AU CHOW ELECTRICAL CO LTD v. CHERISON ENGINEERING LTD AND ANOTHER

HCA2736/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2736 OF 2008

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RULING

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1.  This matter started off an appeal by the defendants against the order of Master Kwan given on 7 May 2009 dismissing the defendants’ application to set aside the default judgment obtained by the plaintiff against them in default of defence in this matter.

2.  In the course of hearing the appeal, it became apparent that the default judgment had been obtained by the plaintiff for too much and for which the plaintiff was not entitled to.

3.  Accordingly, I gave the plaintiff seven days in which to apply to put right the default judgment obtained by them.

4.  This resulted in an application by the plaintiff by summons dated 10 June 2009 seeking to amend the default judgment.

5.  Since both the appeal by the defendants and the application to amend the default judgment are intrinsically connected, I will deal with both in this written Ruling together.

Background

6.  The Writ with Statement of Claim endorsed was issued and served on the defendants on 24 December 2008.

7.  The defendants acknowledged service on 7 January 2009 through solicitors and indicated intention to defend the plaintiff’s claim.

8.  No Defence having been served by 20 January 2009, the plaintiff gave Notice of Intention to Enter Judgment upon two clear days from the expiration of the time for service of the Defence.

9.  On 21 January 2009, the defendants applied by Summons for 21 days extension of time to file a Defence which was granted by the Master on 22 January.  Accordingly the deadline for filing a Defence was on 12 February 2009.

10.  No Defence was filed by that deadline and no further application for extension made by the defendants nor any communication between solicitors for the parties, the plaintiff’s solicitors applied for judgment and filed a draft judgment for approval by the court on 18 February 2009.

11.  The court approved that draft judgment on 20 February 2009 but it was only on 26 February that the plaintiff received back the approved draft form the court.  Immediately on the same day, the judgment was sealed and served on the defendants’ solicitors.

12.  Meanwhile on the day before that, i.e. 25 February 2009, the defendants’ solicitors had issued a second summons seeking a further extension of time for filing Defence.

13.  That second time summons was heard by the Master on 27 February who made no order on it but indicated that the defendants may wish to apply to set aside the default judgment obtained already.

14.  On 4 March 2009, the defendants issued a summons to set aside the default judgment on the express grounds of irregularity.

15.  On 2 April, the defendants sought and was granted leave to amend the setting aside summons by deleting the words “on the grounds that it is irregular”.

16.  That amended summons to set aside the default judgment was heard by Master Kwan on 7 May 2009 and the application to set aside was dismissed by her after the hearing from which order this appeal is brought.

Defendants’ appeal

17.  The defendant’s application was, after the amendment to their original summons to set aside the default judgment, on the basis, firstly, that the judgment was irregular, and alternatively, if it was a regular judgment, then they had a good and meritorious defence.

18.  The irregularity originally complained of by the defendants was that since they had issued a second time summons on 25 February 2009, that made the default judgment irregular when it was sealed and served on the following day.

19.  This is neither a novel point nor a good one, since it is trite practice that an application per se for extension of time to file a defence will not prevent a plaintiff from applying for default judgment.

20.  At the hearing of the appeal, the defendants’ solicitors quite correctly and properly abandoned this line of contention.

21.  Accordingly, at the hearing of the appeal, the matter was argued on whether or not the court should exercise its discretion to set aside a regular judgment on merits.

22.  That turns on whether the defendant has shown “a real prospect of success” on the merits of the case.

23.  In the circumstances, it is necessary to go into the substance of the claim and the proposed defence raised.

Plaintiff’s claim

24.  The plaintiff and the 1^st defendant are limited companies.  The 2^nd defendant is the major shareholder and director of the 1^st defendant.

25.  The plaintiff’s claim arises from two government contracts for maintenance works, TCN 012 (“the 1^st Contract”) and TCL 042 (“the 2^nd Contract”).

26.  In both the 1^st Contract and the 2^nd Contract the plaintiff had sub-contracted the works to the 1^st defendant.

27.  It is the plaintiff’s case that during the currency of the 1^st Contract and 2^nd Contract, and due to the financial difficulties of the 1^st defendant, the plaintiff had to advance payments to the 1^st defendant for the 1^st defendant to pay its workers and/or to purchase material.  Such advance payments would then be deducted from sums which the 1^st defendant would be entitled to.

28.  It is the plaintiff’s pleaded case that at the end of the day, the 1^st defendant owed to it, after deducting all that was owed to the 1^st defendant, $10,384,317.47 in respect of the 1^st Contract and $1,529,787.66 in respect of the 2^nd Contract.

29.  These amounts had not been repaid despite repeated demands.

30.  The plaintiff therefore claimed totally $11,914,105.13 against the 1^st defendant.

31.  It is also the plaintiff’s pleaded case that during the currency of the 1^st Contract, the plaintiff had made personal loans to the 2^nd defendant amounting to $877,794.00 which had not been repaid.  This part of the pleaded case by the plaintiff was preceded by the words “Further or alternatively” in paragraph 15 of the Statement of Claim.

32.  The plaintiff therefore claimed this amount from the 2^nd defendant in the prayer for relief which, on the wording in the prayer for relief appeared to be a separate claim altogether from that against the 1^st defendant.

The judgment

33.  The default judgment obtained by the plaintiff which was sealed on 26 February 2009 shows in paragraph 1 that judgment was given against the 1^st defendant for $11,914,105.13 with interest to run from the date of the Writ at 8.25 % until judgment and thereafter at judgment rate until payment.

34.  In paragraph 2 of the judgment, judgment was given against the 2^nd defendant for $877,794.00 with interest at 8.25 % from the date of the Writ until judgment and thereafter at judgment rate until payment.

Merits of defence case

35.  The first point taken by Mr Chan who appeared for the defendants was that the judgment against the 2^nd defendant for $877,794.00 was a double claim by the plaintiff.

36.  Mr Chan was able to demonstrate from the annexure to the Statement of Claim showing the 43 cheques which totally made up the “personal loans” to the 2^nd defendant as alleged by the plaintiff amounting to the judgment sum of $877,794.00 against the 2^nd defendant were all of them repeated in the running account between the plaintiff and the 1^st defendant in respect of the 1^st Contract.  In that sense, it was submitted by Mr Chan that the judgment amount given by against the 2^nd defendant had already been claimed for and included in the judgment given against the 1^st defendant.

37.  In his reply to the first point raised by the defendants, counsel for the plaintiff had to concede that there was indeed an overlap of the claim in that the amount of the judgment obtained against the 2^nd defendant had already been covered by the amount of the judgment obtained against the 1^st defendant.

38.  It was because of such concession by counsel for the plaintiff that the plaintiff was given seven days in which to put right the default judgment obtained by them.

39.  The second point taken by the defence relates to the claim against the 1^st defendant.

40.  Although there are running accounts between the plaintiff and the 1^st defendant in respect of the 1^st Contract and which had been signed and confirmed by the 2^nd defendant on behalf of the 1^st defendant, it was submitted by Mr Chan that payments in respect of the works done in the 1^st Contract had not been fully finalized and that there are still some adjustments taking place as late as March 2009.

41.  In this respect the defendant has produced copies of documents faxed by the plaintiff to the 1^st defendant seeking the approval of the 1^st defendant to the adjustments proposed by the main contractor in respect of the 1^st Contract.

42.  It was therefore submitted by Mr Chan that claim by the plaintiff is premature and that the further adjustments and payments made in respect of the 1^st Contract would alter the amount of the debt owed to the plaintiff.

Decision on merits of defence

43.  The only real ‘merit’ shown by the defendants in the appeal is the fact that there has been an overlap of the amounts claimed by the plaintiff and that the default judgment has been entered for too much when both amounts against the two defendants are considered in their totality.

44.  On the second point taken by Mr Chan for the defendants, even if true that there are still payments coming in from the main contractor, that still does not accord any good defence to the defendants to defend the plaintiff’s claim.  That is no reason why the plaintiff should be kept from recovering the advances made to the 1^st and/or 2^nd defendant.  If indeed such further payments do come in after the judgment, those can be paid over by the plaintiff to the 1^st defendant as and when they come in.  In the worst scenario, if the plaintiff do not make payment in respect of such further payment coming in, the 1^st defendant can sue for its entitlement in respect of such further payments.

45.  This brings me to deal with the plaintiff’s application to amend the default judgment

Application to amend default judgment

46.  The plaintiff now seeks to amend the default judgment by reducing the judgment against the 1^st defendant in paragraph 1 thereof to an amount of HK$11,036,311.13 and by adding the 1^st defendant to paragraph 2 of that judgment such that both the 1^st and 2^nd defendants are jointly liable for the amount of HK$877,794.00.

47.  The application, by summons, is made under both Order 20, rule 11 (i.e. the slip rule) and also under Order 19, rule 9 of the Rules of High Court.

48.  The application to amend by the plaintiff was objected to by the defendants and I heard arguments on the application to amend on 22 June 2009.

49.  After hearing arguments by the parties, I am satisfied that on the authorities put before me the plaintiff is entitled to amend and to correct the error which appeared on the face of the default judgment already referred to above in this written Ruling.

50.  The authorities show that if a default judgment is entered for more than it is due, it is irregular and the defendant is entitled to have the whole judgment set aside ex debito justitiae, unless the plaintiff applies as he may to reduce it to the proper amount (see Muir v Jenks [1913] 2 K.B. 412).

51.  Moreover, it would appear that in respect of default judgment the “accidental slip or omission” in the slip rule can apply not only to an accidental slip or omission in embodying the order, but may also be invoked where the accidental slip or omission is that of counsel or solicitor (see Craigmyle v Inchcape [1942] 1 Ch 394).

52.  In the case of George Moundreas and Company S.A. v Navimpex Centrala Navala [1983] WL 217131, the Court of Appeal in England (Lord Justice Ackner and Lord Justice Oliver) held that the judge below had power to amend a default judgment properly obtained against the defendant by reducing the amount of the judgment sum by $63,600.  Such reduction came about because :

(a)  a claim for $20,400 though owing when the writ was issued, had been paid before the judgment was obtained but was overlooked by the plaintiff; and

(b) item 5 of the claim wrongly stated the hull number of the vessel in relation to which the claim for $43,200 was made.  It should have been described as 900/150 and not 900/96 in respect of which hull, if it existed, the plaintiffs had no claim.

It was also held in that case that the power of amendment was pursuant to Order 20, rule 11.

53.  Coming back to the present case, apart from the overlapped claim, I have found that the default judgment was properly obtained by the plaintiff.

54.  The one fault in the overlapped judgment amount arose as a result of the wording in the Prayer for Relief at the end of the Statement of Claim failing to make clear that the plaintiff’s claim, in so far as the 2^nd defendant was concerned, was in the alternative to its claim against the 1^st defendant.

55.  By the proposed amendment that omission has now been put right.  Had that omission not existed in the pleading, and the matter appropriately worded in the Prayer for Relief, the default judgment would not have contained such an error.

56.  Thus the analogy can be drawn with the case of Craigmyle v Inchcape, where it was the oversight of counsel in failing to ask for certain costs to be included in the order and as a result those costs were not provided for.

57.  For the above reasons, I am of the view that not only does the Court have the power to amend the default judgment in the present case, but that it should do so to correct an obvious error appearing on the face of that default judgment.

58.  Accordingly, there will be an Order in terms of paragraphs 1 and 2 of the plaintiff’s summons to amend dated 10 June 2009.

Conclusion

59.  Having allowed the plaintiff’s amendment to the default judgment and which has now been put right by such amendment, and having indicated that there is no other merit in the defence case which would merit the default judgment being set aside, the defendants’ appeal is accordingly dismissed.

Cost

60.  There will be cost orders nisi as follows :

(a)  In so far as the application to amend is concerned, the plaintiff has indicated in its summons to amend the default judgment that the costs of that application to amend should be given to the 1^st and 2^nd defendants.

(b) That must be correct and there will be an order in terms to that effect.  Although the defendant did object but unsuccessfully to the application to amend, the hearing would still have been necessary for me to gauge from the plaintiff’s submission that the Court had the power to amend in the way sought by the plaintiff.  Accordingly, the cost of that application and the hearing on 22 June 2009 will be to the 1^st and 2^nd defendants.

61.  As for the appeal (which was heard on 4 June 2009) I am of the view that although the defendants were unsuccessful at the appeal, at the very least, that appeal was necessary in order to get the plaintiff to make the amendment which has now been made.  Without that amendment the judgment would have been irregular and liable to be set aside.

62.  Given the circumstances, there will be a cost order nisi that there will be no order as to cost in respect of the appeal.

63.  I am however minded to leave the cost order made by the Master undisturbed due to the peculiar circumstances in this case.