Guo Fengli Chi v Guo Fengli [2012] SBCA 11; CA-CAC 30 of 2011 (26 March 2012)

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IN THE SOLOMON ISLANDS COURT OF APPEAL

NATURE OF JURISDICTION:	Appeal from Judgment of the High Court of Solomon Islands (FAUKONA J)

COURT FILE NUMBER:	Civil Appeal Case No.CA. 30 of 2011 - (On Appeal from High Court Civil Case No: 208 of 2011)

DATE OF HEARING:	26 March 2012
DATE OF JUDGMENT:	26 March 2012

THE COURT:	Sir Robin Auld, President
	Sir Gordon Ward, JA
	Justice Michael Adams

PARTIES:	GUO FENGLI CHI - Appellant

	-V-

	GUO FENGLI - Respondent

ADVOCATES:
Appellant:	C Hapa
Respondent:	M Tagini

KEY WORDS:	Default Judgment – Rule 9.54 – Meaning of “reasonable cause for delay” – whether illness can give rise to a reasonable cause – Meaning of “substantial prejudice”.

EX TEMPORE/RESERVED:	RESERVED

ALLOWED/DISMISSED:	ALLOWED

PAGES:	13

1. On 26 March 2012 the Court, at the conclusion of submissions from counsel for the parties, made orders granting leave to appeal, allowing the appeal and making certain ancillary orders, indicating that it would give reasons later. These are those reasons.

2. The claimant and defendant (these terms are used throughout for simplicity’s sake) were sisters engaged in the business, jointly at least to some degree, of buying and exporting marine products. The claimant commenced proceedings in the High Court for debt in the amount of SBD180,959.30 plus damages for breach of contract “limited to SBD50,000.00” and statutory interest of 5%. It was alleged that the debt had been accumulated in 2007 and 2008 and that the defendant had, on 31 January 2008, promised to repay the debt after winning a case in which a company in which she had an interest was a party. On 9 May 2011, the company won the appeal and was paid about SBD640,000. The defendant on 10 and 23 May 2011 demanded payment of the debt but it was still unpaid. The statement of case did not refer in any way to the claim for damages and the matters required to be stated by Rules 5.31 and 5.32 were omitted.

3. On 17 June 2011 the claim was served on the defendant. On the same day, in response to the claim, the defendant wrote to the claimant’s solicitors denying that the amount claimed was owed and, in substance, asserting that the parties maintained a running account for the purpose of their business. The letter implied, however, that there was a balance owed to the claimant and proposed that the matter be settled out of court. It was not disputed that the claimant’s solicitor said that he would seek instructions and inform the defendant of his client’s response.

4. The time for filing a defence expired on 1 July and, on 6 July 2011, the claimant sought judgment by default for failure to file a response or defence. On 8 July 2011 the defendant provided a detailed medical report from Dr Aipia to the claimant’s lawyers informing them that on that day she had been diagnosed with acute chronic bronchitis and hypertension secondary to anxiety. Medication was prescribed. The doctor “strongly recommended” that the defendant should have “one to two months rest from any court cases until her condition is “stable”. He said that her condition was unstable and she was at risk of “psychological depression and end up with stroke or heart attack.”

5. Notwithstanding the medical report, on 13 July 2011 the claimant filed an affidavit in support of her application for default judgment. That affidavit simply confirmed the amount of the debt outstanding, calculated interest and claimed costs of SBD2,000. In respect of the claim for damages, the claimant did not comply with Rule 9.31, which requires the request for judgment “for an amount to be assessed by the court”.

6. On 18 July 2011 the Registrar, having heard Mr Tagini of counsel for the claimant entered default judgment in the sum of SBD180,959.30. Judgment for damages “for breach of contract” in the amount of SBD50,000 was also given, together with interest and costs. The default judgment was served on the defendant on 20 July 2011 and, on 26 July 2011, the claimant sought an enforcement order against the defendant.

7. On 30 August 2011 the defendant obtained a further medical report from Dr Aipia concerning a medical examination on 28 July. Again, the report is detailed and demonstrated a thorough examination. He diagnosed uncontrolled hypertension and angina pectoris (mild heart attack). Intensive counselling and a long regimen of medication was prescribed. Dr Aipia also stated that the defendant should “rest for any court or any events that can cause her to become stressful for 3 months”. He expressed concern that any stressful event, such as court hearing or court” in effect might cause a worsening of her heart condition and result in “an acute myocardial infarction”.

8. On 31 August 2011 the defendant’s legal practitioner filed a notice of appearance, an affidavit of the defendant and an application to set aside the default judgment and enforcement order and file a proposed defence and cross-claim. Amongst other things, the defendant deposed that, in answers to her letter of 17 June 2011 (mentioned in para 3 above), “the claimant’s solicitor informed me that he will inform his client and response (sic) to my letter”. She said that there was no reply or information provided. She said that, because her illness as set out in the medical reports was getting worse she sought further medical assistance and was told to rest for two months. She said that “due to my illness I failed to seek legal assistance to represent me in the proceeding”. At the hearing of the application, she was not cross-examined on her affidavit and the claimant must therefore be taken to have conceded that the defendant’s evidence should be accepted as true.

9. On 5 September 2011 the defendant filed a proposed defence and counterclaim. She alleged that the claimant’s business was started with capital of SBD200,000 borrowed by the claimant from her. She also alleged that the claimant operated the business under the defendant’s business licence and “should pay commission to the defendant”. The alleged promise to pay the sums claimed after the winning her case was denied; in effect, the defendant claimed that she merely sought to defer payment until the case concluded. She admitted receiving the sum of SBD640,000 after the case had been won. The defendant denied the effect alleged of the letter of 31 January 2008 whilst admitting receiving the letters of demand. Lastly, the defendant in effect alleged that she was entitled to the profit made by the claimant by virtue of the business whose initial capital of SBD200,000 was provided by the defendant.

10. It will be seen that, though by no means adequately pleaded (for instance, the actual character and terms of the loan of SBD200,00 or the commission is not provided), the defence raises claims by way of set off with some prima facie basis for acceptance, especially given the apparent existence of a running account.

11. The defendant also counterclaimed: first for repayment of SBD200,000 plus interest at 10% per annum from 2006 to 2008, (though, again, the basis for such an obligation is not pleaded; secondly for a commission of SBD10,000 a month for the claimant’s operating under the defendant’s business licence for the period of 2006 to 2008, again without pleading its basis; thirdly, repayment of USD30,000 and USD20,000 paid at the claimant’s direction to the claimant’s husband in reduction of the debt, (as discussed below, a claim in substance of part payment rather than a counterclaim); and lastly, a claim for rent of SBD10,000 a month for the claimant’s operating her business from the defendant’s house at Lord Howe Settlement from 2006 to 2008, yet again with no indication of the legal basis for such a claim.

12. Although the pleading was insufficiently particularised, it did at least raise an arguably genuine defence by way of payment, set off and counterclaim.

13. It is worth interpolating here, as already has been suggested, that the claim and defence and counterclaim both fell substantially short of the requirements of the Rules as to the statement of case. All are important but perhaps the most crucial is that it should “set out all the relevant facts on which the party relies”: Rule 5.3(b). The time is fast approaching that failures by practitioners to comply with this rule will need to be dealt with by orders for costs made personally against them.

14. The starting point for the judgment of the learned primary judge was Rule 9.54 which provides as follows –

(a) the defendant has shown reasonable cause for the delay in defending the claim; and

(b) the defendant has a meritorious defence, either about his or her liability for the claim or about the amount of the claim; and

(c) there is no substantial prejudice to another party in setting aside the judgment that could not be rectified by a costs order.

15. As to whether the defendant had reasonable cause for the delay, it will be recalled that the defendant relied on two matters: first, the intimation from the claimant’s solicitor that his client would respond to her letter proposing a negotiated settlement, for which the defendant waited before taking further action; and secondly, her serious medical condition. The judge, as we understand it, accepted for the purposes of his judgment that each of these matters had been established. However, his Lordship stated –

“To substantiate delay by those two reasons is inexcusable. The claim has on page one made it so clear and plain that any [response] must be filed within 14 days and defence within 28 days. From 17 June 2011 when the defendant received the claim to 8 July when she first consulted her doctor was 21 days, a sufficient period to consult a solicitor to file a response and even to give instructions and file a defence. The defendant could not bother to do so; instead she wrote a letter and the claimant’s solicitor and sat on it expecting a reply with positiveness to resolve the matter out of court.

Instructions on the first page of a claim served upon any party, particularly the defendant, is important information to comply with. The defendant must comply with the time limit. Non-compliance or attempt to resort to other options is unacceptable and may be detrimental to the defendant’s case. In this case, the defendant has failed to show reasonable cause for the delay in defending the claim.”

16. With respect, we are unable to agree with the primary judge’s view that the letter offering to settle out of court coupled, we would emphasise, with the information conveyed by the claimant’s solicitor that he would respond to the letter was incapable of providing a reasonable excuse for the defendant’s delay. In effect, the claimant applied for judgment behind the defendant’s back, well knowing that she wished to negotiate with a view to an out-of-court settlement. Had the claimant’s solicitor simply ignored the defendant’s approach the situation may have been significantly different. But he was aware that that she was waiting for a response, having indicated by her proposal that she was prepared to negotiate and did not want to litigate the dispute. Her letter was provided on the same day that the claim was served, so there was no delay involved. In those circumstances we think that it was reasonable for her to wait to see whether a negotiated settlement was possible before going to the added expense of retaining a lawyer and filing a defence.

17. Of course, it may not be that every such offer will justify a delay in seeking judgment by default. But here there is no issue that the offer was genuine and not a mere tactical ruse to delay payment. His Lordship proceeded on the basis, as we understand the judgment, that it did not matter whether the defendant’s approach was genuine but that the mere fact of the time limit meant that this factor could not provide “reasonable cause for delay”. The application of the Rule is to be judged in a common sense fashion by asking what might a reasonable person do in this situation. A range of reasonable responses is available. Providing the defendant has acted as a reasonable person might, then that conduct should be regarded as potentially within the boundaries of the notion of “reasonable cause”. Of course, whether any particular excuse or explanation amounts to reasonable cause in the circumstances is a matter of fact. However, we are satisfied that his Lordship erred in assessing the reasonableness of the cause by reference only to the fact of the time limit rather than the character of the explanation itself. This is an error of law adversely affecting the exercise of his Lordship’s discretion.

18. The administration of justice is much assisted when parties are able to settle their disputes without resort to litigation and the courts have always encouraged parties to do so if they are able. To treat time limits as an opportunity to ambush rather than conducing to the efficient despatch of litigation is to distort their purpose. In this case, if the claimant did not want to negotiate – which was of course her entitlement – then she could and should have informed the defendant that she wished to exercise her right to have the case heard and determined in a court and given notice of her intention to seek judgment by default before she did so.

19. We come now to the evidence concerning the defendant’s medical condition. Although it is true that the medical report was dated 8 July, the doctor referred to a history that the defendant had been ill with a headache, cough and shortness of breath for the previous week and could not work because of her illness. On examination he made the diagnoses to which I have referred. Upon this chronology, it does not appear that the defendant was prevented by illness from defending the claim by 1 July 2011 and thus compliance with the time limit to that point was not excused on the information contained in the certificate. However, the failure to defend from 1 July is explained.

20. We now come to whether, within Rule 9.54(b) there was “a meritorious defence, either about her liability for the claim or about the amount of the claim”. His Lordship accepted that the dispute arose in the context of what appeared to be a joint business involving the buying and exporting of marine products which produced running accounts between the parties. The overall effect of what had been put by the defendant in her pleadings was, at least arguably, that the defendant accepted that she owed the sum of SBD180,959.30 but, amongst other claims, alleged that she was owed SBD200,000 borrowed as capital for the business and other sums.

21. Although on this point, the judgment is somewhat unclear, it appears that his Lordship was of the view that the claims made by the defendant were counterclaims rather than set-offs, so that she could separately sue to recover the amounts she claimed and there was no need to delay payment to the claimant of the amounts which, he held, were implicitly admitted to be owing. Having accepted that the defendant’s claims were meritorious in the relevant sense (that is, they were fairly arguable as distinct from proved) his Lordship concluded –

“[10] I find there is unreasonable cause for the delay, though it may appear there is a meritorious defence. However, the fact is that, having admitted the claim, it would be in my view [be] an early ending of the process. To prolong further with no fault by the claimant will prejudice early recovery of the debts. I have to exercise discretion the best option in the circumstances of this case by dismissing the application to set aside the default judgment.”

22. We take it that the reference to prejudice was to take up the consideration mentioned in Rule 9.54(c) that the court must be satisfied “that there is no substantial prejudice to another party that could not be rectified by a costs order”, and understand his Lordship to have concluded that the substantial prejudice suffered by the defendant would be the loss of her judgment. However, this would be the result of every setting aside of a default judgment and is not the prejudice to which the paragraph refers. The relevant prejudice is that which has resulted from the delay in litigating the case now proposed to be made, where the party’s ability to fairly litigate has been adversely affected to a significant degree or the party has otherwise acted to his or her detriment in reliance on the judgment. No such prejudice was, nor could be, alleged in this case.

23. Moreover, not all the claims made by the defendant were counterclaims rightly so called. In particular, the sums of USD30,000 and USD20,000 allegedly paid at the direction of the claimant to her husband, although described as an “offset” was, given the nature of the pleaded instruction, by way of payment of the debt. Accordingly, if true, the defendant had paid the debt in whole or in part. Implicitly, these payments had not been accounted for in the rolled-up claim made by the claimant. This not a “defence” to be left for separate action, such as a counterclaim unrelated to the subject matter of a claim, but an inherent part of the principal action for debt. Moreover, on the face of the pleading, the payment of the USD50,000 appears to be sufficiently particularised. In this respect, at least, the primary judge should have rejected the argument put by counsel for the claimant to the effect that there was an unqualified admission of the debt.

24. A fundamental problem with the default judgment is that it included damages for breach of contract. Judgment by default in respect of such a claim is governed by Rules 9.31 and 9.32, which require the request for judgment to seek “an amount to be assessed by the court” and a sworn statement in support providing, inter alia, “particulars of any matters which the court should consider in making its assessment”. Neither of these prerequisites were satisfied. There was simply no jurisdiction for judgment by default to be given for this claim. With respect, it seems that this matter was overlooked by his Lordship because it was not raised by the defendant at the hearing. However, it is clear that the judgment under this head cannot stand.

25. On 18 October 2011, the defendant gave notice of appeal. The appeal was out of time and leave is necessary to enable the defendant to proceed. After reading the affidavit of the defendant explaining the delay in appealing and hearing submissions of counsel, the Court determined that this matter would be considered in the context of hearing the substantive appeal.

26. Since, in the result, it is necessary to deal with this deposit, the circumstances in which it came to be made should be briefly outlined. On August 2011, the Sheriff gave notice that 700 bags of trochus shell bagged for export in the possession of the defendant were seized by way of execution in satisfaction of the judgment debt and incidental expenses. The Sheriff appointed the defendant as custodian responsible for safe-keeping. On 6 September 2011, the defendant offered to pay into court the sum of SBD250,000, pending determination of the application to set aside the default judgment, to enable a stay of execution of the judgment and the export of the seized shell. The proffered sum was paid into court on 7 September.

27. On 18 October 2011, the date upon which notice of appeal was filed, the claimant’s solicitors wrote to the defendant noting that the judgment debt had not been paid and demanding that the funds be paid out of court for this to occur. On 19 October 2011 the Registrar wrote to the defendant’s solicitor referring to an earlier letter of 6 October (presumably giving notice of an intention to pay the deposited money out of court to the claimant) and stating that it was intended to disburse the sum of SBD235,924.64 to the claimant as judgment creditor and return the balance of SBD14,075.36 to the defendant. On 24 October 2011 the Registrar notified the claimant’s solicitor that the amount of SBD235,924.64 had been raised on 21 October and submitted to Treasury for payment so that it would be available for collection. It was then paid out to the claimant.

Court of Appeal of Solomon Islands

Guo Fengli Chi v Guo Fengli [2012] SBCA 11; CA-CAC 30 of 2011 (26 March 2012)