XCHRX TEXWOOD LTD. v. NICE GREAT LTD. AND ANOTHER

HCA13993/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.13993 OF 1999

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J U D G M E N T

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1. This is an appeal by the 2nd defendant from an order of the master whereby the master refused to set aside a default judgment entered by the plaintiff against the 2nd defendant, the 2nd defendant having failed to enter the appropriate acknowledgement of service.

2. There is no dispute that the judgment is regular and, therefore, in order to set aside the default judgment, the 2nd defendant must show merit. The 2nd defendant said that it has merits in two ways. First, the 2nd defendant said that the signing of the guarantee by Mr Hara ("Hara") for and on behalf of the 2nd defendant was without actual, implied or ostensible authority of the 2nd defendant. The evidence clearly shows that there was no such authority, so it is at least highly arguable that the guarantee was invalid vis-à-vis the 2nd defendant. In my view, the 2nd defendant had shown a good prospect of success on that point.

3. The matter however does not rest there because the 2nd defendant has a much more powerful point in that the guarantee that was signed for the 2nd defendant was replaced by a personal guarantee of Hara himself. The evidence comes out very clearly particularly in the affidavit of Mr Michael Chan. The fact that the guarantee of the 2nd defendant was replaced by the personal guarantee of Hara was borne out not once, but twice, by the issue of proceedings by the plaintiff against the 1st defendant and Hara as guarantor when the 1st defendant tenant had failed to pay rent. To me, that could only suggest that so far as the plaintiff is concerned, it was looking to the only guarantor for the tenancy, namely Hara, and it was never looking and never thought that the 2nd defendant was the guarantor. Otherwise, they would have sued both guarantors, not just one, but they did not. And it was only upon Hara failing to pay the judgment debts under the two previous High Court actions that, I believe, the plaintiff looked around for other possible avenues of recovery.

4. I think it was quite outrageous in the circumstances for the plaintiff to seek to rely on a document, purportedly signed by Hara for and on behalf of the 2nd defendant, was not dated and although it is said to be under seal, apparently, it is not even under seal. Be that as it may, in my view, there is more than a good prospect of success for the 2nd defendant on the issue that the guarantee of the 2nd defendant, although signed, was rejected by the plaintiff who only accepted the personal guarantee of Hara himself. It seems to me, therefore, that the default judgment must be set aside because the 2nd defendant has discharged the burden of showing it has a bona fide defence with a good prospect of success.

5. The order of the master must be discharged, the appeal is allowed and the default judgment must be set aside. The costs below be to the plaintiff in any event and costs of the appeal to the 2nd defendant in any event.