XCHRX MORIGOOD DEVELOPMENT LTD. v. SUNNY TRADING CO. (a firm)

1996 No. A14802

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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The history of the proceedings

1. The Plaintiff commenced these proceedings against the Defendant on 30th December 1996. An acknowledgement of service was filed by the Defendant's solicitors. In it, the Defendant stated that it intended to defend the proceedings. In January 1997, the Plaintiff issued a summons for summary judgment under Ord. 14. However, before the summons was due to be heard, Tse Pak Hung, the sole proprietor of the Defendant, decided that the Defendant should represent itself. The Defendant gave the Plaintiff's solicitors notice to that effect on 21st February 1997. At that stage, the Defendant was the Plaintiff's tenant, and in the notice the Defendant gave the shop which it rented from the Plaintiff as its address for service.

2. The date fixed for the hearing of the Ord. 14 summons was vacated for reasons which are not material. In due course, a new date, 5th May 1997, was fixed for the hearing of the Ord. 14 summons. On 25th April 1997, the Plaintiff's solicitors wrote to the Defendant at the address which the Defendant had given for service informing the Defendant of the date fixed for the hearing of the summons. When the summons was heard on 5th May, Madam Tse did not attend the hearing. Indeed, no-one attended the hearing on behalf of the Defendant. Not surprisingly, summary judgment was entered for the Plaintiff on its claim on that occasion.

3. In due course, the Defendant applied, pursuant to Ord. 14 r. 11, for the judgment to be set aside. Although Madam Tse had discovered early in June 1997 that judgment had been entered against the Defendant, the Defendant's summons to set aside the judgment was not issued until 27th April 1998. The summons was eventually heard on 26th November 1998. The application to set aside the judgment was dismissed. The Defendant now appeals. It asks for the judgment to be set aside, and for unconditional leave to defend the action.

Ord. 14 r. 11

4. Ord. 14 r. 11 is rarely invoked. 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."

It 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."

5. For reasons which will become apparent in due course, I am satisfied that Madam Tse was unaware of the date fixed for the hearing of the Ord. 14 summons, and that that was why neither she nor anyone else attended the hearing on behalf of the Defendant. In those circumstances, the 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. Both Mr. Ronald Mayne for the Plaintiff and Mr. Kenneth Chan for the Defendant assumed in their skeleton arguments that the test to be applied is the latter, though Mr. Chan told me that he wanted to argue otherwise. I am not convinced that the assumption contained in the skeleton arguments is correct, but I shall assume, without deciding, that it is.

The reason for the Defendant's non-attendance

6. It is common ground that the Defendant moved out of the shop which it was renting from the Plaintiff at about the end of February 1997. The circumstances in which the Defendant did so are disputed, but the fact of its departure from the shop is not. There was no reason for Madam Tse to return to the shop thereafter, and for that reason it is said that she never saw the letter of 25th April which informed the Defendant of the hearing of the Ord. 14 summons on 5th May. I note that the letter was not returned to the Plaintiff's solicitors as not having been delivered to the Defendant. Mr. Mayne contends that it is more likely than not that the letter would have been sent to the Defendant at any new address which she would have asked the Post Office to send her mail to. I disagree. There is no evidence that the Defendant took the precaution of asking the Post Office to re-direct her mail, and I am not prepared to assume that she did. The fact is that I have no reason whatever to doubt that she did not receive notice of the hearing of the Ord. 14 summons on 5th May.

7. On these facts, the fault for what occurred lies primarily with Madam Tse. I did not understand Mr. Chan to suggest otherwise. She should have informed the Plaintiff's solicitors when she moved out of the shop what her new address for service should be. I do not suppose that it occurred to her to do that. However, I do not think that the Plaintiff or its solicitors are entirely blameless for what occurred. Knowing that the Defendant had moved out of the shop, it should have occurred to the Plaintiff to tell its solicitors that, since the Plaintiff's claim was for possession of the shop on the ground of arrears of rent. That would have put the Plaintiff's solicitors on notice that the address which the Defendant had given for service had been overtaken by events. However, it may be that the Plaintiff's solicitors had in fact been informed by the Plaintiff of the Defendant's departure from the shop. In that case, it would have been prudent for the Plaintiff's solicitors to contact the Defendant about the date of the new hearing at another address which they had for her. A notice had been sent to the Plaintiff's solicitors dated 27th February 1997 by the Director of Legal Aid informing the Plaintiff's solicitors that Madam Tse had applied for, but been refused, legal aid, and giving another address for her. Having said all that, though, the fact is that service was effected by the Plaintiff's solicitors at the address given by the Defendant for service.

Was the judgment regular?

8. The test to be applied under Ord. 13 r. 9 depends on whether the judgment was regular or irregular. Mr. Chan contends that the judgment in this case was irregular, on the basis that the address to which the letter was sent was not the Defendant's "principal or last known place of business" within the meaning of Ord. 65 r. 5(2)(c). I reject that argument. Ord. 65 r. 5(2)(c) would only have applied if the Defendant at that time had no address for service. It had. Its address for service was the shop, because that is what the Plaintiff's solicitors had been informed by the Defendant's notice of 21st February, which the Defendant had never withdrawn. There is, therefore, no doubt that the judgment was a regular judgment.

Real prospect of success

9. In Premier Fashion Wears Ltd. v. Li Hing Chung [1994] 1 HKC 213, Godfrey J.A. said at pp.219H-220A:

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

10. The Plaintiff's claim, as I have said, was for possession of the shop on the ground of arrears of rent. It also claimed arrears of rent up to 30th December 1996 when the writ was issued, and mesne profits thereafter until possession of the shop was delivered up. The Defendant's defence is that Madam Tse had agreed with the Plaintiff's managing agents to surrender the tenancy of the shop on 28th February 1997, in consideration of which the Plaintiff would not seek to recover any arrears of rent, but would be entitled to apply the sum equivalent to three months' rent (which the Defendant had deposited with them) towards the arrears. That defence, if established at trial, would amount to a complete defence to the action.

11. I have read with care the various affirmations to see whether the Defendant's defence has a real prospect of success. Although there are a number of documents by which the respective versions of events can be tested, the ultimate outcome of the case is going to depend on who is believed - Madam Tse or Cheng See Ching, the manager of the Plaintiff's managing agents, on the crucial issue as to whether the surrender of the tenancy had been agreed between them. I find myself in exactly the same state of mind as I was in Guangdong International Trust and Investment Corp. Hong Kong (Holdings) Ltd. v. Yuet Wah (Hong Kong) Wah Fat Ltd. [1997] 2 HKC 696. At p.704D-H, I said:

"In these circumstances, has D2 established to my satisfaction that his claim that he did not personally guarantee the repayment of the loan have a real prospect of success? In answering that question, I find myself in something of a dilemma. On the one hand, the authorities require me to form a provisional view of the probable outcome of the action. On the other hand, it may not be possible to form even a provisional view when the outcome of the action is so dependent on whose evidence is likely to be accepted. In my judgment, this is one of those rare cases in which a provisional view of the probable outcome of the action cannot sensibly be formed without an assessment of the witnesses. A not dissimilar problem was discussed by the Court of Appeal in Allen v. Taylor [1992] 1 PIQR 255. At p.259, Dillon L.J. said:

'It is quite impossible to be dogmatic about the extent to which the court must be satisfied of the validity of the suggested defence. There must be numerous cases where the issues will turn entirely on the assessment of the facts at trial: each party's case would carry conviction if it stood alone and without conducting a trial the court is not able to say which will succeed.'

In such cases, an appropriate test to determine whether the defendant has a real prospect of success is to ask whether the defence 'could well be established' at trial."

That is the test I propose to apply here: could Madam Tse well be believed at trial? In my view, she could well be believed at trial, and it follows that the Defendant's defence has a real prospect of success.

12. In reaching that conclusion, I have not overlooked Mr. Mayne's powerful point that if there had been an agreed surrender of the tenancy by the Defendant, rather than simply the giving up of possession, there would have been a formal surrender agreement in writing of the type which the Plaintiff had agreed with 7 of the tenants of the building. However, there is evidence that a large number of other tenants also left at the same time. I have no way of assessing whether that evidence will be accepted at trial. But if it is, it will then be necessary to ask why formal surrender agreements in writing were not executed in their cases. It might be, as Mr. Mayne says, that that was because there had not been any agreement to surrender the tenancies in those cases. But it might also be, as Mr. Chan says, that there had been agreements to surrender the tenancies which simply had not been reduced into writing.

Delay

13. Ord. 2 r. 2(1) provides:

"An application to set aside for irregularity any... judgment... shall not be allowed unless it is made within a reasonable time and before the party applying has taken any fresh step after becoming aware of the irregularity."

Mr. Mayne contended in his skeleton argument that the Defendant's application to set aside the judgment should not be allowed because the Defendant had, as long ago as June 1997, taken a step in the proceedings after becoming aware of the judgment, i.e. by seeking to resist execution of the judgment against her. I accept that the application to set aside the judgment has been made on the ground that the judgment was irregular. But Mr. Chan seeks to set the judgment aside on other grounds if it is held to be regular. Since I have held that the judgment was a regular judgment, the application is no longer an application to set the judgment aside for irregularity, and Ord. 2 r. 2(1) no longer applies.

14. The question nevertheless remains whether the lengthy delay in issuing the summons to set aside the judgment should prevent the judgment from being set aside. In order to determine that, there are two things I need to know. First, why did the Defendant allow 10 months or so to elapse before she applied for the judgment to be set aside? Secondly, has the Plaintiff suffered any prejudice as a result of that delay? There was no evidence on either of those topics before me, and I therefore invited Mr. Chan and Mr. Mayne to take instructions on those issues. They did so, and they have relayed those instructions to me from the Bar table. Mr. Chan told me that Madam Tse wanted to find out exactly how much she was liable to the Plaintiff for in terms of mesne profits and costs. She only received the figure for costs in December 1997, and the figure for mesne profits and other charges in January 1998. There were then without prejudice negotiations to see whether the issue could be resolved. It was only when it was apparent that it could not be resolved that the summons to set aside the judgment was issued. Mr. Mayne was unable to confirm the accuracy of much of that. For his part, he told me that in the meantime the Plaintiff had issued bankruptcy proceedings - proceedings which it would never have issued if there had been pending an application to set aside the judgment.

15. I recognise the need for applications to set aside regular judgments to be made promptly. But at the end of the day, I have to balance the injustice to the Defendant (if the judgment is not set aside) of being denied an opportunity to defend a case in which I have found she has a real prospect of success against the prejudice to the Plaintiff (if the judgment is set aside) in having incurred costs in the bankruptcy proceedings which were completely avoidable. In my judgment, the balancing exercise which I have to conduct should be resolved by setting aside the judgment, but only on condition that the Defendant pays to the Plaintiff its costs of the bankruptcy proceedings to be taxed if not agreed within 21 days of Madam Tse being notified of the taxed or agreed amount.

16. My only concern about an order of that kind is that the Defendant is legally aided in these proceedings. That could mean that she simply cannot afford to pay the Plaintiff's costs of the bankruptcy proceedings. In that event, the order which I have in mind would be tantamount to dismissing her appeal against the master's refusal to set aside the judgment. However, I have no idea how much the Plaintiff's costs of the bankruptcy proceedings will turn out to be, and I have no idea whether the Defendant would in fact be unable to pay those costs. In these circumstances, I have concluded that the only alternative which I have is that I should make the order which I have in mind, namely to set aside the judgment on condition that the Defendant pays to the Plaintiff its costs of the bankruptcy proceedings to be taxed if not agreed, but to give the Defendant liberty to apply in the event of her being unable by reason of poverty to do so.

The Respondent's Notices

17. There is one other matter I want to mention. For the purposes of this appeal, the Plaintiff filed two Respondent's Notices, purportedly pursuant to Ord. 59 r. 6(1). I have dealt with the issues which those Notices raised in the course of this judgment, but I simply wish to add that the notices were inappropriate. Ord. 59 relates only to appeals to the Court of Appeal. It does not relate to appeals to a judge-in-chambers. Ord. 58 is the Order which relates to appeals to a judge-in-chambers, and there is no equivalent requirement in Ord. 58 to Ord. 59 r. 6(1). The reason for that is simple. Masters are not obliged to give reasons for their decisions. Thus, if a master does not give reasons for his decision, it is not possible to tell what were the grounds "relied upon by" the master in reaching his decision. It is not possible for the Respondent, therefore, to use the words of Ord. 59 r. 6(1)(b), to contend that the decision of the court below should be affirmed on grounds other than those relied upon by that court. I therefore direct that the costs of drafting, filing and serving the Respondent's Notices be disallowed on any taxation of the Plaintiff's costs.

Conclusion

18. As it is, for the reasons which I have endeavoured to give, this appeal must be allowed, the order of the master must be set aside, the judgment entered on 5th May must be set aside on the condition to which I have referred, and the Defendant must have unconditional leave to defend the action.