XCHRX WINSTON CAMERA AND RADIO CO. LTD. v. VEART DESIGN LTD.

1995, No. A11595

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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INTRODUCTION

1. On 27th December 1995, judgment in default was entered against the Defendant. It had failed to file its Defence by 22nd December. It subsequently applied by summons for the judgment to be set aside. That application came before Mr. Registrar Betts on 22nd January 1996. One of the grounds on which the Defendant claimed that the judgment should be set aside was that it had been an irregular judgment. The irregularity had not been specified in the summons as required by Ord. 2 r. 2(2). Accordingly, the Defendant also applied for leave to amend the summons in order to specify the alleged irregularity. Mr. Registrar Betts refused the Defendant leave to amend the summons, and he also refused to set aside the judgment. It is from those two orders that the Defendant now appeals.

THE DEFAULT

2. The Defendant's previous solicitor has explained in his affirmation the reason for the default. That reason has not been challenged by the Plaintiff. What happened was that the Defendant's previous solicitor did not think that a default judgment could be entered if there was a pending application for an extension of time. Where he got that bizarre idea from, he does not say. A moment's thought should have told him that the notion could not be right: otherwise, a defendant could always defer having judgment in default entered against him by the simple expedient of applying for an extension of time.

3. However, the fact is that the proceedings were not being deliberately ignored by the Defendant. Moreover, it is clear that, once the Defendant knew that judgment in default had been entered, the application to set aside the judgment was made promptly, because the summons to set it aside was filed on 3rd January 1996. In any event, the primary consideration on an application to set aside a regular judgment is whether the Defendant has a defence which is not merely arguable but has a real prospect of success, though not necessarily better than a 50:50 chance of success. Accordingly, on the assumption that the judgment was a regular judgment, I propose to set it aside, if necessary on terms, if the Defendant satisfies me that its defence has a real prospect of success.

THE IRREGULARITY OF THE JUDGMENT

4. The Plaintiff's claim as pleaded in its Statement of Claim is that it engaged the Defendant to carry out renovation and waterproofing works at premises in Kowloon Tong. It alleges that in breach of the agreement the Defendant failed to carry out the works properly or with reasonable care and skill. The Defendant's poor workmanship is alleged to have caused water to leak into various parts of the premises, damaging furniture and fittings. The loss which the Plaintiff alleges flowed from the water seepage is (a) the cost of remedying the Defendant's poor workmanship, and (b) the replacement or repair (the Statment of Claim does not identify which) of the damaged furniture and fittings. The Statement of Claim pleaded that the Plaintiff had been quoted the sum of $1,508,812.00 as being the cost of remedying the Defendant's poor workmanship, and the primary relief which the Plaintiff claimed against the Defendant was (a) the sum of $1,508,812.00 and (b) damages.

5. The judgment which was entered for the Plaintiff was for (a) the sum of $1,508,812.00 plus interest and (b) damages to be assessed. In my view, the only judgment which the Plaintiff was entitled to enter in default of defence was judgment for damages to be assessed. That was because the only relief which the Plaintiff could claim for the Defendant's alleged breach of contract was damages. The fact that the estimated cost of remedying the Defendant's poor workmanship was capable of being quantified easily merely meant that the amount of damages was capable of easy assessment. It did not entitle the Plaintiff to claim that amount as a liquidated sum. To use the words of Ord. 19 r. 2(1), which is the rule which entitles a plaintiff to enter judgment for a liquidated sum in default of defence, the Plaintiff's claim for the sum of $1,508,812.00 was not a claim for a "liquidated demand". The term "liquidated demand" does not extend to unliquidated damages, even though the amount of the damages is named as a specific figure:Knight v. Abbott, Page & Co. (1883) 10 QBD 11. Accordingly, that part of the judgment which gave the Plaintiff judgment for the sum of $1,508,812.00 plus interest was irregular, and Mrs. Katina Levy for the Plaintiff realistically conceded as much.

WAIVER OF THE IRREGULARITY

6. The only prejudice which the Plaintiff underwent by virtue of the irregularity not having been specified in the summons was that its counsel was taken by surprise at the hearing. However, no application for an adjournment was sought. It may be that that was because Mrs. Levy felt the wind in her sails in view of the comments being made by Mr. Registrar Betts, but the only basis in the circumstances on which Mr. Registrar Betts could properly have refused to permit the amendment of the summons to enable the Defendant to argue that part of the judgment was irregular was if the Defendant had waived the irregularity.

7. Mr. Benjamin Chain for the Defendant submits that the irregularity was so fundamental that it was incapable of being waived, but in my judgment the provisions of Ord. 2 r. 2(1) constitute a comprehensive and exhaustive code for determining the extent to which an irregularity can be waived. Ord. 2 r. 2(1) provides:

"An application to set aside for irregularity any ... judgment ... shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity."

Here, the application to set aside the judgment for irregularity was made at the hearing before Mr. Registrar Betts on 22nd January, less than 4 weeks after the Defendant's solicitors discovered on 28th December that judgment had been entered. In these circumstances, I regard the application as having been made within a reasonable time. It is true that on 28th December the Defendant's solicitors must have been aware of the facts which I have concluded constituted the irregularity because they must have read the Statement of Claim. But they were not aware that those facts in fact meant that the judgment was irregular until 21st January when they were advised of that by counsel. That was when they became aware of the irregularity for the purposes of Ord. 2 r. 2(1). Although there was no evidence of that before Mr. Registrar Betts, the evidence before me is that he was told that by the Defendant's counsel. It is not suggested that the Defendant took any fresh step in the action after 21st January inconsistent with its wish to argue that part of the judgment was irregular. Accordingly, the circumstances which prevented a successful application to set aside the judgment for irregularity simply were not present. If follows that that part of the judgment relating to the sum of $1,508,812.00 plus interest must be set aside.

THE MERITS OF THE DEFENCE

8. I turn to that part of the judgment in which judgment was entered for the Plaintiff for damages to be assessed. That was a regular judgment. Mr. Chain does not argue otherwise. It is therefore necessary for the Defendant to satisfy me that its defence to the Plaintiff's claim for damages to be assessed has a real prospect to success.

9. The Defendant's defence to that claim is summarised in para. 3 of the 3rd affirmation of Wu Chi Keung, a director of the Defendant, as follows:

"... the Defendant's defence is that the alleged defects (water leakage) of the Plaintiff's property were not a result of the Defendant's defective works; that the Plaintiff had never instructed the Defendant to carry out works now it desires to carry out; and the Plaintiff is now attempting to claim against the Defendant for the costs of additional works to be carried out at its property which even if, which is denied, the Defendant was in breach of its contract with the Plaintiff, the Plaintiff was not entitled to."

I do not think that these defences can amount to defences to the Plaintiff's claim. The Defendant's liability is established if any of the work which the Defendant contracted to do was defective. The points which Mr. Wu makes all go to the quantum of the Plaintiff's claim in the event of the Defendant's liability being established. They amount to allegations that (a) the damage which the Plaintiff alleges (the seepage of water) was not caused by the Defendant's defective work, and (b) the steps which the Plaintiff therefore proposes to take to remedy that damage are not required to be done in consequence of the defective work. The proper forum for the trial of those allegations (if they represent the only "defences" to the Plaintiff's claim) are on the assessment of the Plaintiff's damages.

10. Does the Defendant have any other defence to the Plaintiff's claim? The only defences can be that the Defendant did the work which it was instructed to do, and that that work was not defective. That in turn depends on (a) what work the Defendant agreed to do, (b) what work the Defendant in fact did, and (c) to the extent that the work which it did was the work which it had agreed to do, whether that work was defective.

11. The Defendant's case, based on the evidence which has been filed, is that the external work to the premises which the Defendant agreed to do was (a) to paint the external walls, (b) to waterproof the roof of the guest room, and (c) to repaint the parapet walls of the roof . It claims that it did all that work, that it did that work properly and with reasonable care and skill, and that it used proper and workmanlike materials in doing so.

12. Two particular complaints are made by the Plaintiff:

(i) The Plaintiff claims that water leaked through the roof. To that allegation, the Defendant's answer is that the part of the roof through which the water seeped was not the roof of the guest room, but other parts of the roof which the Defendant had recommended be waterproofed, but which the Defendant was not instructed to waterproof. The Defendant's response has resulted in the Plaintiff having to identify its complaint with greater care. Its complaint is that the Defendant agreed, not merely to repaint the parapet walls, but also to apply a particular sealant to the joints of the internal and external parapet walls. The Defendant used the wrong kind of sealant, and applied it in such a way that it did not have the effect which it was intended to have, namely to prevent water seeping into the premises. The Defendant's answer to that is that it did not agree to do anything to the parapet walls apart from repainting them, that it did not apply the sealant to the joints, and that if the wrong sealant was applied in the wrong way, that was done by another contractor.

(ii) The Plaintiff claims that the wrong paint was used to paint the external walls, because the paint which the Defendant's sub-contractors used was water-resistant, that had the effect of retaining moisture which was already within the walls, and that would result in water seeping back into the premises. For its part, the Defendant admits that its sub-contractors used water-resistant paint, but it maintains that water-resistant paint was entirely suitable. Water-resistant paint had to be used to prevent rainwater getting into the walls. It may be that such paint would result in moisture being retained in the walls, but that would evaporate in the course of time if the internal parts of the premises were properly ventilated, whether by air-conditioning or by opening the windows.

13. Do the Defendant's defences to these allegations of poor workmanship have a real prospect to success? In answering that question, I find myself in something of a dilemma. On the one hand, the authorities require me to form a provisional view of the probable outcome of the action. On the other hand, it would be wrong for me to conduct a mini-trial on the various affirmations which have been filed. Yet in my judgment this is one of those rare cases in which a provisional view of the probable outcome of the action cannot sensibly be formed without a mini-trial on the various affirmations. That problem was discussed by the Court of Appeal in Allen v. Taylor [1992] 1 PIQR 255. At p.259, Dillon L.J. said:

"It is quite impossible to be dogmatic about the extent to which the court must be satisfied of the validity of the suggested defence. There must be numerous cases where the issue will turn entirely on the assessment of the facts at trial: each party's case would carry conviction if it stood alone and without conducting a trial the court is not able to say which will succeed."

In such cases, an appropriate test to determine whether the defence has a real prospect of success is to ask whether the exculpatory facts relied upon by the Defendant "could well be established". Having discussed that test with Mr. Chain and Miss Levy, I propose to apply it here. In my view, the facts which the Defendant relies on by way of answer to the allegations of poor workmanship could well be established. Since they would amount to a defence in law if they were established at trial, it follows that the Defendant's defence has a real prospect of success.

CONCLUSION

14. The result is that this appeal must be allowed, the order of Mr. Registrar Betts must be set aside, the default judgment entered on 27th December 1995 must be set aside, and I shall give directions as to when the Defendant should file its Defence by once I have heard from counsel on the issue. I should add that Mr. Registrar Betts cannot fairly be criticised for deciding that the Defendant's defence had no real prospect of success. The evidence before him was in a very different form from the evidence before me today.