HUNG TAT CO (BUILDING MATERIALS) LTD v. NEW HANG SHING TRADING DEVELOPMENT (HK) LTD

DCCJ5774/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5774 OF 2003

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R U L I N G

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1. This is an application by the defendant company, represented by its director Mr Li Chuen-kwai, to set aside a judgment in default of appearance dated 7 November last year.

2. Both parties are suppliers of building materials. The plaintiffs ordered from the defendants 494,400 glazed wall tiles, under four purchase orders dated between July and October 2001, at a cost of $237,112. These were for resale by the plaintiffs to their own customers. Pursuant to these orders, the defendants delivered the tiles to the plaintiffs' customers during the course of August and November 2001, for which the plaintiffs paid the defendants $208,296 in respect of the tiles that had been delivered. These tiles turned out to be defective for reasons which appear at paragraph 7 in the statement of claim, and they were returned to the defendants by the plaintiffs' customers.

3. As a result, the plaintiffs say that they have suffered losses being the price paid to the defendant, that is to say $207,197.76 plus $4,499, being the transport costs in delivering replacement tiles to their customers, less $50,000, which the defendants have repaid on account. The claim therefore is one for $161,696.76.

4. The plaintiffs' case is that once the defective goods were returned to the defendants, it was agreed that they would repay the plaintiffs the price of the defective tiles that they had paid for and for the extra transport costs.

5. The defendants paid them $50,000 on account by cheque which was dishonoured and subsequently in cash, which they receipted. The receipt which refers to their debit note dated 12 January 2002 which is for these amounts is marked as being for part payment of the amount of the debit note.

6. The defendants say that this is not right. An oral agreement was arrived at between Mr Chau of the plaintiffs and Mr Li that he would replace the defective tiles with tiles that were not defective, and that he visited the plaintiffs' business premises and showed their representative samples of tiles so that they might place an order from him. Mr Li says that he is still waiting for this order which he is willing to honour. He does not owe the plaintiffs money, he owes them tiles. They are not entitled to their money back, only to tiles.

7. As to the $50,000, he says that as the plaintiffs were having cash flow difficulties, he agreed to assist in alleviating their problem by letting them have $50,000, and so he now owes them $50,000 worth less tiles than before.

8. This therefore is how the factual issues lie between the parties.

9. The first matter for the court is whether the default judgment is an irregular one or whether it has been regularly obtained. If it is irregular, then it ought to be set aside ex debito justitiae, which broadly speaking means "as a right". The stricter English rule which says that even in such circumstances the defendant needs to show a proper defence has not arrived in Hong Kong so the judgment would have to be set aside as a right. If it is a regularly obtained judgment, the rule is that which is described in the note to Order 13 rule 9/4, page 148 of the current High Court Practice, which is as follows. I should observe that the rule in the District Court is identical:

"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. Evans v Bartlett [1937] AC 473 House of Lords, as explained in Alpine Bulk Transport Company Incorporated v Saudi Eagle Shipping Company Incorporated (Saudi Eagle) [1986] 2 Lloyds Reports 221 CA (which cases have been applied in a number of decisions in Hong Kong which appear in the current practice.) .... 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. (Allen v Taylor [1992] 1 PIQR 255 at 259) (And see also the Hong Kong cases which apply that principle as appear in the current Practice)"

10. The plaintiffs through Miss Kwan contend that the judgment has been regularly obtained.

11. I have before me an affidavit of service filed on behalf of the plaintiffs. The writ has been served on the defendants' registered address by registered post, and the Post Office has not referred the matter back to say that it has not been successful in delivering the letter.

12. There has been something of an issue over the address because correspondence has been sent to another business address of the defendants which Mr Li says was not the correct address. That being said, correspondence sent to that other address has been received by him because he has produced originals of that correspondence attached to his affidavit in support of this application. Be that as it may, this point is neither here nor there on the question of service because the writ was sent to the registered address which Mr Li accepts is the proper address for service.

13. His answer is that he has not received it and demands that the plaintiffs produce the signed chit by the person who received the letter; but that is not necessary in my view. The fact is that the chit would be in the possession of the Post Office. Only if the letter had not been received would it have informed the sender - in this case the plaintiffs' solicitors - that there had been a failure of delivery. In such circumstances, I am satisfied that valid service has been effected to the defendant company's registered address. The judgment therefore is one that has been regularly obtained. From this I now turn to see whether the test in the Saudi Eagle (supra) has been satisfied by the defendants.

14. Mr Li's point is that there is nothing in writing and so the matter is uncertain and that therefore it would not be right to favour the plaintiffs' version over his.

15. In my judgment, the evidence put in by Mr Li alone is more than sufficient to demonstrate that the defendants are unable to show that they have a real prospect of success, nor can they pass muster on the lesser test of showing that the defence "could well be established".

16. The whole thrust of the contemporaneous correspondence and the documents show that the plaintiffs wanted their money back. Not once had the defendants put in any reply to the contrary. This point has been taken now and only taken for the first time on the application to set the judgment aside.

17. I am sorry to say that this is a classic case of a debtor trying to avoid paying a lawful debt and delaying in doing so.

18. It is perfectly clear that the plaintiffs who had returned the defective tiles expected to have their money back. This is clearly supported by the correspondence. There is no hint on the defendants' version that he would supply other tiles to replace the defective ones. He paid $50,000 on account, having initially given a bad cheque, and thereafter has avoided payment.

19. I refuse the application to set the judgment aside and the judgment must therefore stand.

20. I propose to hear the assessment of damages on 26 February, that is next Thursday, at 2.30 pm, and the costs of the application to set the judgment aside inevitably must be to the plaintiffs.