AIA INTERNATIONAL LTD (formerly known as AMERICAN INTERNATIONAL ASSURANCE CO (BERMUDA) LTD) v. CHENG CHUNG SING

DCCJ 804/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 804 OF 2016

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DECISION

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1.  This is the defendant’s appeal against the order made by Master S H Lee on 3 April 2017, by which the master dismissed the defendant’s application made under Rules of the District Court (“RDC”), Order 13 rule 9, for setting aside the default judgment entered on 12 April 2016 (“the Default Judgment”) and for consequential directions.

Background

2.  On 22 February 2016, the plaintiff issued the writ of summons herein. The plaintiff claims for the following reliefs in the endorsement of claim:-

“1. The sum of HK$309,540.80, being the total of the Plaintiffs respective claims against the Defendant in subparagraphs (l) and (2) below :-

(1)  Refund of the sum of HK$236,705.48 pursuant to Clause 12 of an agreement entitled "Letter of Understanding (New Scheme June 2010)", dated 11^th February 2011 and made between the Plaintiff and the Defendant ("the LOU"), being the total of the following sums refundable by the Defendant to the Plaintiff immediately and unconditionally upon the termination of the Career Representative's Contract dated March 2011 ("the CR Contract") and made between the Plaintiff and the Defendant, which termination took place on 26^th September 2015 and within the 5^th year after 25^th February 2011 on which the Defendant had commenced as an agent of the Plaintiff pursuant to Clause (l) of an Addendum to Agency Contracts dated 1^st March 2011 and made between the Plaintiff and the Defendant :-

(a)  HK$120,893.48, being 20% of the Signing Fee in the sum of HK$604,467.41 paid by the Plaintiff to the Defendant under Clause 5(a) of the LOU; and

(b)  HK$115,812.00, being 20% of the Monthly Bonus in the sum of HK$579,060.00 paid by the Plaintiff to the Defendant under Clauses 6(a) and 6(c) of the LOU.

(2)  The sum of HK$72,835.32, being commissions in respect of 3 policies that the Plaintiff has paid to the Defendant and the Defendant is liable to repay to the Plaintiff pursuant to Clause 3 of the CR Contract.

Particulars

Policy no.	Insured	Issued	Cancelled	Commission paid to, and due to be repaid by, the Defendant
B321950790	Lee Yuk Lan	28/02/2013		HK$21,389.17
B321627007	Lee Yuk Lan		25/11/2013
B361560551	Lee Jonathan	24/01/2013		HK$50,737.75
B321610182	Lee Jonathan		27/11/2013
B323778608	Cheng Chung Sing	30/12/2013		HK$708.40
B322511219	Cheng Chung Sing		20/06/2014	_____________
				HK$72,835.32

2.  Interest on the said sum of HK$309,540.80 pursuant to sections 49 and 50 of the District Court Ordinance (Cap. 336).

3.  Costs.”

3.  The plaintiff filed an affirmation of service on 15 March 2016, in which the process server said:-

(a)  The writ was served on the defendant on 22 February 2016 by sending the same by registered post in a prepaid envelope addressed to the defendant at the last known address in Tin Shui Wai (“the TSW Address”).

(b)  The writ was also served on the defendant on 22 February 2016 by inserting through a letter box for the TSW Address.

(c)  The copies of the writ served in the aforesaid modes have not been returned to the plaintiff.  Each of the said copies was duly sealed with the seal of this court and was accompanied with the forms prescribed by the rules of the court.

(d)  In the opinion of the plaintiff, the sealed copies of the writ would have come to the defendant’s knowledge within 7 days after 22 February 2016. 

4.  No intention to defend was filed.  The Default Judgment was entered on 12 April 2016.

5.  On 11 November 2016, the defendant issued an inter-partes summons for setting aside the Default Judgment and for consequential directions.  The application was support by the defendant’s 1^st affirmation filed on 11 November 2016, in which the defendant said:-

“3.  The abovenamed Plaintiff issued a Writ of Summons on 22^nd February 2016 and the same was served together with an endorsement of claim to the address known as [TSW Address]. I have moved out of the [ TSW Address] to [an address in Tuen Mun (“the TM Address”)] since 2012. This is now produced and shown to me exhibit marked “CCS – 1” a copy of a tenancy agreement and a gasoline bill addressed to me at my current address. My 61-year-old mother is the only person residing at the [TSW Address]. Since I am always occupied at work for a living, I would only visit the [TSW Address] around every half year to visit my mother and pick up letters address to me at the [TSW Address].

4.  As I rarely visit the [TSW Address], this action was only brought to my attention in late August of 2016 when I dropped by the [TSW Address].  Upon that visit, I discovered a letter issued by Messrs. Hom & Associates dated 18^th July 2016 enclosing a copy of the Creditor’s Bankruptcy Petition.  However, I did not receive and/or notice any other letters and/or court documents except the said letter.  I have been advised by my solicitors and verily believe that the Judgment is irregular due to ineffective service of the Writ.”

6.  On 30 December 2016, the plaintiff filed an affirmation in opposition made by Mr Leung King Chung, a senior manager of the plaintiff.  In that affirmation, Mr Leung mentioned:-

(a)  The plaintiff through their solicitors sent a letter before action dated 29 January 2016 (“the Letter Before Action”) to the defendant at the TSW Address.

(b)  The plaintiff’s solicitors also sent an email to the defendant on 29 January 2016 to the personal email address (“the Email Address”) provided by the defendant to the plaintiff, with the Letter Before Action enclosed therewith.

(c)  The plaintiff’s solicitors in the Email mentioned that the Letter Before Action had been sent to the defendant by post at the TSW Address.  The plaintiff’s solicitors in the Email also demanded the defendant to pay the sums set out in the Email by 12 February 2016, otherwise the plaintiff would commence legal proceedings against the defendant.

(d)  The Email was successfully transmitted.

(e)  The defendant did not notify the plaintiff’s solicitors or the plaintiff that he had moved out of the TSW Address or that he had been residing at the TM Address.

7.  In his affirmation, Mr Leung produced the LOU and the CR Contract mentioned in the endorsement of claim.  The defendant’s residence as stated in the CR Contract is the TSW Address.

8.  On 9 March 2017, the defendant filed his 2^nd affirmation, in which he said:-

“3.  The Defendant has not received the Plaintiff’s Letter Before Action nor has he received the sealed copies of the Writ of Summons. It was his elderly mother who resided at the [TSW Address] and she was the one to pick up mail sent to the [TSW Address]. She has never notified the Defendant of the receipt of any letter and/or court documents other than that dated 18^th July 2016, which she would have done so if she received any. The Plaintiff has not, in the Affirmation of Service, produced any records and/or receipts of the addressee receiving the copies of the Writ of Summons sent by way of registered post.

5.  In Paragraphs 6(2) to (6) of the Plaintiff’s Affirmation, the Plaintiff alleges that it has, through Mr. Chan of Messrs. Hom & Associates, sent an email to [the Email Address] attaching the Plaintiff’s Letter Before Action.  The Email has never come to the attention of the Defendant as he rarely checked its contents.”

9.  On 3 April 2017, after hearing the parties, the master dismissed the defendant’s application for setting aside the Default Judgment.

Grounds of the appeal

10.  The defendant contends that the Default Judgment is an irregular judgment, and he also has a meritorious defence to the plaintiff’s claim.  The defendant submits that for these reasons, his appeal should be allowed and the Default Judgment should be set aside.

Regularity of the default judgment

11.  RDC Order 10 rule 1 provides:-

“(2)  A writ for service on a defendant within the jurisdiction may, instead of being served personally on him, be served —

(a)  by sending a copy of the writ by registered post to the defendant at his usual or last known address; or

(b)  if there is a letter box for that address, by inserting through the letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant.

(3)  Where a writ is served in accordance with paragraph (2) –

(a)  the date of service shall, unless the contrary is shown, be deemed to be the seventh day (ignoring Order 3, rule 2(5)) after the date on which the copy was sent to, or as the case may be, inserted through the letter box for, the address in question” (Emphasis added)

12.  The true meaning of “usual or last known address” in Order 10 rule 1(2) is clear.  I grateful adopt the summary made by DDJ Grace Chan (as she then was) in Lau Ying Sau Sailing and Tang Suet Fan Sinly v Wan Kwan Cheung (DCCJ 1405/2010, 7 March 2012), in which the learned judge said:-

“15.  It is established law that “usual or last known address” in Order 10 rule 1(2) should be read disjunctively, which means that a defendant may be served at either his “usual” or his “last known” address. The word “address” does not confine to a person’s residence, but essentially means a location where a person may be reached or where contact or communication in written form, such as letter, could be established. A defendant may have a number of last known addresses as well as a number of usual addresses, but there is no need for the plaintiff to effect service of the originating process on all of such addresses. Proper service of the originating process on any one of the defendant’s last known addresses or any one of his usual addresses will suffice: The Hong Kong Mortgage Corporation Limited v Ching Kit Yu & anor HCMP 2226/2002, per Deputy High Court Judge To (as he then was).”

13.  Even on the defendant’s own evidence, although he moved out from the TSW Address in 2012, he would visit the TSW Address from time to time, and would pick up letters addressed to him at the TSW Address.  Clearly, TSW Address is a location where the defendant may be reached or where contact or communication in written form can be established.  The defendant has provided the TSW Address to the plaintiff in the CR Contract.  There is no evidence showing that after signing the CR Contract and before entering the Default Judgment, the defendant had ever notified the plaintiff of any change of his address.  In my judgment, the TSW Address is the defendant’s address last known to the plaintiff for the purpose of Order 10 rule 1(2).

14.  The defendant challenges the plaintiff’s evidence by saying that the plaintiff has not produced any record or receipt signed by the person receiving the registered mail containing the writ.  Although there is no such receipt, the plaintiff has produced a certificate of posting and the corresponding receipt issued by the post office showing the payment of the postage fee of the registered mail.  I am satisfied that what has been said in the affirmation of service is true, ie the plaintiff has sent out a sealed copy of the writ to the defendant at the TSW Address by registered post on 22 February 2016.  The plaintiff has also served a sealed copy of the writ on the defendant by inserting the same through the letter box for the TSW Address.

15.  That being the case, by the operation of Order 10 rule 1(3), the date of service of the writ would be deemed to be the seventh day after 22 February 2016, unless the contrary is shown.  The burden of showing the contrary is on the defendant.  A bare denial that he has never received the writ would not be sufficient.  The defendant must adduce convincing and compelling evidence to show that he has never had notice of the writ.

16.  The point has been made clear by the Court of Appeal in Bank of China (Hong Kong) Ltd. v. Cheung King Fung [2007] 1 HKLRD 462, in which Tang JA (as he then was) said:-

“33.  We do not read this as suggesting that the court must accept a defendant’s assertion no matter how improbable.

34.  It is quite clear from Forward v West Sussex County Council [1995] 1 WLR 1469, that a defendant is required to provide “convincing evidence”: at 1473G. The Master of the Rolls went on to say of the judge that “He was in our view quite right to be sceptical of the contention that the 4th defendant had not received the writ in the absence of compelling evidence to show that it had not been forwarded on to him, as would in the ordinary course be accepted”: at 1474H. Of course, how much evidence is required must depend on the circumstances of the particular case.” (Emphasis added)

See also Cheng Chi Lun v. Ng Lai Ming (HCA 1611/2006, HCSD 32/2006, 14 February 2007), per Recorder Fok SC (as he then was) at [26].

17.  The defendant says that he has never received the writ.  In my judgment, apart from the defendant’s bare denial, there is no convincing and compelling evidence in support of the defendant’s position.

(a)  The defendant produced a tenancy agreement dated 15 November 2012 concerning the TM Address between the landlord and him (“the TA”).  This is the only tenancy agreement produced by the defendant.  In the hearing before the master on 3 April 2017, Ms Seto, counsel for the plaintiff, submitted that the TA could not be evidence in these proceedings, for it had not been properly stamped.  By the operation of s.15(1) of the Stamp Duty Ordinance, the TA could not be admissible evidence in these proceedings.  The solicitors then acting for the defendant, gave an undertaking to the court that they would cause the TA to be properly stamped within 14 days.  On that basis, the master took the TA into account in his consideration.

(b)  In this appeal hearing, the defendant says that the TA has been properly stamped after the hearing on 3 April 2017.  However, he is unable to produce any document in support of this assertion.  Ms Seto says that the plaintiff has not received any notification from the defendant regarding the proper stamping of the TA.

(c)  ;Assuming that the defendant is correct and the TA has already been properly stamped, the TA itself does not support the defendant’s case.  The term of the TA is from 15 November 2012 to 14 November 2014.  Clause 2 of the TA expressly provides that if there is a renewal of the tenancy upon the expiration of the term, there must be a new tenancy agreement for the renewal. No new tenancy agreement has ever been produced by the defendant.  Accordingly, the TA itself cannot be evidence showing that the defendant was not living at the TSW Address in late February and early March 2016, the period during which the sealed copies of the writ would reach the TSW Address.

(d)  The defendant produced a gasoline bill addressing to him at the TM Address.  That gasoline bill is for May 2016.  However, that gasoline bill is not evidence showing that the defendant was not living at the TSW Address but at the TM Address in late February and early March 2016.  The defendant has not produced any utilities bill addressing to him at the TM Address for February and March 2016, and has not offered any explanation as to why he did not do so.

(e)  There is no reason why the defendant would be able to receive the plaintiff’s solicitors’ letter dated 18 July 2016 and the creditor’s bankruptcy petition enclosed therewith at the TSW Address, but would not be able to receive any sealed copy of the writ served at the TSW Address.

(f)  The defendant claims that he was not aware of the Email, as he rarely checked his email account.  However, the defendant has not stated how rare he would check his email account, and he has not stated when he became aware of the Email for the first time.  His evasive attitude on this issue shows that his evidence is not capable of being believed.  In my judgment, the defendant must be aware of the Email shortly after 29 January 2016.  Having known the Email, the defendant must be aware of the fact that the plaintiff would probably commence legal proceedings against him after mid-February 2016.

(g)  On the defendant’s own evidence, his mother is residing at the TSW Address, and his mother would notify him of receipt of any letter and/or court document.  I have held that the plaintiff did serve the sealed copies of the writ at the TSW Address by sending out registered post and by insertion through the letter box for the TSW Address on 22 February 2016.  Accordingly, the mother would have notified the defendant the receipt of the sealed copies of the writ by early March 2016.

18.  In my judgment, the defendant has failed to show the contrary as specified in Order 10 rule 1(3).  The writ was therefore effectively served on the defendant on the seventh day after 22 February 2016.  The Default Judgment obtained by the plaintiff is a regular judgment.

19.  The relevant considerations in respect of setting aside a regular default judgment has been set out in Hong Kong Civil Procedure 2017, Volume 1, §13/9/13:-

“On an application to set aside a regular default judgment, the major consideration is whether the defendant has shown a defence on the merits to which the court should pay heed, not as a rule of law, but as a matter of common sense, since there is no point in setting aside a judgment if the defendant has no defence, and because, if the defendant can show merits, the court will not prima facie desire to let a judgment pass on which there has been no proper adjudication (per Lord Wright in Evans v. Bartlam [1937] A.C. 473 , HL at 489).

This is not to say that a defendant who is able to demonstrate a defence which has a real prospect of success has an automatic entitlement to have the default judgment set aside. In exercising the discretion under this rule, the court has regard to all relevant circumstances. What will be relevant as a factor in any particular case will depend on the individual facts of that case. The usual factors are: why the default occurred; the defendant’s conduct after he had notice of the proceedings; an explanation for the time taken where there has been delay in making the application; and any prejudice that would be caused to the plaintiff or to third parties if the default judgment were to be set aside. These other relevant factors will then have to be weighed against the dominant factor of the merits in order to see where the justice of the case lies ......”

20.  I would first consider whether the defendant has any meritorious defence to the plaintiff’s claim, and then I would consider other factors.

Any meritorious defence?

21.  For the purpose of setting aside a regular default judgment, it would not be sufficient by merely showing an arguable defence.  The defence shown must has a real prospect of success.  There are numerous authorities on this point, including:-

(a)  Young Bing Ching v Chow Yung Fong & Another [2001] 2 HKLRD 394, per Recorder Ma SC (as he then was) at 398H:-

"Where ... a regular default judgment has been obtained, the burden on a defendant is to demonstrate that he has a defence on the merits which has a real prospect of success or carries with it some degree of conviction ..."

(b)  Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC 213, per Godfrey JA (as he then was) at 219H-220C:-

"... for the purposes of O 13 r 9, it is not generally sufficient for a defendant merely to show an arguable defence ... A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. ... It seems to me that unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success ..."

22.  The gist of the defence put forward by the defendant is as follows:-

(a)  His work performance was satisfactory.

(b)  He had agreed to work for the plaintiff for a minimum of 60 months under clause 3 of the LOU.

(c)  The termination of the agency relationship by the plaintiff was unjustifiable because the plaintiff had not provided him a reason for the termination.

23.  In order to understand whether there is any force in these arguments, one has to look at the following provisions in the LOU and the CR Contract:-

(a)  Clause 23 of the CR Contract:-

“Subject to sooner determination of this Agreement by [the plaintiff] in accordance with Clause 25 of this Agreement, this Agreement may be terminated without any reason thereof:-

...

(b) By either party upon 15 days’ notice in writing; ...” (Emphasis added)

(b)  Clause 3 of the LOU:-

“[the defendant] agrees to faithfully perform all obligations of the Contracts and to remain as a bona fide insurance agent of [the plaintiff] for a minimum of 60 months from the Commencement Date [i.e. 25 February 2011].

(c)  Clause 12 of the LOU:-

“In the event that any of the Contracts is terminated for any reason by either [the defendant] or [the plaintiff] within the First (1^st) to Fifth (5^th) year (hereafter called the “Guaranteed Period of Stay” after the Commencement Date [i.e. 25 February 2011], [the defendant] agrees to refund the whole or part of the Signing Fee, Monthly Bonus and Agency Production Challenge Bonus received to [the plaintiff] immediately and unconditionally, in accordance with the terms as follows:-

Termination of	Percentage of	Percentage of
Contracts after	Signing Fee to	Monthly Bonus and
Commencement	be refunded	Agency Production
Date	to [the plaintiff]	Challenge Bonus to
		be refunded to [the
		plaintiff]
...
Within the 5th year	20%	20%”

24.  These provisions have been examined by DHCJ Cooney SC in AIA International Ltd v Lam Che Wah (HCA 780/2013, 4 December 2015).

(a)  In that case, the learned judge said at [43]:-

“...... in the eyes of a reasonable reader the language of clause 12 is clear; “for any reason” means what it says and includes termination under clause 23(b) of the Contract.  If on one view that construction of clause 12 might result in a bad bargain, that is not a reason for departing from the natural language of clause 12.  Mr Lam accepted that the payment of the Signing Fee and other bonuses was to encourage the defendant to remain with the plaintiff for at least five years but, he submitted, the parties recognized that there may be a scenario in which the defendant is not required to serve for five years, for whatever reason, with a refund or clawback to be paid by the defendant and, no matter how unfortunate this may be for the defendant, both parties agreed to it.  I agree with this submission.”

(b)  The learned judge held at [51] that a reason for the plaintiff paying bonuses was to encourage an agent to stay, but there was no corresponding obligation on the plaintiff to keep an agent for 5 years.

(c)  The learned judge further held at [52] that clause 12 of the LOU did not create any obligation on the plaintiff to engage an agent for at least 5 years.

The learned judge’s judgment in Lam Che Wah was subsequently affirmed by the Court of Appeal (HCMP 1107/2016, 27 June 2016).

25.  I respectfully agree with the interpretation of these contractual provisions in Lam Che Wah and adopt the said interpretation in this case.  In the light of the true meaning of these contractual provisions, the defendant does not have any meritorious defence to the plaintiff’s claim.

(a)  The plaintiff is entitled to terminate the contract with the defendant without any reason.  That being the case, the plaintiff is not bound to give the defendant any reason for the termination.  The fact that the plaintiff has not provided any reason to the defendant would not render the termination unjustifiable.

(b)  Since the plaintiff is entitled to terminate the contract with the defendant without any reason, whether the defendant’s work performance was satisfactory is neither here nor there.

(c)  Although the defendant has agreed to work for the plaintiff for 5 years, there is no corresponding obligation on the plaintiff to keep the defendant as an agent for 5 years.

26.  Since the defendant does not have any meritorious defence to the plaintiff’s claim, there is no point to set aside the Default Judgment.

Other factors

27.  Apart from lacking any meritorious defence, other factors are also against setting aside the Default Judgment.

(a)  There is no satisfactory evidence showing that the defendant did not have notice of these proceedings within the time prescribed by the rules of the court.  The failure to file a notice of intention to defend in time is the defendant’s own default.

(b)  Even on the defendant’s own case, he became aware of these proceedings in late August 2016, but he only made the application for setting aside the Default Judgment in mid-November 2016.  In other words, the defendant did not take any action to set aside the Default Judgment for 2.5 months after having notice of these proceedings.  No explanation, let alone satisfactory explanation, has been offered in respect of the delay.

(c)  Setting aside the Default Judgment would deprive the plaintiff of the fruit of litigation, and the costs incurred by the plaintiff in the bankruptcy proceedings (which is based upon the Default Judgment) would be wasted.  All these would be prejudice to the plaintiff.

Dismissal with costs

28.  For the reasons above, I would exercise my discretion to refuse to set aside the Default Judgment.  Accordingly, the defendant’s appeal must be dismissed, with costs following the event.

29.  I dismiss the defendant’s appeal with costs to the plaintiff on party and party basis, with a certificate for counsel.  I summarily assess those costs at HK$30,000.

30.  I thank Ms Seto for the helpful assistance provided to this court.