XCHRX BRAD STERLING SMOLAR v. PROSPORT MANAGEMENT LTD. AND ANOTHER

HCA7744/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.7744 OF 2000

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J U D G M E N T

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1. On 28 February 2000, Mr Brad Sterling Smolar ("the plaintiff") commenced proceedings against Prosport Management Limited (formerly known as Sports International Limited) ("the 1st defendant") and Steven Marc Feuerstein ("the 2nd defendant) in the Labour Tribunal.

2. By an order dated 30 June 2000, the claim was transferred to the High Court by the Labour Tribunal. By a letter dated 4 August 2000, the Registrar, High Court informed the parties to appear before a master in Chambers on 14 September 2000 :

"So that, directions may be given on the future conduct of these proceedings"

3. The letter of 4 August 2000 was addressed to the 1st and 2nd defendants at 24th Floor, Citic Tower, 1 Tim Mei Avenue, Admiralty, Hong Kong, which was then, the principal place of business of the 1st defendant. However, according to the 2nd defendant, the 1st defendant ceased business there in September 2000. It seems to be his case that since then the 1st defendant has no place of business at all. If there was any uncertainty over the address for service for the 2nd defendant, that perhaps was also understandable. According to the 2nd defendant, between February 1996 and December 2000, he moved house six times.

4. On 14 September 2000, pursuant to Order 79, Master Poon ordered the plaintiff to file and serve a Statement of Claim within 14 days and the defendants to file and serve a defence within 14 days thereafter. The plaintiff appeared in person. According to the Master's record, the 1st defendant was represented by a Mr Timothy Aston Bredbury ("Mr Bredbury"). He also recorded the 2nd defendant as being absent.

5. In the 1st affirmation of Mr Feuerstein, he referred to Mr Bredbury as one of his employees. And that he was informed by Mr Bredbury after the directions hearing on 14 September 2000 that :

"If the plaintiff wanted to continue his claim, he would have to set out his case in writing and serve a document upon me."

6. The plaintiff served the Statement of Claim by registered post addressed to Room 2112 Asian House, 1 Hennessy Road, Hong Kong. That was the address of a company called Cell Plus (H.K.) Ltd ("Cell Plus"). The 2nd defendant and his wife were the shareholders and directors of Cell Plus.

7. No defence was filed and the plaintiff obtained judgment in default of defence against both defendants on 8 November 2000.

8. The judgments were set aside by the Master on 9 May 2001 on the ground that the judgments were irregular because the Statement of Claim had been served at the wrong address and also on the merits.

9. This is the plaintiff's appeal.

10. The plaintiff explained how it was that the Statement of Claim was served at Cell Plus' address. In his 3rd affidavit which was filed on 8 May 2001, he said :

"9. Before serving the Statement of Claim to the Defendants, I made a phone call to the 1st Defendant. I was informed that the 1st Defendant had moved to Room 2112, Asian House, 1 Hennessy Road, Wanchai, Hong Kong and the address was the workplace of the 2nd Defendant ('the Asian House address'). I was also informed by some of my former colleagues of the 1st Defendant that the 2nd Defendant had moved to work at the Asian House address, sharing the office with his wife Wang Ching Feng."

11. However, in his 4th affidavit which was only sworn on 6 August 2001, he had this to say :

"10. ...After the hearing before Master Poon on 14th September 2000, I asked Mr. Timothy Bredbury, an appointed representative of the 1st and 2nd Defendants, where should I send the Statement of Claim to the Defendants. Mr. Bredbury told me that I could serve the Statement of Claim upon the Defendants at the Asian House address. ..."

12. Mr Grossman SC, who appeared for the defendants, has submitted that these two versions are inconsistent and I should reject the later version. In any event, this later version is not admitted by the 2nd defendant.

13. But, I have no reason to think that the plaintiff chose the Asian House address for any improper reason. The Statement of Claim was served by registered post. It was posted on 28 September 2000. It was not returned. Indeed, again, in his 4th affidavit, the plaintiff has produced, from the Hong Kong Post, a delivery receipt which showed that receipt of the letter containing the Statement of Claim by Cell Plus on 29 September 2000.

14. There is some support for the plaintiff's case that after September 2000, the Asian House address was where the 1st defendant and the 2nd defendant could be served. In an article in the Asia Week Magazine dated 22 December 2000, referring to September 2000, it said :

"Feuerstein moved what was left of the operation to the accommodations of Cell Plus, his wife's Hong Kong mobile phone accessory company."

15. I have to add that it is not very clear from the Article the writer was referring to which of Mr Feuerstein's operations, Sports Net Global or the 1st defendant, nor am I clear about the connection between the two. I do not think that matters greatly. However, the move of Mr Feuerstein's "operation" to Cell Plus may explain why Mr Bredbury told the plaintiff that he could serve his Statement of Claim on Cell Plus.

16. I think I must proceed on the evidence available before me now. Quite sensibly, there has been no application for cross-examination, which I probably would have refused anyway. On the balance of probabilities, I conclude that Mr Bredbury had told the plaintiff that the Statement of Claim could be served at the Asian House address.

17. I am mindful of the fact that, according to the Master's record, Mr Bredbury appeared for the 1st defendant only. However, as I have mentioned above, Mr Feuerstein referred to Mr Bredbury as one of his employees and indeed had spoken to him after the hearing before Master Poon. I think in all the circumstances, it is fair to conclude that Mr Bredbury had actual or apparent authority to represent both the 1st and 2nd defendants when he responded to the plaintiff's query as to where the Statement of Claim could be served.

18. If I am right that Mr Bredbury had actual or ostensible authority to inform the plaintiff as to the address for service, I do not believe either the 1st or the 2nd defendant can complain if the plaintiff then went ahead and served on that address.

19. That being the case, I am of the opinion that the Statement of Claim had been properly served. I do not believe it is necessary for me to decide whether the Asian House address was indeed the 1st defendant's principal place of business. Should I need to do, I would have concluded that what was left of the 1st defendant's operation had been moved to Cell Plus's address at Asian House and that it was the 1st defendant's principal place of business. I would also have concluded that was the 2nd defendant's last known address.

20. Having come to the conclusion that the service on the 1st and 2nd defendants was regular, I turn to consider whether or not the default judgment was regularly obtained. There is an affidavit of service by the plaintiff dated 26 October 2000. There was followed by a judgment dated 8 November 2000. At that time, the plaintiff was acting in person. Mr Grossman submitted that in so far as the judgment was purportedly entered pursuant to Order 19, rule 2 that in itself was an irregularity even if the Statement of Claim had been properly served.

21. He submitted that a default judgment under Order 19, rule 2 could only be obtained in an action which had been begun by writ. He referred to Order 19, rule 2 which reads :

"2(1) Where the plaintiff's claim against a defendant is for a liquidated demand only, then, if that defendant fails to serve a defence on the plaintiff, the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, enter final judgment against that defendant for a sum not exceeding that claimed by the writ in respect of the demand and for costs, and proceed with the action against the other defendants, if any."

He drew my attention to the reference to "a sum not exceeding that claimed by the writ ...".

22. Indeed, according to the editorial comments on Order 19 :

"This order contains rules dealing with the consequences that may flow from a party's failure to comply with the rules as to the service of pleadings in proceedings begun by writ, see Order 18."

see Hong Kong Civil Procedure 2001 at page 295.

23. Now, Order 79 governs tribunal proceedings including proceedings in a Labour Tribunal transferred to the Court of First Instance. Order 79, rule 1 provides :

"Save as is otherwise provided by Ordinance or rules of court when a matter is transferred or removed from a tribunal to the Court of First Instance, it shall be set down before a master who shall make such directions as he sees fit for the further conduct of the proceedings."

24. This was precisely what happened and pursuant to Order 79, as I have said, Master Poon ordered the service of a Statement of Claim within 14 days and service of a defence within 14 days thereafter. Order 79 does not deem such proceedings to have been commenced by writ.

25. If Order 19 only applies to proceedings commenced by writ, in so far as proceedings transferred from a Labour Tribunal were not commenced by writ does it mean that default judgment is not available to such proceedings?

26. For example, if the plaintiff had failed to serve a Statement of Claim, does Order 19, rule 1 apply? Order 19, rule 1 provides :

"Where the plaintiff is required by these rules to serve a Statement of Claim on a defendant and he fails to serve it on him, the defendant may, after the expiration of the period fixed by or under these rules for service of the Statement of Claim, apply to the court for an order to dismiss the action, and the court may by order dismiss the action or make such other order on such terms as it thinks just."

27. I believe Order 19, rule 1 applies to proceedings where under Order 79, a plaintiff is required to serve a Statement of Claim on a defendant but has failed to do so. Given that Order 79 is a Hong Kong rule whereas Order 19 is based on the English practice, I see no reason why Order 19, rule 1 cannot be adapted to apply to a plaintiff who has been ordered to serve a Statement of Claim under Order 79.

28. Admittedly, in Order 19, rule 2, there is a reference to :

"a sum not exceeding that claimed by the writ."

However, when one looks at the rest of Order 19, there are no other references to any writ at all.

29. I do not believe that I am compelled by the language of Order 19, rule 2 to hold that it only applies to a case which was commenced by writ. The reference to "a sum not exceeding that claimed by the writ", in my opinion, only applies to a case where there was indeed a separate writ issued.

30. Mr Grossman accepted that in any event the court has inherent power to enter judgment in such circumstances. It makes no sense that in tribunal proceedings transferred to the High Court, such summary procedures should be unavailable. If the court has inherent power to enter judgment in default of defence, it does not matter whether the correct power was invoked when the order was made, see Premier Fashion Wears Limited v. Li Hing Chung [1994] 1 HKC 213. I should add that the plaintiff acted in person at the time and he made no reference to any specific provision at all.

31. I conclude, therefore, that the judgment was regular.

32. I turn to consider whether is there a defence on the merits. This, I find, to be the most difficult part of the case.

33. The 2nd defendant's assertion that he was not aware of the service of the Statement of Claim is difficult to accept. He and his wife were the only shareholders of Cell Plus. They were also the directors.

34. According to him, for one reason or another, he visited his wife's premises at Asian House on 14 November 2000 for the first time. There is a statement from Miss Regina Chan, who was in charge of incoming mails at Cell Plus, and whose statement asserted that she had never received any letters addressed to the 1st or 2nd defendant "from the High Court or Supreme Court". But the registered letter was duly receipted. Of course, it was not addressed "from the High Court or Supreme Court".

35. On the other hand, from the available evidence, the 2nd defendant does not seem to be a person who is likely to give in without a fight. So, notwithstanding my skepticism, and because I have come to the conclusion that there is a defence on the merits, I have decided to proceed on the basis that somehow or another, the defendants were not aware of the service of the Statement of Claim.

36. The plaintiff's claim is for unpaid wages in the sum of HK$518,431.00 and bonus and commissions totaling HK$371,700.00. The plaintiff has alleged that he was employed by the 1st defendant between October 1998 and February 2000 and that the 2nd defendant personally guaranteed payment to him.

37. There was no written contract of employment. The plaintiff relies on a contract of employment dated 26 August 1998 which was signed by him but not signed by the 2nd defendant or the 1st defendant. Indeed, the 2nd defendant denies its authenticity.

38. The defence is that the plaintiff was an employee of the 1st defendant between July 1999 and 28 November 1999 at HK$66,000.00 per month and that he was employed specifically to assist in connection with the organization of the Hong Kong Open Golf Championship which ended on Sunday, 28 November 1999. The 2nd defendant denies any personal guarantee.

39. The defendants, however, admitted having paid HK$85,000.00 to the plaintiff on 21 October 1998, HK$100,000.00 on 24 December 1998, and then HK$66,000.00 each in March, April and June 1999. However, according to the 2nd defendant, these were loans to a friend.

40. It seems that the plaintiff and the 2nd defendant were friends at one time. It is clear that in August 1999, employment of the plaintiff by the 1st defendant was in contemplation. There is a letter dated 25 August 1998 from Fairbairn Catley Low & Kong to the plaintiff which referred to a meeting with the plaintiff as well as the 2nd defendant. In this letter, advice was given to the plaintiff about his position under a contract of employment with his previous employer and certain restrictive covenants in that contract. What happened afterwards is in dispute.

41. In support of his employment, the plaintiff has produced an affidavit of one Mr Louis Yien Tseng Wing. He was the Senior Sales & Marketing Manager / Senior Corporate Relations Manager of the 1st defendant, from May 1999 to August 2000. In his affidavit sworn on 1 August 2001, he said :

"...

5. For the period between May 1999 to November 1999, I attended several internal and external meetings with the Plaintiff regarding the promotion of the Hong Kong Open Golf Championships 1999, Super Jam NBA Basketball event, the Millennium Games 2000, as well as all scheduled Sports International events.

6. For the period from December 1999 to early January 2000, the Plaintiff worked with our sales and marketing team to help us in finalising the event of the Hong Kong Golf Championships 1999, such as reviewing clients' thank you letters and making follow-up phone calls to clients. During such time, the Plaintiff attended meetings with me and our colleagues of the sales and marketing department on a daily basis. Sometimes, the 2nd Defendant also participated in the meetings. The Plaintiff had proved himself to be was very helpful to all of us during such period."

42. However, the defendants have produced a letter signed by Mr Yien as Senior Sales & Marketing Manager of the 1st defendant addressed to the Labour Tribunal dated 7 March 2000 where he said :

"From July 1999 through November 1999, Mr. Smolar Brad Sterling provided consulting services to our company for the promotion of the Hong Kong Open Golf Tournament. Mr. Smolar neither attended the office nor brought any income to the company after the end of HK Open - November 28th, 1999."

43. I give this as an illustration of the potential conflict of evidence. There are more. But I think this is sufficient for the present purpose.

44. That being the case, having regard to the conflicting evidence put before me, although I must say I can see the strength of the plaintiff's case regarding a contract of employment between him and the 1st defendant, I am bound to say that this is not a case where I can say that the denial by the 2nd defendant of personal liability has no merit. Nor can I say that there is no bona fide dispute over the duration of the employment. If there is a dispute over the period of employment, there is also a dispute over whether the plaintiff had been overpaid by the 1st defendant. Since I have come to the conclusion that there is a defence on the merits, I agree with the learned Master that the judgment should be set aside.

45. I turn now to deal with the question of costs. When the matter went before the learned Master, he came to the conclusion that the judgment was irregular. The Master did not have the benefit of the subsequent evidence filed by the plaintiff, in particular, his evidence that he was told by Mr Bredbury that he could serve the Statement of Claim at the Asian House address.

46. The result of the hearing before me is that the judgment remained set aside. Mr Grossman argued that that being the case he should have the costs before the Master as well as costs of the appeal. I am mindful of the fact that the plaintiff has succeeded in showing that the judgment was a regular judgment. Normally, when a defendant applies to have a regular judgment set aside, he has to bear the costs of the application.

47. So, bearing all these matters in mind, I believe that the fairest order to make is that the defendant should bear the costs of the hearing before the Master in any event. I do so on the basis the defendants who applied to have a regular judgment set aside should bear the costs. So I order such costs in the plaintiff's favour in any event.

48. As for the costs before me, the appeal probably would not have been necessary had the plaintiff put all the evidence before the learned Master. He would have found that the judgment was regular but set it aside on merits, giving costs to the plaintiff. I have confirmed the setting aside of the judgment on the merits.

49. That being the case, my order is that the defendants should have the costs of the appeal in any event.

50. Since I have ordered both sets of costs in any event, there will, of course, be no taxation or payment of such costs prior to the conclusion of the proceedings. This, I think, is the fairest outcome given the size of the claim and the limited personal circumstances of the parties disclosed in the evidence before me.