for determination the issue of whether or not there should be a gross sum assessment of the costs of the appeal before us, and if so, in what amount such costs should be assessed.

8.  We will deal first with the issue of whether there should be a gross sum assessment at all.

9.  The basis on which the plaintiffs resist a gross sum assessment of the costs of the appeal is their contention that the defendant should be ordered to pay part of the plaintiffs’ costs of the appeal (or at least deprived of part of its own costs) arising from what was said to be a late indulgence sought and obtained by the defendant in respect of his late amendment of his Notice of Appeal, to introduce new grounds of appeal on which he ultimately succeeded.  It is suggested that the apportionment of costs that would be necessary is something that would be better dealt with by taxation rather than by way of a gross sum assessment, particularly when no breakdown had been provided by the defendant as to the costs of the appeal prior to and after the amendment to the Notice of Appeal.

10.  However, as the defendant rightly points out, his Amended Notice of Appeal was served three weeks before the hearing in accordance with RHC Order 59 rule 7(1)(b) (as it then stood), so that leave to amend was not required.  In other words, the defendant was entitled to make the amendment, and was not seeking any indulgence.  The defendant goes on to point out, correctly, that the adjournment of the appeal was due, not to the defendant’s amendments to his Notice of Appeal, but because of a pending application in the court below to determine whether or not the substitution of the 3^rd plaintiff by Lehman Brown Limited, should stand or be disallowed.  Moreover, the defendant has in his statement of costs omitted to claim for any costs in relation to the preparation of the original Notice of Appeal, recognizing that it was superseded by the Amended Notice of Appeal on the basis of which he succeeded in his appeal.  In these circumstances, we can see no reason for depriving the defendant of any of his costs relating to the Amended Notice of Appeal or of the appeal prosecuted on the basis of it.  Still less can we see any basis for requiring the defendant to pay any part of the 1^st and 2^nd plaintiffs’ costs of the appeal.

11.  In the circumstances, there can be no question of any apportionment of the costs of the appeal, and there is thus no impediment to the defendant’s costs of the appeal being quantified by way of a gross sum assessment.  We shall therefore conduct a gross sum assessment, and consider the objections raised by the plaintiffs to the costs claimed in the defendant’s statement of costs.

12.  Dealing with such objections in turn:

(1)  Under item D1, it is suggested that the time taken to prepare the draft order (for which 1 hour was claimed at HK$2,400 per hour) was excessive, and should be reduced (to 20 minutes). However, as the defendant notes, there were in fact two orders to be prepared (one in respect of each hearing).  We do not think the amount claimed is excessive, and allow it without reduction.

(2)  Under item D2, it is suggested that the time spent on perusal and/or approval of various documents related to the appeal is excessive.  The claim is for 4 hours at HK$4,000 per hour and 12 hours at HK$2,400 per hour.  Bearing in mind that senior counsel was instructed, and notwithstanding that we would accept that solicitors must be involved in finalizing the documents to be lodged, we consider the amount claimed to be on the high side and would reduce it to 3 hours at HK$4,000 per hour, and 6 hours at HK$2,400 per hour, resulting in a reduction of HK$18,400.

(3)  Under item D3, it is suggested that nothing should be allowed to the solicitors for legal research.  We consider that some allowance should be made for this item, but would reduce it slightly, by HK$2,400.

(4)  Under item D4, it is suggested that the time allowed for preparation for each hearing should be 1 hour, rather than the 2 hours claimed.  We think this is reasonable, and accordingly reduce the amount under this item by HK$6,400.

(5)  Under item D5, the plaintiffs suggest that the costs of attending the hearings before this court should be based on the actual time in court, and that the attendance of one junior solicitor only should be allowed.  The defendant has no objection to basing the claim on the time spent in court (including short breaks) but suggests that costs should be allowed on the basis of the attendance of a senior solicitor.  We think that it was appropriate for the hearing to be attended by a senior solicitor and shall therefore allow attendance at the hearing at the rate of HK$4,000 per hour. According to the court’s records, the first hearing on 13 June 2013 lasted just under 45 minutes, while the second hearing on 22 June 2014 lasted slightly over 4 hours (not including the lunch break).  Accordingly, the amount allowed for this item will be HK$19,000, a reduction of HK$19,400.

(6)  Under item E1, it is contended that the costs of preparation of the Amended Notice of Appeal should be disallowed. For the reasons explained in paragraph 10 above, we do not think this would be correct, and we propose to allow this item in full.

(7)  Under item E1, it is also contended that the amount claimed for a supplementary submission and preparation by senior counsel prior to the adjourned hearing should be disallowed, either on the basis that this should be covered by the refresher claimed in respect of the adjourned hearing, or on the basis that it is plainly excessive.  We think that having regard to the long gap between the original and adjourned hearing dates, some preparation time and the provision of a supplemental skeleton (a short document of some 4 pages) in order to update the court as to what had happened in the interim period, was reasonable.  However, we think that the amount claimed is too high, and would instead allow HK$70,000 for this item, thus reducing it by HK$30,000.

13.  For the reasons explained above, we would reduce the amount claimed in the statement of costs by HK$76,600, to HK$676,555.

14.  We shall therefore vary the costs order nisi to provide for a gross sum assessment of the costs of the appeal before us (including the costs of the adjournment), and assess the defendant’s costs in the amount of HK$676,555.  We shall also order that the plaintiffs are to pay the defendant’s costs of the application to set aside the default judgment in the court below, to be taxed on the party and party basis if not agreed, and that any costs paid by the defendant to the plaintiffs in respect of that application are to be repaid to the defendant.  Having regard to the parties’ agreement that this should be done, we also make an order dismissing the 3^rd plaintiff’s claim against the defendant, with costs to the defendant to be taxed if not agreed.

15.  Finally, the defendant seeks an award of costs in respect of this application.  Having regard to the fact that the defendant has largely succeeded in obtaining what he sought, we think it appropriate to make an order that the costs of this application to vary the costs order nisi be paid by the plaintiffs to the defendant, and we assess such costs on a gross sum basis in the amount of HK$12,000.

Written submission by ONC Lawyers for the plaintiffs

Written submission by David Ravenscroft & Co for the defendant

CACV 119/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 119 OF 2012

(ON APPEAL FROM HCA 959 OF 2010)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1.  This was an appeal by the defendant against that part of the judgment of Deputy Judge L Chan (as L Chan J then was) (“the Judge”) dated 27 April 2012, by which the Judge refused to set aside a default judgment which had been entered against the defendant, Mr Edward Eugene Lehman, by the plaintiffs, Mr Russell Peter Brown, his wife Mrs Zhou Han Brown, and Effiscient Limited (respectively the 1^st, 2^nd and 3^rd plaintiffs).

2.  These proceedings are part of an extensive series of legal proceedings involving the 1^st and 2^nd plaintiffs and the defendant and his wife, relating to an apparently successful accounting services business on the Mainland operated by a company called Lehman Brown Limited (“the Company”), in which they were shareholders (either directly, or through companies held by them).  The Company was established in 2001, but by 2004, the relationship between the Lehmans and the Browns had soured, and thereafter deteriorated rapidly.  Each camp took out unfair prejudice petitions against the other, and other proceedings involving alleged misuse or misappropriation of trade marks were also commenced.  According to the Browns, in 2009 and 2010 Mr Lehman made a very extensive series of defamatory statements about them – it is these statements that form the subject matter of the proceedings with which we are concerned.

3.  The writ in these proceedings was issued on 28 June 2010.  It was generally indorsed, and asserted causes of action on behalf of the plaintiffs in libel, slander, malicious falsehood and remedies for alleged breaches of section 5 of the Defamation Ordinance (Cap 21).  Although the 3^rd plaintiff (the vehicle through which the 1^st and 2^nd plaintiffs held their shares in the Company) was named as a plaintiff in the proceedings, the writ does not appear to allege any wrongs done to the 3^rd plaintiff, complaining instead of defamatory statements being made in relation to the Company.  The relief claimed included an injunction to restrain the further publication of defamatory statements by the defendant, claims for general, special and exemplary damages, interest, costs and further and/or other relief.  As will become clear, the claim to an injunction is of particular significance for the purposes of this appeal.

4.  After the writ was issued, the plaintiffs applied ex parte for an interlocutory injunction to restrain the defendant from further publishing or re-publishing various defamatory statements that were detailed in the plaintiffs’ letter before action (which referred to about 22 such statements).  On 23 July 2010, To J granted the injunction sought.

5.  On 2 November 2010, the plaintiffs brought proceedings to commit the defendant for contempt of court, on the basis of alleged breaches of the ex parte injunction granted by To J.  The application was heard on 19 April 2011, when To J found the defendant guilty of contempt, and fined him but declined to imprison him in the light of the defendant’s recognition that he had breached the order and apology.

6.  Meanwhile, on 3 December 2010, the default judgment which is the subject of this appeal was entered against the defendant. The application for default judgment was supported by an affidavit of Miss Greene, an assistant solicitor in the employ of the plaintiffs’ solicitors filed on 12 November 2010, in which she stated (at paragraphs 5 to 7):

“5. Pursuant to the Order of Master Lung dated 2 July 2010, the Plaintiffs issued a Concurrent Writ of Summons on 7 July 2010 for service upon the Defendant out of the jurisdiction. (‘Concurrent Writ’).

6. On 23 July 2010, the Honourable Mr Justice To granted an injunction order inter alia restraining the Defendant from publishing, republishing or making Defamatory Statements about the Plaintiffs and the Company until after the trial of this action or until further order (‘Injunction Order’).

7. The Plaintiffs are now only left with their claim for unliquidated damages under the Writ of Summons and are hereby applying to this Honourable Court for interlocutory judgment against the Defendant for damages to be assessed and costs.”

7.  On 20 January 2011, the defendant brought an application seeking to set aside the default judgment for irregularity, alleging that the writ had not been served.  However, this application was not pursued, leave being given to withdraw it on 21 February 2011.

8.  Thereafter, on 14 November 2011, the defendant again applied to have the default judgment set aside, on different grounds.  As we have noted, this application was dismissed by the Judge on 27 April 2012 and that decision is the subject of this appeal.

9.  While that application was pending, on 8 December 2011, the 3^rd plaintiff brought fresh contempt proceedings against the defendant based on matters that had occurred during the trial of the unfair prejudice petitions which each side had brought against the other.  The allegations made by the 3^rd plaintiff also included allegations that the defendant had again breached the ex parte injunction granted by To J.  These proceedings were heard by Harris J in July 2012, when he committed the defendant for contempt in relation to the further breaches of the injunction, imposing a sentence of six months’ imprisonment, suspended for two years.  The defendant unsuccessfully appealed against this decision in CACV 177/2012.  It will be necessary to consider what implications that decision might have for the present application later in this judgment.

10.  The trial of the assessment of damages for the defamation claims pursuant to the default judgment that is the subject of this application was due to take place in 2013, but it was adjourned for reasons that are not relevant to this appeal.

11.  In this appeal, the defendant contends that the Judge was wrong to refuse to set aside the default judgment.  Before the Judge, the defendant contended that the default judgment was irregular for a number of reasons, the most important of which were:

(1)   As the plaintiffs’ claims included a claim for an injunction, RHC Order 13 did not permit the entry of default judgment in relation to any part of the claim.  The default judgment was therefore irregular because the court did not have jurisdiction to enter it.

(2)   The writ failed to comply with the requirements of RHC Order 82 rule 2 in relation to the necessary particulars which must be provided of the alleged defamatory statements and publications in respect of the libel claim.  It was also suggested that the causes of action relied upon were incomplete, in that the writ failed to provide particulars of special damage to support the slander and malicious prosecution claims, or to identify any viable cause of action pursuant to section 5 of the Defamation Ordinance.

(3)   At least so far as the 3^rd plaintiff was concerned, there were in fact no allegations of defamation that concerned the 3^rd plaintiff, as all alleged defamatory statements related to the 1^st and 2^nd plaintiffs and the Company (as distinct from the 3^rd plaintiff, which was a shareholder in it).

12.  As we have noted, the Judge declined to set aside the default judgment.  He took the view that in the light of what was said by Miss Greene in her affidavit, the plaintiffs should be regarded as having abandoned their claim to injunctive relief, and that being the case, it was open to the plaintiff to apply for default judgment on the balance of its claims.  So far as the complaint about the lack of particulars was concerned, he took the view that this did not amount to an irregularity so as to require the default judgment to be set aside ex debito justitiae, without consideration of the merits.  But in case he was wrong about that, he went on to state that in the light of subsequent developments, and the many steps taken by the defendant in relation to the proceedings, this was one of the relatively rare cases in which the court could and should exercise its residual discretion to refuse to set aside a default judgment, notwithstanding that it was irregular.  The Judge does not, however, appear to have dealt with the position of the 3^rd plaintiff.

13.  In this appeal, Mr Barlow SC, representing the defendant, renewed all three of these arguments.

14.  Before the first occasion on which this appeal was heard (13 June 2013), there were certain developments in relation to the position of the 3^rd plaintiff which resulted in the appeal being adjourned, and eventually being heard on 22 July 2014.  The position can be summarised as follows:

(1)   On 9 May 2013, the plaintiffs served a further (4^th) affidavit of Miss Greene, by which the plaintiffs conceded the ground of appeal relating to the failure of the writ to plead any allegation that the 3^rd plaintiff had been defamed, whether by libel or slander.

(2)   However, at the same time, the plaintiffs applied for leave to amend the writ by deleting the name of the 3^rd plaintiff and substituting the Company as the 3^rd plaintiff.  This application was heard on 13 May 2013, at a hearing that was not attended by the defendant.  At that hearing, the Judge allowed the writ to be amended in the manner sought.

(3)   The next day, 14 May 2013, the defendant took out a summons seeking to re-open the plaintiffs’ application to substitute the 3^rd plaintiff with the Company.  This application was first heard on 22 May 2013, when the application was adjourned for substantive argument.

(4)   As at 13 June 2013, the position was therefore that an order for substitution of the 3^rd plaintiff by the Company had been made, although that order was the subject of the defendant’s application to re-open that matter.

(5)   At the hearing before us on 13 June 2013, Mr Manzoni SC, appearing for the plaintiffs, contended that as things then stood, the writ had been amended, and that therefore by operation of the doctrine of relation back, the Company was to be regarded as having been the 3^rd plaintiff from the date of issue of the writ, and as such, the complaint that there were no allegations of defamation concerning the 3^rd plaintiff must fall away.

(6)   We did not regard this as a satisfactory state of affairs, and adjourned the appeal to enable the defendant’s summons of 14 May 2013 to be heard and determined, so that the question of who was the 3^rd plaintiff could be settled one way or another (and if necessary, be made the subject of an appeal to this court).

(7)   Thereafter, on 22 July 2013, the plaintiffs (apparently having considered the matter further) applied to the Judge to have the substitution order set aside and for leave to withdraw their substitution summons.  As a result, on 24 July 2013, the Judge made the orders sought, and also gave the defendant leave to withdraw his application to re-open the substitution order (this no longer being necessary, as that order had been set aside).

(8)   The plaintiffs then applied for leave for the 3^rd plaintiff to discontinue its claims, but this application was dismissed by Deputy High Court Judge Hartmann, as he considered that he had no jurisdiction to deal with the matter in the light of this pending appeal.  The 3^rd plaintiff therefore remained a party to the proceedings.

(9)   However, on the resumed hearing of the appeal, the plaintiffs (now appearing by Mr Lam) made it clear that they did not seek to maintain the default judgment in favour of the 3^rd plaintiff, and conceded the appeal so far as it concerned the position of the 3^rd plaintiff.

15.  That leaves the question of whether the default judgment in favour of the 1^st and 2^nd plaintiffs should stand, or whether they should be set aside, as the defendant submits.  As noted above, the two main grounds on which it is said that the default judgment should be set aside are first, that it was irregular as being beyond the court’s jurisdiction to enter, and second, that it was irregular because of the alleged defects in the claims formulated in the writ.

16.  We shall deal first with the argument that the default judgment was irregular because the court had no jurisdiction to grant it, in the light of the claim for a permanent injunction contained in the writ.  As we have noted, the Judge concluded that this claim had been abandoned, and so was not an impediment to the entry of the default judgment.

17.  It is convenient first to consider the relevant provisions of RHC Order 13, and pertinent passages in the commentary in the Hong Kong Civil Procedure.  As will be apparent from what follows, the provisions of RHC Order 13 set out a self-contained and comprehensive code for the entry of default judgments where no notice of intention to defend is given.

18.  Thus, Order 13 rule 1 provides that default judgment may be entered against a defendant “where a writ is indorsed with a claim against a defendant for a liquidated demand only”; Order 13 rule 2 provides that default judgment may be entered against a defendant “where a writ is indorsed with a claim against a defendant for unliquidated damages only”; Order 13 rule 3 permits default judgment to be entered “where a writ is indorsed with a claim against a defendant relating to the detention of goods only”; and Order 13 rule 4 allows default judgment to be entered “where a writ is indorsed with a claim against a defendant for possession of land only”.  Where more than one of the types of claims mentioned in rules 1 to 4 are brought under a single writ, Order 13 rule 5 will apply, permitting default judgment to be entered “where a writ issued against any defendant is indorsed with two or more of the claims mentioned in the foregoing rules, and no other claim”.

19.  Read together, rules 1 to 5 make it clear beyond doubt that default judgment can only be entered against a defendant who fails to give notice of intention to defend where the claim against him is for a debt, unliquidated damages, detention of goods or possession of land, or a combination of such claims without any other type of claim being made against him.  This is reinforced by Order 13 rule 6(1), which provides:

“Where a writ is indorsed with a claim of a description not mentioned in rules 1 to 4, then, if any defendant fails to give notice of intention to defend, the plaintiff may … proceed with the action as if that defendant had given notice of intention to defend.”

This makes it clear not just that the default judgment mechanism is not available in relation to any other type of claim, but that whenever such other claims are made, the default judgment mechanism is not available at all, even in respect of other claims in the writ that are of the type mentioned in Order 13 rules 1 to 4.

20.  This is made clear by the commentary in the commentary at paragraph 13/6/1 of the Hong Kong Civil Procedure, which states:

“The effect of para. (1) is to preclude a plaintiff from entering judgment in default of notice of intention to defend in every case in which the indorsement on the writ contains or includes a claim which is not squarely with rr. 1 to 4 of this Order, and to require him to proceed with the action as if that defendant had given notice of intention to defend. If, therefore, there is indorsed on the writ a claim for an account, injunction, specific performance, declaration or rectification or other remedy or relief which falls outside the descriptions specified in rr. 1 to 4, the plaintiff cannot enter judgment in default of notice of intention to defend, unless he expressly and finally abandons every such remedy or relief. … on the effective abandonment of every remedy or relief outside the descriptions specified in rr. 1 to 4 he is entitled to enter a default judgment under these rules (Morley London Developments Ltd v Rightside Properties Ltd (1973) 231 EG 235, CA).”

21.  We think Mr Barlow is right to say that where a writ contains a claim other than of the nature specified in rules 1 to 4, and such claim has not been expressly and finally abandoned, the court does not have power (or jurisdiction) to allow default judgment to be entered in respect of any of the claims in the writ.  A default judgment entered (even in respect of a claim falling within rules 1 to 4) in such a case would clearly be an irregular judgment.  In the present case, the plaintiffs had included in their claims a claim for a permanent injunction to restrain the further publication of defamatory statements against them – that is clearly a claim that falls outwith rules 1 to 4.  Unless that claim was expressly and finally abandoned, default judgment could not be entered in this case.

22.  The Judge considered that what Miss Greene had said in her affidavit referred to in paragraph 6 above constituted an abandonment of the plaintiffs’ claim to an injunction, so that it became possible to obtain default judgment.  With respect, we cannot agree. Nothing in what Miss Greene said indicated that the plaintiffs were intending to give up their claim to an injunction.  On the contrary, Miss Greene appeared to be of the view that the plaintiffs had already obtained the injunction that they were seeking (a view which was mistaken, as the injunction that had been obtained from To J was interlocutory and not final).  But even if the injunction granted by To J had been a final injunction, the approach of the plaintiffs, as explained by Miss Greene, was that having obtained the injunction, they were left only with their claim for damages.  This approach did not involve any abandonment of the claim for an injunction.  On the contrary, it displayed an intention to rely on that claim to keep the fruits of it, which had (at least according to Miss Greene’s understanding, incorrect though it may have been) already been obtained.  So understood, the plaintiffs were not, in our view, abandoning their claim to the injunction at all, let alone expressly and finally.

23.  Mr Lam submitted that the plaintiffs should be regarded as necessarily having abandoned their claim to the permanent injunction by making the application for default judgment.  We do not think this can be correct.  The mere fact that an application for default judgment is made cannot of itself imply that all other claims are abandoned. It is just as possible that the application for default judgment was made in error, on a wrong understanding of the effect of the scheme of Order 13 rules 1 to 6.  In our view, the commentary in the Hong Kong Civil Procedure, to which we have referred above, accurately sets out what is required – an express and final abandonment, as was present in Morley London Developments v Rightside, as opposed to one that might (or might not) be implicit in the making of the application for default judgment itself.

24.  We also note that Mr Lam fairly accepted that what Miss Greene had said in her affidavit was not clear.  It seems to us that a clear and express abandonment of all other claims should be required before default judgment is entered, as to hold otherwise would be a recipe for confusion, as it would be only after the evidence in relation to the plaintiffs’ state of mind when entering default judgment had been considered and weighed by the court that it would be possible to know the status of a default judgment entered in circumstances such as this.

25.  Mr Barlow suggested further that the subsequent application to commit the defendant for contempt for further breach of the interlocutory injunction in the course of the trial of the shareholder dispute proceedings before Harris J also showed that the plaintiffs had never abandoned their clam to a permanent injunction, because if they had, the interlocutory injunction would have ceased to have any foundation (on the basis that it was granted to hold the position pending the trial of the claim to a permanent injunction) and could no longer have properly been relied upon by the plaintiffs to found any further complaint of contempt.  We doubt whether this is correct for the reasons we explain in the next paragraph. Moreover, it seems to us that it would in any event be for the defendant to seek the discharge of the interlocutory injunction if it were of the view that it should no longer be continued in effect, and until this had happened, the injunction remained in force and had to be complied with.  However, as we have already explained, we are of the view that it is clear that the plaintiffs had not abandoned their claim for a permanent injunction (or at least had not done so expressly and finally), so that the defendant has shown that the default judgment was entered without jurisdiction and was irregular.

26.  We would add that we were referred to the decision of another division of this court in CACV 177/2012, in which the defendant appealed against his committal for contempt by Harris J on the basis that the interlocutory injunction was no longer in effect because it had merged in the default judgment (an argument which is different from Mr Barlow’s submission which we have dealt with in the preceding paragraph).  That argument was rejected, on the basis that there could be no merger as the default judgment was merely an interlocutory judgment, and was not a final judgment.  As Fok JA (as he then was) pointed out in paragraphs 23 to 26 of his judgment, the default judgment was liable to be set aside if the defendant could demonstrate that he had a defence on the merits (or, we would add, if he could show that the default judgment was irregular, as in our view he has in this appeal).  The consequence of the setting aside would be that the plaintiff would be free (if it chose to) to pursue its claim for an injunction, and so long as that was a possibility, there would seem to be no reason why the interlocutory injunction should be considered to have come to an end.

27.  We are therefore satisfied that there had in this case been no abandonment of the plaintiffs’ claim to an injunction, so that in consequence the court had no jurisdiction to enter default judgment against the defendant.  The default judgment was therefore irregular.

28.  Where a default judgment is irregular, it is usually said that it will be set aside ex debito justitiae. Mr Barlow submits that this means that it must be set aside.  However, it was established in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 that the court retains a residual discretion to decline to set aside an irregular default judgment, or to impose terms when setting it aside, where the circumstances of the case call for such a course to be taken.

29.  Mr Lam submitted that having regard to the many steps that had been taken in these proceedings after the entry of the default judgment, as detailed in paragraphs 41 to 44 of the judgment below, this was a case in which the court should exercise its discretion to decline to set aside the default judgment.  While we have some sympathy for this submission, we think it important to bear in mind the nature of the irregularity with which we are concerned.  Given that the irregularity arises from the court’s lack of jurisdiction, under RHC Order 13 rules 1 to 6, to enter default judgment against the defendant at all, it seems to us that it would not be proper for us to exercise our discretion so as to allow a default judgment that the court had no power to give to remain in place.  We therefore decline to exercise our discretion in the manner suggested by Mr Lam.

30.  This suffices to dispose of the appeal in favour of the defendant.  It is therefore unnecessary for us to consider Mr Barlow’s alternative argument, based on the alleged inadequacies of the writ in terms of the causes of action pleaded, and the requirements of RHC Order 82.  However, we would indicate that we would not have been inclined to set aside the default judgment on the basis of that argument, both because we are not satisfied that any defects of that nature would render the default judgment irregular, and because even if we had been, had that been the only irregularity, we would have been minded to exercise our discretion so as to allow the default judgment to stand, having regard to the many steps that were taken after the default judgment was entered.

31.  For the reasons we have given, we will allow the appeal, and set aside the default judgment against the defendant.  So far as costs are concerned, we see no reason why these should not follow the event, and make an order nisi that the costs of this appeal, including the costs of the adjournment, should be paid by the plaintiffs to the defendant, to be taxed on the party and party basis if not agreed.