XCHRX TOP BOND INDUSTRIES LTD. v. WONG NGAN KWAN t/a PANG TAT PLASTIC CO.

HCA 22056/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 22056 OF 1998

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J U D G M E N T

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1. I have before me an application by the Defendant to set aside a default judgment entered by the Plaintiff against him on 18th January 1999.

2. At the start of the hearing this morning, I granted an application made by Miss Terry Chan who appeared for the Defendant, for leave to rely on a further (that is the 3rd) affirmation of Wong Ngan Kwan dated 21st July 1999. Despite Miss Chan's opposition, I also gave leave to the Defendant to file two affidavits in reply, namely the 2nd affidavit of Wu Tsai Lung and the 1st affirmation of Stella Ngai, both of today's date. Since these two affidavits respond to allegations based on a document mentioned for the first time in the 3rd affirmation of Wong Ngan Kwan, they should obviously be before the Court. The document in question is a letter giving notice of intention to resign as director, which I will discuss later in my judgment.

3. Miss Chan then sought an adjournment apparently in order to make further inquiries concerning the said letter. I refused that application as the Plaintiff has had ample opportunity to make all relevant inquiries and as I was not satisfied that an adjournment would serve any useful purpose.

4. Turning to the application itself, I should deal first with the Defendant's allegation that service was irregular.

5. On 23rd December 1998, the Plaintiff issued a Writ endorsed with a Statement of Claim alleging that it had paid to the Defendant the total sum of $345,840.00 for a series of metal industrial moulds ordered from the Defendant, but that the Defendant had failed to deliver any of them. The claim was originally for return of the sum paid or alternatively for delivery of the moulds. However, by a letter dated 13th January 1999, the Plaintiff indicated they were not pursue their claim for the moulds in order to be allowed to enter judgment in default for the money claimed.

6. The Writ is addressed to the Defendant at Block A, 2nd Floor, 106-108 Shaukeiwan Road, Sai Wan Ho, Hong Kong. The Affirmation of Service made by Kwan Man Chun states that on 23rd December 1998, it was inserted through the letter box there on the basis that it was the Defendant's last known address. The Affirmation goes on to state that in the opinion of the Plaintiff, the copy of the writ so inserted "will have come to the knowledge of the Defendant within 7 days after the said date of such insertion."

7. On 18th January 1999, a judgment in default of notice of intention to defend was entered in the Plaintiff's favour in the sum of $345,840.00 with interest at 13% per annum, plus fixed costs.

8. On 3rd May 1999, Messrs. Lau and Chan filed a Notice to Act on the Defendant's behalf. On 8th May, they took out a summons to set aside the default judgment on the ground that "the Defendant did not have notice of these proceedings and the judgment entered herein" and that the Defendant "has a strong defence on the merits".

9. The application to set aside is supported by the Defendant's Affirmation made on 18th May 1999. In this Affirmation, he deposes that the firm namely, Pang Tat Plastic Company, had left the Sai Wan Ho address where service was purportedly effected by "mid-1997." He says that it moved to an address in Kwun Tong and again moved, in around February 1999, to its Lei Yue Mun address. In the exhibited Business Registration search, the addresses for the business trading in the abovementioned name are shown to have been updated on 4th August 1997 and 4th February 1999 respectively, with each move. However, it is to be noted that such search also reveals that the Defendant's residential address as at May 1999 was the address at which service was sought to be effected.

10. Although Miss Chan stressed the abovementioned changes to the firm's trading address, those changes seem to me, with respect, to be irrelevant. The Defendant is sued as an individual trading in the name or style of Pang Tat Plastic Company. The requirements of O.10, r. 1 are satisfied if the Writ was in fact served by insertion through the letter box at his residential address, being his last known or usual address, regardless of the fact that the firm's registered place of business differs and may have changed many times.

11. According to the Defendant, he only discovered the existence of the default judgment when he was told about it on 29th April 1999 by solicitors acting against him in a different High Court Action (No. 21412/98) brought by a company called Sun Tronic. He alleges that Sun Tronic shares the same offices with the Plaintiff and that the two companies have a common director as well as directors who are members of the same family.

12. The Defendant seeks to argue that, for two reasons, the Plaintiff cannot have genuinely believed that it was effecting service at the Defendant's last known address. In the first place, he points to the fact that on 10th November 1998, a letter before action was sent to a Chai Wan address which was the address of a Mr. Chung Ka Wing, a former partner of the firm and also the address shown on printed invoices of the firm issued during 1997. I will deal first with this point.

13. In response to the Defendant's application, Wu Tsai Lung has filed two affidavits on behalf of the Plaintiff. Wu Tsai Lung is a director of a company called Lyons Worldwide Limited which the Plaintiff says was and remains a corporate director of the Plaintiff. I deal with further with his status later.

14. In his 1st affidavit, Mr. Wu exhibits a Business Registration search made on 27th November 1998, before service of the Writ, showing (as did the Defendant's own solicitors search as at 4th May 1999) the Defendant's residential address as the address at which service was sought to be effected. This search was done some 17 days after the letter for action. Wu Tsai Lung affirms that the Plaintiff's solicitors served the Writ at the Sai Wan Ho address on the strength of this search. Accordingly, the Defendant's suggestion that the Plaintiff did not genuinely believe it to be the Defendant's last known or usual address because earlier they had sent the letter before action to the Chai Wan address cannot be maintained. After seeing the residential address shown in the Business Registration search and having no reason to believe that it was inaccurate, the Plaintiff's solicitors, in my view, entirely reasonably, caused service to be effected there, believing themselves within the words of Ord. 10 r. 1.

15. The second reason advanced for contending that the Plaintiff did not genuinely believe that the Sai Wan Ho address was the Defendant's last known address is based upon a letter in Chinese dated 26th August 1998 sent to Sun Chong Lik Electronics Factory which is a factory on the mainland allegedly owned by Sun Tronic. That letter is written on the notepaper of Pang Tat Plastic Company and shows the Kwun Tong address as the firm's place of business. The Defendant says, bearing mind the common directorships, etc., that this letter shows that "both Sun Tronic and the Plaintiff knew very well that at the material times the Defendant was no longer occupying the Sai Wan Ho address and that there was a real risk that service thereat could not have reached the Defendant."

16. This is, in my judgment, a bad point. The document was faxed to the mainland by a person whose identity has not been explained. Even if, which the Plaintiff denies, it had in fact come to Plaintiff's attention, the fact that it gave the Kwun Tong address as the firm's the principal place of business is, as I have already held, irrelevant. That the business address is in Kwun Tong is beside the point if the Writ was served at the Sai Wan Ho address at the Defendant's residential address. As I have stated, the evidence shows that this was what the Plaintiff's solicitors believed they were doing, on reasonable grounds. They would, in other words, have been quite justified in proceeding with service in Sai Wan Ho notwithstanding that they knew that the firm's principal place of business had become Kwun Tong.

17. In these circumstances, the Defendant has failed to satisfy me that the service was irregular and accordingly has failed to satisfy me that the default judgment was irregularly obtained.

18. I turn now to consider whether the Defendant has shown a meritorious defence.

19. The Defendant sought in the first place to dispute the authority by which this action has been brought. The challenge was initially mounted on the basis of a fax from one Wu Chai Wa, a director of the Plaintiff, who, in that fax, disclaimed any proceedings against the Defendant.

20. In answer, Wu Tsai Lung explains on behalf of the Plaintiff that Wu Chai Wa is his younger brother and that the latter had gone to Canada in June 1998, bearing a grudge against him. Wu Tsai Lung has exhibited a resolution of the Plaintiff's board dated 15th February 1999 authorising commencement of this Action. He says that there is therefore nothing in the Defendant's challenge on this point.

21. The members of the board who signed that resolution consisted of Wu Tsai Lung and Lyons Worldwide Limited, the corporate director I have already mentioned. In his 3rd affirmation, lodged in Court today, the Defendant challenges the validity of that resolution exhibiting a document said to be a notice of resignation addressed by Lyons Worldwide Limited to the Plaintiff's board, expressed to take effect from 30th June 1998. The Defendant says that this shows that when the resolution was purportedly passed authorising the Action on 15th February 1999, Lyons was no longer a director of the Plaintiff. However, it is to be noted that there is no evidence that such notice of resignation was ever tendered to or acted upon by the Board so as to reconstitute its own membership. On the contrary, in his 2nd affidavit lodged today, Wu Tsai Lung states that he signed the notice of resignation but also that he subsequently changed his mind about Lyons resigning so that he never proceeded with the resignation. The other director of the company, Madam Stella Ngai, confirms this in an Affirmation also lodged today. The position regarding the continuing directorship of Lyons is also reflected in the records of the Company filed with the Companies Registry.

22. If I had been satisfied that these proceedings were being brought by solicitors without the authority of the named Plaintiff, I would have been prepared to grant a stay of the proceedings. However, on the evidence, I find that there is no substance in the allegation of lack of authority. I, therefore, disregard that argument as a basis for setting aside the default judgment on the merits.

23. I turn now to the primary defence put forward by the Defendant on the merits. It raises a factual dispute, namely, whether the vast majority of the moulds were actually delivered to the Plaintiff. This applies in particular to the moulds referred to in 21 of the 27 invoices exhibited, forming the subject-matter of the claim. The Defendant points to the fact that on about 17 of these 21 invoices, the Plaintiff's chop appears, which, as Mr. Au fairly accepts, provides prima facie evidence that the moulds have in fact been delivered. On the invoices not chopped, it is alleged that initials appearing in the space next to the words "Received by" at the foot of each invoice represent acknowledgment of their receipt and therefore also evidence of due delivery. The Defendant admits that he still retains some of the moulds referred to in the remaining 6 invoices. However, he says by way of defence, that there was never any demand for their return prior to commencement of this action.

24. While fairly and realistically accepting that the chops and signatures on the invoices constitute prima facie evidence of delivery, Mr. Au pointed to the existence of certain delivery notes covering plastic products manufactured using the metal moulds in question. He has prepared a schedule based on these documents showing that in relation to moulds covered by 10 of the said 21 invoices, delivery of the plastic products took place sometime after the date of the invoice relied on by the Defendant as evidencing delivery of the metal moulds. He argues with some force that this indicates that the invoices do not after all evidence delivery of the moulds at the invoice date since such delivery would have left him with nothing to use for manufacturing the plastic products delivered on the subsequent dates evidenced by the delivery notes. Although, as I say, this is an attractive point, the Defendant has, in his answering affirmation, deposed, not wholly implausibly, that the later deliveries were made out of excess stock manufactured while the moulds were still in hands of the Defendant, such stock having been manufactured on the instructions of Wu Chai Wa. Mr. Au however points out that no supporting documents have been exhibited to evidence such alleged instructions for bulk manufacture.

25. Taking into account (a) the chopped invoices prima facie evidencing delivery, (b) the fact that the Plaintiff has been able to point to subsequently dated delivery orders in relation to only about half of the chopped invoices, and (c) the fact that the Defendant has provided a not implausible explanation of such later delivery orders based on excess stock from bulk orders, it is my view that the Defendant has raised a sufficiently meritorious defence on the facts to justify proceeding to trial.

26. Additionally, the Defendant claims that it has a meritorious defence in relation to the relief claimed. The Defendant contends that he has given, if not full consideration or performance by manufacturing and delivering to the Plaintiff most of the moulds, then at least partial consideration or performance in that he manufactured them in accordance with the Plaintiff's specifications, and then used them in the production of plastic products. Mr. Au points out that there was separate payment for the process for manufacturing, but nonetheless it seems clear that there was at least partial consideration or performance affecting the relief claimable. The default judgment effectively treats the Plaintiff as entitled to a return of the full price paid for the moulds where there has been no total failure of consideration. This, the Defendant argues, cannot be correct. In my view, there is substance to that argument and it accordingly provides an additional basis upon which a meritorious defence can be found.

27. Accordingly, in my judgment, while I find that service was regular, I am satisfied that the evidence adduced raises a sufficiently meritorious defence to justify setting aside the default judgment and I so order. I will now hear the parties as to costs and any other directions.