SHUN CHEONG ELECTRICAL ENGINEERING CO, LTD v. LI PING KUEN AND OTHERS

HCA 1297/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1297 OF 2006

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D E C I S I O N

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1.  This is an appeal against an order of Master Kwan given on 12 February 2007 whereby the 1st and 2nd named defendants’ application was dismissed.  Their application was to set aside a default judgment entered on 18 July 2006 and a charging order nisi dated 19 September 2006 which was made absolute on 18 October 2006.  Only the 1st named defendant is concerned about the charging order. 

2.  The action is brought by the plaintiff against the three named defendants as partners of U Sing Engineering Company (“U Sing Engineering”).  The claim is for HK$1,911,375.71, being the alleged outstanding payment for work done by the plaintiff allegedly for U Sing Engineering under a subcontract dated 6 May 1999.  The contract was signed between the plaintiff and one U Shing Engineering Company Limited (“U Shing Limited”).  It was a contract prepared by solicitors Messrs. Hermes W K Lui & Co. and witnessed by Mr Lui himself.  The plaintiff pleaded in the endorsement of claim that U Shing Limited signed the subcontract as agent of U Sing Engineering.

3.  After the writ of summons endorsed with the endorsement was served on the three named defendants, no acknowledgement of service was filed.  A default judgment was duly granted on 18 July 2006 against them.  No payment was made to satisfy the judgment and the charging order nisi was granted on 19 September 2006 which charged Unit F2, 1st Floor, Hang Tak, 1 Electric Street, Wan Chai, Hong Kong (“the Hang Tak unit”).  The Hang Tak unit was jointly owned by the 1st named defendant and another person.  The order nisi was duly made absolute on 18 October 2006. 

4.  On 13 December 2006, the 1st and 2nd named defendants applied to set aside the default judgment and the charging order.  They attacked the judgment as being irregular.  The 1st named defendant in fact admitted his knowledge of the charging order proceedings since about 9 October 2006 though he did not appear to challenge them on 18 October 2006 when the order nisi was made absolute. 

5.  The plaintiff’s affirmation of service of the writ was made by one Chan Chun Fei on 14 July 2006.  Mr Chan said he had on Monday, 19 June 2006 served a copy of the writ inside a sealed envelope on the 1st named defendant by inserting the envelope into the letterbox for Flat 314, Block J, Kornhill, Hong Kong (“the Kornhill unit”) which was the last known address of the 1st named defendant. 

6.  For the 2nd named defendant, he effected service by inserting an envelope containing a copy of the writ into the letterbox for Flat D, 11th Floor, Fuk Sing Factory Building, No. 2 Walnut Street, Tai Kok Tsui, Kowloon (“the Walnut Street unit”).  He effected service on the 3rd named defendant in a similar fashion.  Since the 3rd named defendant has not applied to set aside the judgment, I say no more about him.

7.  The 1st named defendant made an affirmation to support the application to set aside.  The address he used in the affirmation was the Hang Tak unit.  He said he had sold the Kornhill unit on 1 May 1997.  Since then, he had not used that address or had any connection with it.  He also referred to the Walnut Street unit which was used for service of the writ on the 2nd named defendant.  He said the 2nd named defendant had never used that address or had any connection with it. 

8.  In fact, the business registration particulars of U Sing Engineering stated that this was its place of business since 1997.  It was also the registered office of U Shing Limited in 2004.  Hence, the 2nd defendant had some connection with this unit.

9.  The 1st named defendant also said that he was not aware of the action until about 9 October 2006 when he received the charging order nisi papers.  But he did not attend the hearing held on 18 October and the charging order nisi was made absolute then. 

10.  Though the ground of the application to set aside was that the judgment was irregular and the 1st named defendant had confirmed it on affirmation, he also said at the end of the affirmation that he denied that U Sing Engineering was the agent of U Shing Limited or that U Sing Engineering had executed any contract with the plaintiff.  I think this statement contains a drafting error.  I believe the positions of U Sing Engineering and U Shing Limited have been interchanged erroneously. 

11.  Mr Chan Chun Fei made a third affirmation in reply to the affirmation of the 1st named defendant.  He said his principal had instructed him in January 2006 to conduct a business registration search on U Sing Engineering.  His search revealed that U Sing Engineering had ceased business in 2005.  His principal then told him to obtain an updated company search on U Shing Limited.  The search revealed the 1st and 2nd named defendants as the shareholders of this company and their addresses were at the Kornhill unit and the Walnut Street unit respectively.

12.  Mr Chan tried to effect service of the writs for the 1st and 2nd named defendants at the registered office of U Shing Limited at 12th Floor, Block A, Tern Centre, Central (“the Tern Centre office”).  The Tern Centre office was in fact an accountant firm.  The person there who received Mr Chan denied knowledge of U Shing Limited and refused to accept service of the writ.  Mr Chan then served the writs on the 1st and 2nd named defendants as referred to above. 

13.  In fact, the plaintiff’s solicitors had on 6 March 2006 sent a letter by registered post to the 1st named defendant at the Kornhill unit and the registered letter was accepted by the occupier there.  This letter invited the three named defendants to arbitrate the plaintiff’s claim.  An extra copy of this letter was also served by registered post on the 1st named defendant care of the Tern Centre office and it was also accepted.  Copies of this letter were also sent by registered post on the 2nd named defendant at the Walnut Street unit and care of the Tern Centre office.  The one sent to the Walnut Street unit was, however, returned to the plaintiff’s solicitors while the one sent to the Tern Centre office was accepted.

14.  On 4 April 2006, the plaintiff’s solicitors sent a letter to the Hong Kong International Arbitration Centre, seeking an appointment of an arbitrator for the plaintiff’s claim.  Copies of this letter were also sent by service post to the 1st named defendant at the Kornhill unit, the 2nd named defendant at the Walnut Street unit and to both of them care of the Tern Centre office of U Shing Limited.  All four copy letters were, however, returned to the plaintiff’s solicitors.

15.  The solicitor for the 1st and 2nd named defendants, Mr Joseph Leung, made an affirmation on 25 January 2007 for the 1st named defendant who was then out of jurisdiction.  He on behalf of the 1st named defendant denied receipt of the letters of 4 March and 4 April from the plaintiff’s solicitors or that the 1st named defendant had authorised any person at the Kornhill unit to receive the letter of 4 March for him.  He also said that the 1st named defendant did not know anyone who was living at the Kornhill unit since his moving out in 1997.  However, the 1st named defendant has not verified or adopted the contents of this affirmation subsequently.

16.  The annual returns of U Shing Limited for 2005 and 2006 stated the Tern Centre office as the registered office of the company.  In the business registration particulars, the Tern Centre office was also stated to be the place of business of U Shing Limited since January 2005.

17.  Mr Chan, solicitor for the 1st and 2nd named defendants, told me today on the instructions of the 1st named defendant that the Tern Centre office staff would not refuse letters for U Shing Limited without instructions.  However, the 1st named defendant did not know why the two letters of 4 April 2006 sent by service post for him and for the 2nd named defendant care of U Shing Limited were refused.  The 1st named defendant also did not know why the 4 March 2006 letter sent to him by registered post care of the Tern Centre office of U Shing Limited (which was accepted) was not given to him by the staff of that office.  He also did not know why the registered letter of 4 March was accepted by the occupier of the Kornhill unit and not returned to the post office.

18.  Mr Chan Chun Fei made a fifth affirmation to produce the annual returns of U Shing Limited from 1997 to 2004.  They all show the Kornhill unit as the residential address of the 1st named defendant and the bulk of these returns were signed by the 1st named defendant. 

19.  Finally, I also mention that the business registration record of U Sing Engineering also show that at all material times, the address of the 2nd named defendant was the Walnut Street unit.  The 2nd named defendant so far has not made any affirmation and no explanation has been given for that.

20.  On the basis of the above evidence, Master Kwan dismissed the application of the 1st and 2nd named defendant.

21.  On 11 May 2007, I granted leave to the 1st and 2nd named defendants to file further affirmations to deal with the merits of the plaintiff’s claim.  The 1st named defendant in his second affirmation said that the works in question were contracted by U Sing Engineering from the Housing Authority.  U Sing Engineering was the main contractor.  It then subcontracted the whole project to U Shing Limited which in turn subcontracted some of the works to the plaintiff, Chubb Limited and Shun Hing Engineering Contracting Company Limited.  He also produced the subcontracting agreements.  He further produced two cheques to show payments by U Sing Engineering to U Shing Limited, but he did not provide any documentary evidence to show the payments by U Shing Limited to the plaintiff and the other subcontractors. 

22.  He said the works had been completed in mid-2001 and there was no dispute until early 2006.  He therefore thought that the transaction had been fully settled.  Hence, most of the documents in relation to the transaction had been destroyed or scattered around.  Thus, he could not provide any site record or correspondence. 

23.  This reason for not producing the documents is not sound.  In fact, he had in his fourth affirmation produced a demand letter from the plaintiff dated 9 June 2004, demanding payment of the sum in question.  The statement of account annexed to the letter shows that a number of the bills that made up this sum were issued by the plaintiff in 2002 or as late as September 2002. 

24.  On the annual returns of U Shing Limited, the 1st named defendant said that he had not been told that he had to update his personal particulars filed with the Companies Registry.  He thought that this kind of thing not involving money was just a routine.  He thus relied on a secretarial service company and signed the returns without second thoughts.

25.  Mr Au Yu Fei of the plaintiff made an affirmation to oppose the appeal.  He said all along the subcontract was to be granted by U Sing Engineering to the plaintiff.  U Sing Engineering had even circulated a draft subcontract to prospective subcontractors and this draft subcontract had U Sing Engineering named as the contractor and not U Shing Limited.  For the subcontract as signed, U Shing Limited was stated to be the contractor in place of U Sing Engineering.  It was signed by one Mr Roger Ou, the financial controller of the plaintiff.  Mr Ou raised the change of party with U Sing Engineering and was assured that U Shing Limited was used by U Sing Engineering for convenience, and U Sing Engineering, being the main contractor, would be responsible for all matters in the subcontract.  On this basis, Mr Au gave approval to Mr Ou to sign this subcontract.  However, Mr Roger Ou has not made any affirmation to confirm what Mr Au has deposed to.

26.  Mr Au also produced some documentary evidence showing that the plaintiff had, in the name of U Sing Engineering, communicated with the Housing Authority.  The plaintiff had also sought payments for the subcontract works from U Sing Engineering as well as from U Shing Limited. 

27.  I am of the view that the documentary evidence produced by and relied on by Mr Au is consistent with either U Sing Engineering or U Shing Limited being the contractor.  The subcontracts as prepared and witnessed by solicitors, however, should carry some weight in showing that U Shing Limited was the contractor.  When all things are put together, I must say that the 1st and 2nd named defendants have shown a real prospect of success on the merits in defending this case.  If U Sing Engineering should have made the subcontract with the plaintiff, I do not see any reason why U Shing Limited should have executed the subcontract apparently in its own right.  The subcontract does not say that U Shing Limited was subcontracting as the agent of U Sing Engineering.  The subcontract was prepared and witnessed by solicitors.  In the usual course of things, it should mean what it says.

28.  I should also mention that this morning I have granted leave for the 1st and 2nd named defendants to rely on the 1st named defendant’s third affirmation which produced a record from the Immigration Department showing that the 1st named defendant was out of jurisdiction when the writ was inserted into the letterbox at the Kornhill address.  The 1st named defendant did not come back until some days after the service of the writ had been deemed to be effective.  For this reason, Miss Cruden accepts that the judgment as against the 1st named defendant is irregular. 

29.  However, Miss Cruden attacked the 1st named defendant on his conduct in this action.  The attacks were rightly made.  If the 1st named defendant should have properly responded to the invitation to arbitrate in March 2006, matters would not have developed to the present state.  Miss Cruden therefore asked me to impose a condition for setting aside the judgment against the 1st named defendant.  She relied on Po Kwong Marble Factory Limited v Wah Yee Decoration Company Limited [1996] 4 HKC 157 at 162D to F and asked me to impose a payment condition against the 1st defendant for setting aside the judgment.  She said if judgment should ultimately be obtained against the 1st named defendant, it would likely be an empty one.  I am also referred to Law Kwok Hung v Tse Ping Nam & Another [1999] 4 HKC 397, a decision of Yuen J (as she then was).

30.  I regret that I cannot accede to this request.  Though this judgment is set aside on irregularity for the 1st named defendant, the irregularity only became plain this morning.  Hitherto, a lot of efforts had been incurred on the battle on merits.  I must say that the merits of the defence of the 1st and 2nd named defendants would justify their being allowed to defend this action unconditionally.  I do not think I should impose a payment condition for setting aside the judgment.  I should, however, express the court’s disapproval to the conduct of the 1st and 2nd named defendants in the costs order that I am going to make.  If the plaintiff is worried that the 1st named defendant would do things to make a judgment against him empty, the plaintiff can no doubt seek other remedies like a Mareva injunction. 

31.  I therefore allow the appeal and set aside the judgment as well as the charging order.  Since the 1st and 2nd named defendants have also shown merits in the defence on the liability of this action, the judgment as against all three named defendants would be set aside.

(Discussion re costs)

32.  The appeal succeeded on fresh evidence both on irregularity and on merit.  I should therefore not disturb the Master’s order on costs.  For the costs on the appeal, the 1st and 2nd defendants should get the costs.  However, the conduct of the 1st and 2nd defendants in handling this matter deserves an expression of disapproval.  I therefore order the plaintiff to pay the 1st and 2nd defendants only half of the costs of the appeal.