XCHRX TONWAY LTD. v. MARGAN LTD.

1997, No. A7752

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

-----------------

----------------

--------------------

J U D G M E N T

--------------------

The appeal

1. The Defendant applied before Master Chung to set aside a judgment entered in default of notice of intention to defend. The Master ordered that the judgment be set aside conditional upon the Defendant paying the judgment sum of $646,382.66 into Court. The Defendant now appeals against that decision. The Plaintiff, on the other hand, asks for the default judgment to be affirmed, alternatively, the order of the Master to be affirmed.

Was the judgment regular?

2. The judgment was obtained on 15th August 1997 for $846,382.66. The Plaintiff amended the judgment, on ex-parte application, on 27th August 1997. According to the amended judgment, $200,000 had been paid by the Defendant to the Plaintiff on 25th July 1997 leaving a balance of $646,382.66. The amended judgment was for the sum of $646,382.66.

3. According to Ng Wai Man, Elsa ("Miss Ng") a director and the manageress of the Defendant, on 11th July 1997, the Defendant received a demand letter from the Plaintiff's solicitors seeking payment of the sum of $846,382.66. On 24th July 1997 Mr Yu of the Plaintiff came to her office and the parties reached an agreement that "upon payment by the Defendant to the Plaintiff of the sum of $200,000 the whole matter would have been settled." $200,000 were paid to the Plaintiff by way of cheque.

4. On 13th August 1997, to her surprise, she was informed by the Defendant's banker that the Plaintiff had issued a writ against the Defendant, claiming a sum of $846,382.66. The Defendant had no knowledge of the writ. It then instructed solicitors. By two letters issued on 13th and 14th August 1997, the Defendant's solicitor requested the Plaintiff's solicitors to supply him with a copy of the writ. The copy of the writ was only supplied on 16th August by which time the Plaintiff had obtained judgment. The judgment was served on the Defendant on 19th August 1997. On 22nd August 1997, the Defendant's solicitor informed the Plaintiff's solicitor of the Defendant's intention to apply to set aside the judgment.

Service on limited company

5. The Defendant is a limited company. Service of a writ on a limited company is by way of service at its registered address. This is what had happened in this case. According to the Plaintiff's affirmation of service, the writ of summons was served personally on the Defendant on 25th July 1997 at about 3:30 pm by leaving a copy at its registered address. All that the Defendant could say is that it did not have knowledge of the writ. 25th July 1997 was not an insignificant date. It was one day after the parties' meeting in the Defendant's office. One would expect the Defendant to state on affirmation that no one had attended the Defendant's registered office on that date to serve any writ of summons. The Defendant chose not to adduce any evidence in this regard. I am satisfied that the writ was properly served on the Defendant.

Judgment for too large an amount

6. The next question to be considered is whether the judgment was entered for too large an amount and should be set aside for irregularity. A judgment which is entered for too large an amount is an irregular judgment and the Defendant has a right to have the judgment set aside : Hughes v. Justin [1894] 1 Q.B. 667. This is subject to the party who holds the judgment to reduce it to the proper amount : Muir v. Jenks [1913] 2 K.B. 414 at 417. At Note 13/1/13 of the Supreme Court Practice 1997, the following steps were recommended :

"3. A party served with a summons seeking the setting aside of an irregular judgment should apply by a summons returnable at the same time for leave to amend such judgment; jurisdiction to so order was established in Armitage v. Parsons [1908] 2 K.B. 410. That it was the duty of the creditor (and not of the debtor) obtaining a wrong judgment to have it set right was emphasised in Muir v. Jenks [1913] 2 K.B. 414 at p.415. In practice the erring judgment creditor should accompany his summons by an offer to pay the costs of rectifying the judgment and the debor's costs thrown away to protect his position as to the costs of the hearing.

4. Such application must be made to a Master on an appropriate summons issued by the plaintiff or on the defendant's summons to set aside the judgment (Ban Hin Lee Bank Berhad v. Sonali Bank, The Independent, November 28, 1988, C.A.)

5. Leave to amend may be given on an ex parte application to a Master in the following cases only, namely:

(a) where the defendant consents;

(b) where the plaintiff shows that the judgment has been signed for too much by a slip or mistake, and the application is made promptly and before the judgment has been notified to the defendant or becomes known to him, and before execution has been issued or any proceedings taken on or in respect of the judgment.

6. In all other cases leave to amend can only be obtained by summons or notice of application and order thereon.

7. The Master, when he gives leave to amend the judgment, has power to give costs to the defendant if asked for. If costs are asked for by and awarded to the defendant, the Master may impose terms such as that no action be brought in respect of the judgment or anything done under it. If costs are not asked or not given, there is no power to impose terms (Cash v. Wells (1830) 1 B. & Ad. 375; Bartlett v. Stinton (1866) L.R. 1 C.P. 483; Anlaby v. Praetorius (1888) 20 Q.B.D. 764, pp.769, 770).

8. The amended judgment should show on the face of it exactly when and how and pursuant to what order it was amended."

7. Notwithstanding the letter of 22nd August 1997 in which the Defendant's solicitor indicated the intention to apply to set aside the judgment, the actual application was only issued on 6th October 1997. No explanation was given for the delay. At the meantime, on 22nd September 1997, the Plaintiff's solicitors obtained a garnishee order nisi. Sin Hua Bank Limited was the garnishee and the date fixed for it to show cause was 7th October 1997.

8. It is necessary to bear in mind that Muir v. Jenks stated that delay by the debtor does not bar it to have an irregular judgment set aside. In this case the judgment was amended before the summons to set aside the judgment was issued and also before execution was issued or any proceedings taken on the judgment. The Defendant said that the Plaintiff cannot apply on an ex-parte basis to amend the judgment because the judgment had already been served and the proper procedure is to seek amendment by an inter-partes summons.

9. In my view the failure by the Plaintiff to apply on an inter-partes basis to amend the judgment is not fatal in the circumstances of the case. The right of a defendant to set aside an irregular judgment is not an indefeasible right. The plaintiff is still entitled to amend the judgment to reflect the true indebtedness. In this case, the amendment of the judgment had avoided the mischief of having a judgment being entered for too large an amount with its consequential prejudice on the Defendant. Had an inter-partes summons been issued to amend the judgment, it is likely that the Master would have allowed the amendment to take into account the payment of $200,000. This being the case, the amendment by the Plaintiff of the judgment on an ex-parte basis does not prejudice the Defendant. In my view, the judgment that was obtained was a regular judgment.

Merits of the defence

The Defendant's set off

10. The Plaintiff's claim of $846,382.66 was the balance of processing fees for work done and material supplied by the Plaintiff to the Defendant. The processing fees were evidenced by invoices issued by the Plaintiff to the Defendant. Apart from two invoices, namely Invoice No. 1166 of 1997 and 1167 of 1997, in which the Defendant said that the Plaintiff had overcharged $7,780.50 and $70,809.17 respectively, the Defendant, through its solicitor Mr Wan, does not dispute the amount due to the Plaintiff under the invoices. The Defendant's case is in the nature of a set-off to the Plaintiff's claim. The Defendant raised the following allegations in respect of its set-off :

(1) The Plaintiff had failed to produce the quantity of garments required by the Defendant and the Defendant was entitled to deduct from the price of the processing work done by the Plaintiff.

(2) There was late delivery by the Plaintiff and the Defendant claimed air-freight charges, payment of compensation to quota supplier and loss sustained by the Defendant as a result of the late delivery.

(3) The quality of the goods produced by the Plaintiff was below standard and the Defendant incurred additional cost for rectifying the defects.

(4) The Plaintiff was unable to finish the work resulting in the Defendant incurring costs in doing the unfinished work.

(5) The Plaintiff was not able to do the work and the Defendant had to engage another contractor to do the work.

(6) The Plaintiff had overcharged the Defendant in Invoice No. 1166 of 1996 by $7,780.50.

(7) The Plaintiff had failed to return some fabrics to the Defendant.

(8) The Plaintiff had charged the Defendant for the cost of samples which it was not entitled to charge.

(9) The Defendant had paid for the Plaintiff the cost of transportation and that of sewing thread for which the Plaintiff should be responsible.

(10) The Plaintiff had overcharged in Invoice Number 1167 of 1997 by $70,809.17.

11. The total amount of set-off by the Defendant was $902,699.14. Apart from the last allegation of the Plaintiff overcharging $70,809.17, the Defendant had issued debit notes seeking recovery of the amounts due to the Defendant as a result of the Plaintiff's default. The particulars of the debit notes are set out below :

Item	Debit Note	Amount
1	DN 9612001	5,494.06
2	DN 9601001	12,513.60
3	DN 9701002	23,780.06
4	DN 9702005	3,678.62
5	DN 9706004	16,450.82
6	DN 9706002	18,796.05
7	DN 9706003	6,369.75
			$87,082.96
8	DN 970203	132,617.90
9	DN 9707002	20,556.10
			$153,174.00
10	DN 9707003	7,566.67
11	DN 9709005	10,246.67
			$17,813.34
12	DN 9706007	115,560.56
			$115,560.56
13	DN 9705008	12,000.00
14	DN 9706005	6,027.50
15	DN 9706006	4,600.00
16	DN 9706012	147,904.18
17	DN 9706011R	117,328.33
			$287,860.01
18	DN 970204	76,336.00	$76,336.00
19	DN 970206	15,307.60	$15,307.60
20	DN 9707001	7,780.50	$7,780.50
21	DN 9709004	62,414.00	$62,414.00
22	DN 9706008	480.00	$480.00
23	DN 9705001	4,081.00
24	DN 970303	4,000.00	$8,081.00
			$831,889.97
	Plaintiff's overcharging Invoice No. 1167/97	70,809.17	$70,809.17
		Total:	$902,699.14 ===========

Credit given on six Debit Notes

12. Mr Wan accepted that the sum of $244,342.5 should be deducted from the amount of set-off (Mr Wan stated that the amount of set-off was $827,189.11. I think this is a wrong calculation). They represent six debit notes (Items 8, 13, 18, 19, 23 and 24 of the debit notes) which the Plaintiff had already given credit to the Defendant when it entered judgment.

Defendant's table and four debit notes

13. Miss Ng produced a table (Exh. NWM-20). She said this table was prepared by her and it was shown to the Plaintiff's representatives at the meeting of 25th July 1997 (her first affirmation said the meeting was on 24th July). On that occasion the Defendant gave two cheques of $200,000 to the Plaintiff, Miss Ng in her second affirmation stated that :

"By reference to the table, they knew and it was our common understanding that the two cheques would be for full settlement."

The table set out the 24 debit notes which I have tabulated. The Plaintiff refuted the allegations of the Defendant and said that, apart the six debit notes which it had given credit to the Defendant, it had not seen the other debit notes. Its case is that these debit notes were produced after the event and for the purpose of this case. This is denied by the Defendant. It is, however, clear that four of the debit notes shown in the table were dated after the meeting on either 24th or 25th July 1997. The four debit notes were Item 11, dated 7th September 1997 for $10,246.67, Item 17, dated 19th August 1997 for $117,328.33, Item 20, dated 30th July 1997 for $7,780.50 and Item 21, dated 7th September 1997 for $62,414. The total amount of these four debit notes is $197,769.50. No explanation was given by the Defendant why the table disclosed in the meeting of 24th or 25th July 1997 should include debit notes which were dated subsequent to that meeting.

Judgment partially set aside

14. In applying to set aside a regular judgment, it is not sufficient for the Defendant to show merely an arguable defence. The defence must have a real prospect of success and carries some degree of conviction : The Saudi Eagle [1986] 2 Ll. .R. 221 and Premier Fashion Wears Limited v. Li Hing Chung [1994] 1 HKC 213. In my view, $244,342.5 represented by the six debit notes of which credit had already been given and $197,769.5 represented by the four credit notes which were dated subsequent to the table, should be deducted from the sum of $902,699.14 that the Defendant seeks to set off from the Plaintiff. The Defendant has simply failed to establish that it is entitled to these two sums from the Plaintiff. The balance after deducting these two sums is $460,587.14. The judgment obtained by the Plaintiff is $646,382.66. This means that even if the Defendant is totally successful in its claim of $460,587.14, it has no defence to the Plaintiff's claim to the extent of $185,795.52.

$646,382.66	(Judgment)
- $460,587.14	(Set-off)
$185,795.52

15. In my view, the judgment should not have been wholly set aside. There should be judgment in any event to the Plaintiff in the sum of $185,795.52.

Condition to defend the balance

16. To the balance of the claim, namely $460,587.14, I would adopt the approach of the Master and impose the condition requiring the Defendant to pay the money into court before it is entitled to defend. I have already referred to the matter regarding the four debit notes which were dated after the meeting. The Defendant claimed that the parties agreed at the meeting that the dispute between the parties would be settled by the payment of $200,000. At that time the Plaintiff was making a demand of $846,382.66. It was not credible that the Plaintiff would be prepared to forego over $646,000. Furthermore, the Defendant's conduct after the meeting in July was inconsistent with any notion of a settlement. On 19th August 1997, the Defendant wrote to the Plaintiff stating that the Defendant would seek to deduct the cost of fabric which the Plaintiff had failed to return to the Defendant. The letter said that deduction will be "from the outstanding debt owed to your company". Had the parties agreed to settle their dispute as alleged by the Defendant in July, one would not expect the Defendant to refer in August to outstanding debts owing to the Plaintiff. The manner in which the defence was presented amply justifies the imposition of the condition.

Financial problems

17. The Defendant, on 19th March 1998, which is one day before the present appeal, filed an affidavit stating that it was unable to meet the condition of payment into Court because of financial difficulties. Mr Shum, Counsel for the Plaintiff, objected to this late affidavit because it deprived the Plaintiff of the opportunity of investigating the allegations in the affidavit. In my view, the Defendant has simply failed to show by credible evidences its financial problems. The affidavit exhibited a bank statement from the Wing Lung Bank Limited for the period 13th February 1998 to 28th February 1998. The first page of the statement revealed that the account is a new account opened on 13th February 1998. The Defendant is a company which the Plaintiff has traded since 1996, one would expect the Defendant to have bank accounts before 13th February 1998. Indeed the Plaintiff had filed two affidavits in support of its garnishee proceedings in which it was stated that the Defendant had two other bank accounts with the Hang Seng Bank Limited and the Sin Hua Bank Limited. No explanation was given by the Defendant why it only chose to disclose the statement of Wing Lung Bank Limited. In the absence of full and frank disclosure of the financial position of the Defendant, I would maintain the condition of payment into Court.

Conclusion

18. The judgment as amended will be varied as follows : of the judgment sum of $646,382.66, $460,587.14 will be set aside and the Defendant is entitled to defend this amount upon payment into Court of the sum of $460,587.14 within 14 days. For the avoidance of doubt, the judgment will only be set aside upon the payment into Court. The Master's costs order is not disturbed and the Plaintiff is entitled to the costs nisi of this appeal.