LO WING KWONG AND ANOTHER t/a HSIN PAO FROZEN FOODS (BUN KEE) v. GRAND LORD SEAFOOD RESTAURANT

DCCJ 148/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 148 OF 2005

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JUDGMENT

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1.  This is the Defendant's application under Order 13 rule 9 RDC to set aside a default judgment entered against it on 7 February 2006 (“the Summons”).

Background

2.  The Plaintiff was a supplier of frozen food of the Defendant which was operating the Grand Lord Seafood Restaurant (“the Restaurant”) at G/F to 3/F, 98-104 San Fung Avenue, Sheung Shui, New Territories (“the Sheung Shui Premises”).  The Sheung Shui Premises was also the registered office of the Defendant according to the Annual Return filed by the Defendant on 13 January 2004.  The Restaurant ceased business and vacated the Sheung Shui Premises on 31 May 2004.

3.  The Plaintiff commenced his action on 10 January 2005 against the Defendant for a sum of $180,350.30 being prices for frozen food sold and delivered.  The Writ and Statement of Claim (“Writ”) was served on the Defendant by leaving them at the Sheung Shui Premises on 11 January 2005.  Since no notice of intention to defend was given by the Defendant, default judgment was entered against it on 7 February 2005 (“the Default Judgment”).  On 29 April 2005,  the Defendant had filed a Notification of Situation of Registered Office with the  Companies Registry which stated that the registered office should change to Suite 504, South Tower, World Finance Centre, Harbour City, 17-19 Canton Road, Tsimshatsui, Kowloon (“the Harbour City Premises”) with effect from 1 October 2004.

4.  The Defendant was first became aware of the proceedings herein in May 2005 when it was served at the Harbour City Premises with a winding-up petition in HCCW 329/2005 which is based on the Defendant's non-payment of the sum under the Default Judgment.

The Defendant's Case

5.  The Defendant submitted that the Default Judgment is irregular due to ineffective or defective service in the sense that the Writ did not come to the notice of the Defendant.  Order 10 r. 1 and Order 65 r. 3(2) RDC as well as Section 356 of the Companies Ordinance (“Section 356”) are all relevant in the service of document on a limited company.   If a plaintiff was aware that a defendant was no longer at the address at which the writ was purportedly served at the time of service, that could not be a proper address for service because the plaintiff could not properly authorize an affidavit of service to be sworn in compliance with Order 10 r.1(3)(b)(i) RDC deposing to a belief that the writ would come to the knowledge of the defendant within 7 days.  For service under Order 10 to be effective, it must be able to bring to the defendant's attention (Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378).  And no one can be made liable by an order of any tribunal unless he had been given fair notice of the proceedings to enable him to appear and defend himself (Fok Chun Hung v Lo Yuk Shi [1995] 2 HKC 648).

6.  Mr. Lo Wing Kwong of the Plaintiff (“LO”) and his 2 sons (“the Lo Brothers”) are shareholders of the Defendant and Lo Brothers also acted as Directors of the Defendant till they're removed on 20 May 2004 and replaced by Mr. Wong Yun Kam and Mr. Wong Chee Hing (“the New Directors”).  LO and the Lo Brothers were well aware of the cessation of business of the Restaurant and the Defenedant had vacated the Sheung Shui Premises.  The Plaintiff must know that effective service is not possible at this address.  The Plaintiff must have been put on notice that any document served at the Sheung Shui Premises would not come to the attention of the Defendant especially given the fact that a new tenant was already operating another restaurant at the same premises since 1 July 2004.  Similarly, the Plaintiff must have been put on notice that the Sheung Shui Premises could not have been the registered office of the Defendant.  The contact details of the New Directors are all known to LO and the Plaintiff had every means to inquire with the New Directors to find out the address for service.

7.  On the merits of the defence case, it is submitted that there are factual disputes and conflicts in evidence in this case which must be left for trial.  The existence of an agreement between the Plaintiff and the Defendant is disputed and the authenticity of the invoices produced by the Plaintiff are doubtful.  Even if there were an agreement made by the Lo Brothers with the Plaintiff, the contract was voidable due to the fact that it was unauthorized without the consent of any directors' or shareholders' and due to the non-disclosure of interests by the Lo Brothers of their interests in the transaction given the father and son relationship.  There are also potential counter-claim by the Defendant for knowing receipt and/or knowing assistance in respect of breach of fiduciary duties of the Lo Brothers and conspiracy to injure.

The Plaintiff's Case

8.  The rule governing service of documents on a company is prescribed by Section 356 and the provision under this section had been complied with.  The fact that the service may not be brought to the attention of the Defendant was due to the fault of the Defendant in their delay in filing the notice for change of address.  According to the case of Ho Kwok Wah v Group Jewellery Arts Ltd & Ors [2000] 3 HKC 595, a writ may be served on a company by simply leaving it at its registered office even though the plaintiff was aware that the office had already been vacated.  In any event, there is no evidence to suggest that the Plaintiff were aware of the fact that the registered address of the Defendant had been changed to the Harbour City Premises on 11 January 2005.  In the circumstances, there can be no doubt that the Writ was properly served on the Defendant and the Default Judgment obtained was regular.

9.  It is submitted that the contention that there is no agreement is unjustified and wholly devoid of merits.  Each invoice constituted a separate agreement entered into between the Plaintiff and the Defendant.  It is the Defendant's case in HCA 2349/2004 against the Lo Brothers that the Defendant did in fact contracted with the Plaintiff for the supply of food but the contracts were unauthorized.  The Defendant's failure to locate the invoices did not support the allegation of a fabrication.  The Article of Association of the Defendant specifically confers the power on its directors “to purchase or otherwise acquire for the company any property …which the company is authorized to acquire at such price and generally on such terms and conditions as they shall think fit” and “to delegate the power to any other person as the directors may think fit”.  In any event, there is nothing to impute knowledge on LO that the dealings entered between the Plaintiff and the Defendant in May 2004 were unauthorized in view of their continuous dealings since mid 1997.  There can be no real sensible possibility of conflict of interests in this case since the Lo Brothers did not have any direct or indirect financial benefit in the Plaintiff's business.  Given the history of dealings between the Plaintiff and the Defendant, all the directors of the Defendant were well aware of the dealings and no formal declaration of interests is required.  Even the contracts are voidable, it would be too late to avoid it since it is now impossible to put the parties back to their position before the contract.  The potential counterclaim are not sufficiently particularized and they are irrelevant to the question as to whether the defence advanced by the Defendant has a real prospect of success at it forms no part of the Defendant's case on the available evidence.

Was the Judgment Regular?

10.  The test to be applied under O.13 r. 9 depends on whether the judgment was regular or irregular.  If the judgment is irregular, the Hong Kong position is that such judgment is to be set aside as of right.  If the judgment is regular, the merit of the defence needs to be examined.

11.  Section 356 and Order 10 r.1 are separate provisions for the service of document on a limited company.  They provided for different modes of service and different requirement to comply with on the different modes.  According to the cases cited by the Plaintiff, it is clear that the test for service under Order 10 r.1 was whether it had been brought to the defendant's notice.  But this is not applicable to service under Section 356 as stated in the case of Ho Kwok Wah.

12.  The service of the Writ on the Defendant in this case is by leaving it at its registered address.  Applying Ho Kwok Wah, this is effective service in accordance with Section 356 which contains no requirement of the kind to be found in Order 10 r. 3(b)(i).  I found the contention by the Defendant that the requirement of effective service under O. 10 R. 1 should also apply to Section 356 is unfounded.  The fact that the Plaintiff was aware of the vacating of the Sheung Shui Premises by the Defendant and service of document will not be brought to the attention of the Defendant is irrelevant in a service under Section 356.

13.  The issue here is whether the Plaintiff can prove that the registered address of the Defendant was still at the Sheung Shui Premises on 11 January 2005.  It is undisputed facts that the change of record with the Companies Registry was only effected in April 2005.  The Sheung Shui Premises remained the registered address kept with the Companies Registry before that.  So by 11 January 2004 when the Writ was served on the Sheung Shui Premises, it was still hold out to be the registered address of the Defendant.  The Defendant's default in not complying with Section 92 of the Companies Ordinance to file the Notice within 14 days of the change had led the Plaintiff to believe that the Sheung Shui Premises was still good for service.  There was nothing to suggest to the Plaintiff that 8 months later in January 2005 that was no longer the case.  This had not been rectified till April 2005.  Subsequent update by the Defendant to put retrospective effect on the change of registered address should not avail the Defendant with an excuse to challenge the service. 

14.  I found that the Sheung Shui Premises was the registered address within the meaning of Section 356 at the time of service in January 2005.  And the service on the Defendant is an effective one.  There is, therefore, no doubt that the judgment was a regular judgment.

Prospect of Success

15.  A defendant who seeks to set aside a regular judgment must at least show that he has a real prospect of success.  What he has to show to the court is that his case and the evidence he adduced in support of it carries some degree of conviction so that the court can form a provisional view of the probable outcome of the action (Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC 213).

16.  However, if the outcome of a case cannot sensibly be formed without an assessment of witnesses, and that cannot be done until the witnesses were examined at trial, the appropriate test to determine whether a defendant has a real prospect of success is to ask whether the defence “could well be established” at trial (Morigod Development Ltd vSunny Trading Co (A Firm) [1999] 2 HKC 710) .  If the evidence of the defence witnesses could well be believed at trial, the defendant has established a real prospect of success.

17.  The Plaintiff's case depends on the invoices issued upon delivery of the goods and it's the Plaintiff's case that on each occasion, staff of the Defendant will sign together with a company chop stamped on it.  The Defendant is disputing on the authenticity of these invoices and raised the point that the invoices produced by the Plaintiff for this claim were unlike those invoices for previous dealings in that there're no signature or company chop on them.  It was also denied that the signature on the invoices belonged to any staff of the Defendant.  This challenge, if accepted, do cast doubt on the Plaintiff's case and tend to support the Defendant's denial of the existence of the goods sold and delivered.  The findings of this fact can only be ascertained after a trial.  The ultimate outcome turns on whose case is believed, the Plaintiff or the Defendant.  I found the Defendant's case could well be established at trial.  It follows that the Defendant's defence has a real prospect of success.

Conclusion

18.  For reasons which I have stated above, I make the following order :

i) The default judgment dated 7 February 2005 entered against the Defendant be set aside;

ii) Order nisi on costs of and incidental to the Defendant's setting aside application be paid by the Defendant in any event, with counsel's certificate, to be taxed if not agreed;

iii) Order nisi will become absolute unless either party applies to be heard on the question of costs within 14 day from the day of handing down of this decision.

Costs Reserved for the Adjourned Hearing on 10 November 2005

19.  By the order of Master Yu dated 11 July 2005, it was ordered that the Plaintiff should file an affirmation in opposition to the Summons by 1 August 2005 and that the substantial hearing of the Sumons be fixed for argument with 3 hours reserved.  The substantive hearing was originally fixed to be heard on 10 November 2005 (“November Hearing”).  No affirmation was filed by the Plaintiff in compliance with the order.

20.  After close of business on 1 November 2005, The Defendant's solicitors received a letter from the Plaintiff's solicitors requesting that the November Hearing be vacated as the Plaintiff wished to file an affirmation in opposition to the Summons in the next 7 days.

21.  The Defendant's solicitors replied by stating that Counsel had already been briefed to attend the November Hearing but prepared to agree to an adjournment if the Plaintiff bears the costs of such adjournment.  As the parties were unable to come to any compromise as to who should bear the costs wasted, it was agreed that the issue of costs of the adjournment should be reserved for argument at the adjourned hearing of the Summons.

22.  At this hearing, the Defendant submitted that regardless of the outcome of the Summons, the Plaintiff should bear the Defendant's costs of and occasioned by the adjournment of the November Hearing including counsel's brief.  The Plaintiff, on the other hand, submitted that costs of the adjournment should follow the event.

23.  The wasted costs for the November Hearing is clearly caused by the Plaintiff's request for further time to file an affirmation in opposition.  I can't see why, even on their failure in this application, the Defendant should pay the price for the adjournment which is through no fault of their own.  Since the request for adjournment was only raised 9 days before the actual hearing, it would not be surprising for the Defendant to have briefed their counsel. 

24.  For the costs of and occasioned by the adjournment of the November Hearing, it should be borne by the Plaintiff in any event, including Counsel's brief, to be taxed if not agreed.