ENOTECA ITALIANA LTD v. IL BEL PAESE LTD

DCCJ 3293/2022

[2023] HKDC 1478

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3293 OF 2022

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DECISION

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Introduction

1.  This is the appeal by the Plaintiff (“P”) by Notices of Appeal dated 6 June 2023 and 9 June 2023 respectively under O 58 of the Rules of the District Court, Cap 336H (“RDC”) against:-

(1)  The decision of Master Kerby Lau (“the Master”) on 29 May 2023 to:-

(a)  set aside the default judgment against the Defendant (“D”) dated 28 September 2022 and Writ of Fieri Facias dated 20 October 2022 on condition that D pays the sum of $264,453.20 into court (such payment deemed to be paid on 3 November 2022 by D);

(b)  leave for D to file and serve its Defence within 28 days from the date thereof;

(c)  leave for P to file and serve its Reply within 28 days thereafter;

(d)  leave for parties to apply for further directions; and

(e)  costs of and occasioned by D’s Summons dated 14 December 2022 to be paid to P by D in any event;

(2)  The decision of Madame Registrar M Soong (“the Registrar”) on 6 June 2023 to vacate the hearing of the Notice of Appointment of Assessment of Damages scheduled for 26 July 2023 with no order as to costs of the letter application dated 30 May 2023.

2.  Plainly the decision of the Registrar to vacate the hearing of the Notice of Appointment of Assessment of Damages was on the basis that the Master had set aside default judgment against D.  Thus it seems to me that the second appeal falls or stands with the first appeal.

3.  Two Affirmations have been filed by P, who appears in person through its director, Mr Bianchi Marco (“Mr Marco”), on 6 and 9 June 2023 respectively (“the 2 Affirmations”).  No leave has been given for the filing of the 2 Affirmations. 

4.  It is trite that no further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under O 58 RDC unless the 3 requirements of Ladd v Marshall are satisfied:-

(1)  The evidence could not have been obtained with reasonable diligence for use at the hearing below;

(2)  The evidence would probably have an important influence on the result of the case, though it need not be decisive; and

(3)  The evidence must be such as is presumably to be believed.

See Hong Kong Civil Procedure 2023, Vol 1, §58/1/3.

5.  I agree with Mr Poon, counsel appearing for D, that the requirements of Ladd v Marshall are not made out and therefore the 2 Affirmations should be disregarded for the purpose of these appeals. 

6.  In any event, insofar as the 2 Affirmations contain matters of submissions, such as the prospects of D’s Defence and Counterclaim, they are plainly not matters which ought to be put before the court by way of evidence but should be contained in P’s Skeleton Submissions.  For this additional reason, I would not allow leave to rely on the 2 Affirmations.  Besides, in written and oral submissions, no real reliance was placed by Mr Marco on them.

Background and Procedural History of this action

7.  P commenced this action by Writ issued on 25 August 2022.  In the Statement of Claim, it is stated that P’s claim is for: (1) unpaid invoices of received goods totaling HK$239,643.30 plus interest; and (2) breach of contractual obligations under Proforma Invoice No 1076 in the sum of HK$75,336.01 plus interest.

8.  According to an Affidavit of Service sworn on 16 September 2022 (“P’s Affidavit of Service”), Mr Marco did on 26 August 2022 serve on D the Writ accompanied by the acknowledgment of service and Form No 16 by sending them by registered post to the registered office of D.

9.  On 28 September 2022, final and interlocutory judgment was granted against D on the basis that no intention to defend having been given by D for:-

(1)  the sum of HK$239,643.50 together with interest at 8% per annum from 25 August 2022 to the date of the judgment and thereafter at judgment rate until payment;

(2)  damages to be assessed; and

(3)  costs

      (“the Judgment”).

10.  Writ of Fieri Facias was issued by P on 20 October 2022.  On the same day, P issued a Notice of Appointment of Assessment of Damages.

11.  On 14 December 2022, D issued a Summons (“D’s Summons”) supported by an Affirmation of Impagnatiello Raffaele (“Mr Raffaele”), the managing director of D, (“D’s Affirmation”):-

(1)  to set aside the Judgment;

(2)  to set aside the Writ of Fieri Facias;

(3)  for HK$246,453.20 paid by D to P be paid into court within 7 days;

(4)  for the direction hearing of 10 January 2023 be vacated;

(5)  for unconditional leave for D to file and serve its Acknowledgment of Service, Notice of Intention to Defend and Defence and Counterclaim within 35 days; and

(6)  for costs of the application be paid to D on an indemnity basis.

12.  Notwithstanding the Order of Master Timon Shum of 13 January 2023 (“Order of Master Shum”) for leave for P to file and serve an affirmation in opposition to D’s Summons, no evidence was filed in opposition by P. 

13.  As mentioned already, the Judgment was set aside by the Master on 29 May 2023.

14.  Subsequently, further pleadings were filed by the parties.  A Defence and Counterclaim was filed on 2 June 2023 by D.  A Reply and Defence to Counterclaim was filed on 26 June 2023 by P.

Applicable Principles

15.  It is well established that an appeal from a master to a judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him or her for the first time.  The judge will give the weight it deserves to the previous decision of the master, but he or she is in no way bound by it.  The judge in chambers is in no way fettered by the previous exercise of master’s discretion: see Hong Kong Civil Procedure 2023, Vol 1, §58/1/2.

16.  The principles for setting aside default judgments are also well-known:-

(1)  A default judgment entered into irregularly (for example, bad or ineffective service of the writ) ought to be set aside as of right.  In other words, the merits of the defence do not have to be entered into by the court although the court has a residual discretion to have regard to the conduct of the parties and impose terms for the setting aside; and

(2)  For a default judgment that was entered into regularly, the major consideration is whether the defendant demonstrates a defence which has a real prospect of success.  However, in the exercise of the court’s discretion the court will have regard to all relevant circumstances.  The usual factors are: (i) why the default occurred; (ii) the defendant’s conduct after he had notice of the proceedings; (iii) an explanation for the time taken where there has been delay in making the application; and (iv) any prejudice that would be caused to the plaintiff. 

See Hong Kong Civil Procedure 2023, Vol 1, §§13/9/4, 13/9/10, 13/9/12-14 and Cheung Sai Lon v Cheung Sai Ha & Another [2021] HKCFI 904, §§14-15.

17.  As the appeal against a master’s decision is a de novo hearing,I would apply the same principles.  In short, I need to determine:-

(1)  Whether the Judgment was regularly obtained; and

(2)  If so, whether D has shown a defence with a real prospect of success.

Whether the Judgment was regularly obtained

18.  As already mentioned, according to P’s Affidavit of Service, P sent a sealed copy of the Writ by registered post in an envelope pre-paid and properly addressed to the registered office of D.

19.  Section 827 of the Companies Ordinance, Cap 622 (“CO”), provides that a document may be served on a company by leaving it at, or sending it by post, to the company’s registered office.

20.  Section 8 of the Interpretation and General Clauses Ordinance, Cap 1, further provides:-

“Where any Ordinance authorizes or requires any documents to be served or any notice to be given by post or by registered post, whether the expression ‘serve’ or ‘give’ or ‘send’ or any other expression is used, the service or notice shall be deemed to be effected by properly addressing, pre-paying the postage thereon and dispatching it by post or by registered post, as the case may be, to the last known postal address of the person to be served or given notice, and, unless the contrary is proved, such service or notice shall be deemed to have been effected at the time at which the document or notice would be delivered in the ordinary course of post.”

21.  Notwithstanding that D has affirmed in D’s Affirmation that D had never received the Writ and only knew of these proceedings when the Bailiff attended D’s warehouse on 2 November 2022, there is no requirement in s 827 CO to establish that the company had actual notice of the Writ: see Hong Kong Civil Procedure 2023, Vol 1, §10/1/18 and Stevenson Wong and Co v Goldsense Technology Ltd [2007] 1 HKLRD 217 cited therein (see §§7-8).

22.  Order 13, r 7(1)(b) RDC provides that no judgment should be entered against a defendant unless an affidavit is filed by or on behalf of the plaintiff proving due service of the writ on the defendant. In D’s Affirmation, challenge is made to P’s claim that the Writ was sent by registered post.  It is said that P could (but has not) readily produced the postal receipt.

23.  Whilst P had not technically exhibited the postal receipt to the P’s Affidavit of Service, Mr Marco has referred in his written submissions (“Reply to defendant’s Fresh Skeleton”) to Annex 2/28 to “Comments on the Summons and Affirmation” (which was a document prepared by Mr Marco in response to D’s Summons and D’s Affirmation, purporting to affirm amongst other things at paragraph 9 therein that the Writ was served and annexing the post office receipt), given I see no real prejudice to D, it is within my discretion to remedy any procedural irregularity pursuant to O 2, r 5 RDC.

24.  Thus I am satisfied that on the materials before me that P has proved due service of the Writ and hence the Judgment was regularly obtained.

Whether D had shown a defence with real prospects of success

25.  To set aside a regular judgment, the defendant would need to show a defence that is not merely arguable justifying leave to defend under an application for summary judgment, but one with a real prospect of success.  Bare assertions are not sufficient for this purpose: see Dawn Jade Ltd & Anor v Himanshu Girdhar Dua (unrep) CACV 4/2014, 13 January 2015, §24. 

26.  There must be a potentially credible affidavit demonstrating a real likelihood that he will succeed on fact: see Premier Fashions Wears Ltd & Another v Li Hing Chung and Another [1994] 1 HKLR 377 at 383 (per Godfrey JA).

27.  The court must first form a provisional view on the probable outcome of the action.  Where ultimate outcome would depend on whose evidence is believed and no provisional view of the probable outcome of the action can be formed without a trial, the appropriate test is whether the defence “could well be established”.  See Hong Kong Civil Procedure 2023, Vol.1, §13/9/14; Dawn Jade Ltd, §24 and Guangdong International Trust and Investment Corp Hong Kong (Holdings) Ltd v Yuet Wah (Hong Kong) Wah Fat Ltd & Another [1997] HKLRD 489 at 494I-495C.

28.  Essentially, D’s defence to the alleged unpaid invoices is that it was agreed or implied under the parties’ business dealing that the invoices would be clarified and confirmed by D then they would be payable.  Even though in D’s Affirmation, I note it was said that the agreement was orally made and there was no written document evidencing the same, I still need to consider the inherent credibility and consistency with contemporaneous documents.

29.  In the WhatsApp communications between D and Mr Marco, there are some albeit scant and vague reference to clarification and that “once it is clear if payable are due” which would support D’s case.  Mr Poon accepted that by way of evidence that is all D has to support its case at the moment.

30.  As for the alleged breach of the Performa Invoice No 1076, D’s defence is that there was only partial delivery of that invoice when it was agreed that there would only be payment when the Goods (meaning all the goods set out therein) arrived in Hong Kong.  It is further alleged that Mr Marco unilaterally cancelled the agreement and set off the 50% deposit that had been paid against subsequent orders and hence it was P that was in repudiatory breach of the agreement in failing to deliver all wines ordered which caused loss to D. 

31.  From the WhatsApp communications with Mr Marco, it does seem in around February 2022, D was chasing Mr Marco for wines ordered in September which has not been delivered, that Mr Marco had “cancel the order the same moment you all ok” and by not delivering the ordered wine, caused loss to D’s business. 

32.  Mr Marco had at today’s hearing challenged the Performa Invoice exhibited by D in D’s Affirmation as a false document.  Indeed he went so far as to submit D’s Affirmation was a false document.  He submitted that the Performa Invoice was not an invoice but a purchase order.  He referred me to the document which was in Annex 5 to “Comments on the Summons and Affirmation” which he said is the true Performa Invoice.  As I mentioned above, no affirmation was filed opposing D’s Summons notwithstanding the Order of Master Shum, so this document was not in evidence before the Master. 

33.  In any event, even if I am prepared to consider this document given it was lodged with the court though not produced by Mr Marco under oath/affirmation, there is no dispute that it provides for “payments terms: 50% advance payment, 50% at good arrival.”  The dispute is whether all goods set out in the Performa Invoice had to arrive before payment by D. 

34.  Mr Marco further showed me some translated WhatsApp communication between himself and Mr Raffaele on around 27 August 2021 whereby Mr Marco had told Mr Raffaele the goods would not all arrive in one shipment and Mr Raffaele had said he would pay for each container that arrives, the rest immediately after delivery.  As I understand it, this is said to support his case for partial payment even though not all the goods under the Performa Invoice were delivered.  However, those communications were not produced in evidence in any Affirmation opposing D’s Summons and were not in evidence before the Master and not even in the Annex to the “Comments on the Summons and Affirmation” which has not been affirmed.  In any event, those communications were almost 3 weeks before the signing and approval of the Proforma Invoice dated 17 September 2021.  It is not necessarily inconsistent or contrary to D’s case.

35.  It seems to me given the very serious allegation of fraud and forgery of documents asserted by Mr Marco only in submissions against D which has not been made in sworn evidence put before the court and which D has no opportunity to respond to in evidence, against what has been affirmed by D with some documentary support, it demonstrates to me rather that there are matters in dispute between the parties that need to go to trial.  I cannot come to a provisional view of the probable outcome of this action without a trial of the action.  Notwithstanding the quality of the evidence is far from satisfactory but on the material though scanty before me, D’s defence could well be established.  There being no other factors brought to my attention against setting aside the Judgment, I would affirm Master’s decision to set aside the Judgment.

36.  Although the court has power under O.13, r.9 RDC to impose the condition to bring money into court, I am aware that it has been said that that should be exceedingly rare, and there is a certain logical tension between a court deciding that the defendant has a real prospect of succeeding in his defence and the court considering at the same time the defence is in shadowy realms: see L&M Specialist Construction Ltd v Wo Hing Construction Co Ltd [2000] 3 HKLRD 262 at 269D-F but see also Cheung Chi Po v Ke Jun Xiang (unrep) CACV 170/2011, 22 May 2012, §§18-21.

37.  However, it seems to me given the allegations made by P and the documents that has been brought to be my attention (albeit not all strictly in evidence or given under oath) and my assessment of the evidential strength of D’s case as mentioned above, I would not disturb the condition made by the Master for payment in, which no doubt would provide a measure of security for P.

38.  The Master further ordered costs of D’s Summons be paid by D to P in any event.  I am of the view there was no error of law in so ordering.  The general rule is that the costs of setting aside a regular judgment should be awarded to the plaintiff: see Ko Sin Yun v Chan Chuen [2007] 1 HKLRD 324, §21.

Disposition and costs

39.  I would therefore affirm the Master’s decision and dismiss the appeal.  It follows, I would also dismiss the appeal against the decision of the Registrar.

40.  Costs should follow the event. Adopting a broad brush approach, I summarily assess D’s costs of and occasioned by these appeals at HK$33,000.00 to be payable by P forthwith.