C & S DENTAL CARE LTD v. PREMIER ASIA MEDICAL CENTRE LTD

DCCJ 6089/2019

[2020] HKDC 1023

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 6089 OF 2019

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DECISION

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1.  The plaintiff once obtained a final judgment in default of notice of intention to defend. The defendant subsequently applied to the master have it set aside, but only succeeded in part. The defendant now appeals.

Background

2.  The parties are limited companies providing medical and dental services.  On about 12 September 2019, they entered into a written consultancy agreement (“the Consultancy Agreement”) whereby the plaintiff agreed to procure its Dr Frederick Chu (“Dr Chu”) to work as a consultant dental surgeon at the defendant’s clinic to be opened.  On 22 October 2019, the defendant through its solicitors served a notice of termination/cancellation of the Consultancy Agreement.  The plaintiff claims to be entitled to (i) outstanding consultancy fees and (ii) payment in lieu of notice of termination.  The parties engaged in correspondence through solicitors.  Eventually this action was commenced.

3.  The writ was issued on 8 November 2019.  The affirmation of service filed on 27 November 2019 confirmed the service of the writ at the registered office address of the defendant.  In the absence of acknowledgement and notice of intention to defend, the plaintiff applied, and obtained judgment against the defendant on 6 January 2020.

4.  By summons filed on 23 January 2020, the defendant applied to set aside the judgment.  By consent, the application was disposed of on paper without an oral hearing.  On 5 August 2020, the master handed down his written decision whereby he set aside the judgment in respect of the claim for the outstanding consultancy fees but maintained the judgment in respect of the claim for the payment in lieu of notice of termination (“the Decision”).

5.  By notice of appeal filed on 18 August 2020, the defendant appeals.  Essentially, the defendant argues that the judgment was irregular in that there was no good service of the writ, and in any event it is liable to be set aside in its entirety on the merits.

The principles

6.  Irregular judgment, in the sense that it was obtained without good and effective service of the writ, is liable to be set aside as of right without going into the merits of the case.  The court retains the discretion to refuse to set aside a judgment or to do so only on terms, if the circumstances of the case demand: see Po Kwong Marble Factory v Wah Yee Decoration Co Ltd [1996] 4 HKC 157; Hong Kong Civil Procedure 2021 (“HKCP”) (Vol 1) at §13/9/10.

7.  Where merits of the case have to be shown, it is not sufficient for the defendant to demonstrate a merely arguable defence as in O 14 proceedings.  The defendant has the burden of demonstrating that the defence has a real prospect of success, which carries some degree of conviction: see HKCP at §13/9/14.

8.  This appeal proceeded as a rehearing of the defendant’s application to set aside the judgment.  This court is not to consider if the Decision was erroneous.  However, this court may, if appropriate, adopt any part of the reasoning of the master in the Decision: see HKCP at §58/1/2.

9.  The above principles are trite and not disputed.

Regularity of the judgment

10.  The defendant argues that the service of the writ on the defendant was bad and ineffective.  It highlights the fact that the writ that was apparently sent by registered post to the registered office address of the defendant was somehow returned in post to the plaintiff’s solicitors on or about 5 December 2019 prior to the plaintiff’s obtaining the judgment (which was entered on 6 January 2020).  This is substantiated by Hongkong Post’s record of the delivery status of the mail. In terms of evidence, the plaintiff never denied that.  However, it says this is irrelevant.

11.  The plaintiff argues that the return of the posted writ to it is irrelevant, and did not affect its entitlement to obtain the judgment.  The basis is its distinction between service pursuant to O 10 of the Rules of the District Court, Cap 336H and that pursuant to section 827 of the Companies Ordinance, Cap 622 (“CO”).  The plaintiff says that the writ in the present case was served pursuant to the latter.

12.  O 10, r 1(2) provides that service of the writ on a defendant may be effected by registered post to the defendant at his usual or last known address, or alternatively by insertion into the letterbox at such address.  Where a writ is so served, the date of service, pursuant to r 1(3)(a), shall, unless the contrary is shown, be deemed to be the 7^th day of posting or insertion into the letterbox.  The plaintiff is required to file an affidavit of service pursuant to r 1(3)(b) deposing to his belief that the writ will have come to the knowledge of the defendant within 7 days of posting or insertion into the letterbox and, in the case of service by post, that the posted writ had not been returned to the plaintiff through the post undelivered.  In case the defendant is a body corporate, O  65, r 3(2) applies, which provides that O 10, r 1(2) shall have effect as if the reference to the usual or last known address of the defendant were substituted a reference to the registered or principal office of the defendant.  R1(3) mentioned above will still apply.

13.  By the affirmation of service, the plaintiff’s solicitors deposed to the fact as of that day, ie 26 November 2019, that the writ sent by registered post had not been returned by the Post Office through the ‘dead letter service’.  It would appear that this was done pursuant to O 10, r 1(3)(b) (and O 65).  However, the plaintiff says that that was not the case.  It says that the service was effected pursuant to section 728 of the CO instead.

14.  Section 827 of the CO provides that a document may be served on a company by leaving it at, or by sending it by post to, the company’s registered office.  By section 8 of the Interpretation and General Clauses Ordinance, Cap 1, service of a document in accordance with that section is deemed to have been effected at the time at which it would have been delivered in the ordinary course of post: see HKCP at §10/1/18; §65/3/9.  Reliance on service pursuant to this provision entails no obligation under O10, r 1(3) as to the affidavit of service mentioned above.

15.  The above explains why service pursuant to O 10, r 1 and section 827 of the CO are said to be alternative modes of service on a corporate body.

16.  §10/1/18 of HKCP mentioned above was referred to in counsel’s submissions.  There it mentions that in case of service pursuant to section 827 of the CO, there is no need for it to establish that the company had actual notice of the writ.  Ho Kwok Wah v Group Jewellery Arts Ltd [2007] 1 HKLRD 217 and Lo Wing Kwong & Anor v Grand Lord Seafood Restaurant, DCCJ 148/2005 [2006] HKEC 1026 were cited as the reference.  The former confirmed that, as mentioned above, the plaintiff was not required to comply with the requirement of O 10, r 1(3)(b).  Therefore, a writ might be served on the company by leaving the registered address, even though the plaintiff was aware that the office had already been vacated.  The latter endorsed the same understanding of the law.  The plaintiff in the present case cited the above in support, with which the master in the Decision agreed.

17.  I do not propose to differ from what were said in the above authorities.  Only that the question is whether they provide the answer to the issue of regularity of the service and thus the judgment in the circumstances of the present case.

18.  As discussed above, service pursuant to O 10, r 1 will entail the compliance with the requirements under r 1(3)(b).  This is deposition as to opinion formed on the basis of lack of contrary circumstances known to the plaintiff at the time and after the service of the writ.  There is no such requirement in the case of service pursuant to section 827 of the CO.  Hence the understanding expressed in the authorities cited above (and in the passage in HKCP) that knowledge that the registered address of the defendant had already been vacated at the time of the leaving of the writ there is immaterial.  Such knowledge, in the case of service pursuant to O 10, r 1, may prevent the plaintiff from satisfying the requirement under r 1(3)(b).

19.  I would refrain from distinguishing the two statutory modes of service on a corporate body by the need to prove actual notice of the service on the part of the defendant.  O10, r1(3)(b) requires the deposition as to the plaintiff’s opinion that the writ will have come to the knowledge of the defendant (and if the writ was served by post, that it has not been returned in post to the plaintiff).  What section 827 of the CO does not require is not more than that.  Whether it is under O 10, r 1 or section 827 of the CO, the plaintiff is never really required to establish that the defendant had actual notice of the service.

20.  The plaintiff effectively argues that because the plaintiff is not required to depose to the fact that the writ served by post has not been returned in post to the plaintiff when it was served pursuant to section 827 of the CO, the fact of actual return of the writ in post prior to entering judgment is irrelevant.  That, it argues, does not affect the plaintiff’s entitlement to default judgment.

21.  I do not agree with the plaintiff that section 827 of the CO has the effect contended, and O10, r1 certainly does not have such effect.  The whole basis for entering judgment pursuant to O 13 is the defendant’s default, which must represent the state of affairs at the time when the plaintiff applies for such judgment.  If in fact the writ has been returned through post to the plaintiff prior to his seeking judgment, the state of affairs, namely, the defendant’s default, notwithstanding (deemed) service of the writ, does not exist, whether the writ has been served pursuant to O 10, r 1 or section 827 of the CO.  It is not about the defendant’s knowledge about the service, but the plaintiff’s actual knowledge of the writ having been returned through post at the time when he applies for default judgment.

22.  None of the authorities suggested that in the case of service by post, the position of the plaintiff remains beyond impeachment regardless of whether the writ has in fact been returned through the post.  The plaintiff refers to Chan Pui Kwan v Ecrent (HK) Company Limited & Anor, HCLA 5/2018 (13 July 2018).  The discussion in that case, where the court document was served by leaving at the defendant’s registered address, did not involve the situation explained in the preceding paragraph.  Nor did Tin Fat Manufactory Limited v Kessel Electronics (HK) Limited, DCCJ 10210/2001 (12 October 2001) or Polskie Linie Lotnicze Lot SA v Euro Star Holding Co Limited & Ors, HCA  1063/2019 (12 September 2019), which the plaintiff also relies on.

23.  The only case cited by the plaintiff where service of court document by post was subsequently returned through post is Chan Man Hing v Dong Wai Ba Fong Logistics Company & Anor, DCEC 363/2018 (12 September 2018).  There the issue of service was that of a summons for the purpose of joinder of party.  The intervener’s solicitors had attempted to serve the summons on the respondent in different ways including by post to its registered office.  The service by post was returned.  In accepting the applicability of section 827 of the CO, the learned District Judge expressed his understanding of the authorities (including Ho Kwok Wah (above)) that the subsequent return of the mail was neither here nor there.

24.  I would advise to read Chan Man Hing with caution.  The labelling of the effect of the return of the summons through post as “neither here nor there” can only be understood other than in the context of an application of default judgment. Further, the court there found that the intervener’s solicitors actually served the summons by inserting into the letterbox or leaving at the door of the registered office of the defendant, which was recognized by section 827 of the CO.  Hence the further comment of the court that if he was wrong in his analysis of service pursuant to section 827 of the CO as a matter of principle, there was in any event valid service of the summons pursuant to that section as a matter of fact.

25.  To the extent of the effect of return of the writ (served by post) through post discussed above, the defendant’s reference to Cathrineholm v Norequipment [1972] 2 QB 314 (and during the hearing, the additional authority of R v London County Quarter Sessions Appeals Committee, Ex parte Rossi [1956] 1 QB 682, which was referred to in Cathrineholm) is not without reason.

26.  As mentioned, the plaintiff never denied that it had knowledge about the return of the writ through post on or after 5 December 2019.  Nor did it deny that such knowledge existed at the time when it applied for default judgment which was issued on 6 January 2020.  In my judgment, the plaintiff could not take advantage of the deemed service of the writ on the defendant for the purpose of applying for default judgment against the defendant at the relevant time, whether service was done pursuant to O10, r1 or section 827 of the CO.

27.  It follows that the judgment obtained was irregular and should be set aside on this ground alone.

28.  The defendant also borrows assistance from Li Ngan Kwan v Gao Li Hui [2007] 4 HKLRD 592 in support of its argument that the judgment, be it regular or irregular, is liable to be set aside on the ground of fairness to the defendant in the circumstances of this case.  As apparent from that decision, service of the writ on the second defendant there was bad for multiple reasons, including those of the most unusual circumstances.  This goes far beyond what is relevant for the defendant’s purpose in the present case.  In view of the discussion above, reliance on this case is also not necessary.

Merits

29.  I could be brief about the merits, and just for completeness.

30.  As mentioned, the plaintiff’s claim consists of two major parts: the outstanding consultancy fees since the commencement of the effect of the Consultancy Agreement until termination; and the payment in lieu of notice of termination.

31.  The master expressed reservation in relation to the claim for the outstanding consultancy fees[1]:-

“42. …… For the present purpose, suffice it for me to point out the followings:

(1)  As Mr Lo correctly pointed out, the pre-commencement services provided by the plaintiff … were not parts of the services set out in clause 2 of the Consultancy Agreement. Nowhere in the Consultancy Agreement mentioned that the plaintiff (and/or Dr Chu) was required to undertake the consultancy works as claimed prior to the commencement of services by Dr Chu.

(2)  As is appeared in Dr Chu’s affidavit, the entirety of this part of the plaintiff’s claim is based on Dr Chu’s “impression that by having the agreement to take immediate effect, [he] would be paid the consultancy fee commencing from the effective date of the Consultancy Agreement to sort of compensate [his] loss during the transition period.” (sic) [Emphasis added] Based on this impression, Dr Chu deposed that it was a mutual understanding and interpretation of the parties that the defendant would pay him the consultancy fees. The defendant denied that there was such a mutual understanding and interpretation.

(3)  Mr Lo observed that the plaintiff has never sent any chasers or reminders for payment for the said consultancy fee.  The plaintiff did not dispute this observation.

(4)  The entire agreement clause (clause 16) of the Consultancy Agreement would have superseded any prior agreements (written and oral) between the parties.

43.  Accordingly, I hold that the defendant has real prospect of success in contesting the plaintiff’s claim as regards the outstanding consultancy fee between 12 September 2019 and 21 October 2019…”

32.  The defendant stands by the above conclusion of the master, which the plaintiff does not seek to challenge.  On rehearing, I share the same view of the affidavit evidence, and adopt the above reasoning of the master, in this respect.

33.  As for the claim for payment in lieu of notice of termination, I too notice the express reference in the first paragraph of the Consultancy Agreement that it was effective from September 2019, while the substantive provision in clause 1 provided that the plaintiff’s provision of service would begin on 1 November 2019.  I share the observation of the master[2] that the effect of the agreement did not, as it did not have to, coincide with the term of the commencement of the provision of the plaintiff’s service under the agreement.

34.  Clause 7 of the Consultancy Agreement, which provided for the termination of the agreement by notice, did not cast light on the distinction between the dates of effect and the commencement of provision of service by the plaintiff for the purpose of the application of the clause.  If the clause was applicable to termination prior to the commencement of provision of service by the plaintiff, there would seem to be no reason why the plaintiff should not be entitled to the prescribed notice period, or alternatively payment in lieu of notice.  As to the understanding of the parties in this respect at the time when the agreement was made, all the circumstances surrounding then as a matter of fact and the construction of the agreement as a whole may be relevant to the forming of the final view of the matter.  However, in view of the above conclusion as to the regularity of the judgment, I need say no more.

Conclusion and costs

35.  The appeal is allowed, and the master’s order is set aside.  The judgment dated 6 January 2020 is hereby set aside.

36.  Following this event, and the circumstances of this case as discussed, the plaintiff was not entitled to enter default judgment in the first place.  On this basis, the defendant should have its costs of and occasioned by its application before the master and this appeal.  Costs shall be taxed, if not agreed, with certificate for counsel.

37.  I have heard counsel tentatively on the incidence of costs liability, and therefore expect no further argument.  That said, I still make a nisi costs order in terms as just mentioned, so that the parties still have the opportunity of seeking to argue it, if so advised, by application within 14 days.  In the absence of such application, the nisi costs order will become absolute without further order.