XCHRX LEE WAI MAN v. TSO YAN

1997 No. A11301

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. This is an appeal from the refusal of Master Jones to set aside interlocutory judgment entered in default of defence. The Defendant asserts that the judgment was irregular, and that he has a complete defence to the action.

Was the judgment irregular?

2. The Defendant claims that the judgment was irregular because he was not served with the writ. A clerk employed by the Plaintiff's solicitors has affirmed that he personally served the writ on the Defendant at the Defendant's flat on Hong Kong Island on 27th October 1997. The Defendant has affirmed that, to the best of his recollection, he was at his home in Tai O at the time.

3. I think that the Defendant's denial that he had been served with the writ is very unlikely to be correct. I say that primarily for three reasons:

(i) At the time when he is alleged to have been served with the writ, he is alleged to have been served, amongst other documents, with an inter partes summons for a hearing at the High Court on 31st October. The Defendant attended the High Court on 31st October. It may be that he was told to attend court on that date by the solicitors who were then acting for him, and his presence at court is therefore not necessarily attributable to the fact that he was served with the inter partes summons. However, the fact that he attended court on 31st October is an indication that he might have been served with the inter partes summons, in which case it is very likely that he was served with the writ as well.

(ii) If the Defendant is telling the truth, the Plaintiff's solicitors' clerk is either lying or mistaken. There is no obvious reason why he should lie, and the only other alternative is that he served the writ on a person at the flat who he mistakenly thought was the Defendant. However, the Defendant has not alleged that there was anyone in the flat who the Plaintiff's solicitors' clerk might have mistaken the Defendant for.

(iii) The Defendant unfortunately suffers from schizophrenia, and has a history of mental illness. Although he is said to have been in remission in October 1997, it may be that his memory is not as good as it might be.

4. I find that the Defendant was served with the writ on 27th October. But even if he was not, it does not automatically follow that the judgment must be set aside: see Honour Finance Co. Ltd. v. Chui Mei Mei [1989] 2 HKLR 146 and Faircharm Investments Ltd. v. Citibank International PLC (1998) "The Times", February 20th. As it is, the Defendant would have known about the writ and the nature of the claim being made against him as a result of his attendance at the High Court on 31st October. Moreover, the judgment in default was not entered until 23rd February 1998. Accordingly, the Defendant would have had plenty of time to decide what his response to the writ was to be. If I had found that the Defendant had not been personally served with the writ on 27th October, I would have decided that this was one of those exceptional cases in which the mere irregularity of the judgment would not have warranted setting it aside.

The merits of the defence

5. I turn to the merits of the defence, bearing in mind that it is not sufficient for the Defendant to show an arguable case which would justify leave to defend under Ord.14. The defence must have a real prospect of success and must carry some degree of conviction. The Plaintiff is suing on a provisional agreement for the sale by the Defendant of his flat to the Plaintiff. The Plaintiff's case is that she and her husband were shown the flat by an estate agent. The Defendant was present. They made an offer for the flat but the offer was not accepted. The estate agent subsequently told the Plaintiff's husband that the offer was acceptable, and the Plaintiff and her husband went to the estate agent's offices to finalize the transaction. They did not meet the Defendant there, but they were told that he was in another room. They signed the provisional agreement and paid the initial deposit, and a week or so later they paid the balance of the deposit. Eventually, the Defendant decided not to go through with the agreement, and he returned the cheques which had not even been banked.

6. The Defendant's case is as follows. A few weeks before the date which appears on the provisional agreement, he had agreed to sell the flat to another buyer. However, he was persuaded by the estate agents who apparently introduced the flat to the Plaintiff to engage them to put the flat on the market. Despite that, he denies that the Plaintiff and her husband even inspected the flat. He agrees that he went to the estate agents' office on the day in question, and that he was persuaded to sign the provisional agreement. He does not identify the circumstances in which the lady he was dealing with got him to do that, but he noted that the agreement did not bear the name of the purchaser when he signed it. In anticipation of receiving a cheque for the initial deposit, he also signed that part of the agreement in which he acknowledged having received the initial deposit. However, he saw the estate agent writing out the cheque herself, and he saw that the payee was a firm whose name he did not recognise. He therefore told the estate agent to cancel the agreement. He denies that he left with the cheque or that he ever received a cheque for the balance of the deposit.

7. The cheque which the Plaintiff contends was the cheque tendered to the Defendant and accepted by him has been exhibited. It was drawn on the Plaintiff's husband's account, not that of the estate agents, and was payable to John Lau & Co., a firm of solicitors. The Plaintiff's case is that it had been discovered that the Defendant had been ordered in matrimonial proceedings to pay half of the proceeds of the sale of the flat to his wife. For that reason, the cheque was made payable to a firm of solicitors. As for why John Lau & Co. were the solicitors to whom the cheque was in fact made payable, the Plaintiff's case is that the Defendant told the estate agent that he did not have any solicitors, and the estate agent suggested to him that John Lau & Co. should act on his behalf. It is true that there is no direct evidence that the Defendant agreed to the cheque being drawn in favour of John Lau & Co., but it is said that he must have agreed to that because, on the Plaintiff's case, he took the cheque away with him.

8. On these facts, what is primarily said on the Defendant's behalf is that the provisional agreement was subject to a condition precedent, namely that a cheque for the initial deposit had to be accepted by the Defendant. Since the Defendant decided not to accept the cheque, a concluded agreement never came into effect. I confess that I have not discerned any basis on which it could be said that it had been agreed that the agreement was subject to such a condition precedent, and I rule that this defence has no real prospect of success.

9. The success of the other two defences on which the Defendant relies, however, depend on whose evidence the court will accept at trial. First, it is said that no concluded agreement was reached because the Defendant sought to pull out of the agreement before it had been signed by the purchaser. In other words, by signing the agreement, the Defendant had made an offer to sell the flat to whoever was subsequently identified in the agreement as the purchaser, but that offer had been withdrawn before it had been accepted by the Plaintiff by signing the agreement. Secondly, it is said that, even if an enforceable agreement had been concluded, the Plaintiff was in repudiatory breach of the agreement, and that the Defendant accepted the repudiatory breach as bringing the parties' obligations under the agreement to an end. The breach was the failure on the part of the Plaintiff to provide the Defendant with a cheque for the initial deposit payable to him.

10. There are so many implausible features in the Defendant's version of events that on the two factual issues which the two defences raise - namely, whether the Defendant had purported to cancel the agreement before it had been signed by the Plaintiff, and whether he had agreed to the cheque for the initial deposit being drawn in favour of John Lau & Co. - I think it much more likely that the Plaintiff will be believed on those issues. I therefore conclude that these defences do not have a real prospect of success. This was not a case in which it can be said that the Defendant's illness deprived him of the capacity to make an enforceable contractual commitment. There is no evidence that his illness was such as to deprive him of the capacity to understand what he was doing, or that the Plaintiff was aware of any incapacity on the Defendant's part.

11. Mr. Chan Chi Hung for the Defendant, in his excellent address and skeleton argument, pointed to a number of features which showed that the Plaintiff could have suffered no loss as a result of the Defendant's alleged breach of contract. That may or may not be so, but those points are to be made on the assessment for damages, the interlocutory judgment having been for damages to be assessed.

Conclusion

12. For all these reasons, and with considerable sympathy for the Defendant in the position in which he finds himself, this appeal must be dismissed.