XCHRX KWAN KAM WAH v. CHAN WAI MING

HCA 11512 & 12693/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 11512 & 12693 OF 1999

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D E C I S I O N

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1. These two actions concern the same Plaintiff and the same Defendant. In both actions, the Defendant applied to set aside judgments entered in default of notice of intention to defend on the ground that the judgments were entered irregularly and/or that Defendant has a defence on merits. At the same time the Defendant also applied to cross-examine the process server. At the hearing of these applications, I refused the Defendant's leave to cross-examine the process server. I also granted leave to the Defendant unconditionally to defend these actions. I had given brief reasons for my decision. I now reduce them into writing.

Background

2. In HCA 11512/1999, the writ was issued on 2 July 1999 by which the Plaintiff claimed against the Defendant for the sum of $530,000, being the amounts of two dishonoured cheques. The default judgment was entered on 31 August 1999.

3. In HCA 12693/1999, the writ was issued on 6 August 1999. The Plaintiff's claim therein is for the sum of $1,148,014.01, being the balance of a loan advanced to the Defendant together with interest. The default judgment was entered on 6 September 1999.

4. According to the affirmation of service, the writ for HCA 11512/1999 was first served on an address at Flat F, 23/F. Kiu Hing Mansion, 14 King's Road, Hong Kong ("King's Road address"). On 4 August 1999, it was further served by inserting into the letterbox of Flat B, 20/F. Dragon Heart Court, 11 Dragon Terrace, North Point, Hong Kong ("Dragon Terrace address"). As for the writ in HCA 12693/1999, the affirmation of service stated that it was served by inserting into the letterbox of the Dragon Terrace address on 6 August 1999.

5. The Defendant's case is that he had no notice of the commencement of the two actions and he did not receive the writs. He came to be aware of the default judgments entered in the two actions in early September 1999 when the judgments were served on the registered office of one Lun Kee Poultry Limited at Unit 701, 7/F. Yip Fung Building, 2-18 D'Aguilar Street, Central, Hong Kong. Both the Defendant and the Plaintiff were the shareholders and directors of this Lun Kee Poultry Limited. On 11 October 1999, the Defendant then applied to set aside two default judgments.

6. In the Defendant's affirmation in support of the applications to set aside default judgments filed on 9 October 1999, the Defendant stated that in June 1998, he moved from the King's Road address to the Dragon Terrace address. Then in about April 1999, he moved again to Flat A1, 15/F. Kwong Chiu Terrace, 4 Fortress Hill Road, Hong Kong ("Fortress Hill Road address"). The Defendant had by a notice filed with the Company Registry on 28 July 1999 in relation the Lun Kee Poultry Limited given notice of his change of address.

Application to cross-examine the process server

7. Apart from contending that he had no notice of the two writs because he had moved away from the King's Road address, the Defendant also stated in his affirmation that he believed the Plaintiff must be aware of his new address through a Mr Chan Woon Wing, another director of Lun Kee Poultry Limited. The Defendant asserted that the Plaintiff's solicitors had adopted an unusual mode of service by inserting the writs into the letterbox of the Dragon Terrace address instead of sending the writs by registered post. The Defendant inferred from this that the Plaintiff or the Plaintiff's solicitors knew that the Defendant did not reside at the Dragon Terrace address.

8. By summonses filed on 6 December 1999, two days before the setting aside applications were to be argued before the master, the Defendant applied to cross-examine the process server in both actions.

9. The starting point of the Defendant's application is that neither the process server nor the Plaintiff's solicitors had responded to his assertions in the affirmation to the effect that the unusual mode of service was deliberately chosen to avoid the risks of the writs being returned if served by registered post.

10. Service by inserting through the letterbox is one of the two modes of service recognised and permitted by Order 10 Rule 1(2)(b), Rules of High Court as alternatives to personal service. I do not accept the Defendant's suggestion that this is an unusual mode of service. This mode of service was, for example, employed in the case of Wing Lung Bank Ltd v. Ho Man Lam [1999] 3 HKC 368. Indeed, from my experience as a master, this mode of service had been resorted to by the petitioners from time to time. The Defendant's assertion that the adoption of this mode of service is indicative of knowledge on the part of the Plaintiff or Plaintiff's solicitors that the writs if served by registered post would be returned to them is no more than a suspicion. It follows that the application to cross-examine the process server is in effect an attempt to fish for evidence for the purpose of proving the Defendant's suspicion.

11. The Defendant is not, and indeed does not have any basis for, disputing that the process server had not inserted the writs into the letterbox of the Dragon Terrace address. All that the Defendant is saying in his affirmations is that the writs could not reach him because he had moved away from the Dragon Terrace address. It is not surprising therefore that the process server nor the Plaintiff's solicitors did not see the need of filing any affirmation in reply to this point.

12. In the case of Wendy Wenta Seng Yuen v. Philip Pak-yiu Yuen [1984] HKLR 431, the Court of Appeal held that the court has unfettered discretion to permit cross-examination on an affidavit in an interlocutory matter if there are good and sufficient reasons for doing so having regard to all the circumstances of the case.

13. Counsel for the Defendant, relying on the judgment of Yuen J in Law Kwok Hung v. Tse Ping Man and Another [1999] 4 HKC 397, submitted that the Defendant is entitled to impeach the good faith of the opinion stated in the affirmation of service, namely, that the writs so inserted in the letterbox of the Dragon Terrace address would have come to the Defendant's knowledge within 7 days after the date of insertion. Counsel further submitted that in order to determine whether the Plaintiff had any reasonable ground for holding the opinion, the Defendant should be granted leave to cross-examine the process server.

14. I accept that in appropriate cases, a defendant is entitled to impeach the good faith of the opinion stated by a plaintiff in an affirmation of service. I also accept that if a defendant does take this course, the court has to find whether the plaintiff has reasonable ground for holding the opinion so asserted in the affirmation of service and, if not, the service will be irregular. However, that does not confer upon the Defendant a right to cross-examine the process server which is the application made under the Defendant's summonses filed on 6 December 1999. It is still incumbent upon the Defendant to provide a proper foundation for the exercise of the court's discretion.

15. In this case, obviously the process server, being a clerk employed by the Plaintiff's solicitors, was carrying out the instruction of his principal in inserting the writs into the letterbox of the Dragon Terrace address. He could not be expected to have any knowledge of whether the Defendant had moved out of that address. It is not the Defendant's assertion, in any event, that this process server has the actual knowledge that the Defendant no longer resided at that address. The opinion expressed in the process server's affirmation was said to be that of the Plaintiff. There is simply no basis or no reason for seeking to cross-examine the process server, and no useful purpose can be achieved.

16. I am of the view that Defendant has no proper basis for applying to cross-examine process server. The two summonses filed on 6 December 1999 should therefore be dismissed with an order for costs to the Plaintiff in any event.

17. I now move on to deal with the main application.

Is the default judgment a regular or irregular judgment

18. The first issue I have to decide is whether the two judgments entered in these two actions are regular or irregular. The two writs were served by inserting into the letterbox of the Dragon Terrace address. It is the Defendant's case that he had moved away from this address to the Fortress Hill Road address several months before the service was effected. The Plaintiff does not in his affirmations dispute or challenge this stage of affairs.

19. The process server had, in his affirmation of service, stated that in the Plaintiff's opinion, the writs so inserted would have come to the Defendant's notice after 7 days. The Defendant impeached the good faith of this opinion. I therefore have to determine whether it is reasonable for the Plaintiff to hold this opinion.

20. There are several matters which the Defendant relied upon in impeaching the good faith of this opinion. Firstly, the Defendant said he had notified the company secretary of Lun Kee Poultry Limited of his change of address. It is said that the Plaintiff, being a director, could have access to this company record, yet he chose not to make any enquiry with the company secretary. Although I accept the Plaintiff could have access to the company record, including the Defendant's address, it does not necessarily follow that the Plaintiff, must as a matter of fact, know that the Defendant had moved from the Dragon Terrace address. There is also no room for saying that the Plaintiff should have enquired with the company secretary of Lun Kee Poultry Limited as to the Defendant's latest address, unless the Plaintiff had reason or ground to suspect or believe that the Dragon Terrace address is not the updated address of the Defendant. It is the Defendant's evidence that he moved to the Dragon Terrace address in June 1998, which was about a year before the commencement of these actions. The company search conducted by the Plaintiff's solicitors at the Company Registry in early July 1999, shortly before the commencement of these actions, revealed the Defendant's address was at the Dragon Terrace address. It is reasonable for the Plaintiff or his solicitors to regard this Dragon Terrace address as the Defendant's last known address. Although the Defendant had filed with the Company Registry notification of his new address at the Fortress Hill Road, this was done only on 28 July 1999, some 4 months after his removal, and only several days before the writs were served. It is neither surprising nor unreasonable that this did not come to the knowledge of the Plaintiff or his solicitors.

21. Secondly, the Defendant also submitted that a Mr Chan Woon Wing, also a director of Lun Kee Poultry Limited, had driven the Defendant home after he moved to the Fortress Hill Road address, and because of the close association between Mr Chan and the Plaintiff, the Plaintiff must have known of the Fortress Hill Road address. The evidence adduced by both the Plaintiff and the Defendant on this point are diametrically opposed to each other. For the Plaintiff, it is said that he had fallen out with Mr Chan as a result of actions he took to wind-up Lun Kee Poultry Limited. I find this aspect of the Defendant's contention based on very tenuous ground and is speculative in nature.

22. There is also a third matter which the Defendant referred to in his affirmations and on which the Defendant relied to impeach the good faith of the Plaintiff's opinion. The Defendant said that the Plaintiff and his solicitors had previously sent documents to him at the registered office of Lun Kee Poultry Limited. Indeed, the two default judgments were sent to this address. I accept that this indicates the Plaintiff and his solicitors were aware of address other than the Dragon Terrace address at which the Defendant could be reached. That however does not mean that the Plaintiff is not entitled to regard the Dragon Terrace address as the Defendant's usual and last known address. It is not in common for a defendant to have more than one addresses where he can be contacted or reached and a plaintiff is entitled to choose one of these addresses for effecting service. The Dragon Terrace address was the Defendant's residential address. The two actions herein are instituted against the Defendant personally. There is nothing improper nor unreasonable for the Plaintiff to choose and use the residential address instead of the registered office of a company in which the Defendant is one of the several directors for the purpose of effecting service.

23. On the balance, I find that the Defendant has failed to show a lack of good faith or the Plaintiff has no reasonable ground to hold the opinion asserted in the affirmation of the service. Accordingly, the Defendant's attempt to impeach the good faith of the opinion asserted in the affirmation of service fails, but that is not the end of the matter.

24. Quite apart from impeaching the good faith, the Defendant says that the service was ineffective and bad because the writs were never brought to his notice. Counsel for the Defendant relied on the English cases of Forward v. West Sussex County Council [1995] 1 WLR 1469 and Austin Rover Co. Ltd v. Crouch Butler Savage Associates and Others [1986] 1 WLR 1100. These cases held that service was duly effected when the proceedings were brought to the notice of a defendant and not on mere delivery of the writ to his last known address. Counsel for the Plaintiff argued that these authorities do not represent the main stream of the Hong Kong authorities on this aspect of the law. This submission is correct to a certain extent. The two English decisions are different from the view held by the Court of Appeal in Honour Finance Co. Ltd v. Chui Mei Mei [1989] 2 HKLR 146. The emphasis of the Court of Appeal was apparently placed on the delivery of the original process rather than the service of it. Nevertheless, the case of Forward had been applied in Hong Kong by Waung J in Desirable International Fashions v. Chiang Shi Chau [1997] 3 HKC 170, and the Court of Appeal in Chu Kam Lun v. Yap Lisa Susanto [1999] 3 HKC 378. 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 Order 13 Rule 1 is that the Defendant has 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 Order 13 Rule 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. It follows in the circumstances of this case that the two default judgments obtained by the Plaintiff in these actions are irregular.

Merits of the defence

25. Counsel for the Defendant submitted that, following the Court of Appeal case of Po Kwong Marble Factory Ltd v. Wah Yee Decoration Ltd [1996] 4 HKC 157, a defendant has a limited right to set aside an irregular judgment and for that purpose he needs not show merits. Counsel for the Plaintiff does not take issue with this submission on the law.

26. In the case of Wing Lung Bank Ltd v. Ho Man Lam, Supra, Keith J (as he then was) was of the opinion that in considering the setting aside of irregular judgment or the terms on it, the court should not take into account the merits of the defence. This view appears to be at variance with the approach of the English Court of Appeal in the case of Faircharm Investments Ltd v. Citibank International Plc. (The Times, 20 February 1998, unreported). In the Faircharm case, it was held that where a defendant is bound to lose in an application for summary judgment, there is no point to set aside a default judgment even though it was obtained irregularly. This case was referred to in the Wing Lung Bank Ltd case but Keith J declined to follow it. There is a lot to be said for the common sense and practical approach adopted by Faircharm. But it is also to be recognised that based on the very brief report in The Times, it is not known what were the circumstances leading to the irregular judgment being entered in the Faircharm case. It may be that there were circumstances which justified or necessitated the court to have regard to the Defendant's defence in deciding whether to set aside the irregular judgment, quite apart from the practical and common sense approach.

27. The Faircharm case had also been considered by the Court of Appeal in Chu Kam Lun, Supra, and had found favour with Nazareth VP and Leong JA. However the facts of that case does not necessitate a decision on whether it is appropriate to adopt the principle propounded in Faircharm. The result is, as Yuen J observed in Law Kwok Hung (at p.406), that Po Kwong Marble Factory Ltd is still the law and is binding on this court so that a defendant needs not show merit when applying to set aside a default judgment entered irregularly.

28. It follows from my finding that the default judgments entered in these two actions were irregular, but I cannot have regard to the merits of the defence. The Defendant is entitled to have the judgments set aside unconditionally. In this regard, it is of use to refer to a passage in the judgment of Godfrey JA in the case of Fok Chun Hung v. Lo Yuk Shi [1995] 2 HKC 648, at p.653:

"I have, for my part, no doubt that a judgment obtained in these circumstances, even 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 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."

29. Finally, I wish to say that, if the court is to take into account merits on the defence, then I would agree with counsel for the Plaintiff that there is a lot to be said on the allegations made by the Defendant in his affirmations. This is particularly so having regard to the higher hurdle a defendant faced in a setting aside application then in a summary judgment application. Plainly the Defendant's allegations on the merits on the defence do not stand comfortably with the documentary evidence exhibited by the Plaintiff in his affirmations in opposition. However, I do not need to dwell further on this matter as the point does not fall for determination in these applications.

Costs of the setting aside applications

30. Both the Plaintiff and the Defendant applied for costs of these applications. The default judgments were ordered to be set aside unconditionally on the ground that they were irregular judgments in that there was no valid service on the Defendant. Neither the Plaintiff nor the Defendant is to be blamed for that state of affairs. The Plaintiff had acted in compliance with the Rules in serving the writs on the Defendant. On the other hand, unknown to the Plaintiff, the Defendant had moved away from that address. He had given notification of his removal to the Company Registry, although several months after the removal.

31. In the circumstances, I consider that a fair costs order is for the costs of these applications to be in the cause, and I so order.

Conclusion

32. The orders I made are as follows:

1. The default judgments entered in both these actions be set aside unconditionally.

2. There be leave to the Defendant to file and serve within 21 days from the date hereof Defence and Counterclaim in both actions.

3. The Plaintiff to file and serve within 21 days thereafter Reply and Defence to Counterclaim in both actions.

4. The costs of and occasioned by the applications to set aside the default judgment be costs in the cause.