WELSON INTERNATIONAL LTD v. JEBSON INVESTMENTS LTD

HCA 2620/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2620 OF 2008

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BETWEEN

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D E C I S I O N

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1.  This is originally the plaintiff’s appeal against the master’s order dated 7 January 2010, and the defendant’s cross-appeal against the said order.

2.  The gist of the master’s order is that the default judgment entered on 27 May 2009 be set aside and the defendant to pay the costs of the setting aside application.

3.  On 15 June 2010, the plaintiff gave notice of its abandonment of the appeal.  Thus, the present dispute between the parties only concerns the defendant’s cross-appeal.

4.  The first issue is whether the cross-appeal is in truth an appeal against the master’s order.  The plaintiff contends that it is so.  Accordingly, the applicable principle is:-

“In general, a judge in chambers will not allow an appeal from a master’s costs order unless it is unreasonable or the master erred in law … ”: Hong Kong Civil Procedure 2010, Vol. 1, para. 58/1/6.

The defendant disagrees and argues that the nature of this hearing should not change according to whether the plaintiff chooses to proceed with its appeal. Because this is not an appeal as to costs only, so the defendant says, the applicable principle is:-

“An appeal from the master to the judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time … ”: Hong Kong Civil Procedure 2010, Vol. 1, para. 58/1/2.

5.  As will be explained below, because of the present factual context, the true nature of the cross-appeal has little practical significance.

6.  The background leading to the cross-appeal can be summarised as follows.

7.  The plaintiff commenced this action in December 2008 alleging the defendant was in breach of an agreement dated 5 September 2007.  The plaintiff’s main claim was the contract sum of $120 million.

8.  No notice of intention to defend having been given, the plaintiff sought default judgment to be entered for the said sum.  As stated above, judgment was entered on 27 May 2009.

9.  At the master’s hearing, the parties disputed whether the judgment was regular or irregular, but the dispute was dropped by the defendant early into the hearing.  By the time of this appeal, this issue is no longer raised by the defendant.

10.  Judging from the materials in the hearing bundles, far more time and expenses have been directed at whether the defence is meritorious than whether the judgment is irregular.  The matter is irrelevant, but for the sake of the record, even the irregularity dispute is not about service of the court process, but whether the pleaded relief falls within RHC Ord. 13 r. 1(1).

11.  In short, the defence to the pleaded case is that the 5 September 2007 agreement has been replaced by another agreement dated 21 September 2007.  Thus, there was no question of the plaintiff having performed the former agreement, or the defendant having breached it.

12.  Because the master’s order has set aside the judgment, for the purpose of this cross-appeal it must be assumed that there are merits in the defence (as stated above, there was effectively no issue of irregularity before the master).

13.  The defendant argues that, in these circumstances, it ought to be awarded at least part of the costs of the setting aside application.

14.  The practice in relation to costs has been stated in Hong Kong Civil Procedure 2010, Vol. 1:-

“Costs of setting aside a regular judgment―Where the defendant has been at fault, the usual practice is for the plaintiff to be awarded his costs in any event; such practice is not appropriate, however, on setting aside a regular judgment where neither party has been at fault (Cox (Peter) v. Thirwell (1981) 125 S.J. 481)”: para. 13/9/16.

15.  The facts of the Cox (Peter) case were these.  The writ in that action was served by post, in accordance with the English equivalent of our Ord. 10 r. 1(2)(a).  The defendant was then abroad and did not receive the writ.  Judgment was entered in default.  After learning of the judgment, the defendant set it aside after a contested hearing before the master.  The master awarded all the costs to the plaintiff.  The judge allowed the defendant’s appeal against the costs order, and accepted the defendant’s contention:-

“… that, if the plaintiffs chose to serve the process by post instead of using the still primary method of personal service under ord 10, r 1(1), they should take the risk of failure of the postal service. Where the post had not been effective and neither party was at fault the appropriate order was costs in cause. That was the proper order despite the previous general practice [of the plaintiff being awarded his costs thrown away in any event, and also the costs of the application where a regular judgment was set aside]” (emphasis supplied).

16.  What the defendant effectively contends should be the approach in this cross-appeal is this.  The defendant accepts it should bear the costs of the setting aside application (because the judgment was regular).  But there is no valid reason for the plaintiff not to bear the costs incurred by the parties to tackle the various matters raised by the plaintiff in relation to the merits of the defence.  Hence, once the basis of the defendant’s defence has been disclosed, the costs for resisting the setting aside application ought to follow the event.

17.  The above approach is similar to the court’s usual approach in contested applications for leave to amend pleadings:-

“… the usual order for cases where an application for leave to amend has been resisted but is allowed is that there be two sets of costs: namely, costs of and occasioned by the amendment shall be to the other side in any event [that is, to the opposing party] but costs of the hearing before the court shall be to the party who is successful in the argument as to whether leave to amend ought to be granted … ”: Hong Kong Civil Procedure 2010, Vol. 1, para. 20/8/51.

18.  In this cross-appeal, since the defendant was the successful party, it ought to be awarded the costs of the contested proceedings.  In the present factual context, the defendant says it should be entitled to the costs since 24 July 2009, the date of the defendant’s affirmation (the affirmation was filed on 27 July 2009).

19.  There are two reasons why I do not follow the Cox (Peter) case or the reasoning adopted in it.  First, service by post was apparently considered by the court in that case to be regular even though the defendant was abroad at the time of service.  The court’s conclusion in Hong Kong is different:-

“Service by registered post (r.1(2)(a))―

… This mode of service is only authorised if the defendant is within the jurisdiction … (Wing Lung Bank Ltd v. Ho Man Iam [1999] 3 H.K.C. 368, following Barclays Bank of Swaziland v. Hahn [1989] 1 W.L.R. 506 …). Hence where there had been registered post service at the defendant’s former employer whilst the defendant was out of Hong Kong this was not service within r.1(2)(a) … ”: Hong Kong Civil Procedure 2010, Vol. 1, para. 10/1/12 (see also para. 13/9/5).

20.  Secondly, it is unclear what “fault” means in the context of a regular judgment (the word “fault” appears in both passages quoted in para. 14 and 15 above).  Apparently, a deliberate decision to ignore the court process or undue delay should generally be regarded as clear “fault”.  But otherwise what shade of a defendant’s conduct can be so regarded is unclear.  To adopt such an ambiguous approach is likely to promote uncertainty and potential unfairness.

21.  For the above reasons, I agree with the approach advocated for by the defendant.

22.  On the other hand, the plaintiff supports the master’s costs order.  It is said that, as long as an opposing party is made to attend a setting aside application, that party should be entitled to all the costs.  At one stage it appeared to be the plaintiff’s case the opposing party must have succeeded with regard to at least one or more of the issues raised; but the plaintiff clarified that its case is not dependent on any partial success in the application.

23.  I do not accept the plaintiff’s case.  To do so would encourage setting aside applications to be contested irrespective of whether there is substance in the opposition.

24.  There is no reason given for the master’s costs order.  But judging from the factual context, the only logical reason for the master to award costs to the plaintiff must have been because the judgment was regular.  Hence, the master must have had in mind the approach set out in para. 14 and/or 15 above.

25.  Having concluded that that is not the correct approach, and that the correct approach should be that set out in para. 16 to 17 above, the master’s discretion could not have been rightly exercised.  Hence, irrespective of the true nature of this cross-appeal (see para. 4 above), there is good reason to set aside the master’s costs order.

26.  Accordingly, the cross-appeal is allowed.  The costs of the setting aside application before 24 July 2009 should be the plaintiff’s; but those on and after 24 July 2009 should be the defendant’s.  The defendant should also be entitled to the costs of the appeal and cross-appeal including those of the hearing.

27.  Both parties have lodged with court their respective statements of costs (for the purpose of summary assessment of costs).  In view of the above decision, they may wish to revise those documents.

28.  For the purpose of the summary assessment of the costs of the appeal and cross-appeal:-

(a)	the parties be at liberty to lodge with court and serve a revised statement of costs by 4:00pm on 5 July 2010;
(b)	the parties be at liberty to lodge with court and serve a statement of objection by 4:00pm on 12 July 2010.

29.  Unless the parties wish to submit on whether I can also summarily assess the costs of the master’s hearing (in which case written submissions should be lodged with court and serve within 14 days), the above documents should include the costs of the application before master.