NAZLA AND NORA ENTERPRISES (GAMBIA) LTD v. NG CHI YU AND OTHERS

HCA3747/2003

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3747 OF 2003

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D E C I S I O N

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1.  This is an appeal by the 1st and 2nd defendants against an order made by Master Ho of the High Court made on 4 November 2004, dismissing their application to set aside the judgment entered against them on 26 January 2004 in default of defence.

2.  The 1st and 2nd defendants have in fact served an acknowledgement of service indicating that they would contest the claim.  The acknowledgement reached the Registry of this Court on 29 October 2003.

3.  They then applied for legal aid, which was not granted.  But they said that they thought the stay imposed by the Legal Aid Ordinance and the Legal Aid Regulations would continue, and they did not realise that the stay would expire after 42 days from the filing of a memorandum of their application with this Court.   They therefore did not file the defence.  Hence, the judgment in default of defence was entered on 26 January 2004 for payment by them of US$161,629.92 with interest and damages to be assessed.  That is the explanation for the delay.

4.  I now deal with the merits of the appeal as there is no dispute that the judgment has been entered regularly.

5.  The plaintiff pleaded in the statement of claim that it had in about the beginning of May 2002 employed the 1st and 2nd defendants.  Regarding the 1st defendant, he was employed as the plaintiff’s store manager in Banjul, the Gambia with a monthly salary of US$1,000 for a period of two years.  The plaintiff also employed the 2nd defendant at the same time, but as the accountant and supervisor of the plaintiff’s wholesale and retail business in Banjul and at the same salary and same term of two years.

6.  Mr Johnny Yeung and his wife, Madam Tsui, owned the shares of the plaintiff and Madam Tsui is the younger sister of the father of the 2nd defendant.  The 1st defendant is the boyfriend of the 2nd defendant.

7.  The plaintiff said that the 1st and 2nd defendants had left their employments without serving adequate notice, and they left the Gambia on 14 April 2003. 

8.  The plaintiff further pleaded that the 1st and 2nd defendants had, between 18 January 2003 and 14 April 2003, misappropriated US$161,629.92 from the plaintiff.  Of this sum, US$103,000 had been remitted by the 1st and 2nd defendants to an account of the 3rd defendant maintained with a bank in Hong Kong. 

9.  The 3rd defendant is the mother of the 2nd defendant. 

10.  The plaintiff therefore claimed against the 1st and 2nd defendants for payment of the said sum of US$161,629.92 and, alternatively, damages.  There are also claims for damages for inadequate notice of termination of their employment contracts.

11.  The 1st and 2nd defendants denied the plaintiff’s claim and applied to set aside the default judgment by an application filed on 20 April 2004.  As I have said, Master Ho dismissed the application on 4 November 2004. 

12.  Both the 1st and 2^nd defendants in their affirmations denied that they were employed by the plaintiff as pleaded in the statement of claim.  Both of them said that they were taken by Madam Tsui from Hong Kong to the Gambia for them to develop their own business, and they were each paid a monthly allowance of US$1,000 initially, which was increased to HK$10,000 in January 2003.  In addition to developing their own business in the Gambia, they had to watch the market trend for the plaintiff. 

13.  The plaintiff denied such allegation and said that it was unnecessary to employ the 1st and 2nd defendants to do such a simple job as watching the marketing trend as such job could have been done by anybody in the Gambia.  It was unnecessary to employ the defendants all the way from Hong Kong to do such a job there. 

14.  Looking at the employment histories of the 1st and 2nd defendants, both of them had completed secondary education in an English secondary school.  The 1st defendant had, before joining the plaintiff, spent all his time working for a money lending company, starting at the position of a loan clerk and ending in the role of a branch manager.  

15.  The 2nd defendant had spent five to six years working in a bank; as a teller at one time; and as a clerk at another time.  She then left the bank and joined an estate management company also as a clerk.  After spending a bit over one year in the estate management company, she went with the 1st defendant to the Gambia. 

16.  From such working experience and level of education, I cannot see why the plaintiff should have engaged them all the way from Hong Kong to the Gambia just to perform the role of market watchers. 

17.  On the remittance of the US$103,000, they said that US$7,000 was what they had brought to the Gambia when they first arrived there, and US$3,400 was from their savings from the allowance the plaintiff had paid them whilst they were in the Gambia.  Regarding the balance of US$92,600, they said they had earned it in their business in the Gambia.

18.  They said that they had rented a warehouse across the street from the plaintiff’s shop, and they were engaged in the business of buying and selling shoes.  They bought in bulk from suppliers that operate in adjacent premises in the same street and sold them to people coming to them from other cities in the Gambia.  Their profit margin ranged between 25% to 45%.  However, except a renewed business licence, they had not produced a single page of document to evidence their business.  There was no document on their sales turnover, there was no accounts and no tax returns.  They said that they operated their business without employing any person.  They further said that they would buy sometimes in 40 or 50 boxes, and sold at one or two boxes.

19.  I must say the stories as given by the 1st and 2nd defendants on why they were taken from Hong Kong to the Gambia by the plaintiff and on how they had earned their profit of US$92,600 are unconvincing and unbelievable.  I also cannot understand why the Gambian people would have prepared to let them reap such a handsome profit when their suppliers were only a few shops away down the street.

20.  The 1st defendant tried to explain this by saying that he was buying the shoes in 30 or 40 boxes and selling at one to two boxes.  Hence, he was able to make a profit.   But I cannot see why his suppliers would have been contented to let him reap such generous and handsome profits, and not to preserve the profits to themselves. 

21.  I also cannot see any commercial sense in the plaintiff giving them a monthly allowance of US$1,000, which was increased to HK$10,000 in less than a year’s time, simply for them to watch the market trend there.  Any local person could have done the job just as good if not better.  This is so particularly when neither the 1st nor the 2nd defendant can speak the native language of the Gambia. 

22.  On this basis, I have been referred by Mr Remedios and Mr Mok, who appear for the plaintiff, to the principles spelt out in paragraph 13/9/14 of the Hong Kong Civil Procedure 2004 under the heading of “Meritorious Defence” that:

“It is not sufficient to show a merely “arguable” defence that would justify leave to defend under order 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…… However, where the 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 to determine whether the defendant has a real prospect of success is whether the defence “could well be established” at trial.”

23.  I must say that I do not think the defendants have a real prospect of success or could establish their defence at the trial.  I do not think Master Ho’s order should be set aside on the issue of liability for the misappropriation claim. 

24.  However, the default judgment is for an ascertained sum of US$161,629.92 for the misappropriation claim and that is the sum ascertained by the plaintiff after investigation and stock taking.  

25.  Mr Remedios has referred me to paragraph 6/2/4 of the Hong Kong Civil Procedure 2004 on the meaning of “debt or liquidated demand”.  The passage reads:

“A liquidated demand is in the nature of a debt, i.e. a specific sum of money due and payable under or by virtue of a contract.  Its amount must either be already ascertained or capable of being ascertained as a mere matter of arithmetic.  If the ascertainment of a sum of money, even though it be specified or named as a definite figure, requires investigation beyond mere calculation, then the sum is not a “debt or liquidated demand”, but constitutes “damages”. 

The words “debt” or “liquidated demand” do not extend to unliquidated damages, whether in tort or in contract, even though the amount of such damages be named at a definite figure.”

26.  I must say the sum as embodied in the final judgment of the default judgment is a sum ascertained by the plaintiff after investigation and stock taking, and the nature of the misappropriation claim is an unliquidated one rather than a liquidated one.  Therefore, the judgment should have been entered for liability on this claim with damages to be assessed, rather than for a specific sum.

27.  To allow the judgment to stand at the specific sum and to require the 1st and 2nd defendants to rebut it in an application to set aside the judgment (as suggested by Mr. Remedios) is to reverse the burden of proof.   That, I am afraid, is an error. 

28.  I therefore allow the appeal and change the judgment to a judgment on liability on all claims with damages to be assessed.