LIU CHONG HING BANK LTD v. UNION WORLD (HK) LTD AND OTHERS

cacv 285/2003

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 285 of 2003

(on appeal from HCMP NO. 6173 of 2001)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge Longley given on 9 September 2003.  At the conclusion of the hearing of this appeal, this court dismissed the appeal with costs with reasons to be given in writing.

Background

2.  This appeal was brought by the 6^th defendant.  He had been held liable under a continuing guarantee in respect of liability arising on facilities granted to the 4^th defendant.  Those facilities had been secured by a mortgage on three properties which had been owned by the 1^st, 2^nd and 3^rd defendants respectively.

3.  The guarantee signed by the 6^th defendant was dated 16 February 1996.  Underneath the 6^th defendant’s signature, his address had been given as Flat A3, 24^th floor, Hong Keung Building, 32-34 Hong Keung Street, San Po Kong, Kowloon (“Flat A3”).  Although the 6^th defendant was the majority shareholder of both the 3^rd and 4^th defendants, it is his case that he had been an employee of the 5^th defendant up until April 1996 and as such he had been asked by the 5^th defendant to act as a nominee director and shareholder in some companies which had been set up by the 5^th defendant for property investment.  It was in those circumstances that he said that he had signed various documents but had not noticed that the correspondence address in those documents had been given as Flat A3.

4.  The plaintiff had set about trying to enforce the guarantee signed by the 6^th defendant as long ago as October 2001.  On 18 October 2001 a demand letter was sent to the 6^th defendant prior to the issue of the originating summons on 23 November 2001.  That originating summons was served on the 6^th defendant at the Flat A3 address.  It was in a sealed envelope and placed in the letterbox of that address.  The solicitors’ clerk who had served the document deposed to the fact that this was the last known address of the 6^th defendant.  It might also be mentioned that this was the same address which was given for the 6^th defendant in the documents filed in the Companies Registry on behalf of the 3^rd and 4^th defendants, of which he was a shareholder.

5.  Judgment was entered against all defendants on 27 May 2002.  The defendants had failed to attend the hearing of the summons.  Some six months later, it was discovered, in the course of attempting to enforce the judgment against the 6^th defendant, that he was one of the registered owners of Flat 1, 13^th floor, Dragon View House, Numbers 6-16 Hoi Tai Street and numbers 7-9 Hoi Kwong Street.  As a result a letter was sent to the 6^th defendant there on 28 November 2002.  It is not disputed that the 6^th defendant received that letter.  He says that he telephoned a person whom he thought was a lawyer working for the plaintiff’s solicitors but who in fact was an accountant working for the plaintiff and was told that it related to a guarantee given by him in favour of the plaintiff.  The 6^th defendant did nothing about the matter.

6.  Apparently, a debt collector was employed by the plaintiff.  There was a complaint to the plaintiff by fax on 11 March 2003 about the conduct of the debt collector.  Although this fax was purportedly sent from the 6^th defendant, the 5^th defendant said that it was in fact sent at his instigation and that the 6^th defendant did not know about it.  It is said by the 6^th defendant that he had complained to the 5^th defendant and asked him why the debt collectors had approached him, and the 5^th defendant had promised to do something to solve the problem.

7.  On 9 April 2003, the plaintiff served a charging order notice to show cause in respect of the 6^th defendant’s interest in the Dragon View House property.  That was served by ordinary post sent to the Dragon View House property.  Then, following that, solicitors filed a notice to act on behalf of the 6^th defendant on 29 April 2003.  The summons to set aside the order made by the master on 27 May 2002, out of which this appeal arises, was issued on 3 May 2003.  The summons also prayed for an order to discharge the charging order nisi.

8.  The judge below accepted the evidence from the 6^thdefendant that he had not in fact received the originating summons.  On that basis he held that the judgment obtained against the 6^th defendant could be set aside.  He did so saying at paragraph 23 of the judgment:

“It is also accepted that in order for a default judgment to be regular, there does not merely need to be service in accordance with the rules (e.g. as the Plaintiff alleges in this case in accordance with O. 10 r. 1(2)(b) by insertion of the originating process through the letter box in a sealed envelope at the Defendant’s last known address) the proceedings must also be brought to the notice of a Defendant so as to give him an opportunity to defend the proceedings (see e.g. Deputy Judge Carlye Chu, as she then was, in Kwan Kam Wah v Chan Wai Ming [2000] 2 HKC 378 at 384, 385 and Deputy Judge Poon in Cosec Nominee v Lau Hon Ming Alan [2001] 3 HKC 290 at 296).”

9.  Under Order 10 rule 5(1) the same rules as to service apply in relation to originating summonses as apply in relation to writs.  Under Order 10 rule 1(2)(b) a writ may be served by inserting it through the letterbox in a sealed envelope addressed to the defendant at his usual or last known address.  Once that is done and an appropriate affidavit is provided under the provisions of rule 1(3)(b) then the service is deemed to have taken place on the seventh day thereafter “unless the contrary is shown”.

10.  The question then arises as to the powers of the court in relation to setting aside a judgment.  Although the application to set aside was made under Order 28 rule 4(1) the judge applied the principles as if the application had been made under Order 13 rule 9.  That was clearly appropriate.  The provisions of Order 13 rule 9 are broad and cover situations where the service of the documents has been regular i.e. in accordance with the Rules.  That rule simply says:

“Without prejudice to rule 7(3) and (4), the Court may, on such terms as it thinks just, set aside or vary any judgement entered in pursuance of this Order.”

11.  This court had cause to consider that provision in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157.  Sears J said at page 161:

“The provisions of O.13, r.9, as I have said, are wide in their context. In my judgment, whilst it can be rightly said that a judgment which has been obtained irregularly ought to be set aside as of right, in other words that the merits of the particular defence to the claim do not have to be entered into by the court, nevertheless, there is always a residual discretion in the court to have regard to the conduct of the parties.  For example, if a judgment has been obtained irregularly and the writ comes to the notice of the defendant, he may delay for a certain period of time before taking any action on the writ.  In my judgment, the court still has a discretion - having regard to what the defendant himself has done - to deprive him, if necessary, of that judgment or alternatively, to impose terms upon the setting aside of the judgment which accord with justice having regard to the facts of the particular case.”

12.  On the following page Bokhary JA, as he then was, also emphasised the unfettered nature of the discretion which the Court had to exercise when an application to set aside a judgment was made.  He said:

“Another thing I might have done was to underline the nature of the statutory jurisdiction.  ‘Ex debitio justitiae’ or as of right means without going into the actual merits of the defence.  It does not mean shutting one’s eyes to the circumstances surrounding the question of service and why things went wrong in that regard.  The court’s statutory jurisdiction is unfettered.”

13.  It is apparent that the judge below was correct to adopt the approach of the judgments of that case.  He said that the irresponsible conduct of the 6^th defendant left him in no doubt that he should impose conditions namely the payment of the balance of the monies owing into court.  In so saying, the judge clearly also had in mind that the 6^th defendant had not condescended to showing any defence on the merits to the plaintiff’s claim.  Each case, of course, has to be decided on the particular facts thereof.  In this case I did not consider that there were grounds for interfering with the judge’s discretion and in any event, I consider that I would have exercised my discretion in a similar way.

Hon Yuen JA:

14.  I agreed that this appeal should be dismissed.  It is clear from Po Kwong Marble Factory Ltd v Wah Yee Decorating Co Ltd [1996] 4 HKC 157 that in the exercise of the court’s discretion under Order 13 rule 9, the court would not require the defendant to show that he has a defence on the merits - it is in this sense that references to a defendant being entitled to set aside an irregularly obtained default judgment ex debito justitiae, or “as of right”, should be understood.  The rationale for that is obvious - the rules of court do not require a defendant to show that he has a defence on the merits in any action, except when Order 14 proceedings are initiated.  Since that is the case for a defendant who has been served, there is no reason why a defendant who has not been served should be in a worse position.

15.  However, what is also clear from Po Kwong is that in the exercise of its discretion, the court would consider other relevant matters, including conduct of the defendant after he learns of the proceedings.  Where, as in this case, the defendant delayed substantially before applying to court to set aside the judgment, the court was clearly justified in setting aside the judgment on terms. 

16.  That is sufficient for the purposes of this appeal as the Plaintiff did not seek to argue that the 6^th Defendant had to show any defence on the merits.  In other words, the Plaintiff did not seek to argue that the judgment was regularly obtained, although references were made to obiter dictum in Fok Chun Hung v Lo Yuk Shi [1995] 2 HKC 648 at 652 D-E.  That dictum seemed to suggest that a judgment is regular so long as the Plaintiff had complied with the rules at the time of entering judgment, and that even though subsequent evidence showed that service had not been effected, the judgment remained a regular judgment.  As the Plaintiff has not contended that the default judgment in the present case had been obtained regularly, it would not be appropriate for me to comment on this dictum and I would simply indicate that I have reservations on it.