CONNAUGHT REAL ESTATE LTD AND ANOTHER v. PRIMOCARGO AGENCY LTD

 DCCJ 935/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 935 OF 2008

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DECISION

Background

1.  On 5 March 2008, the Plaintiffs commenced these proceedings as the owners of Rooms 901 and 902, 9th floor, Shiu Fung Building, 239 - 241 Wing Lok Street, Hong Kong ("Property").  Their claims are made against the Defendant, which is the tenant under a Tenancy Agreement made between the parties and dated 12 July 2005 ("Tenancy Agreement").  The Plaintiffs' claims are for :

(1)   recovery of arrears of rent for 4 months from 1 December 2007 to 31 March 2008, in the sum of $71,440 ("Arrears");

(2)   rent during a rent free period from 1 October 2005 to 30 November 2005, and from 1 October 2006 to 30 November 2006, in the sum of $42,864 ("Waived Rent") triggered under the Tenancy Agreement by the Plaintiffs' breach in failing to pay the Arrears;

(3)   possession of the Property ("Claim for Possession");

(4)  interest; and

(5)  management fees and air-conditioning fees from 1 April 2008 ("Miscellaneous Claim"). 

2.  It is not in dispute that after the Writ was issued and served on the Defendant, the Defendant made payment to the Plaintiffs of a sum of $71,440 in discharge of the Plaintiffs' claim for the Arrears.

3.   Further, it is not in dispute that on 17 April 2008, the Plaintiffs entered judgment against the Defendant ("Judgment") in default of notice of intention to defend being filed, without any credit being given in respect of the sum of $71,440 received by the Plaintiffs.  Under the Judgment, the Defendant was ordered to deliver up possession of the Property, pay the Plaintiffs the sum of $115,739.26 (inclusive of the claims for the Arrears, the Waived Rent, and interest on the Arrears and the Waived Rent calculated up to the date of the Writ) and further mesne profits, management fees and air-conditioning fees from 1 April 2008. 

4.  On 13 May 2008, the Defendant issued a summons to set aside the Judgment.  On 19 May 2008, the Plaintiffs issued their summons to amend the Judgment by deducting the amount of the payment received.  However, Counsel for the Plaintiff conceded in the course of the hearing on 17 July 2008 that the Judgment cannot be cured by amendment in view of the dispute relating to the claim for the Waived Rent.

5.  At the hearing of the summonses on 17 July 2008, the issues for determination are as follows:

(1)   whether the Judgment was a regular, or an irregular, judgment;

(2)   if the Judgment is an irregular judgment, whether the Defendant is entitled to set aside the Judgment as of right, or whether the merits of its defence should be taken into consideration by the court in determining whether the Judgment should be set aside;

(3)   if the merits of the defence are relevant, whether the Defendant has shown a meritorious defence.

Whether the Judgment was a regular, or an irregular, judgment

6.  It cannot be disputed that the Judgment was entered for too large a sum, in that it failed to give credit to the Defendant in respect of the payment of $71,440 made after the issue of the Writ and before Judgment was entered. 

7.  It is also clear from the authorities cited by Counsel for the Plaintiffs and for the Defendant that a judgment for too large a sum is an irregular judgment. 

If the Judgment is an irregular judgment, whether the Defendant is entitled to set aside the Judgment as of right, or whether the merits of its defence should be taken into consideration

8.  Counsel disagree as to whether in respect of a judgment entered for too much, the Judgment should be set aside irrespective of the merits of the Defence (following Po Kwong Marble Factory Ltd. v. Wah Yee Decoration Co. Ltd. [1996] 4 HKC 157), or whether, as Counsel for the Plaintiffs contend, the merits should be considered (following The New China Hong Kong Finance Ltd. (in liquidation) v. Shimada Ltd., HCA 11030 of 1999 (unreported, 23 May 2000). 

9.  Whereas it would appear to be clear from the authorities cited that where a judgment is irrregular by virtue of a defendant not having been properly served, having thus been deprived of the right to be heard which is accepted as a fundamental right (as recognized in the judgment of Godfrey JA in the case of Fok Chun Hung v. Lo Yuk Shi [1995] 1 HKLR 420 at p.  424), the defendant is entitled to have the judgment set aside as of right, there is more debate when it comes to a judgment which is entered for too large a sum. Cheung, J (as he then was) in New China considered that in such a case, the merits should be considered.  Even in the case of Po Kwong, the Court of Appeal considered that in a case where a defendant is not properly served, the court has a residual discretion to consider the defendant's conduct and the circumstances of the case and decide whether to impose terms when setting aside the irregular judgment. 

10.  I consider myself bound by Po Kwong and by the decision of Deputy Judge L. Chan in the case of Kerry Freight (Hong Kong) Ltd. v. Del Prado Asia Ltd.[2005] 3 HKLRD 804, where the learned judge held that the court should set aside an irregular default judgment without considering the merits of the defence and drawing no distinction between cases where the irregularity was due to defective service of the writ and other examples of irregularity. 

If the merits of the defence are relevant, whether the Defendant has shown a meritorious defence

11.  This issue falls aside, as I have ruled that the merits of the Defence are not relevant.

12.  However, the court has a residual and wide discretion to have regard to the conduct of the parties and, if necessary, to impose terms upon the setting aside of the judgment which accord with justice having regard to the facts of the particular case ( Po Kwong (supra) and Kerry Freight (Hong Kong) Ltd. (supra)).

13.  There has been no delay on the Defendant's part in applying to have the Judgment set aside.  Payment of the Arrears which are not in dispute has already been made.  There is no need for the Defendant to show a defence on the merits, but in any event, from the authorities cited to me (Hazel v. Akhtar and another  [2001] EWCA Civ 1883; Craine v. The Colonial Mutual Fire Insurance Co Ltd. & Another [1920] 28 CLR 305) I do not consider that the proposed defence of estoppel is so utterly and manifestly divorced from any merit (using the words of Bokhary, JA (as he then was) in Po Kwong)as to amount to an abuse of process.  Nor have I seen any evidence of any injustice that may be suffered by the Plaintiffs were the Judgment to be set aside. 

14.  In exercising my residual discretion as to whether to impose terms on setting aside the Judgment, I take into consideration the fact that the Judgment was entered for the excessive amount not by reason of any blameworthy conduct of the Defendant, but because the Plaintiffs simply failed to inform their solicitors of the payment received from the Defendant, and permitted Judgment to be entered for the full amount claimed.  This was explained only 3 days before the hearing as the Plaintiffs' "oversight".

15.  The Plaintiffs invite the court to consider the fact of the Defendant's failure to pay the rent on time, but this is precisely the point in issue between the parties: the Plaintiffs had persistently accepted the Defendant's consistent pattern of substantial delay in the payment of rent, without much evidence of the Plaintiffs' complaint and certainly without their exercising their right under the Tenancy Agreement to recover the rent for the rent free period expired and hitherto enjoyed by the Defendant.  I pointed out at the hearing that the Plaintiffs have not pleaded in the Statement of Claim that the Defendant is in breach of the Tenancy Agreement by virtue of its persistent delay in the payment of rent, but rely only on the Defendant's default in payment of the Arrears.

16.  I do not consider that it is appropriate in this case to impose any terms on the setting aside of the Judgment.

Conclusion

17.  The Judgment is accordingly set aside.  The costs of and occasioned by the summons to set aside are to be paid by the Plaintiffs to the Defendant, with certificate for Counsel.  The Judgment obviously cannot be amended as suggested by the Plaintiffs, so the Plaintiffs' summons to amend is dismissed, with costs.