劉愛娣 v. 干淑敏

DCCJ4234/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4234 OF 2012

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DECISION

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1.  This is an appeal against a master’s decision dated 12 March 2014 dismissing the defendant’s application to set aside a default judgment.  The plaintiff’s claim is for outstanding debt amounting to HK$110,000.

2.  The issue I was called upon to decide is whether the judgment entered against the defendant was a regular one.  If so, whether the defendant has demonstrated that she has a meritorious defence with a real prospect of success which entitles her to set aside the judgment entered against her in this case. 

Procedural history

3.  On 6 December 2012, the plaintiff served the writ of summons together with the statement of claim on the defendant.  The defendant filed an acknowledgment of service on 28 December 2012 with her residential address written on it.  On the same day, the defendant filed her defence.  The defendant has all along been acting in person.

4.  An application was made by the plaintiff’s solicitors on 31 May 2013 for a case management conference (“CMC”) before a master.  The CMC was scheduled on 11 June 2013.  The summons for the CMC was served on the defendant by ordinary post at her address on 3 June 2013 in accordance with Order 65, rule 5(1)(b) of the Rules of the District Court (“RDC”). 

5.  The defendant was absent at the CMC and it was adjourned accordingly.  

6.  A second CMC was scheduled before another master on 5 July 2013.  The summons for this CMC was taken out by the plaintiff’s solicitors on 17 June 2012 and was served by ordinary post on the defendant at her address.  Again, the defendant was absent at the hearing at the second CMC.

7.  The second CMC was adjourned to a new date on 21 October 2013 by the master.  It has been specifically stated in the order made by the master on 5 July 2013 that, in accordance with Order 25, rule 4 of the RDC, if either of the party does not appear at the CMC, the court shall provisionally strike out either the plaintiff’s claim or the defendant’s counterclaim without further notice to the parties.         

8.  At the hearing on 21 October 2013, which the defendant was again absent, the master ordered, inter alia, the defendant to write to the court to explain her absence from the CMC within 14 days, or her defence be struck out pursuant to O 25 r 9 of the RDC.  The plaintiff would then have a right to apply for a default judgment.

9.  The defendant failed to respond and judgment was entered against her on 27 November 2013 pursuant to the master’s order.

10.  On 12 December 2013, the defendant applied to set aside the default judgment.  The application was dismissed at a hearing before another master on 12 March 2014.

11.  The defendant filed an appeal notice on 25 March 2014.  A hearing was set down for Monday, 7 April 2014 before me.  However, as the hearing bundles were only received by the Registry at 3:30 pm on Friday, 4 April 2014, I did not have sufficient time to properly study the papers.  I therefore reluctantly adjourned the hearing to 29 April 2014 with costs reserved.  That has been the subject of another decision written by me in Chinese dated 10 April 2014. 

12.  I should add at this juncture that all the summonses for the CMC and the related documents and orders of the master had been served on the defendant by ordinary post under a cover letter by the plaintiff’s firm, enclosed in a sealed prepaid envelope and addressed to the defendant at the address given by her in the acknowledgment of service. All the above service have been verified by the litigation clerk of the plaintiff’s solicitors in his 5 affirmation of service respectively dated 7 June 2013, 3 July 2013, 16 October 2013, 5 November 2013 and 14 November 2013. None of the letters have been returned to the sender by the post office.               

Parallel proceedings at the Labour Tribunal

13.  At the hearing before me on 29 April & 7 May 2014, it transpired that the parties were involved in another action at the Labour Tribunal, namely 干淑敏 (Kon Shuk Man) v 美斯製衣有限公司(Clothing Kingdom Garment Limited) (LBTC 4515/2012).  The defendant company in that case, ie Clothing Kingdom was represented by the plaintiff.

14.  In a nutshell, the claimant in that case (who is the defendant in this action) claimed a total sum of HK$221,580.65 which represented outstanding wages, severance payments and paid leave owed to her by Clothing Kingdom during the time when she was working for the company.  The defendant asserted that she was an employee of Clothing Kingdom, whereas the plaintiff, who was the sole director and shareholder of Clothing Kingdom, alleged that they were business partners rather than the defendant being an employee of Clothing Kingdom.

15.  The hearing of the evidence at the Labour Tribunal lasted 4 days from 17 to 20 June 2013 with closing submissions heard by the presiding officer on 5 July 2013.  The Reasons for Decision was handed down by the presiding officer on 16 August 2013.  The presiding officer found that the defendant was an employee of Clothing Kingdom and therefore allowed the claim made by the defendant in the sum of HK$218,686.62.  I was given to understand that, up to now, Clothing Kingdom has yet to pay the defendant the judgment sum found in her favour by the Labour Tribunal.

Regularity of the default judgment

16.  It is necessary to first decide whether the judgment entered was a regular or irregular one because different tests apply.  A default judgment may be tainted with irregularity if the relevant court documents are not served properly.

17.  The defendant explained her absence from the two CMC hearings by asserting that she had not received the summonses.  She questioned why the summonses were not sent to her by registered post.

18.  At first glance, it appears that there were some grounds to support the defendant’s complaints.  First, the defendant had all along been able to receive documents relating to the labour tribunal proceedings at her usual address without any problem.  Second, as the defendant is well educated, she has no difficulty in following the instructions from the court or what has been stated in the court documents.  Third, when the defendant appeared before me, she came across as a responsible person who was very concerned about her affairs, particularly the progress in this case. 

19.  However, in my judgment, whether the defendant had received and read the summonses or orders and whether the service was validly served in law are two distinct matters.  As a matter of law, service of any documents by way of ordinary post at a person’s proper address is valid: See Order 65, rule 5 of the RDC & §65/5/4 at p 1232 of Hong Kong Civil Procedure 2014.  The law does not require the documents, including summonses and orders, to be sent by registered post.

20.  Further, as mentioned, the plaintiff has produced 5 affirmations to prove service of the court documents. The summonses and orders were sent by ordinary post to the defendant’s address. The letters had not been returned undelivered.  Indeed, the defendant has confirmed during the hearing that the address used by the plaintiff was correct. 

21.  It is trite that so long as the letter has been properly addressed, prepaid and posted to the proper address of the person to be served and not returned to the post office, it affords prima facie evidence that it has been duly delivered to in the ordinary course of post and service will therefore be regular: see §65/5/4 of the Hong Kong Civil Procedure 2014.  As such, any judgment or order by default obtained on the faith of that assumption will also be perfectly regular: see for example Chung Shun Land Investment Co Ltd v Steadman, unreported, HCA 4215 of 1985, [1986] HKLY 732.  Proper address for service for this purpose will be the address stated by the defendant in the acknowledgment of service: see Order 12, rule 3 of RDC. 

22.  Therefore, in the light of the above, I find that the summonses and orders had been effectively served on the defendant and therefore the default judgment entered against the defendant by the master on 27 November 2013 was a regular one.

23.  Given that the CMC summonses and the orders made had been effectively served on the defendant, there is in my view no reason why the defendant could not have attended the CMC hearing (perhaps with the exception of the second CMC held on 5 July 2013 which will be discussed below).  Whether it was for the reason that the defendant was concentrating in fighting the Labour Tribunal proceedings with the plaintiff’s company at the time or for other reasons best known to her, I do not need to make any finding here.  Suffice it to say that I find there were plenty of opportunities for her to attend the hearings before the master or to provide explanations to the court as to why she did not respond to the summonses and orders served on her before the judgment being entered against her. 

Whether judgment should be set aside

24.  It has been well established that the court has a discretionary and unconditional power to set aside a default judgment entered regularly.  In considering whether a judgment should be set aside, the major consideration is whether the defendant has shown a meritorious defence.  The court also has regard to all relevant circumstances to see where the justice of the case lies.  Examples of relevant circumstances are why the default occurred and the defendant’s conduct after he had notice of the proceedings: see Hong Kong Civil Procedure 2014, Vol 1, §13/9/12 and 13/9/13.

(i)      Meritorious defence

25.  To establish a meritorious defence, the defendant must show “a real prospect of success”, instead of a mere “arguable” defence.  In general, the defendant must adduce evidence which carries some degree of credibility and conviction, which allows the court to form a provisional view as to the probable outcome of the action: Premier Fashion Wears Ltd v Chow Cheuk Man [1994] 1 HKLR 377 §32-33.

26.  However, where it boils down to whose evidence is believed and hence no provisional view can be formed without a trial, the appropriate test is whether the defence “could well be established” at trial: O Mark Polythylene Products Fty Ltd v Reap Star Ltd [2000] 3 HKLRD 144 §10.

27.  In order to consider the merits of the defence, it is necessary to briefly set out the defendant’s assertions and the plaintiff’s rebuttal here.  The crux of this matter is the nature of the bank transfers amounting to HK$110,000 (“the Disputed Sums”).

28.  The defendant denies borrowing any money from the plaintiff.  She claims that she used to work for the plaintiff on a freelance basis; she would help the plaintiff source for suppliers for the plaintiff’s then employer.  The agreed remuneration for the freelancing was $10,000 per month on a part-time basis and $25,000 per month on a full-time basis.  The breakdown of the Disputed Sums is as follows: $80,000 was remuneration for the defendant’s work (3 months of part-time and 2 months of full-time freelancing); $30,000 was repayment of the defendant’s loan to the plaintiff for the pre-incorporation expenses of Clothing Kingdom.  Finally, the defendant alleges that the present action was in response to the Labour Tribunal’s decision, ie the Labour Tribunal had ruled against Clothing Kingdom, which was solely owned by the plaintiff, who has yet to pay up.

29.  In reply, Mr Leung for the plaintiff submits 3 grounds to say why this case should not be set aside.  The first one is a question of fact.  Mr Leung asserts that the plaintiff had loaned the Disputed Sums to the defendant at the latter’s request.  At that time, it is alleged that the defendant’s business was failing and she needed cash to keep the business afloat.

30.  The second and third grounds are points of law.  Mr Leung submits that the defendant cannot rely on the principles of legal set-off because Clothing Garment was a limited company and thus was a different legal entity to that of the plaintiff.  The requisite connection was lacking for the concept of set-off to apply.  Mr Leung further submits that the decision of the Labour Tribunal did not constitute res judicata, as it did not have jurisdiction over the Disputed Sums which were personal debts not arising out of the employment relationship.

31.  After considering the parties’ respective submissions, I have come to the conclusion that the defendant does have a meritorious defence with a real prospect of success in this case.

32.  Mr Leung’s submissions on set-off and res judicata, while correct as a matter of law, do not in my view diminish the defendant’s position.  First, the defendant’s case is not based on the concept of set-off.  It is alleged that the Disputed Sums (or at least part of them) arose out of the defendant’s freelance work for the plaintiff ie a personal transaction between the parties.  The concept of corporate personality does not come into play.  Second, the absence of res judicata does not mean there is no meritorious defence.  After all, what is required is a real prospect, not certainty, of success.  Moreover, the Labour Tribunal hearings did touch upon the issue and the nature of the Disputed Sums.  While there is no res judicata in this case, factual findings and observations on the parties’ credibility from the Labour Tribunal may nevertheless serve as valuable reference.  In this regard, I find the sections highlighted by the defendant from the transcript of the Labour Tribunal proceedings helpful.  In my view, it does give some indication that the Disputed Sums arose out of freelance work the defendant had done for the plaintiff.     

33.  Obviously, I cannot form any definite view of the defendant’s case without a trial as the plaintiff’s and the defendant’s respective accounts of the facts are plainly irreconcilable. However, in my view, neither account is far-fetched or inconceivable.  At least the breakdown of the Disputed Sums seemingly tallies with the defendant’s version of the events as shown in the transcript at the Labour Tribunal proceedings.  In my opinion, the defence could well be established at trial and it is my view that the defendant has demonstrated a real prospect of success.

(ii)    Other relevant considerations

34.  The defendant’s justification for her absence from the CMC hearings can be summarized into two grounds, namely that the summons were not properly served on her and that there was a time clash with the hearings at the Labour Tribunal.  The issue relating to the service of summons has already been discussed above and will not be repeated here.  I shall proceed to discuss the details relating to the time clash matter.

35.  According to the transcript of the Labour Tribunal, on 5 July 2013, the parties appeared before the presiding officer at the Labour Tribunal to make their closing submissions in the case. Thus, the defendant was obviously unable to attend the CMC in this court on the same day.  The plaintiff on the other hand did not have this problem.  On that day, while the plaintiff appeared in person at the Labour Tribunal representing Clothing Kingdom (as lawyers are not allowed to represent the litigants at Labour Tribunal: see s 25(2) of the Labour Tribunal Ordinance, Cap 25), she was accompanied by one Mr Yu who was the corporate development manager at the plaintiff’s solicitor firm.  At the same time, in the District Court, the plaintiff was represented by one Mr Mak, an associate solicitor at the plaintiff’s solicitor firm, at the CMC. I was told that Mr Mak has since left the employment at the plaintiff’s firm.

36.  The circumstances call for the question of whether Mr Mak knew of the time clash between the two hearings, for if he knew he should have notified the court and explained the defendant’s absence.  More important is whether the master knew of the time clash, for if he knew he would likely to have made a different order. 

37.  Mr Leung submits that Mr Mak might not genuinely knew of the time clash, because Mr Mak and the corporate development manager belonged to different departments of the firm.  Moreover, strictly speaking, Mr Leung submits that the solicitors firm “represented” Clothing Kingdom in the Labour Tribunal proceedings and the plaintiff in the current proceedings.  The two are separate legal entities.

38.  Mr Leung is certainly correct in making this distinction.  However, in my opinion, this is merely a technicality in law.  I find it questionable that two staff members of the same solicitors firm, representing effectively the same client (I have been told that the plaintiff is the sole shareholder and director of Clothing Kingdom), would not know of the time clash.  I note in particular that when Mr Mak was asked by the master at the beginning of the CMC hearing on 5 July 2013 if he knew why the defendant was absent, Mr Mak specifically informed the court that he did not know.  I find it difficult to believe that the left hand of a solicitor firm does not know what the right hand is doing.  At best, this may be viewed as an innocent omission on the part of the solicitor.  At worst, this may be seen as a deliberate concealment to the court in order for the plaintiff to gain a tactical advantage.

39.  It has also been submitted that various documents from the Labour Tribunal proceedings were available before the master at the hearing and certainly the master would know about the parallel Labour Tribunal proceedings.  Given the fact that a master would be dealing with a number of CMC in different cases in one morning, it would in my view be wholly unrealistic to expect the master to make the connection on the spot, and realize that two hearings were scheduled on the exact same day involving the same defendant.  In my judgment, the plaintiff’s solicitor, as an officer of the court, has a positive duty to specifically draw the master’s attention to the time clash.

40.  Hence, in my view, the failure of the plaintiff’s solicitors to inform the court regarding the defendant’s absence is a one of the factors which this court should take into consideration when deciding whether to allow the defendant to set aside the judgment.  However, I have not lost sight of the fact that all the summonses and court orders had been effectively served on the defendant and there is no reason why she could not have responded to them, whether before or after the 5 July 2013 hearing.    

41.  It is said that in deciding whether to set aside a judgment, the court may consider other relevant circumstances along with the merits of the defence.  In practice, this rule is usually applied against the defendant.  The court may refuse to set aside a judgment in spite of a meritorious defence, because, for instance, there has been undue delay in making the application or the plaintiff would be unfairly prejudiced if the application is allowed: Premier Fashion Wears Ltd (above) and Young Bing Ching (dec’d) v Chow Yung Fung [2001] 2 HKLRD 394.

42.  I cannot see why this rule should not also work in favour of the defendant where appropriate, especially when the underlying rationale is to obtain the fullest justice.  Indeed, in O Mark Polythylene, the Court of Appeal set aside a default judgment “having regard to [the defendant’s] reason for not attending the hearing” (at §11), though it was unclear how much weight was attached to this factor.

43.  However, as I have found earlier, all the documents in this case had been effectively served on the defendant according to Order 65, rule 5(1)(b) of the RDC. Hence, the omission of the solicitor in mentioning the true reason of the defendant’s absence to the master at the hearing on 5 July 2013 pales in significance in the light of the fact that all the documents had been effectively served on the defendant in this case.   In my opinion, while this is one of the matters which the court should take into consideration when deciding on the matter, it is not the main consideration.  The main consideration remains whether the defendant has been able to establish a meritorious defence.

Conclusion

44.  For the abovementioned reasons, I would allow the defendant’s appeal to set aside the judgment entered against her by the master on 27 November 2013. I would not however disturb the costs order made by the master on that occasion. 

45.  As for the costs of this appeal, given the fact that the judgment was entered regularly against the defendant and I found that the defendant had plenty of opportunities to respond to the courts’ summonses and orders which had been effectively served on her, I shall make an order nisi that the costs of this appeal (save for the costs wasted for the hearing fixed for 7 April 2014 before me due to the late lodging of the bundles by the plaintiff) to be paid by the defendant, such costs to be taxed if not agreed, with certificate for counsel.  The costs for the adjourned hearing on 7 April 2014 to be borne by the plaintiff.

46.  I shall also order that an official Chinese translation of this decision to be made available to the parties given the fact that the defendant was unrepresented and acting in person and the hearing was conducted in Chinese.