CORONATION ELECTRONICS LTD. v. THAROOMALS (HONG KONG) LTD.

IN THE COURT OF APPEAL

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JUDGMENT

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Fuad, J.A.:

1. This is an appeal from a judgment of Bewley J. dated 19 February 1986 whereby he allowed, in part, an appeal from an order made by Master Suttill. This is the history of the matter.

2. The Respondent to this appeal, Coronation Electronics Limited ("Coronation"), who are importers and exporters of electronic merchandise, issued a Writ endorsed with a statement of Claim on 8 July 1985 against the Appellant, Tharoomals (Hong Kong) Limited ("Tharoomals"). An acknowledgment of service was filed on 19 July indicating that Tharoomals intended to contest the proceedings. On 27 July, Coronation amended their Statement of Claim in minor particulars, all relating to the amount said to be due to them. No Defence has been filed, for reasons that will appear.

3. On 5 August 1985 Coronation took out a summons for summary judgment under R.S.C. 0.14. The hearing took place on 27 August; Tharoomals did not appear to show cause (as will be seen, they said they were never served with the notice of the 0.14 application). Master Betts entered (a) final judgment in Coronation's favour for the principal sum claimed, with interest on part of that sum at the prevailing bank rate from a certain date and a sum in respect of "financing commission'' and (b) interlocutory judgment for damages to be assessed.

4. On 16 September 1985, Tharoomals issued a summons, presumably under 0.14, r.11, seeking to have the judgments set aside. Master Suttill heard and dismissed the application on 18 October 1985. There was then the appeal to the Judge in Chambers, from whose decision this appeal arises. By their Notice of Appeal, Tharoomals sought to hale Master Suttill's Order set aside and liberty to defend the action.

5. By their Statement of Claim, Coronation recited the terms of a written agreement between the parties of 18 December 1984 wherein it was agreed that Coronation would open or cause to be opened two letters of credit amounting to s$1,969,000 in favour of one or more beneficiaries in Singapore to be designated by Tharoomals "absolutely at the Defendant's risk and responsibility". In consideration for this obligation, it was pleaded, Tharoomals had agreed (i) to settle payment under the letters of credit not later than 31 January 1985; (ii) to pay S$26,581,50 each month from the date(s) of the opening of the letters) of credit until repayment; (iii) to pay all bank charges etc. charged by Coronation's bank in respect of the letter(s) of credit, and (iv) to supply Coronation with 200 video recording machines by 28 December 1984, at the cost price of S$860 per machine out of 2,200 machines to be shipped to Singapore under the letters of credit.

6. Coronation then averred that at Tharoomals' request they had duly caused to be opened two letters of credit, each for S$984,500, through their bank, with Intra World of Singapore as beneficiary of one of the letters of credit, and LM (Far Cast) Buying House, also of Singapore, as beneficiary of the other. The beneficiaries had, in due course, negotiated their respective letters of credit.

7. It was then pleaded that, apart from a sum of S$50,000 paid on 18 June 1985 (for which credit was given), Tharoomals had failed to pay the amounts due under the agreement, and had failed to supply the goods as promised. Thus, Coronation claimed:

8. Coronation gave particulars of the damage they had suffered as a result of the failure to supply video machines - loss of profit at S$20.68 per piece, i.e. S$4,136.

9. Coronation therefore claimed the sum of S$2,092,281.69, plus the continuing interest and financing commission; and damages.

10. The judge had before him an affidavit from Mr. Dissanayake, the principal of the solicitors' firm acting for Tharoomals, to the effect that he had received instructions to defend the action on 18 July 1985. He had instructed counsel to draft a Defence. He explained why there had. Been a delay in preparing the Defence. Counsel had informed him that Tharoomals had an arguable defence, set-off and counterclaim. He had been surprised to learn, by a letter dated 11 September from Coronation's solicitors, that final and interlocutory judgment had been entered against his clients under 0.14. He had found no trace of the 0.14 summons in his papers, and no relevant entry in the incoming mail register.

11. Mr. Dissanayake went on to say that he had learned later from the solicitors acting for Coronation that his firm's receipt stamp (date: 6 August 1985) had been placed on copies of the back sheets of the summons and of the affirmation supporting the 0.14 application. He had seen these "chops" and could not explain how the documents had come to be "chopped" without their receipt being recorded in the register. They had not been brought to his notice, and they were not to be found in the relevant files. One possible explanation was that the process server had taken the documents back again, by mistake.

12. The process server was Mr. Lam sum Kit, a clerk employed by the firm acting for Coronation. He stated in his affirmation that he had handed over the documents to the lady, receptionist in the other firms office and she had "chopped" the copies subsequently retained by him. He had seen her put the papers on the corner of her desk before he left. He categorically denied having taken them back again.

13. In that part of his judgment that deals with this issue, the judge noted that Leading Counsel for Tharoomals had not suggested that the default judgment was irregular but had asked the Court to ignore the question of service and to confine consideration to the controversy whether there was an issue to be tried. The judge said that he did not think this was right, for where the judgment was regular, the Court had a discretion whether or not to give leave to defend and could impose terms. He said that one of the factors that could be taken into account was the conduct of the party seeking leave. He drew attention to the fact that the lady receptionist had not sworn an affidavit as to what had happened and that Mr. Lam's evidence therefore stood uncontradicted. The judge added: -

"On the evidence, therefore, the defendant has failed to show that it was just an error on the part of the solicitor's office; the possibility of bad faith cannot be ruled out. This is a matter that must weigh heavily with the court when it comes to exercise its discretion to give leave to defend."

14. The next issue was resolved by the judge in favour of Tharoomals. Coronation had contended that the terms of the written agreement of 18 December 1984 indicated that it had always been in the contemplation of the parties that the transaction embodied in it was to be treated separately from other transactions between them concerning which they maintained a running account. The judge reviewed the evidence and concluded, for reasons that he gave, that he could not be sure that it had not been agreed that the letters of credit should be brought into the running account, and felt that it would not be right in these circumstances to shut out Tharoomals on the basis that the letters of credit transaction had to be viewed in isolation. There is no Respondent's Notice about this, or, indeed, any other, finding.

15. In his judgment, the judge then stated that it was therefore "necessary to look more closely at the respective running accounts, which are so much at variance, and to enquire to what extent, if any, the defendant may be indebted to the plaintiff."

16. The judge proceeded to examine the accounts kept by the respective parties (which were discrepant) and the evidence contained in, and exhibited by, the affirmations filed, relating to four particular transactions. He had noted earlier that the accounts kept by Tharoomals, supported by their accountants certificate, showed a credit balance on 31 December 1984\ in their favour of HK$6,866,149 and that as at 7 June 1985 (one month before the Writ was issued) there was a nil balance. Coronation stated that the correct running account showed that Tharoomals owed them HK$6,803,374.

17. The judge decided that the evidence before him "was all one way" in Coronation's favour in respect of the following amounts:

and that no triable issues had been raised about the indebtedness of Tharoomals in relation to these sums. And so he held that Coronation were entitled to judgment for the total of these amounts: HK$3,516,710. What he really did was to leave undisturbed the Master's Order in respect of that total amount.

18. The judge gave Tharoomals leave to defend for the balance of Coronation's claim.

19. Tharoomals now appeal to this Court, and the broad grounds of their Notice of Appeal is that the judge had wrongly undertaken, on affidavit evidence, an enquiry that ought to have been undertaken on oral evidence, at the trial, and that on the affidavit evidence, triable issues had been disclosed which affected the whole claim.

20. Mr. Bokhary, who appeared for Tharoomals, took us through the material upon which the judge had concluded that the four sums in respect of which he allowed judgment to stand, were in Coronation's favour. He suggested that a proper analysis of the evidence showed that the judge's conclusion could not be supported.

21. Mr. Mills-Owens, for Coronation, went through the same exercise and sought to show that there was ample justification for the judge, in considering whether or not an arguable case had been shown, to have come to the conclusion that he did in respect of each of the sums in question.

22. I mean no disrespect to learned Counsel by not reviewing their submissions. With all due respect, once the judge had reached the conclusion that he was not sure that there might not have been an agreement ''that the letters of credit should be brought into the running account", I do not think that he was justified in taking the course that he did since Coronation's cause of action in their Statement of Claim was not founded on the balance of a running account kept between them and Tharoomals.

23. In any event, it seems to me, that until the issues between the parties about the correctness of the disputed entries in their respective accounts had been tried in the usual way, Coronation were not entitled to retain their judgment on the four amounts totalling HK$3,516,710. It will be a rare case, indeed, that summary judgment will properly be given when accounts need detailed examination to ascertain the amount recoverable by the claimant party.

24. This does not appear to be one of, those rare cases (where, for example, the Court can be satisfied that at least a certain amount is due) in the light of the judge's views about what he calls "the shipment of St. Peter's trousers", a transaction which he concluded "could stand further enquiry". The amount in question in relation to this transaction is no less than HK$3,600,000. If Tharoomals were able to establish at the trial that the trousers were never delivered, as they had contended, then the true balance of the running account would have to be adjusted in Tharoomals favour in a sum which slightly exceeds the amount for which judgment has been maintained against them.

25. For these reasons, in my opinion, the learned judge's decision not to disturb the default judgment for the sums making up the total of HK$3,516,710 cannot stand.

26. I now turn to consider that part of the learned judge's Order that relates to the balance of Coronation's claim. On this aspect of the case, the judge said:

"Having regard to the defendant's conduct, in particular the failure to appear in answer to the 0.14 summons, the failure to file a defence and the last-minute objection to the St. Peter's trousers transaction, plus the fact that the defendant appears to have an uphill struggle to succeed, I take the view that it would be proper to require the defendant to bring the whole of the balance of the plaintiff's claim into court, as a condition of leave to defend, in Hong Kong or Singapore currency, at the rate of exchange prevailing on the date of payment in. Alternatively, the defendant may provide security for payment of that sum, to the satisfaction of a master. In default of payment in, or the giving of security, within 21 days, the plaintiff has leave to sign judgment for that sum."

27. The judge has a discretion under 0.14,r.11, when setting aside or varying a default judgment, to impose such terms as he thinks just. It is quite usual for a court in such circumstances to order the amount claimed, or part of it, to be brought into court as a condition.

28. The judge, in my judgment, is free to impose conditions which might not be appropriate when leave to defend is given in 0.14 proceedings where the defendant appears. In other words, the position is rather different when there is a default judgment that is sought to be set aside. This being a matter of discretion, the judge's decision is not one with which this Court will lightly interfere.

29. In this context it is necessary to recall what the learned judge said when he was dealing with the first issue; and he mentioned as the first factor he was taking into account, the defendant's conduct "in particular the failure to appear in answer to the 0.14 summons". As we have seen, he had stated that "the possibility of bad faith cannot be ruled out." While the judge's finding that the original default judgment was regular is not, and cannot be, challenged, I must confess to some difficulty in appreciating what the learned judge had in mind when he made that comment. Was there any material before the Court to justify this finding, which would seem to involve the possibility that Tharoomals and their solicitors had put their heads together in an attempt to mislead the Court about the service of the 0.14 papers? I think not. If, as appears much more likely, the papers got mislaid in the office of the solicitors through inefficiency on the part of one or more of their' employees, it seems to me to be a step too far to take this as an indication that there might be bad faith about the merits of the defence Tharoomals sought to put forward, if this is a correct inference from the language used by the judge.

30. However, be that as it may, in my view, this is a case where this Court is entitled to exercise its own discretion in considering what terms should be imposed because the judge, in referring to the defendant's conduct in failing to appear in answer to the 0.14 summons, might have been influenced by his view of the possibility of bad faith on the part of Tharoomals. In any event the discretion under 0.14,r.11 will need to be exercised afresh if the learned judge's Order maintaining judgment in default.for HK$3,516,710 is not to be allowed to stand.

31. Before suggesting what the terms should be, I would express my appreciation to Counsel for the care with which they took us through the material relating to the major disputed items.

32. I would propose first that the judge's Order be set aside, as well as the Order made by the Master on 27 August 1985. I propose that Tharoomals should have leave to defend the action provided they bring the whole amount claimed into Court within 21 days from today. I am proposing this Order because as I sought to explain earlier, more onerous conditions may be imposed once there is a default judgment, and because I accept Mr. Mills-Owens' submissions that the grounds put forward for challenging Coronation's accounts, so that the amount claimed on the written agreement of 18 December 1984 is no longer due, were not very convincing.

33. I would, therefore, allow the appeal and propose an Order in the terms that I have outlined.

Cons, V. -P.:

34. I agree with my Lord. The defence which was sought to be raised is that by, maintaining a running account it was accepted between the plaintiff and the defendant that the account should be the sole cause of action in respect of any matters transacted between them. To that extent the judge held that there was a triable issue, and that should have been an end of the matter, except for consideration as to whether, and if so what, conditions should be attached to the giving of leave. By going further to consider the individual items in the account, partial judgment has been given in respect of a claim which is completely different in nature from that which was pleaded in the statement of Claim.

35. And even on the hypothetical basis that the matter was dealt within the Court below, there is, with respect another error. The claim was for the sum of $6.8 m. The judgment given on the four individual items comes to $3.5 m. (I am speaking in very round figures). That leaves a balance of $3.3 m. for which the leave was given to defend. However, the judge found that there was still a triable issue outstanding in relation to the St. Peter's trousers transaction which amounted to $3.6 m.. Simple arithmetic shows that something must be wrong somewhere. What the judge should have done, assuming the hypothetical basis to have been correct was, as Mr. Mills-Owens observed at the close of his submission, to give leave to defend in the sum of $3.6 m., and judgment for the balance.

36. However, as has been indicated, the basic error took place earlier and for that reason, I, too, would allow the appeal, set aside the judgment below and give leave to defend as to the whole claim. But in view of the nature of the defence and from the circumstances as I take them to have been revealed in the affirmations, I would agree with my Lord that the leave to defend should be conditional on bringing the whole of the amount claimed into Court within 21 days or alternatively, giving security to the satisfaction of a Master to the same amount.

Clough, J.:

37. I agree with both the judgments that have just been delivered, and if in so far as it can be said that there is any difference between them, I readily concur with the judgment just delivered by my Lord, the  Vice-president, in which he adds the alternative of security being put forward in lieu of the amount to be paid into Court.