XCHRX M & R MARKING SYSTEMS, INC. v. TSE MEE SHUEN WILSON AND OTHERS

HCA1598/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1598 OF 2001

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REASONS FOR DECISION

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1. This is the 1st defendant's appeal against the Order of Master Ho made on 7 September 2001 dismissing his application to set aside the default judgment entered against him. The 1st defendant also by summons filed on 23 November 2001 seeks leave to serve the Notice of Appeal out of time.

BACKGROUND

2. On 9 April 2001, the plaintiff issued the Writ herein to enforce a judgment obtained in the US Court on 28 December 2000 against all defendants in respect of a claim of infringement of patent. On 26 April 2001, the 2nd to 4th defendants, of which the 1st defendant is a director and shareholder, filed with the court their notices of intention to defend.

3. Between 9 April and 14 May 2001, the plaintiff's solicitors made seven attempts at service on the 1st defendant at two addresses at Remex Centre, Wong Chuk Hang ("the 1st Address") and Marina Cove, Sai Kung ("the 2nd Address"). For the present purpose, it is not necessary to go into the details of these attempts, suffice it to say that I agree with the plaintiff's conclusion that they suggest that the 1st defendant was evading service.

4. On 31 May 2001, the plaintiff's solicitors served the Writ on the 1st defendant by inserting the Writ through the letter box of the 2nd Address, being his usual or last known address.

5. On 5 June 2001, the plaintiff's solicitors, perhaps out of caution, applied for leave to effect substituted service on the 1st defendant by sending the Writ through prepaid ordinary post at the 1st and 2nd Addresses. The order for substituted service was granted on 8 June 2001 and substituted service was effected on 13 June 2001.

6. On 14 June 2001, the plaintiff's solicitors conducted a business registration search of one Smart Stamp Enterprises Limited which registered office is at the 1st Address. The search reveals that the 1st defendant, who is a director of the company, gave the 2nd Address as his residential address. On the following day, 15 June 2001, an investigator instructed by the plaintiff visited the 2nd Address and discovered a vehicle was parked outside the 2nd Address, which is a house. A vehicle registration search shows the 1st defendant to be its registered owner. A maid at the 2nd Address also told the investigator that the 1st defendant was not in and she did not know when he would return.

7. On 16 June 2001, the 1st defendant's solicitors herein filed notice to act for the 2nd to 4th defendants. The reference endorsed on the backsheet of the notice reads "Doc : 12575 Wilson Tse". Wilson Tse is clearly a reference to the 1st defendant.

8. On 22 June 2001, the plaintiff's solicitors filed an affirmation of service in respect of the service effected on 31 May 2001 by insertion through the letter box of the 2nd Address. On the strength of this affirmation, default judgment was entered on 29 June 2001 ("the Judgment").

9. On 3 July 2001, the 1st defendant filed his notice of intention to defend through his solicitors herein. On 13 July 2001, the 1st defendant issued a summons to set aside the Judgment on the ground that it was irregular ("the 1st Summons"). No particulars of irregularity was given in the 1st Summons. On 23 July 2001, the 1st defendant's affirmation in support of the application was filed ("the 1st Affirmation"). The application was heard and dismissed by Master Au Yeung on 27 July 2001.

10. On the very day the 1st Summons was dismissed, the 1st defendant issued another summons to set aside the Judgment on the ground that it was irregular in that it was entered prematurely ("the 2nd Summons"). The affirmation in support was filed on 30 July 2001 ("the 2nd Summons"). Subsequent affidavits and affirmation were filed by the plaintiff's and the 1st defendant's solicitors. On 7 September 2001, Master Ho dismissed the 2nd Summons. On 13 September 2001, the 1st defendant filed the present notice of appeal. It was, however, not served on the plaintiff's solicitors until 23 November 2001. On the same day, a summons was issued seeking leave to serve the Notice of Appeal out of time.

LEAVE TO SERVE OUT OF TIME

11. In an affirmation filed one day before the hearing of this appeal, the 1st defendant's solicitors explained that the failure to serve the Notice of Appeal was due to an oversight on the part of the solicitor's clerk. The fact that the delay was due to a mistake on the part of the legal adviser is a relevant consideration in an application for extension of time. Where the mistake and the delay are minor, the discretion will likely be exercised in favour of a time extension : Gatti v. Shoosmith [1939] 3 All ER 916, 919G, Chiu Siu Chung v. Yu Yan Yan Angela [1993] 1 HKLR 225, 227-8. In the present case, while the delay is due to the solicitor's clerk's mistake, the delay is rather substantial, being one of two months. The plaintiff however has not pointed to any prejudice. Indeed the plaintiff is prepared to argue the appeal and the appeal went on as scheduled. In the circumstances, I consider that the discretion ought to be exercised in favour of an extension of time. Accordingly, I make an order in terms of the 1st defendant's summons filed on 23 November 2001.

THE ISSUES

12. The appeal raises two issues. Firstly, whether the 2nd Summons amounts to an abuse of process and should be dismissed. Secondly, irrespective of the question of abuse, is the Judgment an irregular judgment in that it was obtained prematurely.

ABUSE OF PROCESS

13. The plaintiff relies on two grounds in contending that the 2nd Summons should be dismissed as an abuse of process. The first ground rests on the doctrine of res judicata. The second is on a point of jurisdiction. I shall deal with them in turns.

(1) Res judicata

14. The 1st defendant gave no particulars of irregularity in the 1st Summons. In the 1st Affirmation, he however stated that on about 16 June 2001, he received at the 1st Address through the post, the Writ together with a covering letter dated 13 June 2001. On the basis that the Writ was sent on 13 June 2001, it would be deemed to be served on 20 June 2001. He therefore said that the time for giving notice of intention to defend only expired on 3 July 2001 and the Judgment was entered prematurely.

15. It is common ground that upon receipt of the 1st Summons and before the 1st Affirmation was filed, the plaintiff's solicitors had pointed out to the 1st defendant's solicitors that the Judgment was entered on the strength of an affirmation of service filed on 22 June 2001 that refers to the service effected on 31 May 2001, and not on the basis of the substituted service. It is also not in dispute that at the hearing of the 1st Summons before Master Au Yeung, this was brought to the Master's attention and the correspondence between the solicitors was also shown to the Master. The plaintiff's solicitors also pointed out to the Master that the 1st Summons was defective in failing to set out the ground of irregularity. Master Au Yeung then enquired whether the 1st defendant denied having been served on 31 May 2001. According to the affirmation of the 1st defendant's solicitor, he replied that he, meaning the 1st defendant, had no idea about the Writ. Master Au Yeung further asked whether the 1st Affirmation could cure the 1st Summons, the 1st defendant's solicitor said he could not reply because he knew the answer to be in the negative. The 1st Summons was eventually dismissed with costs.

16. The 2nd Summons seeks the same relief as the 1st Summons, except that it has set out the ground of irregularity. The 2nd Affirmation is in all respects identical to the 1st Affirmation, save that a new paragraph is added. It reads as follows :

"8. A few days thereafter, my solicitor told me that the default judgment was entered against me because the Plaintiff's solicitor told him that on 31st May 2001 they inserted the Writ of summons herein into the letter box for my address at House D27, Stage II, Marina Cove, 380 Hiram's Highway Hebe Haven, Sai Kung, New Territories. However, I have not received the Writ which they allege to have been so inserted into the letter box."

17. The plaintiff says that the 1st defendant by the issue of the 2nd Summons, is attempting to re-litigate a matter that had already been disposed of by Master Au Yueng. For the 1st defendant, it is argued that the 1st Summons was only dismissed on technical ground, namely, that the 1st Summons was defective. There being no adjudication on the merits, the doctrine of res judicata does not apply.

18. For my part, I do not agree that the dismissal of the 1st Summons is on technical ground. The merits of the application clearly came into consideration when the Master asked whether the 1st Affirmation could have cured the 1st Summons and when the solicitor for the 1st defendant thought that it could not. Had there been evidence disputing the service on 31 May 2001, then the summons could have been amended to state the particulars of irregularity. As the evidence stood at the hearing before Master Au Yeung, the 1st Summons, even if amended, was not supported by the 1st Affirmation. The 1st Summons was dismissed, not merely because it contained a defect, but more because the application was not supported by the evidence. It is therefore not a dismissal on technical ground but a decision on merits. If the 1st defendant was aggrieved by it, he should have appealed against the dismissal and sought leave to adduce further evidence at the appeal. In taking out the 2nd Summons, that concerns the same issue and same fact, the 1st defendant is seeking to re-litigate the same matter that was the subject matter of the Order of Master Au Yeung. The doctrine of res judicata therefore applies and the 2nd Summons becomes liable to be struck out for abuse of process.

19. Even if the dismissal is on technical ground, it does not preclude the application of the doctrine of res judicata. In Sanyo Electric Trading Co. Ltd v. Leung Kwok Hing [1993] 1 HKLR 253, 256 line 45-257 line 15, Keith J (as he then was) observed that there is no warrant for limiting the application of the principle to cases where the previous order had been made after a consideration of the merits. I respectively agree. Clearly, the principle will apply where the issues could and therefore should have been litigated in earlier proceedings : Yat Tung Investment Co. Ltd v. Dao Heng Bank Ltd [1975] AC 581, 590A. The principle will also apply to a situation like the present, where the reason for the previous order being made without consideration of the merits was the failure of the party seeking a re-hearing to comply with the Rules of the High Court. As Keith J pointed out, if the principle should cease to apply in situations of this kind, it would be allowing the applying party a second bite of the cherry and would also be opened to abuse.

20. The force of Keith J's observation is in no way affected by the decision of the Court of Appeal in Chu Hung Ching v. Chan Kam Ming & Ors [2001] 1 HKC 396. That case concerns an ex parte interlocutory injunction which was discharged on the ground of material non-disclosure. The plaintiff argued that the point of material non-disclosure could and should have been made on the return date of the inter partes summons so that the subsequent application to discharge the injunction on the ground of material non-disclosure amounted to an abuse of process. It is against such background that Mayo VP stated that "[t]his was an ongoing interlocutory matter". The present case is very different. The application to set aside the judgment is not an ongoing interlocutory matter.

21. As pointed out in the judgment of Mayo VP in Chu Hung Ching, supra, at pp.401 and the authorities cited there, the test is whether it is just and reasonable. It is neither unjust nor unreasonable to apply the doctrine of res judicata here. The 1st defendant, through his solicitors, was fully aware that the Judgment was entered in reliance of the service effected on 31 May 2001. Yet the 1st defendant, for reasons best known to him, had chosen not to deal with this in the 1st Affirmation, so as to enable the point to be argued and considered on the 1st Summons. The doctrine of res judicata should therefore be applied.

(2) Jurisdiction

22. In Wong Kam Hong t/a Continental Knitting Factory v. Triangle Motors Ltd [1998] 2 HKLRD 330, at 336A-F, Cheung J (as he then was), after referring to Sanyo Electric Trading Co. Ltd and Yat Tung Investment Co. Ltd, said :

"This is an area in which there should be uniformity in practice. The approach taken by Keith J is one that I would adopt. Where a summons is dismissed whether on procedural grounds or on merits, a dissatisfied party should appeal against that decision and not to issue a fresh summons on the same subject matter. There is no provision allowing such a step to be taken. The exceptions recognised in O.14 applications and contempt of court proceedings should not be further extended. Subject to the jurisdiction to rehear before the order is perfected which I will deal with later, once a decision has been made, the challenge is by way of appeal which operates as a re-hearing."

Cheung J then went on to conclude that in his case the Registrar had no jurisdiction to hear the second summons, which was taken out after the first summons dealing with the same application was dismissed.

23. As in the case before Cheung J, there is no provision in Order 13 rule 9 of RHC to enable a party to apply for a second time after his first application to set aside a default judgment had been dismissed. The only way of challenging the decision on the first summons is by way of appeal and not to issue a second summons seeking the same relief. There is thus no jurisdiction to entertain the 2nd Summons.

24. For these reasons alone, the appeal should be dismissed. But since submissions had been rendered on the merits of the application, I shall briefly state my views on them.

VALIDITY OF THE JUDGMENT

25. It is plain from counsel's submission that the 1st defendant does not impeach the good faith of the process server. Neither does the 1st defendant disputes the process server's evidence that he had on 31 May 2001 inserted the Writ into the letter box of the 2nd Address. That being the case, the only question is whether the 1st defendant did have knowledge of the proceedings.

26. The 1st defendant had asserted in one sentence in the 2nd Affirmation that he did not receive the Writ so inserted into the letter box of the 2nd Address. It is not an overstatement to say that this is but a mere assertion.

27. Counsel for the 1st defendant argues that the plaintiff's application for leave to effect substituted service lends support to the 1st defendant's assertion. I cannot agree. The application was not made on the basis that it was impracticable or impossible to serve the 1st defendant by the mode prescribed under the Rules of High Court, or that it was believed that the previous attempts at service was ineffective in bringing notice of these proceedings to the 1st defendant. On the contrary, it was made on the basis that the 1st defendant was evading service. It was positively asserted by the plaintiff's process server that it was believed that the 1st defendant had knowledge of these proceedings because of the previous attempts at service and because of his position as directors of the 2nd to 4th defendants. I had observed that I am in agreement with this conclusion that the 1st defendant was evading service.

28. On the evidence before the court, I am of the view that the 1st defendant's assertion that he only came to have knowledge of the proceedings in June is not credible. He is, as pointed out, a director of the 2nd to 4th defendants who had all been served and had given notice of intention to defend. The solicitors' reference as endorsed on the back sheet of the Notice to Act clearly suggests that the 1st defendant was involved in instructing the solicitors for the 2nd to 4th defendants. Indeed the same firm now acts for him. There is also the evidence of the investigator which shows that the 2nd Address was and is the 1st defendant's residence. The 1st defendant, while not challenging that the Writ had been inserted into the letter box, had given no explanation nor suggestion as to the probable cause for the Writ so inserted not to have reached him. The Court is quite entitled in these circumstances to reject his assertion or to attach no weight to it. The essence, afterall, is the 1st defendant's notice of the proceedings. The 1st defendant's assertion that the Judgment was entered prematurely cannot be maintained. The appeal should therefore be dismissed with costs.

COSTS

29. The plaintiff asks for the costs of the 2nd Summons and the appeal to be taxed on an indemnity basis. Although I have concluded that the 2nd Summons is an abuse of process, I am unable to conclude on the evidence available that this is a deliberate abuse of the court process. The costs of the 2nd Summons should therefore be taxed on the usual party-and-party basis.

30. As for the appeal, it is evident that it is wholly devoid of merits. I note too that much of the arguments canvassed had already been raised before the Master and the Master had given reasons for rejecting the submissions. This appeal should not have been brought and an award of indemnity costs is justified. The costs of the appeal should be taxed on an indemnity basis.

CONCLUSION

31. For the reasons above, the appeal is dismissed with the plaintiff's costs of the appeal to be paid by the 1st defendant on indemnity basis.