HONOUR FINANCE COMPANY LIMITED v. CHU MEI MEI

1988, No. A2252

IN THE HIGH COURT OF HONG KONG

HEADNOTE

The plaintiff attempted to serve the writ in this action on the defendant by sending it by post to the last address of the defendant known to the plaintiff. In fact, unknown to the plaintiff, the defendant had ceased to live at that address. The plaintiff obtained judgment against the defendant in default of receipt of any notice of her intention to defend. The defendant proved she had never received the writ and the Master set the judgment aside on the ground of irregular service of the writ. The plaintiff appealed.

HELD : dismissing the appeal, that a defendant who proved that he had never received at all any notice of the proceedings against him was entitled to have a default judgment obtained against him set aside as of right (Attorney-General v. Watson 1988 HCA No. A3161, 18th November 1988, unreported, followed; Saga of Bond Street Ltd. v. Avalon Promotions Ltd. [1972] 2 QB 325 and A/S Cathrineholm v. Norequipment Trading Ltd. [1972] 2 QB 314 not followed).

1988, No. A2252

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

_______________

J U D G M E N T

_______________

1. I have before me two appeals, the first an appeal from a decision of Master Chan given on 25th November 1988 ("the first appeal") and the second an appeal from a decision of Master Jones given on 17th December 1988 ("the second appeal'').

2. The first appeal is concerned with a default judgment entered by the Plaintiff against the Defendant on 28th April 1988, which the Master set aside. The Plaintiff complains that he was wrong to do so, (The first appeal was launched out of time; but the Plaintiff applied for time to be extended to enable the first ''appeal to be disposed of on its merits, and, at the hearing, I acceded to that application.)

3. The second appeal is concerned with an Order, made against the Defendant by Master O'Donnell in Chambers on 19th November 1988, prohibiting the Defendant from leaving Hong Kong; on 17th December 1988, Master Jones discharged that order, Again, the Plaintiff complains that he wrong to do so.

4. The facts are as follows.

5. The Defendant was, in October 1987, minded to try her hand at margin trading on the Hong Kong Stock Exchange, through the Pak Shing Group of Companies. This group included Pak Shing Stock Company ("P.S. Stock") a business in the sole ownership of one Yip Chong Kwan, trading as a stockbroker, and Pak Shing Finance Company Limited ("P.S. Finance") a deposit taking company. On 6th October 1987, the Defendant signed a number of documents, including a personal account mandate, an undertaking for repayment of advance, a memorandum of deposit, a letter of authorization, and an application for loan ("the documents").

6. The documents, on the face of them, constituted the Defendant a customer of P.S. Stock and P.S. Finance, and trades were executed on her behalf.

7. Unfortunately, however, on 19th October 1987, the stock market crashed and (like many others) the Defendant found herself in difficulties.

8. On 7th November 1987, the Defendant left Hong Kong to take up residence in Indonesia.

9. By 30th November 1987, the Defendant's trading had left her in debt to the extent of over HK$800,000.

10. On 27th January 1988, the Plaintiff (a money lender) took over the debt by way of assignment. On 10th February 1988, the Plaintiff gave notice of the assignment to the Defendant; but, although the letter by which this was done was not returned by the Post Office, it is doubtful whether it reached her. She was, by then, in Indonesia.

11. On 8th March 1988, the Defendant returned to Hong Kong from Indonesia.

12. On 25th March 1988, a writ (endorsed with a statement of claim) was issued by the Plaintiff against the Defendant claiming, among other things, payment of the debt. On the same day, 25th March 1988, the writ was sent, by way of service, by ordinary pre-paid post to the last known address of the Defendant (Flat B, Room K, 16th Floor, Chim Terrace, 256 Jaffe Road, Wanchai, Hong Kong.) The writ was not returned by the Post Office.

13. On 28th April 1988, the Plaintiff applied for and obtained judgment against the defendant in default of any notice from the Defendant of her intention to defend.

14. On 29th April 1988, the defendant, unaware of any of this, left Hong Kong for Indonesia. On 10th May 1988, the Plaintiff issued a bankruptcy notice against the Defendant.

15. On 29th October 1988, the Defendant returned to Hong Kong.

16. On 17th November 1988, the bankruptcy notice to which I have referred was set aside.

17. On 19th November 1988, at a hearing ex-parte, Master O'Donnell made the Order prohibiting the Defendant from leaving Hong Kong to which I have already referred.

18. On 25th November 1988, the default judgment of 28th April 1988 was set aside by Master Chan "On the ground of irregular service of the writ'', (It is this Order of Master Chan which, as I have said, is the subject of the first appeal.)

19. On 17th December 1988, Master Jones discharged the Order made by Master O'Donnell on 19th November 1988, at a hearing inter-partes. (It is this Order of Master Jones which is the subject of the second appeal.)

20. On the same day, 17th December 1988, Mr, Justice Liu made an order ex parte further prohibiting the Defendant from leaving Hong Kong; this was an order expressed to elapse after the expiry of one month (unless extended or renewed) and was made, as I understand it to preserve the position pending the resolution of the second appeal.

21. On 10th January 1989, when the matter came before me, I indicated that I would take time to consider the first appeal and the second appeal; but I said that, on certain undertakings given by the Defendant, I would order that she be prohibited in the meantime from leaving Hong Kong. I gave her liberty to apply to discharge the order upon two days notice, on condition that all the undertakings had been and were complied with.

22. I now give judgment on the first appeal and on the second appeal.

23. I turn to the first appeal, The case for the Plaintiff is that the default judgment of 28th April 1988 was "a regular judgment"; if the Plaintiff is right, then the court ought not to set the judgment aaside unless it is satisfied that the Defendant has shown a defence which has a real prospect of success see my own decision in Attorney-General v. Watson 1988, HCA No. A3161, 18th. November 1988 (unreported).

24. The Defendant says (and the Master held) "on the ground of irregular service of the writ" that the judgment was not regularly obtained, and that, in those circumstances, the Defendant is entitled to have it set aside as a matter of right. This is the central question, for I say at once that, although the Defendant has advanced a defence, that is to say, that the documents which she signed, and which support the claim of the Plaintiff, were documents the contents of which were misrepresented or not properly explained to her, I do not accept that this defence has a real prospect of success, Accordingly, the decision of the Master cannot stand if the default judgment of 28th April was "a regular judgment".

25. The Defendant's evidence is that the proceedings did not come to her notice at all until 25th May 1988, after the date of the default judgment. The Plaintiff says that is irrelevant to the question whether or not the judgment was "a regular judgment", The proceedings were served on 25th March 1988 by sending, by ordinary post on that date, a copy of the writ to the Defendant, who was then within the jurisdiction, at her last known address in Hong Kong. That, says the Plaintiff, was regular service : see O.10 r.1(2)(a), which provides that a writ for service on a defendnat wihtin the jurisdiction may, instead of being served personally on him, be served by sending a copy of the writ by ordinary to the Defendant at his usual or last known address. The date of that service is to be deemed, in the present case, to be 1st April 1988 : see O.10 r.1(3)(a), which provides that where a writ is served in accordance with para. (2) the date of service shall unless the contrary is shown, be deemed to be the seventh day after the date on which the copy was sent to the address in question. The Plaintiff says that, if you look at the date of the default judgment, 28th April 1988, there was at that time nothing known to the Plaintiff which indicated that the writ had not been delivered in the ordinary course of post, and so it is to be deemed to have been so delivered for the purposes of that judgment. That being so, says the Plaintiff, that jdugment was regulary obtained.    

26. This argument cannot stand with my own decision in Attorney General v. Watson above, in which I held that a defendant who proved that the proceedings against him had never been brought to his notice at all before a default judgment was obtained against him was entitled to say that such a judgment had not been regularly obtained and that he was entitiled to have it set aside as of right. But it has been argued (correctly) for the Plaintiff that my attention had not been drawn, in that case, to the dissenting judgment of Orr L.J. in Thomas Bishop v, Helmville Ltd. [1972] 1 Q.B. 465, at p.475; nor to the judgments of Lord Denning MR, Roskill L.J. and Sir Gordon Willmer in A/S Cathrineholm v. Noreqaipment Trading Ltd. [1972] 2 Q.B. 314 (following both Saga of Bond Street Ltd. v. Avalon Promotions Ltd., decided in 1970 but not reported until at [1972] 2 Q.B. 325, and the dissenting judgment of Orr L.J. to which I have referred). The English cases reveal an acute division of opinion in the Court of Appeal in England. The confusion exhibited in the English authorities is not resolved by head counting; Salmon L.J. was a party to the decisions in both the Saga of Bond Street case and the Thomas Bishop case but he decided the point first one way and then the other. I enter upon this minefield again with some trepidation; but in the end I have come to the conclusion that I ought to follow my own decision in Attorney General v. Watson. I accept that that decision is inconsistent with the decision in the Saga of Bond Street case and in the A/s Cathrineholm case. But I remain of the opinion that the service of proceedings by writ is not complete until the writ is actually received or is to be deemed to have been received under the terms of the rules; and that proof positive that the writ was never actually received defeats not only any suggestion of actual receipt but also any suggestion of deemed receipt. The "deeming" provisions do not apply when "the contrary is shown" : see O.10 r. 1 (3)(a), mentioned above. The view I prefer is the view expressed by the esditors of the Supreme Court Practice 1988 at 10/1/8 (notwithstanding that, at 10/l/7, the Saga of Bond Street case and the A/s Cathrineholm case are both cited; the citation is in a different connection, but it is clear that the view which I favour was not one expressed in ignorance of these two decisions).

27. I suspect that the reason for the confused state of the authorities is that no one has paused to analyse whats really meant by the expression "a regular judgment". Everyone agrees that "a regular judgment" cannot be set aside without proof of merits, whereas a judgment irregularly obtained will be set aside as of right. But, to my mind, "a regular judgment" requires not, only that the Plaintiff should have done all he can to comply with the rules; it requires him also to show that has succeeded in doing so. It will be rare for a plaintiff who has done all he can to comply with the rules to be found to have failed. But there will be some cases where this happens. One clear example will be the case of service by post on a defendant who is not in fact within the jurisdiction, although the plaintiff has no reason to know this. Another (in my judgment) is the sort of case exemplified by Attorney General v. Watson, and by the instant case, where the defendant proves (to the satisfaction of the Court) that he has never received the writ at all. I prefer the authorities which tend to the conclusion that a default judgment obtained in such circumstances cannot be "a regular judgment" although, on the face of it, the Plaintiff has done all he can to effect regular service. And I base this preference on first principles. The whole object of service of proceedings is to give notice to the Defendant of the institution of the proceedings. This is why the primary mode of service is personal service. The alternative of service by post is on offer; but it must be, and is, hedged about with safeguards for the defendant, and a plaintiff who chooses this alternative takes the risk of something going wrong (whether or not through some fault of his own in my judgment makes no difference). When that happens, the Plaintiff cannot complain if his judgment is not treated as "a regular judgment". With great respect, I consider that insofar as the English authorities are inconsistent with this view (and only some, not all, of them are) then I need not and should not follow them.

28. For the reasons I have endeavoured to state I dismiss the first appeal.

29. I turn to the second appeal.

30. When the Plaintiff opened the second appeal before me, it appeared at an early stage that the Plaintiff was at something of a disadvantage as against the Defendant, for it knew next to nothing about the Defendant's means, whereas it did know that subject to the resolution of certain temporary difficulties the Defendant would be able to leave the jurisdiction, return to Indonesia, and for all practical purposes escape the consequences of any judgment which might be obtained against her in the Hong Kong courts.

31. However, the Defendant was willing to offer undertakings:

(1) To file an affirmation making full disclosure of all her assets, liabilities, income and expenditure and of the disposal of any assets or income since 25th March 1988, the said affirmation to be filed by 19th January 1989 on or before 4:30 p.m.;

(2) Not to disposes of any of her assets in Hong Kong up to HK$810,000 without the consent of the Plaintiff or the leave of the court;

(3) To lodge the sum of HK$50,000 in court by 19th January 1989 on or before 4:30 p.m.

32. On that basis I was prepared to order that she should be prohibited in the meantime from leaving Hong Kong, but that she was to be at liberty to discharge the order upon two days' notice, on condition that all her undertakings had been and were complied with.

33. The critical date, 19th January 1989, has now passed. If the Defendant has complied with the positive undertakings, and is willing to continue her undertaking not to dispose of any of her assets in Hong Kong up to HK$810,000 without the consent of the Plaintiff or the leave of the court, I would think it wrong to continue the prohibition order. But if it appears that the Defendant is in breach of her undertakings I should be disposed to reverse the Master; allow the appeal; and re-impose the prohibition order for a further period of one month. A prohibition order is a draconian order. I find it surprising that such an order, affecting the liberty of the subject, may, under the Supreme Court Ordinance (as amended), be made by a master. But that is not a matter for me, Certainly, I think that any judge, or master, who is asked to make such an order should think long and hard before doing so. It is true that Hong Kong is a place from which those of a dishonest turn of mind, having incurred debts here, can all too easily escape, never to be traced again, In cases of that sort, the power to make a prohibition order is a useful weapon in the judicial armoury. And there may be other cases in which such an order can properly be made. But such an order should certainly not be made without a most anxious and careful scrutiny of the facts.

34. Since my decision on the second appeal will depend on what has happened since the date of the hearing in relation to the undertakings given to the court by the Defendant, I will now hear Counsel further on the correct course to be taken.