GLORY WEALTH INTERNATIONAL LTD v. GRAND RICH INTERNATIONAL GROUP LTD AND ANOTHER

DCCJ 2760/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2760 OF 2014

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REASONS FOR DECISION

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INTRODUCTION

1. On 17 March 2015, at the end of the hearing of an application by the defendants to set aside the default judgment entered against them, I gave defendants leave to do so.  I said I would provide the reasons for decision in due course.  Here are the reasons. 

2. By a summons filed on 1 December 2014, the 1^st and 2^nd defendants applied under Order 13 rule 9 of the Rules of the District Court, Cap 336H (“the RDC”) to set aside the default judgment entered against them on 4 September 2014 (“the default judgment”).

3. The 1^st and 2^nd defendants made the application on the following grounds:-

(a) insofar as the 1^st defendant is concerned, it says that it has a meritorious defence to the plaintiff’s claim;

(b) insofar as the 2^nd defendant is concerned, he claims that the default judgment is “irregular”, and in any event the 2^nd defendant has a meritorious defence to the plaintiff’s claim.

BACKGROUND

4. By an endorsement of claim issued on 17 July 2014, the plaintiff claims against the 1^st defendant and the 2^nd defendant respectively as the principal and guarantor of an alleged debt in the sum of HK$371,840 (“the Debt”).  The Debt originally was the agreed price for scaffolding work done and material supplied for and to the 1^st defendant by another company, namely Host Glory Engineering Limited (“Host Glory”) under an agreement dated 17 March 2014 (“the Agreement”).

5. The plaintiff alleges that the Debt owed by the 1^st defendant came into existence under an Assignment of Debt dated 16 July 2014 (“the Assignment of Debt”), assigned by Host Glory to the plaintiff and that the 1^st defendant and the 2^nd defendant had been given a Notice of Assignment of Debt on 16 July 2014 (“the Notice of Assignment”).

6. No statement of claim has been filed by the plaintiff.

7. The default judgment was entered on 4 September 2014 on the ground that no notice of intention to defend has been given by the 1^st and 2^nd defendants.

8. The plaintiff has filed an affirmation of Fung Kai Man, a paralegal at the plaintiff’s solicitors, on 16 August 2014 to verify the service of the writ and other related documents on the 1^st and 2^nd defendants. 

9. The 2^nd defendant has filed an affirmation on 28 November 2014 in support of the defendants’ application to set aside the judgment.

10. At 5:00 pm on 16 March 2015, ie the afternoon before the hearing, the plaintiff took out a summons seeking leave to file the 2^nd affirmation of Fung Kai Man to introduce some new evidence.  At the beginning of the hearing, I dismissed the plaintiff’s summons, principally due to the lateness of the application and the lack of explanation of why it had failed to comply with the master’s directions in filing of the evidence. 

11. The hearing therefore proceeded without any evidence filed by the plaintiff’s director or responsible officer disputing the 2^nd defendant’s version of events.  In particular, there is no evidence coming from the plaintiff verifying how the alleged Debt under the Assignment of Debt came about. 

DISCUSSION

Legal principles involved

12. The relevant principles on setting aside a regular judgment has been set out in §§13/9/12, 13/9/13, 13/9/14 of Hong Kong Civil Procedure 2015. They can be summarized as follows:-

(a) The power to set aside a default judgment which has been entered regularly is discretionary and such power is unconditional;

(b) The major consideration is whether the defendant has shown a defence on the merits to which the court should pay heed;

(c) This is not to say that a defendant who is able to demonstrate a defence which has a real prospect of success has an automatic entitlement to have the default judgment set aside.  In exercising the discretion under this rule, the court has regard to all relevant circumstances.  What will be relevant as a factor in any particular case will depend on the individual facts of that case.  The usual factors are: why the default occurred; the defendant’s conduct after he had had notice of the proceedings; an explanation for the time taken where there has been delay in making the application; and any prejudice that would be caused to the plaintiff or to third parties if the default judgment were to be set aside.  These other relevant factors will then have to be weighed against the dominant factor of the merits in order to see where the justice of the case lies;

(d) On meritorious defence, it is not sufficient to show a merely “arguable” defence that would justify leave to defend under O 14.  The defendant must show that he has “a real prospect of success”.  To do so, he must satisfy the court that his case and the evidence that he adduces in support of it is potentially credible and carries some degree of conviction.  Thus, the court must form a provisional view of the probable outcome of the action; and

(e) The burden is on the defendant to show that he had a real prospect of success in defending the plaintiff’s claim.

13. In other words:-

(a) where the default judgment is regular, it may only be set aside if the defendant is able to show a meritorious defence with reasonable prospect of success;

(b) where the default judgment is obtained irregularly, the defendant is entitled to have it set aside as of right without showing merits in his defence.

14. A service of writ is irregular and/or defective if the defendant has not received the writ and so do not have notice in it.  §10/1/13 of the Hong Kong Civil Procedure 2015, states:-

“If there is a letter box for the usual or last known address of the defendant within the jurisdiction, service of the writ may be effected by inserting through that letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant …… Again, the writ must be bought to the attention of the defendant. Thus, where a defendant was not living at the address where it was inserted into a letterbox at that address, it was not brought to the defendant’s notice and the service was irregular (Sinokawa Investment (Holdings) Ltd v Li Chun [2006] 3 HKLRD 441 ……)”

15. In Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378, where the Court of Appeal held that where the service of a writ was defective, the irregular judgment should be set aside without considering the merits, Leong JA also stated the following:-

“The defendant deposed that she did not know of the proceedings until 29^th August 1998 after judgment had been entered against her. There is no evidence that the proceedings had otherwise been brought to her notice prior to 29^th August 1998. There can be no doubt the defendant had no knowledge of the writ at any time prior to judgment being entered on 11^th August 1998. On this alone, the service could not have been effective.”

16. In §13/9/5 of the Hong Kong Civil Procedure 2015, under the sub-heading of “Bad or ineffective service of the writ”, it is stated inter alia,

“It would appear that the same principles for setting aside a default judgment apply irrespective of the manner in which the writ is served.

…… When a defendant deposes that he has not received the writ through the post, the court has little option but to believe this save when there is sufficient material to cast doubt upon thee defendant’s creditability to enable the court to disbelieve him (which is a matter of evidence dependent on the circumstances of the case) …..” 

Service and knowledge of the writ herein

17. There is no dispute that the default judgment against the 1^st defendant is regular.

18. The 2^nd defendant, who is the sole director of the 1^st defendant, deposed in his affirmation filed on 1 December 2014 (“D2’s affirmation”) inter alia the following:-

(a) Neither the 1^st defendant nor the 2^nd defendant had any knowledge of the present action until about 8 October 2014, when the 2^nd defendant received from Hang Seng Bank an email making an enquiry on inter alia the present legal action;

(b) the writ purportedly served upon the 1^st defendant was sent to the 1^st defendant’s secretarial service company, Rightfield Management Limited (“RML”).  However,  RML had not contacted the 1^st defendant or the 2^nd defendant regarding the documents received;

(c) the writ purportedly served upon the 2^nd defendant was inserted into the letter box of the former business address of the 1^st defendant.  By that time the 1^st defendant had already moved to its current business address at 20D Skyline Tower, 18 Tong Mi Road, Kowloon (“the Skyline Tower Address”).

19. In D2’s affirmation, the 2^nd defendant has produced a “Rental Debit Note” dated 14 November 2013 showing that since a date no later than November 2013, the business address of the 1^st defendant has been changed to the Skyline Tower Address.

20. As said, no affirmation in opposition to the defendant’s application has been filed by the plaintiff. 

21. Insofar as the 2^nd defendant’s knowledge of the writ of summons and other documents is concerned, I am aware that that I do not necessarily have to accept the assertions of the 2^nd defendant no matter how improbable they are: Bank of China (Hong Kong ) Ltd. v Cheung Keung Fung [2007] 1 HKLRD 462.  The relevant question is: whether there is sufficient evidence to cast doubt on the defendant’s credibility such that the court should not accept his bare allegation that he has not received the writ: Cheng Chi Lun v Ng Lai Ming Juliana HCA 1611/2006, unreported, (6 February 2007; Recorder Fok SC).

22. On the evidence produced by the 2^nd defendant, I am convinced that the 2^nd defendant in this case has moved its business to the new address.

23. The writ of summons and other documents were served on the 2^nd defendant on 18 July 2014 at its old place of business, namely, Room B, 3^rd Floor, Gee Luen Factory Building, No 28 Tai Yip Street, Ngau Tau Kok, Hong Kong) (“the Gee Luen Address”).

24. I reject the plaintiff’s argument that just because there is evidence to show the renting of the Skyline Tower Address, it does not necessary mean that the 2^nd defendant no longer used the Gee Luen Address when the writ of summons and other documents were served to him on 18 July 2014.  To my mind, this is a pure speculation on the part of the plaintiff which is not supported by any evidence.

25. The plaintiff further submits that if there is any change of address on the part of the 2^nd defendant, as the sole director of the 1^st defendant, he should have filed a notice of the Companies Registry to reflect such change.  It says there is no evidence that the 2^nd defendant had filed such a notice when the writ and the relevant documents were served on 18 July 2014. 

26. With respect, first, there is no evidence filed by the plaintiff to say whether such a notice of change of address has in fact been filed or not.  Second, the evidence filed by the 2^nd defendant clearly supported that the 1^st defendant has moved to the Skyline Tower Address in November 2013, whether the notice of change of address has been filed or not. 

Merits of the 1^st and 2^nd defendants’ defence

27. I accept that the defendants have shown a meritorious defence with reasonable prospect of success in this case for the following reasons.

28. First, there is no evidence to show that the 1^st and 2^nd defendants actually knew the plaintiff.  Nor is there any evidence to show that there was any direct business dealing or agreement made between the plaintiff and the 1^st and 2^nd defendants.

29. Second, as shown by the invoice issued by Host Glory to the 1^st defendant, the Agreement for the supply of scaffolding work was made between Host Glory and the 1^st defendant.  The plaintiff was not a party to the Agreement. The 2^nd defendant in his affirmation was able to produce an email from the developer to say that they would settle the payment of the scaffolder ie Host Glory and would not charge the 1^st defendant.  Thus, prima facie, no issue of debt arose between Host Glory and the 1^st defendant of which the former was capable to assign.   

30. Third, the plaintiff purportedly claims against the 1^st and 2^nd defendants on the alleged Assignment of Debt and Notice of Assignment.  However, the plaintiff has not even produced a copy of those documents by way of evidence. 

31. Fourth, the 2^nd defendant was allegedly sued in his capacity as guarantor of the Debt in the indorsement of claim, yet not even a copy of the guarantee has been produced by the plaintiff by way of evidence.

32. Lastly, both the 1^st defendant and 2^nd defendant deny that they have ever agreed to any assignment of debt or had knowledge of any assignment of debt or guarantee as alleged by the plaintiff.  The defendants claim that they had never received any Notice of Assignment of Debt from the plaintiff.  Despite a request made by the defendants’ solicitors to the plaintiff’s solicitors by a letter dated 20 October 2014, the plaintiff has failed to provide the defendants with any copy of the alleged Assignment of Debt or Notice of Assignment.

33. In my aforestated premises, it is obvious to me that both the 1^st and 2^nd defendants have shown a meritorious defence with real prospect of success to the plaintiff’s claim herein and the judgment ought to be set aside on merits. 

Conclusion

34. By reason of the aforesaid, I found:-

(a) the default judgment insofar as against the 2^nd defendant was irregular and ought to be set aside ex debito justitiae without going into the merits of the 2^nd defendant’s defence; and

(b) both the 1^st and 2^nd defendants have shown a meritorious defence to the plaintiff’s claim, and thus the default judgment against the 1^st and 2^nd defendants ought to be set aside in any event.

35. I therefore made an order in terms of §§1 to 4 of the 1^st and 2^nd defendant’s summons and ordered the plaintiff to pay the costs of the defendants’ summons dated 1 December 2014 as well as the plaintiff’s own summons dated 15 March 2015, with certificate for counsel.  At the end of the hearing, I summarily assessed the defendants’ costs at HK$70,430 and ordered the same to be paid forthwith by the plaintiff.