O MARK POLYETHYLENE PRODUCTS FTY LTD. v. REAP STAR LTD.

CACV 353/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 353 OF 1999

(ON APPEAL FROM HCA NO. 6978 OF 1999)

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J U D G M E N T

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Keith JA (giving the first judgment at the invitation of Godfrey V-P):

Introduction

1. This appeal arises in connection with litigation between two limited companies in Hong Kong. At different stages in the proceedings, both of them were given leave under Ord. 5 r. 6(3) to be represented by one of their directors. This appeal has been argued by them. All dates in this judgment refer to 1999, unless otherwise stated.

The nature of the dispute

2. The dispute relates to an order which the Plaintiff placed with the Defendant for raw materials which the Plaintiff needed in order to manufacture plastic bags for some of its customers. The Plaintiff's case appears from the various affirmations of Wu Kam Man, its Managing Director. Its case is that it was permitted to pay for the goods by letter of credit, and that the goods had to be delivered by 24 April. Not only were the goods not delivered by then, but the Defendant initially insisted that the Plaintiff would have to pay more for the goods than had originally been agreed, and later insisted that only payment by cashier's order or telegraphic transfer would secure delivery of the goods. The Plaintiff treated the contract as at an end, and sued the Defendant for breach of contract.

3. The Defendant's case appears from its Defence. Its case is that it was quite content for the goods to be paid for by letter of credit. However, to secure delivery of the goods by 24 April, the Plaintiff would have had to open the letter of credit in sufficient time for payment on the letter of credit to have been made by then. The Plaintiff did not apply for the letter of credit until 22 April, and it was not until 27 April that the Defendant was first notified that a letter of credit had been opened. Even then, there were features about the letter of credit itself which gave the Defendant justifiable grounds for insisting on some other form of payment. The Defendant was ready, willing and able to deliver the goods to the Plaintiff then if an acceptable form of payment would have been proffered.

The history of the proceedings

4. The Plaintiff commenced the proceedings on 28 April. The Defence was filed on 17 May. On 4 June, the Plaintiff filed a summons for summary judgment under Ord. 14. That summons came before Master Lok on 19 July. By then, Mr Simon Lui, one of the Defendant's directors, had been given leave to represent the Defendant. He did not attend the hearing on 19 July, and summary judgment was given for the Plaintiff in his absence for damages to be assessed.

5. On 30 August, the Defendant filed a summons applying for the judgment to be set aside. That summons came before Master Kwan on 5 November. She ordered the judgment to be set aside on condition that the Defendant paid the sum of $45,000.00 into court within 28 days. The Defendant appealed against the condition which had been imposed on the setting aside of the judgment. Its case was that the judgment should have been set aside unconditionally. For its part, the Plaintiff cross-appealed against Master Kwan's order. Its case was that the judgment should not have been set aside at all. The appeal and cross-appeal came before Cheung J on 26 November. He dismissed both the appeal and the cross-appeal. The Defendant now appeals to the Court of Appeal contending again that the judgment should have been set aside unconditionally. For its part, the Plaintiff has filed a Respondent's Notice, contending again that the judgment should not have been set aside at all.

Ord. 14 r. 11

6. An application to set aside a summary judgment entered under Ord. 14 is relatively unusual. The overwhelming majority of applications to set aside judgments relate to default judgments entered under Ord. 13. However, Ord. 14 r. 11 provides for the setting aside of a summary judgment entered under Ord. 14. It reads:

"Any judgment given against a party who does not appear at the hearing of an application under rule 1 or rule 5 may be set aside or varied by the Court on such terms as it thinks just."

This rule was considered by the Court of First Instance in Morigood Development Ltd v. Sunny Trading Company (a firm) [1999] 2 HKC 710. At p. 713E-F, it was said that the rule

".... removed the anomaly that, unlike any judgment in default, or even a judgment at trial in the absence of a defendant, a judgment under Ord. 14 in the absence of a defendant could not be set aside. It had to be made the subject of an appeal. However, as the Supreme Court Practice 1999, Vol. 1, para. 14/11/1 commented on the equivalent rule in England (which is in identical terms):

'...this rule must not be used as a device for gaining time. The Court will wish to be fully satisfied as to the reason for the non-attendance at the hearing of the summons of the party against whom judgment was given under Ord. 14.'"

7. In the present case, Mr Lui was aware that the Plaintiff's summons for summary judgment was due to be heard on 19 July. However, although the Plaintiff's summons had been filed on 4 June, he had only known of the date of the hearing since 6 July because that was when the Plaintiff's summons had been served. He had not attended the hearing because prior to 6 July he had booked a flight to London on 16 July. Accordingly, in the affirmation which he made on 12 July in opposition to the Plaintiff's summons for summary judgment, he referred to that fact and asked for the hearing to be adjourned until September when he would be back in Hong Kong - unless, of course, the court was minded to dismiss the Plaintiff's application for summary judgment even in his absence.

8. It is noteworthy that it was only on 8 July that the Defendant applied to the court for leave to be represented by Mr Lui. In other words, it applied to be represented by Mr. Lui at a time when it knew of the hearing on 19 July, a hearing which Mr Lui would not be able to attend. On the other hand, if the Defendant could not afford to be represented by solicitors, it had little option but to apply for leave to be represented by one of its directors.

The merits of the dispute

9. A question arises as to the nature of the test on the merits which should be applied: the test to be applied on a summons for summary judgment under Ord. 14, or the test to be applied on an application to set aside a judgment entered in default under Ord. 13 r. 9. That question was left open in the Morigood case, and I propose to do the same today, because to the extent that there is a practical difference between the two I am satisfied that the Defendant has satisfied the highest test, i.e. the test to be applied on an application to set aside a default judgment. That test was summarised by Godfrey JA (as he then was) in Premier Fashion Wears Ltd v. Lee Hing Chung [1994] 1 HKC 213. At pp. 219H-220A, he said:

"A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. To do so, he must satisfy the court that his case and the evidence he has adduced in support of it carries some degree of conviction...... [U]nless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he would succeed on fact, he cannot have shown that he has a real prospect of success."

Godfrey JA added at p. 220B that "[t]he court .... has to form a provisional view of the probable outcome of the action".

10. Mr Lui's various affirmations on behalf of the Defendant do not spell out the nature of the Defendant's defence. However, they refer to the fact that the Defendant had previously filed its Defence. Although none of the affirmations expressly verified the facts pleaded in the Defence, it is plain that that is what Mr Lui intended to do. Accordingly, the question is: looking at (a) the various affirmations filed on behalf of the Plaintiff and (b) the Defendant's Defence, can a provisional view of the outcome of the action be sensibly formed? I do not think that it can be, and as was said in the Morigood case, an appropriate test to apply in those circumstances is simply whether the defence could well be established at trial. In my view, the defence could well be established at trial.

11. In the light of this conclusion, and having regard to Mr Lui's reason for not attending the hearing on 19 July, I agree entirely with Master Kwan and Cheung J that this was a proper case in which to set aside the judgment. To have set the judgment aside (albeit conditionally), they must have been satisfied that the defence had merits. Indeed, in his judgment, Cheung J said so in terms.

The condition imposed

12. Although there was evidence before Master Kwan and Cheung J which had not been before Master Lok when he gave the Plaintiff summary judgment on 19 July, that evidence did not relate to the merits of the case. It follows that if this was a proper case in which to set aside the judgment which had been entered, the merits of the case as revealed by the evidence before Master Lok on 19 July should have resulted in the Defendant then being given unconditional leave to defend the action. Thus, Mr Lui's non-attendance at the hearing on 19 July should not have contributed to the grant of summary judgment because, even in his absence, the master should have given the Defendant unconditional leave to defend the action.

13. When analysed in this way, the justification for requiring the Defendant to pay $45,000.00 into court as a condition of the judgment being set aside disappears. That justification was said to be the "wasted costs". If that was a reference to the Plaintiff's costs of the hearing on 19 July, no such condition should have been imposed, because on the order for unconditional leave to defend the action which the master should have made on that occasion, either the costs should have been in the cause (if the Defendant was simply given leave to defend) or no order should have been made as to the Plaintiff's costs (on the footing that the summons for summary judgment was filed) after the Defence had been filed. Alternatively, if the reference to "wasted costs" was a reference to the Plaintiff's costs of the hearing on 5 November before Master Kwan, no such condition should have been imposed, because that could have been dealt with by an order for the costs of the hearing. In any event, whatever the proper order for the costs of that hearing should have been, in view of the fact that Master Kwan must have been finding that this had not been a case for summary judgment, it would not have been proper for there to have been an order for the Defendant to pay the Plaintiff's costs.

14. In summary, the judgment was not being set aside because Mr Lui had failed to appear at the original hearing. His failure to appear at the original hearing had given the court the power to set aside the judgment rather than require the Defendant to appeal against the judgment to a judge in chambers. Once it was concluded that on the material before Master Lok on 19 July summary judgment should not have been entered for the Plaintiff, there was little room left for exercising the discretion in a way which left the Defendant having to pay for Mr Lui's non-attendance at the hearing of 19 July.

Conclusion

15. For these reasons, I would allow the appeal against the condition imposed for the setting aside of the judgment, I would set aside the order requiring the Defendant to pay the sum of $45,000.00 into court as a condition of having the judgment set aside, and I would give the Defendant unconditional leave to defend the action. Since the parties are not legally represented, it may help if I indicate what I think the appropriate orders for costs should be. In my opinion, the costs of the Ord. 14 summons should be in the cause of the action, but no orders should be made as to the costs of the summons to set aside the judgment or of the appeal from Master Kwan or of the present appeal.

Hon Godfrey VP :

16. I agree; but I desire to append a short judgment of my own in relation to the approach of the court to an application under Order 14 rule 11 of the Rules of the High Court to set aside a summary judgment made pursuant to Order 14 rule 3.

17. Order 14 rule 11 enables the court to set aside a summary judgment given against a party who did not appear at the hearing of the application for summary judgment. The editors of the Supreme Court Practice 1999 appear to suggest, at 14/11/1, that the principles on which a judgment may be set aside under Order 14 rule 11 are the same as the principles on which a judgment for failure to give notice of intention to defend may be set aside under Order 13 rule 9. So I construe the sentence at 14/11/1 which reads :-

"As to the principles on which a judgment in default may be set aside, see commentary to O.13, r.9."

18. This, unfortunately, leads one into a minefield, because the principles which guide the court on an application to set aside a judgment under Order 13 rule 9 are themselves not entirely clear. It appears from Alpine Bulk Transport Co. Inc. v. Saudi Eagle Shipping Co. Inc., The Saudi Eagle [1986] 2 Lloyd's Rep. 221 that it is not sufficient, on an application under Order 13 rule 9, to show a merely "arguable" defence that would justify leave to defend under Order 14; it must both have "a real prospect of success" and "carry some degree of conviction". Thus, the court must form a provisional view of the probable outcome of the action : see the Supreme Court Practice 1999 at 13/9/18. Yet, as the editors add, in Allen v. Taylor [1992] 1 P.I.Q.R. 255, the Court of Appeal, holding that :-

"... a judge had misdirected himself by giving too little weight to an assertion of a defendant on merits and too much to conduct, allowed an appeal following an analysis of the principles emerging from The Saudi Eagle. It qualified the requirement to form 'a provisional view of the probable outcome' where assessment of facts at a trial is essential to form a view. The Court held it enough that certain exculpatory facts 'could well be established'."

19. The editors of the Supreme Court Practice express some reservations about that decision of the Court of Appeal.

20. The only way out of the minefield, as it seems to me, is to apply the same, comparatively straightforward, test in all these cases of applications to set aside a judgment, whether made under Order 13 rule 9 or Order 14 rule 11. The test ought simply to be whether or not the applicant has shown that he has a real prospect of success in the action. That test may give rise to difficulties in application, but at least as a test it is comparatively straightforward. It has the further merit that it is the test which, as I understand it, is to be applied to the Defendant's case on the application for summary judgment itself, under the Civil Procedure Rules promulgated as part of the reforms initiated by Lord Woolf in England and Wales : see Part 24, Rule 24.2.

21. In my view, there is or should be no difference in the test to be applied in Hong Kong on an application to set aside a judgment made under Order 14 rule 11 from that to be applied on such an application made under Order 13 rule 9. I appreciate that this was an issue which Keith JA left undecided in Morigood Development Ltd & Sunny Trading Co. (a firm) [1999] 2 HKC 710, to which he has referred in his judgment today, and for the reasons he has given, I agree that, in the present case too, it is not necessary, for the resolution of the appeal before us, to decide the issue. Accordingly, while what I have said upon the matter must be regarded as obiter dicta, I express the hope that it may prove helpful for the guidance of judges of first instance in future cases.