XCHRX PHILLIP SECURITIES (HK) LTD. v. LAM CHI BIN STANLEY

HCA 16645/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 16645 OF 1999

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D E C I S I O N

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1. This is an appeal brought by the Plaintiff against the decision of Master Yuen made on 14 September 2001. The learned Master set aside the default judgment entered herein on 30 December 1999 and granted the Defendant unconditional leave to defend. I dismissed the appeal on 14 November 2001 and I now give my reasons for that decision.

2. For the reasons given below, I am satisfied that the Master was right to set aside the judgment. I am of the view that the judgment entered on 30 December 1999 was an irregular judgment. There was no proper service of the Writ and the Defendant did not know about the present action until he was served with the Bankruptcy Petition on or about 13 January 2001. I am also satisfied that in the circumstances of the present case, there is no reason why I should exercise my discretion to refuse to set aside the irregular judgment.

Irregular judgment

3. According to an affidavit of Cheung Jeffrey Gabriel filed by the Plaintiff on 14 December 1999 in support of their application for default judgment, the writ was served by inserting the same through a letter box at Room 203, 145 Henessay Road ["the Address"], Hong Kong on 8 November 1999. The Plaintiff's case is that this was the last known address and service was therefore effected in accordance with Order 10 Rule 1(2)(b).

4. The Address was stated to be "Henessay Road" in the affidavit of service and the Writ although both parties accepted at the hearing before me that the correct spelling should be "Hennessy Road". Since the purported service in the affidavit of service was effected by insertion into letter box instead of service by post, I do not regard this as significant in the present context. I note that in Paragraph 20 of the Affirmation of Lim Wah Sai of 31 May 2001, he referred to service by registered post. It appears that the correct spelling of Hennessy Road was set out in the covering letter dated 25 October 1999 from the solicitors for the Plaintiff to the Defendant. I am also aware that this was not the service relied upon by the Plaintiff when application for default judgment was made. On the facts of the present case, I do not think it makes any difference whether that purported service by post was taken into account.

5. The Defendant said that the Address was not his address in November 1999 and this was known to the Plaintiff. The Address was given by the Defendant to the Plaintiff in a Client Information Check List on 29 September 1997. The Defendant said that other addresses had been given to the Plaintiff for correspondence, and the Plaintiff had indeed sent letters and statements to the Defendant to those other addresses. The Address was the address of Silicon SMT Manufacturers Limited ["SMT"], in which the Defendant was a major shareholder (holding 9,999 shares out of 10,000) and one of the directors. The Defendant said that Mr Lim of the Plaintiff had visited the Address. He should therefore be aware that the Address was that of SMT.

6. The Defendant's evidence is that SMT moved its office in 1998 and this was known to the Plaintiff. Its new office was at B9A & B10, 3rd Floor, Tower B, New Mandarin Plaza, Tsimshatsui East, Kowloon. Although Mr Lim Wah Sai (the managing director of the Plaintiff) said he could not remember whether he visited that new office, he accepted he had been given the name card of the Defendant on which that address was stated. The Defendant was supported by the evidence of one Ma Woon Ling who filed an affirmation on 20 June 2001. Although I note that her evidence differs from that of the Defendant as to the exact month in which the moving of the office took place, I do not regard this as sufficiently significant to lead me to disbelieve the Defendant's evidence that he was no longer at the Address in November 1999. What is significant is that both the Defendant and Ms Ma said that Mr Lim had visited the new office and Mr Lim was not in a position to deny the same. Ms Ma left her employment in May 1999. It follows that the Plaintiff knew before May 1999 that the Address was no longer the address of the Defendant.

7. Further, the evidence of the Defendant showed that Mr Lim had close contacts with the Defendant up to June 2000 and they had business dealings with each other. The Defendant said that neither Mr Lim nor any other staff of the Plaintiff informed him about the issue of the Writ and the judgment entered. This was not denied by Mr Lim. I see no reason why I should not accept the evidence of the Defendant. Bearing in mind such relationship between the Defendant and the Plaintiff, I find the conducts of the Plaintiff in whole matter quite suspicious. The judgment was entered on 30 December 1999. No step was taken to enforce the judgment until the bankruptcy proceedings in June 2000. This is not a case where the Plaintiff had no idea as to the whereabout of the Defendant. The evidence showed that the Plaintiff was aware of the residential and office addresses of the Defendant. In December 1998, the Defendant and one Tsui Hau Tung opened a joint account with the Plaintiff and in the application, the Defendant gave his office and home addresses. Statements for that account were sent by the Plaintiff to that office address whilst the statements for the first account (viz. the one which we are concerned with) continued to be sent to the mailing address given in the account opening form for this account at Tsimshatsui P.O. Box. Whilst Mr Siu correctly pointed out that the joint account was closed in January 1999, the fact remained that the Plaintiff did have information about these addresses of the Defendant. Yet there is nothing to suggest that the Plaintiff has tried to contact the Defendant at these addresses for the purpose of enforcement of the judgment.

8. In Paragraph 15 of the Affirmation of the Defendant dated 21 June 2001, the Defendant deposed to his relationship with Mr Lim of the Plaintiff. He gave very specific account about several incidents which showed that Mr Lim met the Defendant from time to time for business as well as social purposes. That relationship lasted until 12 June 2000. The Defendant further deposed to his frequent encounters with the other staff of the Plaintiff in Paragraphs 10 and 11 of the Affirmation. All that Mr Lim could say in response to that was a bare denial (see Paragraph 15 of the Affirmation of Mr Lim of 20 July 2001). Mr Siu urged upon me that I should not accept the Defendant's professed ignorance about the legal proceedings due to the service of the Writ by registered post and the same was not returned. Whilst I agree that this is a relevant consideration, I think that could not be conclusive. The Defendant maintained that he did not receive the Writ whether by post or otherwise. He has tried to ascertain from the Post Office to see whether the letter and the Writ sent by post on 25 October 1999 had been returned. However, because of the lapse of time, nothing fruitful came out of it since the Post Office did not keep any record after one year. I have doubts about the service by post because it was not referred to in the affidavit of service filed on 14 December 1999 for the application of default judgment. No satisfactory explanation has been offered to me on behalf of the Plaintiff about the omission. On the balance of probabilities, I accept the evidence of the Defendant.

9. Of course, the fact that the Plaintiff knew that the Defendant had some other addresses does not mean that the Address was not the last known address of the Defendant at the time of service. I also accept the submission of Mr Siu that "last known address" meant the last address known to the Plaintiff and it could be an address known to the Plaintiff from sources other than the Defendant (see Law Kwok Hung v. Tse Ping Man [1999] 4 HKC 397). However, I am entitled to take into account of the matters set out in Paragraphs 7 and 8 above in deciding whether the Plaintiff knew that the Address was no longer the address of the Defendant at the time of purported service. If the Plaintiff was aware that the Defendant was no longer at the Address at the time of service, that could not be a proper address for service because the Plaintiff could not properly authorize an affidavit of service to be sworn in compliance with Order 10 Rule 1(3)(b)(i) deposing to a belief that the writ would come to the knowledge of the Defendant within 7 days.

10. On the material before me, I find on the balance of probabilities that the Plaintiff was aware in November 1999 when the Writ was purportedly served that the Defendant was no longer at the Address. By reason thereof, the Writ was not properly served whether by registered post or by insertion of the same in the letter box at the Address. The judgment entered on 30 December 1999 was therefore irregular.

11. I have come to the aforesaid conclusion without referring to the dispute as to whether the Address had a letter box. The Defendant put forward evidence to show that the Address did not have a letter box. The Defendant and Ms Ma deposed to the same and some photos were taken to prove that. The Defendant said that after SMT moved from the Address, the whole of the 2nd floor of No.145 Hennessy Road was leased to a Eton College. There was no longer a separate unit for Room 203 and photos produced by the Defendant showed that there was no letter box. I bear in mind that the photos were taken on 3 August 2001. However, apart from the Affidavit of Service filed in December 1999, the Plaintiff did not produce any evidence to rebut these evidence adduced by the Defendant. If the Plaintiff wished to challenge these allegations of the Defendant, it would not be difficult for them to ask the process server to respond and to verify with Eton College or the management of the building at No.145 Hennessy Road to see whether there was any letter box for Room 203 at the material time. They chose not to do so. Although the burden is on the Defendant to show that the service was irregular, the absence of cogent evidence from the Plaintiff means that I have to decide the issue by weighing the Affidavit of Service against these unanswered evidence adduced by the Defendant. On these evidence, I find on the balance of probabilities that there was no letter box for Room 203 at the material time. Hence, the case does not even come within Order 10 Rule 1(2)(b).

12. Further, it has been decided by the English Court of Appeal in Forward v. West Sussex County Council [1995] 1 WLR 1469 that service by post and by insertion through letter box took effect when the defendant had notice of the proceedings and not on mere delivery. The seven days rule is only a good working presumption and it is rebuttable by reason of the reference to "unless the contrary is shown" in Rule 3(a). At p. 1476-7 Sir Thomas Bingham MR said as follows regarding the proper construction of Rule 3(a),

"So far as the post is concerned, we could understand seven days being allowed as a safe if rather gloomy estimate of the time taken for delivery of a letter by ordinary first class post. So it would be a possible construction of paragraph (3)(a) to hold that in order to show the contrary the defendant would have to show that the letter had not been delivered by the seventh day, or perhaps at all, it being irrelevant (if the letter had been duly delivered) whether it had come to the defendant's notice or not. But it is not possible to apply this construction to insertion through the letter box: if a letter is inserted through a letter box it can make no sense to treat the seventh day after insertion as the deemed date of service if service takes place on delivery and is not concerned with notice. Reading paragraph (3)(a) in relation to both the alternatives to personal service provided for in (2), it seems to us that the generous time limit provided for deemed service by first class post and the allowance of seven days after insertion through the letter box are to allow for the possibility that the letter may not come to the defendant's notice at once. If this is the correct construction, a defendant could show the contrary by showing either that the letter had not come to his notice until after the seventh day or that it had not come to his notice at all.

This construction is in our view strongly reinforced by paragraph (3)(b). An affidavit proving due service must contain a sworn statement not simply that there has been compliance with paragraph (2)(a) or (b) but also of the deponent's opinion that the letter, whichever mode of delivery was adopted, "will have come to the knowledge of the defendant within seven days thereafter." On the plaintiff's argument the requirement for this expression of opinion would be unnecessary: it would not matter for purposes of service whether the letter had come to the knowledge of the defendant within seven days or at all; there would be good service whether it had or not. Paragraph (3)(b)(ii) is neutral: in the case of proceedings sent by post where the letter had been returned to the plaintiff undelivered to the defendant as addressee there would not have been good service on either argument; even on the plaintiff's argument it would have been necessary to show delivery."

His Lordship then referred to some authorities and held that,

"In our opinion Ord. 10, r. 1 is quite clear. It would be surprising if the alternatives to personal service treated as irrelevant what personal service would guarantee, that the defendant had notice of the proceedings. We are satisfied this is not the case. The alternatives to personal service are allowed because they found a good working presumption (rebuttable, but still a good working presumption) that they will bring the proceedings to the notice of the defendant.

At the end of the argument we invited counsel to investigate the provenance of the rule permitting service at the defendant's last known address. It appears that the change was made in 1979, following recommendations made by a working party under the distinguished chairmanship of Sir Jack Jacob Q.C., then the Senior Queen's Bench Master. It is in our judgment evident from the working party's report that it was regarded as fundamental that "the person against whom a claim or remedy or relief is made or sought should have due notice of it so that he should have a reasonable opportunity to answer it" (paragraph 110) and that alternatives to personal service were recommended "on the assumption that service by post at the proper address would be effective to bring the relevant document to the notice of the person to be affected thereby" (paragraph 135). This report strongly reinforces the conclusions we have reached on the construction of the rule."

13. That principle has been adopted in Hong Kong in a number of cases (see Desirable International v. Chiang Shi Chau [1997] 3 HKC 170; Redland Concrete v. Hing Lee Construction, HCA 8140 of 1998, 25 June 1999, Chung J., Kwan Kam Wah v. Chan Wai Ming [2000] 2 HKC 378; Yongheng Nevada International v. Chan Mau Tak [2000] 2 HKC 584; Cosec Nominees v. Lau Hon Ming [2001] 3 HKC 290). It was cited by Leong JA (as he then was) with the concurrence of Nazareth VP in Chu Kam Lun v. Susanto [1999] 3 HKC 378 at p.382C without any disapproval. Mr Siu argued that this principle is against the decision of the Court of Appeal in Honour Finance v. Chu Mei-mei [1989] 2 HKLR 146. However, Honour Finance was decided before the decision of the House of Lords in Barclays Bank of Swaziland v. Hahn [1989] 1 WLR 506 and the two decisions are difficult to reconcile (see Godfrey JA's observations in Fok Chun Hung v. Lo Yuk Shi [1995] 2 HKC 648 at p.653 E to H). Further, it does not appear that the Court of Appeal in Honour Finance had considered at length the implication of the expression "unless the contrary is shown" in Order 10 Rule 3(a) and the expression "unless the contrary is proved" in Section 8 of the Interpretation and General Clauses Ordinance Cap.1. Whilst it is my duty to follow the decision of the Court of Appeal in Hong Kong even if it is in conflict with a decision of the English Court of Appeal, what I face with is more than just a conflict between the two decisions. As mentioned, there is a substantial number of local first instance decisions plus an endorsement by the Court of Appeal in Chu Kam Lun of the principle enunciated by the English Court of Appeal in Forward. The authority of Honour Finance is also weakened by its inconsistency with the House of Lords' decision in Barclays Bank of Swaziland v. Hahn [1989] 1 WLR 506. In these circumstances, I do not see any reason why I should not adopt the construction of Order 10 Rule 3(a) laid down in Forward.

14. On the basis of the evidence of the Defendant which I accept (and there was no evidence from the Plaintiff to the contrary apart from the non-return of the writ sent by registered post, which I have dealt with in Paragraph 8 above), I find that the Defendant did not have notice of the legal proceedings at the time when the default judgment was entered. For this reason alone, the judgment should be regarded as irregular.

Exercise of Discretion

15. On the basis that the judgment was irregular, I hold that I should not go into the merits of the defence case in deciding whether to set aside the same. In this connection, I respectfully follow the approach of Cheung J. (as he then was) in the case of New China Hong Kong Finance v. Shimada Ltd., HCA 11030 of 1999, 23 May 2000. At p.6 to 7 of the judgment, Cheung J. said,

"It is ultimately for the Court of Appeal to decide whether an irregular judgment is to be set aside as of right. As the matter now stands, my view is that whether an irregular judgment is to be set aside as of right or not will really depend on the nature of the irregularity. If, for example, the defendant had not even been served with the writ, then the question of the merits of the defence should not be considered because the defendant was not even given the chance to exercise his legal right due to the failure to effect service on him. However, where a defendant was served with the writ but due to irregularities such as entering a judgment for too large a sum, the question of merits of the defence ought to be considered. Likewise in situations like Faircharm where the judgment was entered prematurely because of the pending Order 14 application, the court should recognise the merits of the defence in considering whether judgment should be set aside in the first place.

However, while the merits of the case need not be considered where the writ was not served, as pointed out by Po Kwong Marble Factory, the court can still impose conditions for setting aside if the circumstances merit such an order. In that case, terms were imposed because of the conducts of the parties. The problems of service was due primarily to the conduct of the defendant who virtually disguised the registered office of the company. In Singh v. Atom Brook Ltd [1989] 1 WLR 810, the English Court of Appeal imposed terms in setting aside the default judgment by requiring the defendant to pay into court the amount of the plaintiff's claim. The irregularity in that case was on the description of the name of the defendant which the defendant was not in any way misled."

16. Applying that approach, on the facts of the present case, bearing in mind that it was the Plaintiff who chose to serve the Writ at an address where its managing director knew that the Defendant was not there whilst it had knowledge of other addresses where the Defendant could be contacted, I see no reason why any condition should be attached to the setting aside of the irregular default judgment. In fact, Mr Siu did not submit that there were any special circumstances which merit conditions to be imposed.

17. I therefore hold that the learned Master was correct in setting aside the judgment unconditionally and the appeal should be dismissed with costs.