Introduction

Karla Otto Ltd v Bayram(1) is another recent case that has its origins in misappropriated money being transferred from overseas to Hong Kong. The case took several years to get to trial and when it did, the defendants were absent. Whether that absence was a strategic decision on their part or explained by the first defendant's illness became an issue. The case demonstrates that a court in Hong Kong will be careful to scrutinise applications to adjourn a civil trial on the basis of a party's illness. Further, a party's absence from trial because of illness is unlikely to justify setting aside a judgment, save in exceptional circumstances that are supported by (for example) a detailed medical certificate.

Background

The two key players in the case had been in a personal relationship that appears to have turned sour. She was a force behind the plaintiff company; he was the first defendant and the force behind the second defendant (a company in Hong Kong effectively controlled by him).

After the untangling of the relationship between the two individuals, sums of money were found to have made their way from a bank account of the plaintiff company in London to the bank account of the second defendant in Hong Kong. It transpired that the money belonged to the plaintiff and had been transferred by the first defendant to the second defendant (the company that he controlled).

There followed several years of protracted litigation, during which the plaintiff tried to get its money back and eventually the trial took place in 2017.

In the immediate run-up to trial, the defendants do not appear to have been ready or to have had much of an appetite to defend. A few days before the start of what was supposed to be a four-day trial, the first defendant faxed a letter and doctor's note to the court clerk explaining that he was apparently unable to travel due to what the doctor described only as "acute illness". The defendants asked for an adjournment. Matters (at the time) were probably not helped by the fact that the first defendant's letter gave an address in London while the doctor's note was signed by a doctor in Berlin.

The judge presiding over the trial refused to adjourn the case and appears to have considered that the defendants' absence was a strategic decision on their part. By this time the defendants were not legally represented and do not appear to have been ready for trial. For example, the defendants' previous legal representatives had come off the court record and the defendants had not filed opening submissions before trial.

Following a trial in the defendants' absence, the trial judge handed down a comprehensive judgment that was none too flattering of the defendants' readiness for trial. The defendants were ordered to repay the money to the plaintiff. The first defendant was also found (among other things) to be holding the shares in the second defendant on trust for the plaintiff and ordered to deliver up the relevant company books and records. For good measure, the court ordered that the first defendant resign as a director of the second defendant.(2)

That might have been the end of the matter but for the fact that some two months later, the defendants applied to set aside the judgment (rather than appeal) on the basis of their absence.(3) The High Court has a discretion to set aside a judgment given in a party's absence on such terms as it thinks fit, provided that the application is made within seven days after the trial. Such applications are not common and are successful only in rare circumstances.

In this case, the defendants' application to set aside the judgment was late. Moreover, while the application was supported by a second doctor's note, the bare details of the diagnosis suggested that the first defendant had been suffering from "flu" in the run-up to the trial.

The application to set aside the judgment fell to be determined by a second judge.

Decision

The second judge considered the relevant legal principles governing exercise of the court's discretion to set aside a judgment due to absence. Among the factors to take into account, the explanation for a party's absence is an important (if not critical) consideration. The court also considers any prejudice to the other party, the likely prospects of the absent party's case and their general behaviour in the proceedings (including whether the application to set aside the judgment is made in time).

In this case, the second judge appears to have been equally unimpressed by the defendants' general explanation for their absence. Indeed, the inadequate details in the two medical certificates and the defendants' general unpreparedness for trial were enough for the court to dismiss the application. The second judge noted that the first defendant's claim that he was ready for trial "sounded hollow".(4)

The following passage from the judgment is worth noting:

"A person who relies on a foreign medical certificate to seek such an adjournment at short notice has to give as much detail as possible to enable the court to make an informed decision."(5)

Comment

If the defendants feel aggrieved by the outcome in the case, they probably have only themselves to blame. For example, the defendants failed to demonstrate that they were ready for trial. Further, the first defendant failed to provide adequate particulars of his illness in time for the trial – in particular, how this prevented him from attending any of the trial (which had been set down several months before, for up to four days) and what travel arrangements he had made or could make. In the run-up to the trial, the first defendant had apparently been well enough to travel to Berlin where he visited a doctor. If there was any misunderstanding as to the first defendant's predicament, it was probably his own fault.(6)

As the trial judge noted in the main judgment, had the first defendant shown that he was ready for trial and produced more cogent evidence of his illness and alternative travel plans, the application for an adjournment may have received more sympathy from the court.(7)

There is also the important point that the first defendant had known about the trial dates well in advance and he was the key witness for the defendants. The defendants had also gone into the trial unrepresented and the long history of the case suggests some delay on their part. After belatedly instructing new legal representatives, the defendants' application to set aside the judgment was itself some two months late.

Trial dates are serious matters and referred to as 'milestone dates'.(8) An absent party cannot expect a court to allow the adjournment of a civil trial, at significant cost to the public purse and other parties, without there being a very good reason. Similarly, once judgment following trial (in a party's absence) has been handed down, it is unlikely to be set aside save in exceptional circumstances. A party that can demonstrate exceptional circumstances justifying (for example) a retrial will usually still be ordered to pay the costs of the trial and the application to set aside the judgment.(9)

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For further information on this topic please contact David Smyth or David Kwok at RPC by telephone (+852 2216 7000) or email (david.smyth@rpc.com.hk or david.kwok@rpc.com.hk). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) HCA 821/2011, February 24 2017 (judgment) and May 18 2017 (decision on application to set aside).

(2) Pursuant to Section 729 of the Companies Ordinance.

(3) Rules of the High Court, Order 35, Rule 2 ("Judgment, etc., given in absence of party may be set aside").

(4) HCA 821/2011, May 18 2017, at paragraph 18.

(5) Supra note 4, at paragraph 14.

(6) Supra note 4, for example, at paragraphs 35-40.

(7) HCA 821/2011, February 24 2017, at paragraphs 22 and 23.

(8) Supra note 7, at paragraph 23.

(9) As for the general approach of the courts in Hong Kong to an application to adjourn a civil trial (on account of the illness of a party or an important witness) and the power to attach conditions to an adjournment, see the Court of Appeal's recent comments in Saatori v Raffles Medical Group (Hong Kong) Ltd, HCMP 3224/2016, September 13 2017, at paragraphs 42-45.