XCHRX THE NEW CHINA HONG KONG FINANCE LTD. v. SHIMADA LTD.

HCA11030/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.11030 OF 1999

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J U D G M E N T

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Appeal against master's decision

1. This is an appeal against the master's decision which refused the defendant's application to set aside a judgment entered against it in default of notice of intention to defend. The judgment was for the sum of HK$73,707,151.09 together with interest on the sum of HK$70,100,800.98.

Background

2. The defendant is a company registered in the British Virgin Islands ("BVI"). On 22 September 1999, the plaintiff obtained leave from the master serving the writ on the defendant outside jurisdiction. The writ was served on an agent at the registered office of the defendant in BVI. The judgment was entered on 10 January 2000.

3. On 13 March 2000, the defendant applied to set aside the judgment on the ground that it was not served with the writ. The defendant stated that since 1995 when the defendant opened the accounts with the plaintiff, the plaintiff had agreed with the defendant that "all statements, legal documents and correspondence from the plaintiff shall be sent to the business address of the defendant in Hong Kong". The business address of the defendant was changed in January 1999 to the present address at 17/F Kwan Chart Tower, 6 Tonnochy Road, Hong Kong ("the Hong Kong address"). The defendant had notified the plaintiff of the change and from that date onwards, all statements and correspondence from the plaintiff were sent to the Hong Kong address. The writ was not served by the plaintiff at the Hong Kong address. The defendant only became aware of the proceedings when a charging order was served by the plaintiff at the Hong Kong address.

Service of the writ

4. Order 10, rule 1 provides for the mode of service of the writ :

" (1) A writ must be served personally on each defendant by the plaintiff or his agent.

(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.

.....

(7) This rule shall have effect subject to the provisions of any Ordinance and these rules and in particular to any enactment which provides for the manner in which documents may be served on bodies corporate."

Order 65 further provides for the mode of personal service on an individual and body corporate :

"Rule 2. Personal service: how effected

Personal service of a document is effected by leaving a copy of the document with the person to be served.

Rule 3. Personal service on body corporate

(1) Personal service of a document on a body corporate may, in cases for which provision is not otherwise made by any written law, be effected by serving it in accordance with rule 2 on the chairman or president of the body, or the clerk, secretary, treasurer or other similar officer thereof.

(2) Where a writ is served on a body corporate in accordance with Order 10, rule 1(2), that rule shall have effect as if for the reference to the usual or last known address of the defendant there were substitued a reference to the registered or principal office of the body corporate and as if for the reference to the knowledge of the defendant there were substituted a reference to the knowledge of a person mentioned in paragraph (1)."

Service under the Companies Ordinance

5. Under Part XI of the Companies Ordinance ("the Ordinance"), an oversea company which establishes a place of business in Hong Kong shall, under section 333, deliver certain documents to the Registrar of Companies. These documents include a list of the names and addresses of the persons resident in Hong Kong authorised to accept service of process on behalf of the company.

6. Section 338 makes provisions for the service of documents on oversea companies :

" (1) Subject to subsection (2), any process or notice required to be served on an oversea company shall be sufficiently served if addressed to any person whose name has been delivered to the Registrar under this Part and left at or sent by post to his address as so delivered.

(2) Where any oversea company makes default in delivering to the Registrar the name and address of a person resident in Hong Kong authorized to accept on behalf of the company service of process or notices, or if at any time all the persons whose names and addresses have been so delivered are dead or have ceased so to reside or refuse to accept service on behalf of the company or for any reason cannot be served, a document may be served on the company-

(a) by leaving it at or sending it by post to any place of business established by the company in Hong Kong; or

(b) if the company no longer has a place of business in Hong Kong-

(i) by sending it by registered post to its registered office, and a copy thereof by registered post to its principal place of business (if any), in the place of its incorporation at the respective addresses thereof registered under section 333(1)(c); or

(ii) if no such addresses have been registered, by leaving it at or sending it by post to any place in Hong Kong at which the company has had a place of business within the previous 3 years."

English position

7. In England, the equivalent of section 338 of the Ordinance is section 695 of the Companies Act 1985. In Boocock v. Hilton International Co. [1993] 1 WLR 1065, Neill LJ held that section 695(1) (i.e. our section 338(1)) makes provisions as to service and in the light of Order 10, rule 1(7), section 695(1) governs the matter despite the fact that there is no reference to "any enactment" in Order 65, rule 3(2). The two rules exclude the possibility of any form of service other than those prescribed by section 695(1). In The "Theodohos" [1997] 2 Ll LR 428, Brandon J stated that :

"Both formerly under the Old Ord. 9, r. 8, and now under the present Ord. 65, r. 3, the method of serving a corporation by personal service on an appropriate officer has, by the express terms of the two rules, only been applicable in the absence of any statutory provision regulating such service."

Business in Hong Kong

8. In the present case, Chan Wai Dune ("Mr Chan"), the liquidator of the plaintiff, had in his first affirmation in support of the service of the writ out of jurisdiction stated that :

"Although the defendant carried on business in Hong Kong at the material times, neither the Companies Registry nor the Business Registration Office have any record of registration of the defendant."

In his second affirmation, Mr Chan repeated that the defendant operated business in Hong Kong.

9. Leaving aside the operation of Order 11 for the time being, in my view, service on an oversea company in Hong Kong should be in accordance with section 338 of the Ordinance. This is not disputed. The defendant had not delivered the required documents to the Registrar of Companies. However, service of the process can be effected under section 338(2) by leaving the writ or sending it by post to the place of business established by the defendant in Hong Kong. It is the plaintiff's case that the defendant had carried on business in Hong Kong. The defendant had produced letters from the liquidators of the plaintiff addressed to their business address in Hong Kong. A charging order was served both at the registered office in BVI and at the Hong Kong address. The writ should be served at the Hong Kong address.

Service out of jurisdiction

10. The next question is whether section 338 excludes the operation of Order 11 as well. Mr Harris, counsel for the plaintiff, argued that Boocock is a case in which the requisite details had been registered. The court was only concerned with section 695(1). Section 695(1), (i.e. section 338(1)), does not, unlike section 338(2), appear to envisage alternative methods of service. The alternative method is service under Order 11.

11. In my view, although the words "may be served" are used in section 338(2), this does not mean an alternative mode of service can be adopted. Similar arguments had been raised in Boocock on section 338(1) where the words "shall be sufficiently served" were said to be consistent with other form of service. The court nonetheless held otherwise.

12. Order 11 is concerned with the service of the writ to a defendant who is outside jurisdiction. In this case, leave was obtained on the basis that the contract between the parties was made in Hong Kong. Where an oversea defendant corporation has no business in Hong Kong then, of course, section 338 has no application. On the other hand, where that defendant has a business in Hong Kong, in my view, service of the writ should be effected in accordance with section 338 because the defendant is someone within the jurisdiction or is treated as such for the purpose of serving process on it. This being the case, Order 11 does not apply. Paragraph 11/5/3 of the High Court Practice 1999 stated that :

" Service on foreign companies abroad - May be either in accordance with O.65, r.3, or in accordance with the law of the country where the service is to be effected. If, however, the company has established a place of business in England, no question need arise of service out of the jurisdiction (see Companies Act 1985, ss.744, 691, 695)."

To avoid argument?

13. Mr Harris argued that in order to avoid any argument whether the defendant had a place of business in Hong Kong, the plaintiff was entitled to proceed in accordance with Order 11. This is true but this is also a case where the plaintiff had expressly recognised that the defendant carried on business in Hong Kong.

Defendant struck off

14. There is an additional problem concerning the service at the registered office of the defendant in BVI. As disclosed in an exhibit to the affirmation of Mr Chan, the search report of the defendant dated 29 June 1999 revealed that the defendant was struck off the Register of Companies in BVI on 3 May 1999. Although the defendant had not applied to set aside the order granting leave to serve the writ out of jurisdiction, in my view, to serve the writ on the registered address in BVI when the plaintiff knew that the defendant was already struck off was improper. This is more so when in June 1999, the liquidators were still sending letters to the defendant at the Hong Kong address. The purpose of service is really to notify the recipient of the document. How can the plaintiff ensure that this will be achieved when it knew that the defendant had been struck off? In my view, the judgment was an irregular one.

Correcting the irregularity?

15. Mr Harris argued that I should follow the approach of Neill LJ in Boocock and exercise my discretion to correct the irregularity pursuant to Order 2, rule 1 and treat the writ as properly served. The facts of Boocock clearly show that such a course was justified. Although the writ was not served in accordance with section 695, the defendant had conducted discussions with the plaintiff on settling this case and was aware of the writ which was served on the defendant. This is not the situation here. Although the defendant or its solicitors had not made enquiries with its agent in BVI on whether the writ was served, the defendant had clearly stated that it only became aware of the action when the charging order was served on it. In my view, it is not appropriate to treat the writ as properly served on the defendant.

Merits of the case

16. Mr Harris argued that the defendant had no defence to the plaintiff's claim and that I should, as a condition in setting aside the judgment, order half of the judgment sum to be paid into court by the defendant. Ms Fong, on the other hand, argued that if condition was to be imposed, then the subject matter of the charge, i.e. 410,294,948 shares beneficiary owned by the defendant in Chung Hwa Development Holdings Ltd which is a publicly listed company on the Hong Kong Stock Exchange, should remain.

17. The defendant had since the decision of the master filed evidence stating that it had a meritorious defence to the plaintiff's claim. The subject matter of the defence is not connected to the plaintiff's claim. It is said that one Mr Wong Tin Shu had acted as the defendant's nominee in acquiring two options agreements. The defendant relied on the plaintiff's professional advice and representation that the two options would be successfully completed. The two options were, however, not completed and the defendant suffered loss and damage. The evidence revealed that the plaintiff had previously sued Mr Wong. The action, however, was discontinued. In the correspondence between Mr Wong's solicitors and the plaintiff's solicitors, Mr Wong had never indicated that he was merely acting as a nominee of the defendant and was therefore not liable to the plaintiff personally. It is apparent that the defence was couched in vague terms.

Authorities

18. In Honour Finance Co. Ltd v. Chui Mei Mei [1989] 2 HKLR 146, Hunter JA at page 150 held that :

"The mere fact that the Defendant was able to show lack of notice was not sufficient to enable him to be let in to defend. He was required in addition to show a good ground of defence."

19. In Fok Chun Hung v. Lo Yuk Shi [1995] 2 HKC 648, Godfrey JA expressed the view that a judgment which was irregularly obtained should be set aside unconditionally and he was of the view that the dicta of the late Hunter JA was decided without the benefit of adversary argument.

20. In Po Kwong Marble Factory Ltd v. Wah Yee Decoration Co. Ltd [1996] 4 HKC 157 where the court was concerned with an irregular default judgment because service of the writ was not effected at the registered address, Bokhary JA held that there was no need for the defendant to show a defence on the merits in such a case. Nazareth VP was also of the view that the defendant not having been served is entitled to have the judgment set aside without considering the merits. This was also recognized by Sears J in the same judgment. The court, however, imposed conditions for the setting aside of the judgment.

21. In Faircharm Investments Ltd v. Citibank International Plc 1998, The Times, 20 February 1998, the Court of Appeal in England questioned the entitlement to have an irregular judgment set aside as of right. In that case, judgment was entered in default of defence when an Order 14 application was pending and time for service of the defence had not begun to run by reason of the operation of Order 18, rule 2(2). Sir Christopher Staughton stated that if the defendant was bound to lose on an Order 14 application, it would be pointless to set aside the judgment. He stated that :

"I would not go so far as to say that no irregularity could be so fundamental that the judgment in such a case would have to be set aside whatever the circumstances."

22. In Pollard Construction Co. Ltd v. Yung Yat Fan (trading as Golden Year & Co.) [1999] 3 HKC 109 (Decision, 11 March 1999), I proceeded to consider the merits of the defence where the irregular judgment in question is one which had entered for too large a sum. Po Kwong Marble Factory was not cited in argument.

23. In Chu Kam Lun v. Yap Lisa Susanto [1999] 3 HKC 378 (Judgment, 28 May 1999), on the facts of the case the Court of Appeal held that it did not have to decide whether Faircharm should be followed or not.

How is the conflict to be resolved?

24. It is ultimately for the Court of Appeal to decide whether an irregular judgment is to be set aside as of right. As the matter now stands, my view is that whether an irregular judgment is to be set aside as of right or not will really depend on the nature of the irregularity. If, for example, the defendant had not even been served with the writ, then the question of the merits of the defence should not be considered because the defendant was not even given the chance to exercise his legal right due to the failure to effect service on him. However, where a defendant was served with the writ but due to irregularities such as entering a judgment for too large a sum, the question of merits of the defence ought to be considered. Likewise in situations like Faircharm where the judgment was entered prematurely because of the pending Order 14 application, the court should recognise the merits of the defence in considering whether judgment should be set aside in the first place.

25. However, while the merits of the case need not be considered where the writ was not served, as pointed out by Po Kwong Marble Factory, the court can still impose conditions for setting aside if the circumstances merit such an order. In that case, terms were imposed because of the conducts of the parties. The problems of service was due primarily to the conduct of the defendant who virtually disguised the registered office of the company. In Singh v. Atom Brook Ltd [1989] 1 WLR 810, the English Court of Appeal imposed terms in setting aside the default judgment by requiring the defendant to pay into court the amount of the plaintiff's claim. The irregularity in that case was on the description of the name of the defendant which the defendant was not in any way misled.

No condition to be imposed

26. In the present case, there cannot be any adverse comments on the conduct of the defendant. Had the plaintiff observed the provisions of section 338, there would not be any argument on the question of service. In my view, the judgment ought to be set aside and the defendant given leave to defend without imposing any condition.

Nomination of local agent

27. Clause 32.3 of the General Commercial Agreement and Memorandum of Deposit signed by the defendant provided that :

" The undersigned undertakes, on your request, to nominate an agent with an address in Hong Kong to accept service of any legal process in Hong Kong on behalf of the undersigned. Such agent shall acknowledge in writing to you its appointment as such agent and service of legal process on such agent shall be deemed to constitute service on the undersigned."

There was argument that the defendant had a Hong Kong agent, hence the writ should be served on the agent in Hong Kong. However, there was no indication that the Hong Kong agent had acknowledged in writing of his appointment as the agent. Hence, the defendant cannot rely on this clause.

Costs

28. The defendant is entitled to an order nisi that it is to have the costs of and occasioned by the setting aside of the judgment in any event. Such costs include the costs of the appeal. As the effect of the Companies Ordinance was only argued on appeal, the order made by the master on costs should not be disturbed.