WU YI DEVELOPMENT CO LTD v. BIG ISLAND CONSTRUCTION (HK) LTD

HCA714/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 714 OF 2007

(Transferred from District Court Civil Acton No.5174 of 2005)

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J U D G M E N T

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Introduction

1.  This is the plaintiff’s application to enter summary judgment against the defendant for the repayment of three loans totalling HK$500,000 together with interest and costs. The defendant disputes the claim, contending that they were not loans but were money received on behalf of a joint venture company and that they were contributions to the joint venture company made by the plaintiff on behalf of an associated company.

2.  The plaintiff commenced the claim on 20 October 2005 in the District Court.  Upon the defendant’s application, which the plaintiff unsuccessfully opposed, HH Judge HC Wong ordered on 8 December 2006 that the action be transferred to the High Court with a view to consolidate with HCA2134 of 2005.  By then the parties had already exchanged pleadings with the Defence and the Reply having undergone several amendments.

3.  The present summons for summary judgment was issued on 24 April 2007. The plaintiff had previously in June 2006 applied for summary judgment in the District Court but it was dismissed on procedural ground. On 14 May 2007, Master de Souza ordered that the plaintiff’s present application be adjourned before a bilingual judge for argument.

4.  At the hearing, there were three other summonses issued by the parties seeking leave to file and rely on further affidavits.  I granted leave for all the affidavits in question to be filed and used in the application and provided for the costs of the summonses be costs in the cause of the application.

The parties and their associated companies

5.  For the purpose of understanding the issues raised by the defendant in its defence and evidence, it is convenient to set out the background of the parties and the several companies that were associated with them, which had featured in the pleadings and the affidavits.

6.  The plaintiff is a Hong Kong company owned as to 50% by Fujian Construction Engineering (Group) Limited (福建建工集團總公司) (“Fujian Construction”) and 50% by China Wu Yi Company Limited (中國武夷實業股份有限公司) (“China Wu Yi”). 

7.  China Wu Yi was listed in Shenzhen in July 1997. After listing, 66.59% of its interest became held by Fujian Construction. 

8.  Wu Yi Construction Co Ltd (“Wu Yi Construction”) is a wholly owned subsidiary of China Wu Yi. Wu Yi Construction in turn has a wholly owned subsidiary called Wu Yi (Holdings) Company Limited (“Wu Yi Holdings”). 

9.  Another company called Wu Yi Engineering Company Limited (“Wu Yi Engineering”) is a wholly owned subsidiary of Fujian Construction.

10.  As for the defendant, it is owned as to 99.99% by Mr Ben P Lee (“Ben Lee”). Ben Lee also owns 99.99% of another company called Big Island Asia Ltd (“Big Island Asia”). He is a director of both companies.

In essence, Ben Lee owns and controls the two companies.

11.  FBC Construction Company Limited (福島建設有限公司) (“FBC”) is a joint venture company incorporated in Hong Kong in 1991.  Initially in August 1991, the shareholders were Wu Yi Engineering and the defendant, each holding 50% of the shares. Subsequently, the defendant transferred 5% of its shares to Wu Yi Engineering.

12.  Since 11 May 1996, Wu Yi Engineering and Big Island Asia (then known as Big Island Holdings Company Limited) were the shareholders of FBC, holding 60% and 40% of the shares respectively. 

13.  On 14 August 1997, Wu Yi Holdings took over the shares of Wu Yi Engineering.

14.  On 15 June 1998, Wu Yi Construction became a shareholder in the place of Wu Yi Holdings. Since then, the shareholders of FBC have been Wu Yi Construction and Big Island Asia, holding 60% and 40% of the shares respectively. The gist of the defendant’s defence relates to FBC and the several agreements about the operational expenses of FBC said to have been made between the various shareholders over the years.

The plaintiff’s claim

15.  The plaintiff’s claim is a simple one. The Statement of Claim pleads that on the basis of three Chinese loan documents dated 9 January, 1 March and 21 April 2004 (“the 1^st, 2^nd and 3^rd loan documents” respectively) made out by the defendant, the plaintiff had issued and given three cheques to the defendant. The cheques were dated the same dates as the loan documents and in the respective amounts of $150,000, $300,000 and $50,000.

16.  The three loan documents were typed out on the stationary of the defendant and stamped with the company chop of the defendant. The wordings were similar. They read:

The 1st loan document

「為了支付福島建設有限公司的近期職工的薪金以及雜費開支，希望借用港元十五萬，在2004年春節以後還给貴公司，請予以支持。

謝謝!

                 國民建設(香港)有限公司
二零零四年一月九曰」

          The 2nd loan document

「為了支付福島建設有限公司的近期職工的薪金以及雜費開支，希望借用港元三十萬，在2004年3月内還给貴公司，請予以支持。

謝謝!

                 國民建設(香港)有限公司
二零零四年三月一曰」

          The 3rd loan document

「為了支付福島建設有限公司的近期職工的薪金以及雜費開支，希望借用港元五萬，在2004年4月内還给貴公司，請予以支持。

謝謝!

                 國民建設(香港)有限公司
二零零四年四月廿一曰」

17.  In essence, in the three loan documents, the defendant requested the plaintiff to lend it $150,000, $300,000 and $50,000 respectively so as to meet the salary payments and sundry expenses of FBC. The defendant undertook in the three loan documents that the loans would be repaid before the Chinese New Year, within the month of March and within the month of April respectively.

18.  It is not disputed that the defendant had received the money under the cheques.  In fact, the defendant had issued three receipts dated 9 January, 5 March and 22 April 2004 (“the 1^st, 2^nd and 3^rd receipts” respectively) in favour of the plaintiff. They were all stamped with the company chop of the defendant. On the 1^st and 2^nd receipts, the payments of $150,000 and $300,000 were stated as “Loan for and on behalf of FBC Construction Co Ltd”. On the 3^rd receipt, the payment of $50,000 was stated as “Loan (ref our letter date: 21/4/2004)”. The cross reference was a reference to the 3^rd loan document.

The defendant’s defence

19.  The defence, in a nutshell, is that the three payments were in truth contributions made by Wu Yi Construction to the operation expenses of FBC, but were “dressed up” as loans from the plaintiff to the defendant. Alternatively, it is said that the plaintiff is estopped from denying that the three sums were contributions made on behalf of Wu Yi Construction for the use of FBC.

(1)     The 1^st to 4^th Agreements

20.  The starting point of the defendant’s defence is a series of four oral agreements said to have been made between the various shareholders of FBC in respect of the management and operation of FBC. They were referred to as the 1^st to 4^th Agreements in both the Re-Amended Defence and the affirmations of Ben Lee.

21.  The 1^st Agreement was said to be made on about 18 February 1991 (i.e. around the time when FBC was incorporated) between Mr Chen Bin Hua on behalf of Wu Yi Engineering and Ben Lee on behalf of the defendant, under which the defendant was to be responsible for managing the business and trading operation of FBC and Wu Yi Engineering was to be responsible for providing all of FBC’s operational funds.

22.  The 2^nd Agreement was said to be made in around 1994 between Mr Xu Zhonghua (“Xu”), who had replaced Chen Bin Hua, and Ben Lee. It is said that Xu made the agreement on behalf of Wu Yi Engineering and also Wu Yi Holdings while Ben Lee acted for the defendant. According to the defendant, under the agreement, the 1^st Agreement was novated such that Wu Yi Holdings was to take over the rights and obligations of Wu Yi Engineering under the 1^st Agreement, including the responsibility to provide operational funds to FBC.  It is also the defendant’s case that Xu had told Ben Lee that due to internal restructuring of the Wu Yi Group, Wu Yi Holdings would be taking over the shares held by Wu Yi Engineering.  It should be noted that Wu Yi Holdings only became a shareholder of FBC, in the place of Wu Yi Engineering, in August 1997, some three years after the 2^nd Agreement was made.

23.  The 3^rd Agreement was said to be made between Ben Lee acting on behalf of the defendant and Big Island Asia and Xu acting on behalf of Wu Yi Holdings and the agreement was that the 2^nd Agreement would be novated such that Big Island Asia would take over the rights and obligations of the defendant.  It is the defendant’s case that the 3^rd Agreement was made prior to the transfer of the defendant’s shares in FBC to Big Island Asia, which took place on 15 December 1995.  As noted above, Wu Yi Holdings was not yet a shareholder of FBC when this novation agreement was made.

24.  As to the 4^th Agreement, it was said to be made before Wu Yi Holdings transferred its shares in FBC to Wu Yi Construction, which happened on 15 June 1998.  Xu was said to be acting for Wu Yi Holdings and Wu Yi Construction while Ben Lee was acting for Big Island Asia in entering into the agreement. The content of the 4^th Agreement, as stated in the Re-Amended Defence and Ben Lee’s 1^st Affirmation, is that “the 3^rd Agreement shall be novated such that Wu Yi Construction shall take over the rights and obligations of Wu Yi Holdings under the 3^rd Agreement” (emphasis added).  This part of the defendant’s case is clearly inadequate given that the only thing said to have been agreed under the 3^rd Agreement is that Big Island Asia would take over the defendant’s rights and obligations. Be that as it is, the defendant says that on the basis of the 4^th Agreement, Wu Yi Construction became solely responsible to provide operational funds to FBC.      

25.  Pausing here, the defendant also says that the terms of the 1^st to 4^th Agreements are evidenced by its letter dated 22 January 2003. But plainly, the letter is not a contemporaneous document. It was written many years after these agreements were said to have been made.

(2)     Wu Yi Construction’s failure to provide for the operational funds of FBC

26.  Another plank in the defendant’s defence is that after around September 2002, Wu Yi Construction failed to make contributions to FBC.  Earlier on in August 2001, Mr Xu Minluo, a director of Wu Yi Construction, had told Ben Lee that Fujian Construction had decided not to make further contributions to FBC. The defendant says that as a result, Ben Lee had repeatedly demanded Wu Yi Construction to provided operational funds for FBC.  Two letters dated 22 January 2003 and 14 June 2005 were relied upon as evidencing the demands made. 

27.  The defendant further says that as a result of Wu Yi Construction’s refusal to provide operational funds for FBC, Big Island Asia had to make contributions, totalling $5,020,221 to FBC on behalf of Wu Yi Construction. This is the subject matter of Big Island Asia’s counterclaim in HCA2134 of 2005, in which Wu Yi Construction claims against Big Island Asia for a 40% contribution to loans it had made to FBC between 15 December 2000 and 31 August 2005.

(3)     Meetings in 2004

28.  According to the defendant, Ben Lee had three meetings with Mr Huang Limin, who was a director of the plaintiff and Wu Yi Construction, in which he asked for contributions be made to FBC. The meetings took place on 9 January, 1 March and 21 April 2004, the days on which the three loan documents and the three cheques were issued.

29.  At the 1^st meeting, Huang said that Fujian Construction did not permit Wu Yi Construction to make further cash contributions to FBC. However, in view of the fact that FBC was expecting to receive a significant compensation payment, Huang considered it was in the parties’ interest to keep FBC alive. He therefore proposed for the plaintiff to pay $150,000 on behalf of Wu Yi Construction to FBC through the defendant to settle the salary payment and operational expenses of FBC. Huang further suggested that the payment should be dressed up as a loan from the plaintiff to avoid having to obtain the approval of Fujian Construction.

30.  According to Ben Lee, Huang told him to write the 1^st loan document and specify in it that the money was a loan for use by FBC and that repayment would be made after the Chinese New Year.  Huang also asked the defendant to issue a receipt and to specifically state on it that the money was a loan on behalf of and for use by FBC.  Ben Lee stated in his 1^st Affirmation that Huang told him this was “to protect the defendant’s position”.

31.  Ben Lee further stated that the 2^nd and 3^rd loan documents and the 2^nd and 3^rd receipts were similarly issued at the suggestions of Huang during the 2^nd and 3^rd meetings. Their contents were also specified by Huang.

32.  As for the money received from the plaintiff under the three cheques, Ben Lee’s evidence is that hey had been used to settle the operational expenses and salaries incurred by FBC from January to April 2004.

(4)     Post-dated cheque of 5 March 2004

33.  The plaintiff denies the 1^st to 4^th Agreements or that Wu Yi Construction was under a contractual obligation to be responsible for all the operational funds of FBC. The plaintiff further denies that the three payments were contributions to FBC, but were dressed up as loans from the plaintiff to the defendant and that the loan documents and receipts were made out at the suggestions of Huang.

34.  In an attempt to discredit the defendant’s case about the true nature of the three sums in question, the plaintiff produced a cheque dated 5 March 2004 (“the Post-dated Cheque”) in the amount of $450,000 issued by the defendant in favour of the plaintiff.  Huang’s evidence is that B Lee gave the Post-dated Cheque to the plaintiff on 1 March 2004 in order to persuade the plaintiff to make the 2^nd loan of $300,000 when the 1^st loan remained unpaid. The amount of $450,000 was to cover the 1^st loan of $150,000 and the 2^nd loan of $300,000.  Huang also said that the plaintiff did not, however, present the Post-dated Cheque for payment because Ben Lee later told him there was insufficient fund in the account and requested the plaintiff to withhold presenting it. 

35.  The defendant accepts that it had issued the Post-dated Cheque. Ben Lee’s explanation is that at the 2^nd meeting, Huang had serious concern that the arrangement to finance FBC’s expenses were made without the approval of Fujian Construction. He therefore asked Ben Lee to issue the Post-dated Cheque so that “he could at least show the Cheque to Fujian Construction in case their management discovered the arrangements and in order to avoid any trouble”. Ben Lee added that it was Fujian Construction’s practice to send their representatives to Hong Kong every year to inspect the books and accounts of the Wu Yi Group in Hong Kong, and Huang had assured him that the Post-dated Cheque would only be used to show to the representatives of Fujian Construction.

(5)     DCCJ 4450 of 2005

36.  To illustrate the unreliability of the defendant’s defence, the plaintiff refers to District Court action no. DCCJ4550 of 2005. It is a claim brought by China Expert Development Limited (“China Expert”) against the defendant and Ben Lee to recover $400,000, being the balance of a $500,000 loan that was lent on 12 May 2004 and guaranteed by Ben Lee on 20 August 2004. In contesting the summary judgment application, the defendant and Ben Lee had raised allegations similar to those made in this application, namely, the money were Wu Yi Construction’s contributions to FBC, but made through China Expert and received by the defendant on behalf of FBC. The action was eventually compromised by a consent order dated 12 April 2006, under which the defendant was to pay China Expert the amount claimed together with costs.

37.  The plaintiff says that the China Expert’s loan shows that the defendant was in parlous financial condition in 2004. The plaintiff further says that it was because the plaintiff refused to make further loan after the 3^rd loan that the defendant turned to China Expert. The plaintiff also refers to the defendant and Ben Lee’s defence and points out they are untrue in light of the documents in support of China Expert’s claim, including the Ben Lee’s guarantee in which he acknowledged that the $500,000 was a loan from China Expert to the defendant and a $100,000 cheque drawn by Ben Lee for partial repayment of the loan.

38.  The defendant however says that the China Expert’s claim is wholly irrelevant to the present claim and that as the action was compromised on an without admission basis. There was no adjudication of the merits of the defence allegations raised in that action and the settlement was made purely for commercial reasons and to save costs.

(6)     Loans of $850,000 from FBC to the defendant

39.  To further demonstrate the parlous financial conditions of the defendant, the plaintiff also refers to several loans from FBC to the defendant in 2000 and 2001, totalling $850,000.

40.  The defendant denies these were loans, notwithstanding there were letters from Ben Lee requesting for loans. It is said that they were withdrawals made by the shareholders and would in future be set-off against dividends payable to the shareholders or simply waived by the shareholders at the end of the financial year. It is further pointed put the Wu Yi Construction had made similar withdrawals, totalling $13,300,000, from FBC.       

Delay in applying for summary judgment

41.  The defendant raises by way of procedural objection to the present application that the plaintiff had delayed in applying for summary judgment. When the plaintiff made the first application in the District Court, pleadings had already been exchanged. No doubt, the plaintiff could have applied for summary judgment at an earlier stage. However, if a defendant has no real or bon fide defence, then mere delay would not be a sufficient ground for refusing summary judgment. Further, the delay in this case has not caused any substantial prejudice to the defendant that could not be rectified by an appropriate costs order. In my view, this is not a case that the court should refuse to entertain the application merely because the application should have been brought earlier.

Analysis of the defence

42.  I turn now to deal with the substantive opposition. The important question in this application is whether the defence put up by the defendant is capable of belief. The parties had filed several rounds of evidence, in which a number of factual disputes were raised. The evidence also shows that parties and their associated companies have been embroiled in several other litigations that relate to the operation of FBC. It is further trite law that the Court in a summary judgment application should not embark upon a mini-trial on affidavits. That however does not mean that the court should refrain completely from analysing the evidence filed and the assertions made by the parties so as to see whether the defence raised is genuine and/or capable of belief.

43.  In the present case, I am of the view that when its bulky outer garment is removed, the defence raised is shadowy and doubtful in a number of salient aspects.

44.  First, the defendant’s core defence that the three sums were in truth and in fact contributions made by Wu Yi Construction to FBC is evidently contradicted by the three loan documents. The three loan documents are in this case the most contemporaneous documents. In each of them, the defendant requested to borrow from the plaintiff and promised to return by the specified period.  

45.  Second, the defendant’s associated defence that the three sums were, on Huang’s suggestions, “dressed up” as loans from the plaintiff to the defendant is inconsistent with the 1^st and 2^nd receipts, which are also contemporaneous documents.  In each of them, the defendant stated that the money were loans for an on behalf of FBC.  Mr Ng had submitted this is a self-serving statement and should carry little or no weight in the context of considering the defence that the money represented contributions to FBC.  That aside, the two receipts did not state that the sums were contributions to operational funds of FBC, which is the defendant’s main defence.  In stating that the payments were loans for and on behalf of FBC, that would be contradictory to Huang’s suggestion to “dress up” the payments so as to get round Fujian Construction’s instruction not to inject further money into FBC.    

46.  Third, the defendant’s explanation that the contents of the three loan documents, including the repayment dates stated on them, were all specified by Huang is inherently rather hard to accept. One cannot help asking why would Huang go all the way to defy the alleged instruction from Fujian Construction?  This is particularly so when it is the defendant’s case that since September 2002, the operation of FBC was solely financed by Big Island Asia. If that were the case, what would be the reason for Huang to go out of his way in January 2004 to cause Wu Yi Construction to contribute to the operational funds of FBC?  

47.  Similarly, the defendant’s explanation that Huang told Ben Lee to make out the receipts in the way they were so as to protect the defendant is also inherently hard to believe. If Huang was so concerned that he deemed it necessary to dress up the payments so that Fujian Construction would not know that they were injecting money into FBC, there is no conceivable reason for him to risk giving the plot away by asking for the receipts to state they were loans for and on behalf of FBC. Whether the money was called contribution or loan, it is in substance injection of funds into FBC and would be against the alleged instruction of Fujian Construction.  The defendant has not suggested any reason why Huang should be concerned to look after the defendant’s interest.

48.  Further, if all the contents were specified by Huang, it is most odd that the 3^rd receipt would make a cross-reference to the 3^rd loan document. The purpose of protecting the defendant’s interest is simply not met.

49.  Fourth, the defendant’s explanations about the loan documents and the receipts cannot be reconciled with the Post-dated Cheque and the defendant’s explanation about it.  If Huang had a serious concern about being found out by the representatives of Fujian Construction upon inspection of the books and accounts, so much so that he had asked for the Post-dated Cheque, how is it that he would on the same occasion asked the defendant to specify in the 2^nd receipt that the money was a loan for and on behalf of FBC, which on the defendant’s case indicates that funds were going into FBC?

50.  Fifth, the defendant’s case that it only received the three payments from Wu Yi Construction (through the plaintiff) on behalf of FBC does not sit comfortably with the accounting documents exhibited as BPL-18 to Ben Lee’s 2^nd Affirmation. If indeed the defendant merely acted as an agent to receive the funds for FBC, one would have expected the defendant to pay the money collected under the plaintiff’s cheques to FBC so that FBC can discharge its operational expenses and salary payments to its staff.  However, the series of bank payment vouchers and cheques exhibited under BPL-18 show that after receiving the 1^st sum of $150,000 in January 2004, the defendant had directly paid the November 2003 salaries and MPF contributions of FBC staff.  It suggests that the money received from the plaintiff had gone to the defendant, although some of it had been used for the purpose of FBC.

51.  The fact that the salaries and MPF payments for November 2003 were only paid in January 2004 with the money from the plaintiff also goes some way to show that the defendant was not in healthy financial position, contrary to its denial.   

52.  Sixth, on the 1^st to 4^th Agreements, which form the substratum of the defence, they are lacking in particulars and the evidence on them is very sketchy. As I understand Miss Tong, what the defendant is seeking to set up is that on the basis of the 1^st Agreement and through several novations, Wu Yi Construction was under a contractual obligation to be solely responsible for all the operational funds of FBC. However, whether in the pleadings in this case and in HCA 2134/2005 or in the affirmations of Ben Lee, the terms and effects of the series of agreements, especially the 2^nd to 4^th Agreements were only vaguely described. Further, as observed above, it is odd that Wu Yi Holdings would enter into the 2^nd and 3^rd Agreements when it was not yet a shareholder of FBC. Specifically in respect of the 3^rd Agreement, if it were a novation of the 1^st and/or 2^nd Agreement, as submitted by Miss Tong, it is strange that the then shareholder, Wu Yi Engineering, was not a party to it.

53.  The defendant relied on the letter dated 22 January 2003 written by Ben Lee in his capacity as the defendant’s director to Huang as evidencing the 1^st to 4^th Agreements and the demands made by Ben Lee and/or Big Island Asia to Wu Yi Construction for contributions to the operational funds of FBC. Apart from the fact that the letter is not a contemporaneous document for the purpose of the 1^st to 4^th Agreements, it does not show that Ben Lee was demanding contributions to FBC.  After giving an account of the history and development of the joint venture and FBC, the letter proceeded to demand that the joint venture be dissolved and the accounts of FBC be audited.    

54.  Seventh, the plaintiff had adduced evidence to show that contrary to the defendant’s assertions, Wu Yi Construction had been making contributions directly to FBC after September 2002, including 2004 when the three sums in question were paid to the defendant. They show that there was no need to cover up Wu Yi Construction’s contributions to FBC as loans from the plaintiff to the defendant. Ben Lee’s response is that he was not aware of these payments as Wu Yi Construction was in control of the financial matters of FBC. Additionally, he also challenged the authenticity of the documents adduced by the plaintiff on the basis that he had not seen them before and that he had been told that Fujian Construction disallowed contributions be made to FBC.

55.  Ben Lee’s evidence that the financial matters of FBC were controlled by Wu Yi Construction such that he had no knowledge of them and no access to the accounts is open to doubt. As pointed out above, the defendant was paying the salaries and other payments of FBC at least in early 2004. Indeed the Board minutes of FBC dated 31 March 2006 recorded B Lee as saying that Big Island Asia had been paying the salaries of FBC staff from October 2002 and July 2005. Apart from that, it is the defendant’s case that Big Island Asia had been paying for the operations of FBC since September 2002.  Ben Lee, who controls both the defendant and Big Island Asia, is most unlikely to be ignorant of the accounts and finances of FBC. I note too that he had in the last paragraph of the letter dated 22 January 2003 told Huang that he would as from 2003 personally take charge of the finances of FBC.      

56.  Further, the grounds on which the defendant and/or Big Island Asia challenges the authenticity of the documents showing payments by Wu Yi Construction to FBC appear to me to be rather tenuous. It is to be noted that among the documents challenged are bank advices and other banking documents.  Mr Ng also made the point that the challenge on authenticity was not made at the first opportunity.

57.  As to the defence of estoppel and waiver, I do not understand Miss Tong to be contending that it is a stand-alone defence. Obviously, its viability is dependent upon the factual foundation of the case.

Conditional leave to defend

58.  For the above reasons, I am of the view that the defence is shadowy and that leave to defend should only be granted on terms. Miss Tong argues that the defendant should only be ordered to bring into court part of the claim since there are good defences on basis of the 1^st and 2^nd receipts. I do not accept that the 1^st and 2^nd sums stand in any better light than the 3^rd one. The whole amount claimed should be paid into court as a condition for the leave to defend.

59.  Miss Tong also asks that the defendant be given 30 days to meet the condition. Mr Ng submits that 30 days is too long and that 14 days would be appropriate. I agree.  $500,000 is a relatively small amount of money. There is also no evidence before the court as to the financial ability of the defendant to justify allowing 30 days for the payment into court. 

Conclusion

60.  The orders that I make are as follows:                 

(1)       There is leave to the defendant to defend this action on condition that it pays into court the sum of $500,000 within 14 days after the handing down of this Judgment.

(2)       If the condition under paragraph (1) is met, the costs of the present application shall be costs in the cause.    

(3)       In the event the defendant fails to comply with paragraph (1) above, the plaintiff be at liberty to enter judgment as claimed together with interest and costs of the action.