LAW KAR PO v. LIANG JIN YOU

DCCJ5697/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5697 OF 2003

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DECISION

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The application

1. The Plaintiff ("P") claimed that Overseas Max Limited ("OML") and P together with others were shareholders of Qiao Yuan Restaurant Limited ("QYRL"). Out of 10,000 issued shares of QYRL, OML and P each held 7,500 and 1,000 shares. The Defendant ("D") was one of the shareholders of OML and was in control of OML through General Line Development Limited ("GLDL"). P claimed that D was the alter ego of OML which was a vehicle adopted by D to hold 7,500 shares in QYRL.

2. P claimed that by a Deed of Guarantee dated 13th December 1995 ("Deed") executed by GLDL, D, P, Koo Kim Fai, Hong Fuk Chiu, Chan Kwok Hung, Lam Po Tai and Lam Sheung (collectively, "Guarantors") in favour of Bank of Communications, Hong Kong ("Bank"), Guarantors jointly and severally guaranteed the debts and liabilities of QYRL towards Bank for an unlimited extent.

3. P further claimed that prior to the execution of Deed, P and D orally agreed that the proportion of the total indebtedness under Deed shall be shared by D and P in the proportion of the percentage of the shareholdings of OML and P in QYRL, ie 7.5:1 ("Oral Agreement").

4. P averred that Bank entered judgment against inter alia QYRL, D and P in HCA No.10667/2000 in respect of the indebtedness owed by QYRL to Bank and by inter alia P and D under Deed ("Bank Judgment"). On or about 3rd June 2002, P paid a sum of HK$740,287.18 (which sum included HK$715,887.18 ("Paid Sum") and legal costs in the sum of HK$24,400.00) to Bank through his solicitors in satisfaction of Bank Judgment. Pursuant to Oral Agreement, P claimed against D for the sum of HK$536,915.38 (ie 75% of Paid Sum) ("1st Cause of Action").

5. QYRL was wound up by the court on or about 3rd July 2002, hence any claim by P against QYRL for reimbursement of Paid Sum would be futile as QYRL was unable to pay its debts.

6. P further claimed that under equitable principles D as one of Guarantors was liable to reimburse P a rateable portion of Paid Sum. It was averred that since D executed Deed for his own commercial interests in OML and OML was the majority shareholder of QYRL so that it was in OML's commercial interest to see that banking facilities were granted to QYRL to facilitate or enhance its business, the rateable portion payable by D to P should also be HK$536,915.38 (ie 75% of Paid Sum) ("2nd Cause of Action").

7. As no notice of intention to defend was entered during the prescribed time, default judgment was entered in the present case on 30th October 2003 ("Judgment"). D took out a summons on 18th December 2003 to inter alia set aside Judgment on the ground that the Writ of Summons was not served on D at his usual or last known address ("Summons"). D took out a second summons on 7th May 2004 to inter alia amend Summons to add an additional basis for the application by claiming that D had merits in his defence. Mr Lee, counsel for P, did not oppose the latter summons. I therefore make an order in terms of paragraphs 1 and 2 of the summons dated 7th May 2004 and further grant an order nisi that D should pay P costs of the application under such summons to be taxed if not agreed.

8. Both Mr Lee and Mr Leung, counsel for D, informed the court that the following matters were not disputed :

(a)	The Writ of Summons was inserted into the letterbox of each of (1) 7C, Eastbourne Court, 5 Eastbourne Road, Kowloon, Hong Kong ("1st Address") and (2) Flat B, 4th Floor, Albion Gardens, 17-27 La Salle Road, Kowloon Tong, Kowloon, Hong Kong ("2nd Address") on 30th September 2003.
(b)	D did not reside at 1st and/or 2nd Addresses from 30th September 2003 up to the time Judgment was entered.
(c)	D did not have actual notice of the Writ of Summons prior to Judgment being entered.
(d)	If Judgment is an irregular judgment, then merits of the defence should not be considered.

Indeed, (a) above is supported by an affirmation of Ip Wai Hung Harry ("Ip") of P's solicitors filed on 22nd October 2003. In respect of (d), Mr Lee informed the court that whilst he accepted such principle as set out in the Court of Appeal decision of Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 is binding on me, he reserved the right to re-open this matter on appeal.

D's affirmation evidence

9. D filed 2 affirmations on 18th December 2003 in support of his application.

10. D confirmed that he had not received any documents or correspondence in relation to the present proceedings until he was served with a statutory demand dated 28th November 2003, which was when he first came to know of Judgment. He agreed that 1st and 2nd Addresses were his previous residences. D resided at 1st Address until 31st January 2000 and at 2nd Address from 1st February 2000 to 31st January 2003. He exhibited a tenancy agreement dated 12th January 2000 in support of the period of his residence at 2nd Address. In about May 2002, D moved to live at his present residence at Town House, No.59 Sunderland Estate, No.1 Hereford Road, Kowloon Tong, Kowloon, Hong Kong ("3rd Address") and he lived there since.

11. D doubted Ip's belief as stated in his affirmation that 1st and 2nd Addresses were D's usual and last known addresses. Although P and D were directors of QYRL, D had never revealed his residential address to P and he did not know how P found out 1st and 2nd Addresses. He suspected P did company searches on companies of which he was director/shareholder. If that were so, P should have found out from the company search of Artfield Group Limited ("AGL"), a local listed company of which D was the chairman, that D's address had been changed to 3rd Address since 13th May 2002. D exhibited a Form D2 (Notification of Changes of Secretary and Directors) dated 5th June 2002 in respect of AGL ("Form D") to that effect. D also said that P all along knew D's office address was at Unit G & H, 12th Floor, Universal Industrial Centre, 19-21 Shan Mei Street, Fotan, New Territories ("Office Address"), where he could easily be found. Although D would not normally disclose his residential address to his business counterparts or business partners save for close friends/relatives, he would not conceal his business contact, including his business telephone number and his office address (ie Office Address) where he managed his core business (ie AGL) and his private investments or interests in other companies. In fact, D had been using Office Address as his business address since 1999. D had known P for over 10 years and recalled giving P his business cards on several occasions.

12. D said P and D were business partners in projects other than the restaurant project of QYRL which was a small one. An example of a larger and still on-going project was an investment in a business plaza in Singapore via a corporate vehicle called Guoji Investment Holdings PTE Ltd ("Guoji"). P and D were shareholders/directors of Guoji. D was and is the focal point of contact for relaying information to all directors in Hong Kong. D exhibited various correspondence/documents addressed to Guoji of various dates from 14th September 2001 to 9th July 2003 which he received and relayed to other directors in Hong Kong including P. There was no reason for P not to tell his solicitors D's business address or contact number.

13. D said that since the purpose of service of the Writ of Summons was to bring it to D's attention, there was no satisfactory reason why P did not serve the Writ of Summons on Office Address.

14. D pointed out that the statutory demand which required personal service found its way to Office Address on 28th November 2003 (ie less than a month after Judgment was entered) when he was served. D said that the only reasonable inference was that P deliberately failed to disclose to his solicitors the address he knew D could be served and Judgment was therefore entered without D's knowledge. D claimed that P should have known 1st and 2nd Addresses were not P's usual or last known addresses at the material time and hence service of the Writ of Summons was irregular.

15. Even if Judgment were a regular judgment (which D disagreed), D said he had good merits of defence to set aside judgment. First, D denied the existence of Oral Agreement. He accepted that Deed was made on Bank's request for the granting of banking facilities to QYRL and that Guarantors (including D) knew that they were jointly and severally liable for QYRL's indebtedness to Bank. There was no discussion amongst P, D and other Guarantors as to how they should share the guaranteed indebtedness at the end of the day. The investment in QYRL was rather small so the business partners would not bother to discuss such matters. Further, the business environment in 1995 was extremely good, so no one would expect the drastic economic downturn in 1997 that led to the downfall of QYRL's restaurant business.

16. Secondly, D said he had no knowledge of P's alleged payment of HK$740,287.18 to Bank. P did not inform him and when D contacted Bank for details, he was told that the handling officer had been posted out and the relevant file closed. D did not have in his possession Deed or other documents in relation thereto. Hence, even D's solicitors were not in a position to advise him of his legal position. So D's solicitors wrote to P's solicitors on 13th December 2003 to ask for copies of Deed and Bank Judgment. But as at the date of D's 1st affirmation there was no reply. D said he could not state his defence to 2nd Cause of Action.

P's affirmation evidence

17. P filed his affirmation in opposition on 30th December 2003. By his affirmation P verified the contents of the Statement of Claim.

18. P's solicitors issued a demand letter dated 11th September 2003 by ordinary post to D at 1st and 2nd Addresses. Shortly before that demand letter was issued, P's solicitors conducted a company search on QYRL which revealed annual returns dated 27th June 1996 and 21st June 2001. The former annual return showed that D was a director of QYRL and his address as given was 1st Address. The latter annual return showed that the registered office of QYRL was Office Address. D was not stated to be the secretary or director of QYRL and hence no address of D was shown in the 2001 annual return. However, one of the directors was General Line (Overseas) Development Limited and the secretary was General Line Management Services Limited. Both of their addresses were Office Address.

19. P's solicitors also conducted company searches on OML and GLDL. The annual returns of OML and GLDL dated 20th January and 13th January 2002 respectively, being the last/latest annual returns, showed their registered office at Office Address and D as a shareholder of both companies with 2nd Address given as his address. Various companies of the General Line ("GL") group were the secretaries and directors for both companies and the addresses of these GL group companies as given were Office Address.

20. P said he had no knowledge of D's alleged residence at 3rd Address and he did not know AGL or D's alleged directorship therein. As at the date of issue of the Writ of Summons and service of the same (as well as 7 days thereafter), 1st and 2nd Addresses were the only addresses of D known to P and his solicitors. Other than as referred to above, no further annual returns were filed by QYRL, OML and GLDL. P relied on information from the aforesaid annual returns of companies under D's control.

21. After Judgment was obtained, P's solicitors tried to effect personal service of a statutory demand on D at 1st and 2nd Addresses but their efforts were in vain. The occupants at 1st and 2nd Addresses informed P's solicitors that D did not reside there. It was only then that P's solicitors decided to try Office Address being the registered office of OML and GLDL, and the statutory demand was successfully served on D personally on 28th November 2003 thereat.

22. P also exhibited to his affirmation a copy of Deed and copies of 2 letters from P's former solicitors to Bank. The first letter was a without prejudice letter dated 30th May 2002 inter alia as follows :

"Further to our fax to you today, we confirm that the offer is HK$740,287.18 :-

	HK$715,207.48
+	HK$679.70		(HK$135.94 x 5 days interest up to 3/6/2002)
+	HK$24,400.00		(legal costs)
	_____________
=	HK$740,287.18	"
	============

The second letter was dated 3rd June 2002 whereby P's former solicitors stated that they were instructed by P to send to Bank HK$740,287.18 in full and final settlement of the said action and requested Bank to file a Notice of Discontinuance in HCA No.10667/2000 forthwith. The said letter also reserved P's rights against the co-defendants whether by way of indemnity or contribution.

The issues

23. Both counsel agreed there are the following issues in respect of the present application :

(a)	whether the 1st and/or 2nd Address was at the material time D's usual or last known address;
(b)	whether the principles in Forward v West Sussex County Council & ors [1995] 4 All ER 207, namely, that service was duly effective/valid when the proceedings were brought to the notice of the defendant and not on mere delivery of the writ of summons to his usual or last known address, are applicable in Hong Kong;
(c)	whether Judgment is regular or irregular;
(d)	if Judgment is irregular, whether the court should exercise its residual discretion not to set aside Judgment or to impose conditions for setting aside Judgment;
(e)	if Judgment is regular, whether D has shown real prospect of success on the merits of his defence.

Issue (a)

24. Mr Leung submitted that the essence of P's stance on service of the Writ of Summons on 1st and/or 2nd Addresses was his or his solicitors' reliance on D's addresses as shown in the company searches of QYRL, OML and GLDL. However, P ignored Office Address which was apparent from all of these company searches. Mr Leung argued that such explanation was strange in that P and D knew each other and D had given P his business card (which Mr Leung submitted was that of AGL) on a number of occasions. Mr Leung further submitted that as P and D were business partners in various projects including QYRL and Guoji and that D relayed information on Guoji to P, P could not say he did not know D's address at Office Address.

25. Mr Leung reminded me that there is no evidence forthcoming from P as to what was the outcome of the issuance of the pre-action demand letter by P's solicitors to D at 1st and 2nd Addresses, eg whether the letters were returned by the dead letter post or not. This was not canvassed in either Ip's affirmation (which supported the application for Judgment) or P's affirmation.

26. Mr Leung accepted that there was no hard and fast rule in determining what a defendant's usual or last known address is. He further accepted that a defendant might have several usual or last known addresses. However, taking into account P and D's relationship and the circumstances of their business dealings, Mr Leung submitted that P should be well aware that D's usual or last known address should be Office Address. Indeed, Office Address was frequently referred to in the company searches. He argued that there was no satisfactory explanation as to why P chose 1st and 2nd Addresses and not Office Address for service of the Writ of Summons.

27. Mr Lee submitted that P stated clearly he did not know any other address of D other than 1st and 2nd Addresses. Even though it was pleaded (and hence P knew) that D was the alter ego of OML and in control of the GL group of companies, it did not necessarily mean that D was working at Office Address. It would be unsafe for P to serve the Writ of Summons to Office Address alone. It was not a question so much as to whether service should be made to Office Address but more as to whether service on any of D's usual or last known addresses would be sufficient. In the present case, P relied on information provided in the company searches, ie information which D placed in a public document and held out to the world at large as his address. Quite clearly, given the last/latest annual returns filed in respect of the various companies as exhibited to P's affirmation, it was clear that D represented that 2nd Address was one of his last known addresses. There was no evidence before the court that P knew 2nd Address was no longer D's last known address. Further, D did not dispute that he controlled OML and GLDL and that he used OML as a vehicle to hold shares in QYRL.

28. Mr Lee referred to Guangdong International Trust and Investment Corp Hong Kong (Holdings) Ltd v Yuet Wah (Hong Kong) Wah Fat Ltd & anor [1997] 2 HKC 696 where Keith J at pp.701-2 held that a "last known" address meant the defendant's address as last known to the plaintiff and was intended to be an alternative to the defendant's "usual" address in case the plaintiff was unaware of a recent change in the defendant's usual address. Keith J also went on to say that a person could have more than one last known address, eg the address where he was last known to be living and the address where he was last known to be working.

29. In Hong Kong Mortgage Corporation Limited v Ching Kit Yu and anor HCMP2226/2002 (unreported, 15th April 2003), Deputy Judge To said :

"10. The crucial words of Order 10 rule 1(2)(a) and (b) are "usual or last known address". The first point to note is the disjunctive, "or", between "usual" and "last known".

11. ...... The essence [of "address"] really is a location where the person may be reached or where contact or communication in written form, such as by letter, could be established. If so, a person may have at the same time a number of addresses. ...... Likewise, a person may be reached through his place of work, his home, or his quarters if the nature of his work so requires him to reside in quarters. None of these places ceases to be his address. ...... he may have a number of last known addresses. It would be absurd to say that he must be last known at his residential address and not at his place of work where he spends most part of the day or his quarters where he spends most nights of the week.

12. I now turn to the words "last known" or "last known address". This phrase means the address last known to the plaintiff. The plaintiff is entitled to ascertain from whatever available source that address ...... There is no reason why it should be qualified to mean the address which the defendant last intentionally made known to the plaintiff. The rule would be rendered nugatory if such a qualification is added. With such a qualification, a defendant may intentionally make known to the plaintiff an address at which he could not be reached and hence evade service. The rule provides for the means as to how service may be effected. It could not have been drafted to defeat its own purpose. Hence, I hold the words "last known address" mean the address last known to the plaintiff from whatever source and a defendant may have a number of addresses last known to the plaintiff, depending on the circumstances and diligence of the plaintiff's enquiries."

30. Given that P did not dispute D did not reside at 1st and/or 2nd Addresses at the material time, I have no hesitation in coming to the conclusion that neither address is D's usual address where he might usually be reached. The question is whether either of these addresses is D's last known address. As the above authorities show, a person can have an office as well as a residential address and service on either address (so long as it is the person's usual or last known address) is appropriate. Therefore I reject Mr Leung's insistence that service should necessarily be effected at Office Address. The question is whether 1st and/or 2nd Addresses are D's last known addresses. In my view, as the company search of QYRL conducted by P's solicitors showed 1st Address in 1996 and 2nd Address in 2001 and both appear to be residential addresses, P should have known that 1st Address was unlikely to be still D's last known residential address in 2003.

31. I accept that 2nd Address is D's address last known to P. D admitted in his affirmations that he had not disclosed his residential address to business colleagues. Quite clearly, 2nd Address is shown in the latest/last annual return of QYRL as D's address and there is no basis to suggest that P should have known this was no longer D's residential address at the material time or that he should have known of 3rd Address. P has denied knowledge of D's residential address. In Law Kwok Hung v Tse Ping Man & anor [1999] 4 HKC 397, it was said that it mattered not that perhaps with further inquiry a different address might have been discovered. There is also no direct evidence from D that he specifically gave his AGL name card (if any) to P. Although Mr Leung claimed otherwise, I note that it is unclear from D's affirmations whether D's business cards were actually referable to which company and D himself admitted that he had many business interests. Further, no explanation has been forthcoming from D as to why his particulars in the records with the Companies Registry in respect of OML or GLDL were not updated. In such circumstances, there is no sufficient evidence to refute P's evidence that 2nd Address was last known to him to be D's residential address where D could be reached.

Issues (b) and (c)

32. Mr Leung said that it was not disputed that D did not have notice of the proceedings up to the time when Judgment was entered. Since the whole purpose of service of the originating process was to bring it to the notice of D, service that failed to do so was ineffective or irregular and Judgment should be set aside unconditionally.

33. In a nutshell, Mr Lee's argument was that service of the Writ of Summons on D's last known address was regular service even though D did not actually receive the Writ of Summons. He submitted that whether there was actual receipt was irrelevant and the important consideration was whether service complied with the rules. Service by insertion through the letterbox was a permissible and effective variant to personal service upon proper compliance with the rules and not a second-class variant. Hence Judgment entered pursuant to such service was regular and would only be set aside upon proof of both lack of timeous receipt and on meritorious defence being made out.

34. Mr Lee relied strongly on Honour Finance Co Ltd v Chui Mei-mei [1989] 2 HKLR 146, 150 where the Court of Appeal held that compliance with the rules relating to postal service meant that the service was a good one, notwithstanding that the defendant had never actually received the writ of summons. In short, the emphasis was placed on "delivery" rather than "notice" of the originating process. Consequently, the risk of non-service of the writ of summons fell on the defendant instead of the plaintiff.

35. Godfrey JA in his obiter in Fok Chun Hung v Lo Yuk Shi [1995] 2 HKC 648, 653, a Court of Appeal decision not cited by Mr Lee or Mr Leung, thought there was much force in the argument that Honour Finance Co Ltd's case (supra) could not stand with the subsequent decision of the House of Lords in Barclays Bank of Swaziland Ltd v Hahn [1989] 1 WLR 506. The learned judge also noted that the Court of Appeal in Honour Finance Co Ltd's case (supra) did not have the benefit of adversary argument. However, Godfrey JA left the conflict to be resolved on some other occasion.

36. Honour Finance Co Ltd's case (supra) was decided before the English Court of Appeal decision in Forward's case (supra). Fok Chun Hung's case (supra) also did not refer to Forward's case (supra). In Forward's case (supra), it was decided that service by post and by insertion through letter box took effect when the defendant had notice of the proceedings and not merely on delivery. Since personal service guaranteed that the proceedings came to a defendant's attention, the alternatives provided by the rules were permitted because they founded a working but rebuttable presumption that they would achieve that result and such presumption was rebutted upon the contrary being shown under Order 10 rule 1(3)(a). The court found that such construction was reinforced by Order 10 rule 1(3)(b) which required the affidavit of service to contain a sworn statement not simply that there has been compliance with Order 10 rule 1(2)(a) or (b) but also of the deponent's opinion that the document would have come to the knowledge of the defendant within 7 days thereafter. Such requirement would have been unnecessary if the effect of the rules were otherwise. At p.214 of the judgment Sir Thomas Bingham MR said as follows :

"At the end of the argument we invited counsel to investigate the provenance of the rule permitting service at the defendant's last known address. It appears that the change was made in 1979, following recommendations made by a working party ...... It is in our judgment evident from the report that it was regarded as fundamental that 'the person against whom a claim or remedy or relief is made or sought should have due notice of it so that he should have a reasonable opportunity to answer it' ...... and that alternatives to personal service were recommended 'on the assumption that service by post at the proper address would be effective to bring the relevant document to the notice of the person to be affected thereby' ...... This report strongly reinforces the conclusions we have reached on the construction of the rule."

37. Mr Lee accepted that Forward's case (supra) represented the definitive English position and he even went so far as to say that he found the reasoning in the judgment attractive. However, he submitted that the English decision did not represent the local position.

38. Forward's case (supra) was referred to in Desirable International Fashions Ltd (in liq) v Chiang Shi Chau [1997] 3 HKC 170 and Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378, the latter being a Court of Appeal decision. In Desirable Fashions Ltd (in liq) (supra), a writ was sent by registered post when the defendant was not in Hong Kong. It was not returned through the dead letter post and hence the plaintiff obtained default judgment and later a garnishee order. Waung J held that the judgment was irregular as (a) it was entered for too much and (b) the service was purportedly effected when the defendant was not in Hong Kong. The learned judge referred to Forward's case (supra) without disapproval.

39. In Chu Kam Lun's case (supra), Leong JA (as he then was) with the concurrence of Nazareth VP also cited Forward's case (supra) without disapproval. Leong JA (as he then was) said as follows at p.382 :

"In my view, O 10 r 1(2)(b) authorised service of writ on a defendant within the jurisdiction otherwise than personally by inserting it enclosed in an envelop addressed to the defendant in a letter box at the last known address of the defendant. The authorities are clear that for service under this rule to be effective, the defendant has to be physically within the jurisdiction at the time of service (Barclays Bank of Swaziland Ltd v Hahn ...... applied in Desirable International Fashions Ltd v Chiang Shi Chau ......). Other authorities have held that service is effective when the proceedings are brought to the notice of the defendant and not on mere delivery of the writ to the last known address of the defendant (Forward v West Sussex County Council ......; Fok Chun Hung v Lo Yuk Shi ......). ...... The defendant deposed that she did not know of the proceedings until 29 August 1998 after judgment has been entered against her. There is no evidence that the proceedings had otherwise been brought to her notice prior to 29 August 1998. There can be no doubt that the defendant had no knowledge of the writ at any time prior to judgment being entered on 11 August 1998. On this alone, the service could not have been effective ......"

40. Mr Lee sought to distinguish both Desirable International Fashions Ltd (in liq)'s case (supra) and Chu Kam Lun's case (supra) by saying they dealt with the situation where process was served when the defendant was outside Hong Kong, so that it was a matter of jurisdiction. In respect of service of originating process by alternative variants where the defendant was within the jurisdiction, Mr Lee submitted that service in compliance with the rules could be shown to be ineffective to notify the defendant of the process but was nevertheless valid. As a corollary to such argument, he submitted that where service of a writ of summons was not in compliance with the rules, default judgment obtained pursuant to such service is irregular even if the defendant actually received the writ. He submitted that in such case the plaintiff would be unable to swear to the prescribed affidavit of service.

41. The nub of Mr Lee's arguments, namely, that service in compliance with the rules (but which did not bring actual notice to the defendant) did not impugn the validity of the service as service, is in effect a repetition of the arguments by the plaintiff in Forward's case (supra). It was rejected by the English Court of Appeal in Forward's case (supra) and also by Chung J in Redland Concrete Limited v Hing Lee Construction Company Limited & anor HCA8140/1998 (unreported, 25th June 1999) and a series of decisions of the Court of First Instance referred to below.

42. In Kwan Kam Wah v Chan Wai Ming [2000] 2 HKC 378, Deputy Judge Chu (as she then was) also dealt with service of a writ of summons by insertion in a letter box. The defendant had moved from the relevant address several months before service was effected but he was unable to impeach the plaintiff's good faith as to the assertions in the affirmation of service. The plaintiff in that case relied on a similar argument as adopted by P in the present case to support the validity of the service. The learned judge held at p.385 as follows :

"...... It would appear that as a result of the latest Court of Appeal judgment in Chu Kam Lun in 1999, the Hong Kong position is the same as the English position, namely, the emphasis is not on the delivery but on the receipt or notice of the writs. Applying the test in Chu Kam Lun, the service of the writs herein, albeit in accordance with the Rules, would be ineffective in bringing notice of the proceedings to the defendant. Although the plaintiff had no reason to believe that service of the writs was unsuccessful, the reality is that the defendant had not been afforded an opportunity to be heard. As counsel for the defendant had put it, the essence of a judgment entered under O 13 r 1 is that the defendant had failed to give notice of intention to defend within the time prescribed under the Rules. In order for a judgment to properly come within the ambit of O 13 r 1, the defendant must have been properly served and be afforded the opportunity to give notice of intention to defend within the prescribed time. That being the case, a judgment entered in default where a defendant had not been given that opportunity cannot be said to be regular. ......"

43. Such approach was also adopted by Deputy Judge Poon in Cosec Nominees Ltd & anor v Lau Hon Ming Alan [2001] 3 HKC 290, 296 who noted that such proposition was different from the views expressed by the Court of Appeal in Honour Finance Co Ltd's case (supra). "There, the emphasis of the court was apparently placed on the original process rather than notice of that ...... But after Chu Kam Lun, which is the latest judgment of the Court of Appeal reported on this subject, it would appear that this view is no longer preferred."

44. Mr Lee submitted that Kwan Kam Wah's case (supra) and Cosec Nominees Ltd & anor's case (supra) did not establish any new law. In particular, he suggested that the learned judge in the latter case merely recounted the historical legal development in various cases and said it "would appear" that the view in Honour Finance Co Ltd's case (supra) was no longer preferred. Mr Lee also submitted that in Kwan Kam Wah's case (supra), the learned judge also only said it "would appear" that the Hong Kong position was the same as the English one. Mr Lee argued that the views expressed were not definitive. Indeed, Mr Lee submitted he had no quarrel with the observation by the learned judge in Kwan Kam Wah's case (supra) that if the defendant did not have notice of the proceedings, service was ineffective, however he submitted that such service might well still be regular and valid.

45. I do not accept that Mr Lee's submissions reflect a proper reading of the judgments in Kwan Kam Wah's case (supra) and Cosec Nominees Ltd & anor's case (supra). The learned judges, particularly Deputy Judge Chu (as she then was), gave detailed reasons for their views which made it abundantly clear they considered the propositions in Honour Finance Co Ltd's case (supra) were no longer followed after Chu Kam Lun's case (supra).

46. The Forward principles have been adopted in a number of subsequent Hong Kong Court of First Instance cases (see Au Yeung Kun and anor v Greenfield Property Limited and ors HCA1024/1999, Sakhrani J (unreported, 30th May 2001), Phillip Securities (HK) Limited v Lam Chi Bin Stanley HCA16645/1999, Deputy Judge Lam (as he then was) (unreported, 20th November 2001), First Castle Limited v Wong Chun Kit HCA6872/2000, Deputy Judge Lam (as he then was) (unreported, 19th June 2003) and Liu Chong Hing Bank Ltd v Union World (HK) Ltd & ors [2004] 1 HKC 622). Forward's case (supra) was also referred to without disapproval in Yongheng Nevada International Co Ltd v Chan Mau Tak [2000] 2 HKC 584 and Shanghai Land Holdings Limited (in receivership) v Chau Ching Ngai HCA2704/2003, Deputy Judge To (unreported, 8th January 2004) although these two cases dealt with defendants outside the jurisdiction. These cases have not been cited by counsel although I did refer counsel to Phillip Securities (HK) Limited's case (supra) and First Castle Limited's case (supra).

47. However, in an unrelenting submission, Mr Lee argued that Honour Finance Co Ltd's case (supra) had not been overruled and that a careful and finer examination of the authorities would persuade me to follow it.

48. Mr Lee submitted that the decision in Guangdong International Trust and Investment Corp Hong Kong (Holdings) Ltd's case (supra) supported P's contention. In that case, the 2nd defendant was a director/shareholder of the 1st defendant. The writ of summons was sent to the 1st defendant's former registered office. Although the change of registered office was notified to the Companies Registry, the change was not yet recorded when the plaintiff conducted a company search. Hence, the writ of summons was served at the 1st defendant's former registered office after it had moved out. The court, however, found that the 1st defendant's former registered office remained the 2nd defendant's last known address. "Accordingly, since the writ had been served on one of D2's last known addresses, the writ had been properly served on him." (p.702) I note that no detailed reasons were given for such conclusion in the judgment, and neither Honour Finance Co Ltd's case (supra) nor Forward's case (supra) was referred to. Further, this case was decided before Chu Kam Lun's case (supra).

49. Mr Lee next referred to Law Kwok Hung's case (supra). In that case, the plaintiff posted the writ of summons to the 1st defendant's residential address obtained from the Hong Kong Society of Accountants. It emerged that the property was sold before service was effected. Still it was held to be the 1st defendant's last known address. Yuen J (as she then was) said at p.404 that "the result is that I find that the writ had been served in compliance with O 10 r 2(a) and the judgment had been entered regularly". Mr Lee pointed out that both Honour Finance Co Ltd's case (supra) and Chu Kam Lun's case (supra) were referred to in the judgment and yet Yuen J (as she then was) came to the conclusion that despite lack of notice to the 1st defendant, service of the writ of summons was regular. I have carefully considered the judgment. Again, like Guangdong International Trust and Investment Corp Hong Kong (Holdings) Ltd's case (supra), the learned judge gave no detailed reasons for her conclusion and both Honour Finance Co Ltd's case (supra) and Chu Kam Lun's case (supra) were cited not in this context but in relation to the consequences if the judgment were found to be irregularly obtained. I should also point out that Forward's case (supra) was not referred to in Law Kwok Hung's case (supra) although the latter is a decision in 1999.

50. Although it is my duty to follow the decision of the Court of Appeal in Hong Kong, given the aforesaid analysis, I do not see any reason why I should not adopt the construction of the rules in Forward's case (supra). I am not persuaded that the authorities cited by Mr Lee preclude me from doing so. I also concur with the reasoning of Deputy Judge Lam (as he then was) in Phillip Securities (HK) Limited's case (supra) that the authority of Honour Finance Co Ltd's case (supra) is weakened not just by the difficulty in reconciling it with Barclays Bank of Swaziland Ltd's case (supra) and Forward's case (supra), but by the fact that it did not consider at length the implication of the expression "unless the contrary is shown" in Order 10 rule 1(3)(a). There is also a substantial body of Court of First Instance decisions that followed the Forward approach as well as the endorsement by the Court of Appeal in Chu Kam Lun's case (supra).

51. Mr Lee made a further valiant attempt by pointing out that if the Forward approach is correct, then absurdities would arise. If all the defendant had to show was failure of service, there would be a great risk of defendants evading service and abusing the process. Mr Lee has not been able to show an upsurge of the feared abuse since Forward's case (supra) in 1995 and Chu Kam Lun's case (supra) in 1999. I believe that is because the court is vigilant in exercising its residual discretion to refuse setting aside even an irregular judgment or to impose conditions for setting aside such judgment if there is evidence of evasion of service or other forms of abuse (see cases referred to in respect of Issue (d) below).

52. In the circumstances, I conclude that Judgment has been irregularly obtained.

53. Although Fok Chun Hung's case (supra) and Redland Concrete Limited's case (supra) have not been cited by Mr Lee or Mr Leung, I will deal with some arguments raised therein for completeness. Counsel for the plaintiff in Redland Concrete Limited's case (supra) relied on the following passage from the judgment of Godfrey JA in Fok Chun Hung's case (supra) :

"...... I would not hold that the plaintiff's judgment was irregularly obtained, the copy writ was not returned to the plaintiff until after he had obtained his judgment ...... He had no knowledge or notice, on that date, that his attempt to serve the writ had not succeeded, and he had not been guilty of any failure to comply with any of the rules governing the obtaining of judgments in default of notice of intention on the part of the defendant to defend."

However, Chung J in Redland Concrete Limited's case (supra) pointed out that Godfrey JA did not refer to Forward's case (supra) in his judgment although they were delivered in the same year. He further noted that Godfrey JA went on to say at p.653 of his judgment as follows :

" I have, for my part, no doubt that a judgment obtained in these circumstances, even if regularly obtained, must be set aside unconditionally, just as it would be if it had been irregularly obtained. To take any other course would be a perversion of justice; whether the judgment was obtained before, or after, the return undelivered, of the copy of the writ, such a course would involve treating the defendant as one who is craving an indulgence, rather than one who is (rightly) protesting at having been given no chance to be heard. That is what distinguishes our case from a case in which the defendant, having been duly served with the writ, but having for whatever reason let time go by for his giving notice of intention to defend, is required by the court to show a defence on the merits before he is granted the indulgence, at his own expense, of being given leave to defend despite his own failure to comply with the rules." (emphasis added)

54. In my view, the above passage clearly showed that Godfrey JA in fact favoured the underlying principle of the Forward approach. Indeed, Chung J said that although the Court of Appeal in Fok Chun Hung's case (supra) did not find the default judgment to be "irregular" in term, that judgment was very much regarded as "irregular" in substance. Chung J further said that had he applied Forward's case (supra), he would have found the judgment in Redland Concrete Limited's case (supra) irregular. In any event, on the factual circumstances before him, he found that the default judgment fell within the category described by Godfrey JA that ought to be set aside unconditionally.

55. In my view and with reference to the aforesaid analysis, even if Judgment were regular, on the facts before me including the common ground that D did not reside at 1st and/or 2nd Addresses at the material time and that he did not actually had notice of the proceedings, D is entitled to have Judgment set aside unconditionally.

56. Mr Leung referred to the Court of Appeal decision in Po Kwong Marble Factory Limited's case (supra) to say that for an irregular judgment there was no need to consider merits. Mr Lee accepted that the Court of Appeal decision is binding on me but reserved his right to re-open the matter on appeal. In light of his concession, I will not deal with his arguments on this aspect. A brief and useful summary of the recent authorities can be seen at Clarke, Hong Kong Civil Court Practice Vol.1 para.2756 at pp.II 166 - II 167B.

Issue (d)

57. Mr Lee submitted that Order 13 rule 9 of the Rules of the District Court gave a wide and unfettered discretion to the court. In support of such proposition, he referred to Evans v Bartlam [1937] AC 473 and Premier Fashion Wares Ltd v Li Hing Chung [1994] 1 HKC 213. However, these two authorities deal with setting aside regular default judgments where it was not possible to set aside the judgment ex debito justitiae but on showing that the defence has sufficient merits. I draw no particular assistance from these cases in the present context.

58. However, Sears J in Po Kwong Marble Factory Ltd's case (supra) makes the same point that the provisions of Order 13 rule 9 are wide in their context. The Court of Appeal expressed the view that in the case of an irregular judgment the court has a residual discretion to take into account the conduct of the parties. Sears J went on to say that "in my judgment, the court still has a discretion - giving regard to what the defendant himself has done - to deprive him, if necessary, of that judgment or alternatively, to impose terms upon the setting aside of the judgment which accord with justice having regard to the facts of the particular case". (p.161) The Court of Appeal held that in that case the problems on service were primarily due to the defendant's method of virtually disguising its registered office and there was a real risk that any judgment which the plaintiff might ultimately obtain would be an empty one. The default judgment was set aside on terms that money be paid into court. Bokhary JA (as he then was) said at p.162 that "it does not mean shutting one's eyes to the circumstances surrounding the question of service and why things went wrong in that regard. The court's statutory jurisdiction is unfettered."

59. A number of subsequent cases followed the approach in Po Kwong Marble Factory Ltd's case (supra). In Guangdong International Trust and Investment Corp Hong Kong (Holdings) Ltd's case (supra), the irregular judgment against 1st defendant was set aside unconditionally. Waung J in Desirable International Fashions Ltd's case (supra) rejected that the plaintiff's suggestion of delay in the application to set aside and risk that the plaintiff would obtain an empty judgment constituted sufficient reasons for imposing conditions for setting aside the irregular judgment.

60. In Wing Lung Bank Ltd v Ho Man Iam [1999] 3 HKC 368, it was suggested that the defendant was the author of his own misfortune because inter alia he gave a Hong Kong address to the bank as an address for him although he had also given the bank a Macau address. The bank claimed that it was only when there was no response to correspondence sent to the Macau address that it served the writ of summons on the Hong Kong address. Keith J did not think that this consideration would deprive the defendant of having the judgment set side. He found that the defendant telephoned the bank after receiving correspondence sent to the Macau address, so in choosing to serve at the Hong Kong address the bank must have some other reason. Although the defendant could be criticised for giving the Hong Kong address as his correspondence address, "there is always a risk in a plaintiff choosing something other than personal service for the service of a writ, and that was the risk which the bank took in this case".

61. In The New China Hong Kong Finance Ltd (In Liquidation) v Shimada Limited HCA11030/1999, Cheung J (as he then was) (unreported, 23rd May 2000), no conditions were imposed as there could not be any adverse comments on the conduct of the defendant. Again, in Cosec Nominees Ltd's case (supra), the defendant had already filed with the Companies Registry a notification of change of his residential address. Although he did not in an earlier action challenge service on his old address and thereby led the plaintiff to believe that it was an effective address for service, the court accepted his explanation and considered he should not be penalised for taking a practical stance in the earlier action. The irregular judgment was set aside unconditionally. In Phillip Securities (HK) Limited's case (supra), no conditions were imposed because the plaintiff chose to serve the writ of summons where its managing director knew the defendant was not there whilst it had knowledge of other addresses where the defendant could be contacted.

62. The court found its way to impose conditions in Bank Austria Aktiengesellschaft v Suwardi Sukamto HCA15309/1998, Deputy Judge Muttrie (unreported, 6th December 2001). There the learned judge set aside an irregular judgment on condition that a payment in was made on the ground that in the special circumstances of the case it was evident that the defendant was evading service, which fact was aggravated by his failure to put forward any defence. In First Castle Limited's case (supra), Deputy Judge Lam (as he then was) said that whether any inference could be drawn against the defendant by reference to his conduct and to what extent had the defendant contributed to what went wrong in terms of service depended on the whole of the circumstances of the case. In that case which dealt with a tenancy dispute, the defendant tenant had not paid anything after the execution of the tenancy agreement and later abandoned the leased premises. He gave a correspondence address (not his residential address) that was good only for a couple of weeks, which caused the plaintiff to serve the writ at that address. These were strong indications that the defendant was evading service and avoiding judgment, and he was also to a very large extent responsible for the plaintiff's failure to effect service on him. The learned judge affirmed the master's order imposing a payment in condition.

63. In Liu Chong Hing Bank Ltd's case (supra), the 6th defendant confirmed his address on the guarantee he signed in favour of the bank and the same address was given against his name in the most up to date annual returns of the 3rd and 4th defendant companies. The writ was served by insertion into the letter box at that address and subsequently judgment was obtained. The bank discovered that the defendant owned another property and its solicitors sent a letter demanding payment to that address. There was no reply. It was only after the bank served a charging order nisi at the second address that the 6th defendant applied to set aside the judgment. He claimed he all along resided at the second address and although he received the solicitors' letter, he did not understand it fully and only made brief enquiries with the bank's solicitors. Deputy Judge Longley held that the irresponsible conduct of the 6th defendant justified imposition of the condition that the outstanding sum plus interest and the plaintiff's assessed costs be paid into court.

64. Each case must be decided on its own facts. The aforesaid authorities (some of which were not cited by the parties) are mere examples of how the residual discretion was exercised in the context of the factual matrix of those cases and are not binding on me. However, it is evident from the aforesaid authorities that the court will be concerned to see whether the defendant's conduct has been shown to be an abuse and whether he has contributed to what went wrong with service of the originating process.

65. Mr Lee submitted that in the present case, D was the sole author of his own misfortune in being unable to get timeous receipt of the Writ of Summons. Had proper and/or up to date annual returns been filed for OML and GLDL or had D updated his particulars with the Companies Registry, P would not have been misled into believing that 2nd Address was D's address. No explanation was forthcoming in D's affirmations as to why he updated his particulars with the Companies Registry for AGL but not for OML and GLDL. Mr Lee pointed out that D did not deny in his affirmations that he was in control of these companies.

66. Mr Lee further pointed out that failure by the aforesaid companies to file updated annual returns setting out updated particulars of its members were breaches of sections 107(1) and 2(f) and 109(1A) of the Companies Ordinance Cap.32 and not only the companies themselves but every officer of the defaulting companies shall be liable to a fine and for continued default to a daily default fine (section 109(4) of the Companies Ordinance Cap.32). Mr Lee submitted that there was no reason for the court to assist D who was a "criminal wrongdoer". Mr Lee seemed to suggest in his written submissions that D's conduct might amount to evasion of service but he did not elaborate on this in detail in his oral submissions.

67. Mr Lee suggested that the following conditions be imposed for setting aside Judgment. First, the court should impose an unless order of, say, 7 days for the filing of the Defence. He explained that D, having canvassed the issue of merits in his affirmations, would not need 14 days and progress of the present case had been effectively delayed by the present application. Secondly, the court should award costs of the application in P's favour because D brought about the present problems himself.

68. As regards the updated annual returns, Mr Leung accepted that on the evidence no annual returns for 2002 had been filed for QYRL, OML and GLDL and the present proceedings were commenced in 2003. However, the 3 companies were operating at Office Address and D did file Form D in respect of AGL. There was therefore clearly no attempt to evade service. Mr Leung submitted that as P pleaded that D was the alter ego of OML and Mr Lee submitted that D was in control of the GL group of companies, query must be raised as to why no attempt was made to serve the Writ of Summons at Office Address which was the only business address adopted by all relevant companies in the various annual returns. Mr Leung submitted that even if there might be breaches of the provisions of the Companies Ordinance Cap.32 which might attract statutory penalties, there was no attempt to evade service.

69. I note that P makes a bare denial of knowledge of D's address other than 1st and 2nd Addresses. However, to P's knowledge, the company searches reveal that QYRL, OML and the GL group of companies all adopt Office Address (and no other) as their addresses. P well knew that D has many business interests, that D is the alter ego of OML and that D is in control OML, GLDL and the GL group of companies. P is also involved in business ventures (such as QYRL and Guoji) with D. It is to say the least surprising that P did not know of D's business address at all (whether Office Address or any other address) and the only addresses of D that P knew came from the company searches conducted by his solicitors.

70. No doubt Mr Lee would argue that P's knowledge or otherwise of Office Address as D's business address is not relevant in determining whether 2nd Address is one of D's last known address. But even ignoring P's conduct, I do not find any reprehensible evasion of service or other abuse on D's part. He was personally served with a statutory demand less than a month after Judgment was obtained. Clearly he could be reached at Office Address, which address was stated to be the registered office or place of business of OML, QYRL and the GL group of companies. There is no evidence of any attempt to disguise his business address. Further, P stated his correct residential address in Form D, which is indisputably a public document accessible by anyone on payment of prescribed fees. Such conduct is inconsistent with any suggestion of evasion of service. I accept that no explanation has been given for the failure to file D's updated particulars with the Companies Registry for OML and GLDL. However, I am not prepared to infer simply from the absence of any explanation about the lack of updated particulars or further annual returns or of any justification for breaches of provisions in the Companies Ordinance that it was for evading service or other questionable motive.

71. However, I do accept that D has to some extent contributed to his own misfortune in failing to or failing to cause OML and GLDL to update his personal particulars filed with the Companies Registry or to file updated annual returns. The addresses on the annual returns relied on by P constituted announcements to the world at large that this is where the individual directors reside. For this reason, D has deprived himself of an order in his favour for costs up to the filing of his affirmations.

72. Mr Lee asked for two conditions to be imposed. As regards P's claim for costs of the application as one of the conditions, I do not regard it necessary or appropriate to impose cost sanctions as a condition for setting aside Judgment which I have found to be irregular. Rather, I will exercise my general discretion on costs in the manner set out below.

73. As regards Mr Lee's other suggestion of imposing a seven-day unless order for D to file his Defence, I note that P did not seek to argue that D delayed in making or conducting the present application. Mr Lee only asserted that the present application and the adjourned hearing for argument inevitably took up time and hence the case could not progress. However, I cannot see how that blame can be laid at D's door. In view of the fact that I have found Judgment to be irregular so that it should be set aside as of right, I will not direct D to file his Defence earlier than the rules provide.

74. In my view, no conditions should be imposed against D.

Issue (e)

75. If Judgment is held to be a regular judgment (which I do not agree) and one that did not fall within the category identified by Godfrey JA in Fok Chun Hung's case (supra), then D must show a meritorious defence with a real prospect of success or which carries some degree of conviction (Premier Fashion Wears Ltd's case (supra)). This requires the court to form some provisional view of the probable outcome of the action.

76. D disputed Oral Agreement relied on by P for 1st Cause of Action and Mr Leung submitted that this raised a triable issue. Where the outcome of the case depends on whose evidence is likely to be accepted, the appropriate test to determine whether the defendant has a real prospect of success is to ask whether the defence "could well be established" at trial or whether the defence witnesses could well be believed at trial (Guangdong International Trust and Investment Corp Hong Kong (Holdings) Ltd's case (supra), Morigood Development Ltd v Sunny Reading Co (a firm) [1999] 2 HKC 710 and L & M Specialist Construction Ltd v Wo Hing Construction Co Ltd [2000] 3 HKLRD 262). In my view, there is nothing in the affirmation evidence that suggests that the challenge to Oral Agreement could not be established at trial and indeed, Mr Lee conceded that he would not rely on 1st Cause of Action in disputing the merits of D's defence for the present application.

77. As regards 2nd Cause of Action, Mr Leung submitted that at most it was a general principle of equity that all sureties were liable to contribute equally to the common debt in the absence of an express provision or necessary inference to the contrary. As inferences to be drawn must be considered in light of all the circumstances, it was not suitable to determine 2nd Cause of Action on affirmation. He also submitted that the quantum of contribution was a triable issue.

78. Mr Lee submitted that it was a well established equitable principle that a co-guarantor was liable to reimburse another co-guarantor for a rateable portion of a guaranteed debt paid by the latter to the creditor. He argued that as it was undisputed that P had paid the whole guaranteed debt and that any action by P against QYRL would be worthless, the rateable portion of the guaranteed debt for which D was liable to reimburse P was 75% (which basis was pleaded in the Statement of Claim and verified in P's affirmation). D merely said he did not know whether he had a defence to 2nd Cause of Action, hence he was unable to show any merits of defence and would not succeed even if the present application were an Order 14 application.

79. I had some initial doubts on Mr Lee's submissions as Mr Leung's suggestion of equal contribution by all sureties in light of equitable principles is prima facie attractive. In Andrews and Millett, Law of Guarantees 3rd ed (2000), it is said as follows :

"...... In general, the law of restitution permits co-obligees ...... to recover contributions from each other should one of them be required by the creditor to pay more than their due share of a common obligation for which they are all liable. ...... It is a right that arises independently of contract, from the essence of the relationship of co-surety itself, and the notion that the burdens and the benefits of that position be shared" (para.12.01 at pp.391-392) (emphasis added)

"...... In equity, the rule was that the amount of contribution depended upon the number of solvent sureties at the time when the contribution was sought, and this is now the prevailing rule.

The general rule is that all the sureties are liable to contribute equally towards the common debt, and if they are not liable in equal proportions, then they must contribute a pro rata amount. ......" (para.12.12 at p.403) (emphasis added)

80. However, Mr Leung fairly accepted that the proposition for equal contribution is only applicable in the absence of an express provision or necessary inference to the contrary. Here, 2nd Cause of Action specifically pleaded and Judgment was entered on D's rateable portion of 75% of Paid Sum on the basis that, "quite apart from Oral Agreement", (a) D executed Deed for the sake of his own commercial interest in OML, and (b) it was in OML's commercial interest to see that Bank granted banking facilities to QYRL. Presumably, that is because P also claimed that OML is a 75% shareholder of QYRL and D is the alter ego of OML (paragraphs 2 and 3 of Statement of Claim). Mr Lee is right to point out that no specific defence is set out in D's affirmations in relation to 2nd Cause of Action. It is for D to deny let alone raise a cogent defence to the inferences as pleaded.

81. I have also raised with counsel the fact that Bank Judgment is not in evidence before me and it is uncertain whether the sum of HK$740,287.18 paid to Bank by P under without prejudice correspondence is the judgment debt or a provident bargain although it has been pleaded to be in satisfaction of Bank Judgment. In Andrews and Millett, Law of Guarantees (supra), it is said as follows :

" Although the essential requirement of the right to contribution is that the surety should pay the creditor an amount in excess of his rateable share, he may also be entitled to contribution where he pays an amount which is not in excess of his rateable share but which is accepted by the creditor in full satisfaction of the whole of the guaranteed liability. It is advisable to give co-sureties an opportunity to consider such a settlement, for this will deprive them later of any defence to a claim for contribution on the grounds that it was an improvident bargain. ......" (para.12.03 at p.397)

" Where the surety has settled with the creditor for less than the full amount of the guaranteed debt, or indeed pays in full, it may be open for the co-sureties to defend a contribution claim on the grounds that the creditor's claim could have been resisted or settled on better terms, unless the co-sureties have sanctioned the arrangement or declined an opportunity to participate. Where the co-surety can show that the payment or compromise was improvident or that he "might have obtained better terms if the opportunity had been given him", he will be discharged." (para.12.19 at p.409)

82. However, Mr Lee is again right in pointing out that D had not in his affirmations raised any objection or put forth any reasons to challenge the quantum of the sum of HK$740,287.18 paid by P to Bank.

83. Therefore, if the court is to take into account merits on the defence, then there is a lot to be said on D's stance, particularly when having regard to the higher threshold in a setting aside rather than summary judgment application. However, I do not need to dwell on this point in respect of the present application.

Conclusion

84. I therefore make the following orders :

(a) Judgment be set aside unconditionally;

(b) Leave to D to file a notice of intention to defend within 3 days from the date of this order;

(c) Leave to D to file and serve a Defence within 14 days from the date of this order;

(d) Leave to P to file a Reply within 14 days thereafter;

(e) Leave to the parties to apply for further directions.

Costs

85. Mr Lee asked for costs of the application to be awarded in P's favour or alternatively, I should order that P be entitled to P's costs in the cause. Mr Leung submitted that costs of the application up to the filing of D's affirmations should be costs in the cause and thereafter, costs should be awarded to D.

86. In para.13/9/11 at pp.147-148 of Hong Kong Civil Procedure 2004 Vol.1, it is said as follows :

"The usual costs order is for the plaintiff to bear his own costs of signing the irregular judgment and further to pay the defendant's costs of the application to set aside judgment ...... The mere making of an order that the costs of the application to set aside an irregular judgment be costs in the cause was held to be improper as having in effect imposed a term on the defendant and qualified or subtracted from his absolute right to have the judgment set aside ...... The court, however, retains a discretion as to costs in that terms might be imposed as a condition of giving costs to the defendant ......"

87. In Kwan Kam Wah's case (supra), Deputy Judge Chu (as she then was) held that neither party was to be blamed for the state of affairs that led to the irregular judgment. The plaintiff acted in compliance of the rules in serving the writ of summons on the defendant who had moved away from the address unbeknownst to the plaintiff. On the other hand the defendant had given notification of his removal to the Companies Registry albeit several months after the removal. The learned judge considered that the fair costs order is costs of the application to be in the cause.

88. In Redland Concrete Limited's case (supra), Chung J ordered that costs up to and including the day when the 2nd defendant filed his affirmation in support which disclosed the irregularity be the 2nd defendant's costs in the cause of the action between the plaintiff and the 2nd defendant, and those costs thereafter to the date of the hearing be to the 2nd defendant in any event. In Cosec Nominees Ltd's case (supra), Deputy Judge Poon noted that the defendant filed two affirmations in support of the setting aside application and by the time when the 2nd affirmation was filed, all matters relied on had been disclosed. He was therefore of the view that it was unreasonable for the plaintiff to have opposed the application. The learned judge therefore ordered that costs up to the filing of the defendant's 2nd affirmation be costs in the cause and thereafter costs be to the defendant in any event.

89. In my view, bearing in mind that Judgment is irregular and such irregularity should be apparent by the time D filed his 2nd affirmation, costs of the application up to and including the filing of D's 2nd affirmation on 27th January 2004 (including all costs reserved in respect of the application) should be costs in the cause. I would have ordered the defendant's costs in the costs to reflect the irregularity of the judgment obtained by the plaintiff. However, given that D was to some extent the author of his own misfortune, he has deprived himself of that entitlement. I find that it is unreasonable for P to resist the application after the filing of D's affirmations. I therefore order that costs thereafter be paid by P to D in any event. There will be certificate for counsel. The above order for costs will be an order nisi.

90. Mr Lee argued that the substantive hearing for argument was still necessary because D did not admit 1st and/or 2nd Addresses were D's last known address at the relevant time. I do not consider that material. Had 1st and 2nd Addresses not been D's last known addresses, Judgment would be indisputably irregular even on P's case. But even if either or both addresses were D's last known address (and I have accepted 2nd Address to be D's last known address), I have found that Judgment is irregular based on unchallenged evidence from D's affirmations that D had no actual notice of the proceedings.

Publication of this judgment

91. Pursuant to Practice Direction 25.1, I request the parties to make written representations on the release of this judgment for publication within the next 7 days. If there is no objection or response within such time period, I propose to grant permission for this judgment to be published.