LU WEN YUN, JENNY v. CHEN CHING CHIH

HCMP715/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 715 OF 2006

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DECISION

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1.  This is an application by the Respondent to these proceedings, Dr Chen Ching Chih, seeking to set aside an order that I made against him on 17 May 2006, by which I ordered that the Applicant in these proceedings, Miss Lu Wen Yun, Jenny, should be allowed to inspect certain records and other relevant documents of J&D Industrial Hong Kong Limited (“the Company”) on giving 21 days' advance notice in writing to Dr Chen at his last known address.

2. The records and documents in question were described in the schedule to that order.  They related to records and documentation relating to three particular transactions in which the company had been involved, all tax returns and supporting documents that the company had filed with the Inland Revenue Department, and correspondence with its auditors or tax representatives.

3. There is something of a background to these proceedings.  It appears that Miss Lu and Dr Chen are directly or indirectly shareholders in, and were at some time directors of, the Company.  They have had various disputes in relation to the way in which the Company has been run over the last few years.  This has led to various negotiations and attempts to resolve the differences either by one party buying out the other or by legal proceedings to deal with the matter.

4. In an attempt to ascertain information as to the transactions undertaken by the Company, and as to its financial position, proceedings were earlier taken out by both Miss Lu and Dr Chen against each other in which they sought inspection of accounting records of the Company pursuant to Section 121 of the Companies Ordinance (Cap.32).  These proceedings came before Deputy Judge Chan earlier this year.  However, he dismissed both sets of proceedings on the grounds that because, at the time when these proceedings were taken out, the Company had not held any annual general meetings for some considerable time, its directors were deemed to have retired, so that at the time of the proceedings neither Dr Chen nor Miss Lu could be regarded a director of the company and accordingly neither of them had locus to bring an application under Section 121.

5. Thereafter, Miss Lu brought these proceedings, making an application pursuant to section 152FA of the Ordinance, which provides a shareholder of the company with a right to inspect documents and records of the company in the circumstances set out in the section.

6. At the time when these proceedings were issued Miss Lu's solicitors wrote to the solicitors who had been acting for Dr Chen in the other proceedings, enquiring whether they had instructions to accept service in these proceedings.  Those solicitors replied that they did not have instructions to accept service on his behalf.

7. Accordingly, those acting for Miss Lu took steps to try to effect service of the proceedings on Dr Chen.  They attempted, first, to effect personal service of the Originating Summons in these proceedings on him on 13 April 2006, when a process server visited an office address which was understood to be the last known or usual address of Dr Chen in Hong Kong.  However, personal service could not be effected as it was said that Dr Chen was not in the office on that day.  It appears that, subsequently, further attempts at personal service were made but these, too, were unsuccessful, although on the second occasion two offices were visited and it was said in both places Dr Chen was not known to the staff there.

8. Apart from attempts at personal service, it was sought to serve the Originating Summons in these proceedings by registered post.  A copy of the Originating Summons was sent by registered post to what is said to have been the last known or usual address of Dr Chen on 20 April 2006.  There was no indication from the post office that the Originating Summons had been returned through the dead letter service.

9. Accordingly, the applicant, Miss Lu, proceeded with the proceedings and was represented on the first hearing date of the Originating Summons.  As Dr Chen did not appear on that occasion, she asked for and obtained an order granting substantially the relief which she sought together with an order for costs in her favour against Dr Chen.

10. Prior to this, there had been some correspondence from the solicitors now acting for Dr Chen (Messrs Holman, Fenwick & Willan) in which, while stating that they had no instructions to accept service and did not accept that there had yet been any proper service of documents on Dr Chen, they enquired whether or not the hearing on 17 May 2006 was intended to be only a call-over hearing.  As it turns out, it was not, although this does not seem to have been notified to Messrs Holman, Fenwick & Willan prior to the hearing.

11. I also note that, apart from these proceedings, a company associated with Dr Chen, and which is also a shareholder in the Company, has also taken out very similar proceedings against Miss Lu, an Originating Summons having been issued on 21 April 2006.  That Originating Summons bears a close resemblance to Miss Lu's Originating Summons, a feature upon which which Mr Pun, appearing for Miss Lu today, has remarked.

12. The principal ground on which it was argued that the judgment which was entered against Dr Chen should be set aside was that the service of the Originating Summons had not been validly effected and accordingly, the judgment entered against Dr Chen in his absence was an irregular judgment.  This was the focus of the argument although it was also submitted by Mr Lam, who appeared for Dr Chen, that he had a defence to these proceedings on the merits, the argument being principally that he did not, in fact, object to the provision of the documents sought insofar as they were (a) within his possession, and (b) not the subject of legal professional privilege.  That said, however, he did take exception to the making of the order against him, in particular to the order that he should pay the costs of the proceedings to date.

13. The evidence now before the court discloses that Dr Chen was not in fact in Hong Kong at any time between 13 April 2006 and about the end of April 2006, with the exception of a period of some 24 hours between about 5.45 pm on 19 April 2006 to 5.45 pm on 20 April 2006.  Dr Chen has said in a recent affidavit filed on 15 July 2006 that on that occasion he was in transit in Hong Kong on his way from Taiwan, where he usually resides, to Malaysia, and that during that time he did not in fact go back to the office address, which he uses as his correspondence address in Hong Kong.

14. Be that as it may, the evidence is that from about 5.45 pm on 20 April 2006 and for at least eight or nine days thereafter, Dr Chen was not in Hong Kong.  This evidence is not challenged or controverted.  In those circumstances, the attempted service on him by registered post was in my view, invalid and ineffective.  This is because under RHC Order 10 Rule 1, which deals with the service of originating process, a writ or originating summons must generally be served personally on the defendant by the plaintiff or his agent.  However, RHC Order 10 Rule 1(2) provides that a writ for service on a defendant within the jurisdiction may, instead of being served personally, be served either by sending a copy of it by registered post to the defendant at his usual or last known address, or if there is a letterbox for that address, by inserting it through the letterbox, enclosed in a sealed envelope addressed to the defendant.

15. It is well-established that in order for service by post or by insertion through a letterbox to be effective, it is necessary for the defendant to be physically within the jurisdiction at the time of service.  In this case, the service took place by the posting of the writ by registered post on 20 April 2006.  In the ordinary way, the date of service would fall to be determined by reference to the provisions of RHC Order 10 Rule 1(3)(a), which provides that where a writ is served in accordance with sub-paragraph (2) of Rule 1, 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, or as the case may be, inserted through the letterbox, for the address in question.  Ordinarily, therefore, the date of service of the writ in this case would be 27 April 2006, on which date there is no dispute that Dr Chen was not within Hong Kong.

16. However, it is possible to show that that is not in fact the date of service and the question therefore arises whether in this case the contrary had been shown.  In my view, there is no evidence before me on which I can come to a view as to when precisely service was effected.  There are two possible times at which service could be regarded as being effected.  The first is the date on which the document actually reaches its destination, ignoring for the moment whether or not the intended recipient actually had notice of the document at that time.  The second alterative might be that service is effected when the document comes to the notice of the recipient.  In this particular case I do not think that it is necessary to decide which of the two alternatives it is, because it seems to me that the document having been posted on 20 April, and there being no evidence of its delivery at any time on that day, it seems to me that in the ordinary course of things the document would not have actually reached the address to which it was sent until the following day or sometime thereafter.  By that time, of course, Dr Chen was no longer in Hong Kong.

17. Although Mr Pun sought to contend that the act of posting was the relevant act for the purposes of effecting service, I have some difficulty with accepting that argument.  In any event, it seems to me that a dictum of May LJ in the English Court of Appeal case of Austin Rover Group v Crouch Butler Savage Associates [1986] 1 WLR 1102 is very much to the point in this regard.  In that case, at page 1111 of the judgment, May LJ pointed out that in the context of service of a writ the rules had to be construed as involving both a server and the recipient, and the word "served" in that context must therefore be taken to mean the whole process of transmission and accordingly service could not be complete until the writ was actually received or deemed to have been received under the terms of the rules.

18. In those circumstances it seems to me that the writ could only be deemed to have been received by the intended recipient on the seventh day of the posting unless the contrary were shown.  And as I have said, there is nothing in the evidence before me to indicate that it could have been received at any earlier time, whether receipt is understood as meaning arrival of the document at the address to which it is sent, or its actual coming to the notice of the recipient to whom it is addressed.

19. Mr Pun referred me to the decision in Honest Billion Investment Limited v Wang Xian Chou [1997] 3 HKC 161, in which Yam J held that it was sufficient that a defendant was within the jurisdiction at the time that a writ was inserted through the letterbox at his last known address even though he was not in Hong Kong on the deemed date of service seven days thereafter.

20. It seems to me that there may be a difference between insertion through a letterbox and transmission through the post. If the relevant fact for determining when service is effected is the actual arrival of the document at the address in question, then it may be that in the case of insertion through a letterbox the relevant date is the date of the insertion through the letterbox itself and it may suffice in those circumstances if the defendant is within the jurisdiction on that date, even if he is not thereafter.  However, I have to say that such a view of the matter is one which causes me a little difficulty in that it seems to me that it is far from clear that this would have the effect of bringing the document to the attention of the intended recipient.  Moreover, it is difficult to see why there should be a deemed period of seven days before service in the case of insertion through the letterbox, if the relevant fact was not so much the arrival of the document at its destination but its coming to the attention of the intended recipient.  That said, however, the point does not arise for decision here, because it seems to me that the evidence clearly falls short of showing that the process of transmission was completed at any time when the defendant was still in Hong Kong, and thus, on any view, it seems to me that service of the Originating Summons was not validly effected in this case.

21. That being so, whether or not Dr Chen might have had knowledge of the contents of the Originating Summons through some other means (a matter which would seem to me to be largely a matter of speculation), it seems to me that there having been no valid postal service effected, the judgment obtained in the absence of Dr Chen on 17 May 2006 was irregular.  In those circumstances, it should ordinarily be set aside.  However, Mr Pun submitted that I do have a residual discretion to decline to set aside a judgment, even though it is irregular, where the circumstances make it just to do so.  He submitted that in this particular case as those acting for Miss Lu had done everything that they could possibly do to seek to effect service and that Dr Chen was, in his submission, aware of the existence of and perhaps also the contents of the Originating Summons, it would be just to exercise that discretion and decline to set aside the judgment.  With respect, I do not think that would be the appropriate course to follow in this case.

22. It is quite true there are some grounds for thinking that Dr Chen, or at least those now acting for him, and perhaps employees or other persons who have acted on his behalf in the past, may have been aware of the existence of the Originating Summons or its contents.  However, it does not follow from this that there has been proper service, and in this case, I am quite satisfied that there has not been proper service of the Originating Summons.

23. In Po Kwong Marble Factory Ltd v Wah Yee Decoration Company Limited [1996] 4 HKC 157, in which it was recognised that the court has a residual discretion in relation to setting aside an irregular default judgment, the circumstances which led to the discretion being exercised in that case was the fact that there had been an element of disguising of the correct address at which service was to be effected.  It seems to me that that is not a factor which is present in this case, nor do I think that there is anything in the way of undue or unexplained delay or any waiver of the right to seek to set aside the irregularly obtained default judgment in this case.

24. The contention that service was not validly effected was made known from as early as 26 April 2006.  Even after the order was made, those by then acting for Dr Chen continued to protest that service had not been validly effected and although it is true that his solicitors indicated that he would be prepared to comply with the order, that was expressly stated to be so long as it was in effect, and it was at the same time stated that all his rights as to the question of the validity of the service of the Originating Summons were reserved.  In those circumstances I do not think that it can be said that Dr Chen has in any way waived his right to seek to set aside the default judgment which was entered against him.

25. In all of the circumstances, it seems to me that there is no real basis on which I should exercise my discretion so as to allow the default judgment to stand, particularly as it would result in Dr Chen being left with an order for costs against him when he had no opportunity to be heard, and where he had not been validly served with the proceedings in the first place.  For those reasons, it seems to me that the appropriate order to make in the circumstances would be to set aside the order that was made on 17 May 2006.

(Submissions as to costs)

26. I think, although having a measure of sympathy for Ms Lu, that in relation to the argument today, the argument has really gone in favour of Dr Chen in relation to the question on whether or not service was validly effected and whether or not the judgment was regularly obtained.  On that point, it seems to me that Dr Chen has been substantially successful in relation to the argument today.  While I do not say that the Applicant was in any way to blame for taking the steps that she did, it does seem to me that at the point when it became apparent that the Respondent was not in fact in Hong Kong after 5.45 pm on 20 April, the date on which the Originating Summons was posted, the position was that judgment would be held to be irregular.  I bear in mind that that point did not fully emerge from the documentation until the affidavit filed by Dr Chen on 15 July 2006, and in those circumstances it seems to me that the appropriate costs order to make is that the Applicant should pay the Respondent the costs of today’s hearing only, but apart from that there should no order as to the costs of this application.  As far as the costs awarded to Dr Chen are concerned, they are to be taxed on a party and party basis if not agreed.