KERRY FREIGHT (HONG KONG) LTD v. DEL PRADO ASIA LTD

HCA2660/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2660 OF 2004

J U D G M E N T

1.  This is an application by the defendant to set aside a default judgment.  In this action, the plaintiff sued the defendant for outstanding freight and related charges for logistic services rendered by the plaintiff to the defendant. 

2.  The writ of summons was served on the defendant by hand at its registered office on 24 November 2004.  Time for filing the acknowledgement of service expired on 8 December 2004.  The defendant only filed its acknowledgement of service on 16 December 2004.  Default judgment was entered on 17 December 2004.

3.  On 21 December 2004, the plaintiff’s solicitors notified the defendant’s solicitors that default judgment had been entered.  On the same day, the defendant’s solicitors requested for setting aside of the judgment but the plaintiff’s solicitors declined the request.

4.  On 29 December 2004, the plaintiff’s solicitors wrote the defendant’s solicitors and asserted that the defendant had ceased business.  On 18 January 2005, the plaintiff petitioned for the defendant’s winding-up.  The defendant only issued a summons to set aside the default judgment on 12 March 2005.

5.  There is no dispute that the default judgment was irregular as the acknowledgement of service had already been filed before judgment was entered.  I referred to the unreported judgment in Kwan Tat Chung v Ho Cheuk Kwan trading as Fat Fai Engineering Company and Others, HCPI381/2002, where Suffiad J held that an acknowledgement of service filed after the prescribed time was still a valid acknowledgement and a default judgment, which was entered after that and on the basis of no notice of intention to defend having been given, was irregular.  I agree with the reasoning and conclusion of Suffiad J in that case and apply the same to this case.

6.  The law on setting aside an irregular judgment has been reviewed in detail by Cheung J (as he then was) in the unreported judgment of The New China Hong Kong Finance Limited (in liquidation) v Shimada Limited, HCA11030/1999, and by Deputy Judge Poon in Cosec Nominees Limited and Another v Lau Hon Ming [2001] 2 HKLRD 581.  I do not think I can make any further contribution to this jurisprudence by repeating the exercise.

7.  Having gone through these two cases and the authorities analysed therein, I agree that I am bound by the Court of Appeal’s decision in Po Kwong Marble Factory Limited v Wah Yee Decoration Company Limited [1996] 4 HKC 157.  I therefore should set aside the default judgement without considering the merit of the defence, but I have a wide discretion to impose terms upon setting aside the judgment having regard to the defendant’s conduct.

8.  Mr Yeung, counsel for the plaintiff, has in his written submissions asked me to consider that because the irregularity of the judgement had nothing to do with the mode of service of the writ, I could follow the approach of the English Court of Appeal in Faircharm Investment Limited v Citibank International PLC, 1998, The Times, 28 February 1998, and consider the merit of the defence. 

9.  This approach was suggested by Cheung J (as he then was) in paragraph 24 of his judgment in The New China Hong Kong Finance Limited and echoed by Deputy Judge Lam (as he then was) in Philip Securities (HK) Limited v Lam Chi Bin Stanley [2002] 1 HKC 432 at paragraph 15.  I, however, find it difficult to follow this approach if I have to follow Po Kwong Marble.  The reason being that there does not appear to be any difference between the defendant in a case of an irregular judgment because of defective service and a defendant of an irregular judgment because of other irregularities.  The position of the defendant may be the same in the two types of cases.  Even though the writ has not been properly served when the default judgment was entered, the defendant in such a case would be aware of existence of the writ as well as the cause of action when he applies to have the irregular judgment set aside.  If this defendant can have the judgment set aside without showing a meritorious defence, I think the same should apply to the defendant of a default judgment tainted with other types of irregularity.  I would thus follow Po Kwong Marble and not apply the approach in Fair Charm Investment.  I would set aside the default judgment without considering the merits of the defence, but I should also consider whether terms should be imposed.

10.  The writ was served on the defendant at its registered office by hand on 24 November 2004.  However, the defendant by an amended Form AR1 Notification of Registered Office filed with the Companies Registry on 23 December 2004 notified the Registry that it had changed its registered office to the address of its solicitors on 25 September 2004.  This retrospective notification was contrary to an earlier notification by another Form AR1 filed at the beginning of December 2004.  The amended Form AR1 was also filed well outside the 14 day period stipulated in section 92(2) of the Companies Ordinance.  There is grave doubt about the truthfulness of this retrospective notification of change of registered office on 25 September 2004 because when the writ was served on 24 November 2004, the defendant was still operating at its original registered office.

11.  The defendant has also ceased operation and become unreachable at its phone and fax numbers.  Its original registered office is now occupied by one Hobby Zone Company (HK) Limited.  A search at the Companies Registry shows that Hobby Zone is owned and controlled by the very same group of people who own and control the defendant.  The physical existence of the defendant thus appears to have ceased. 

12.  Furthermore, despite of its awareness since 21 December 2004 that there was the default judgment, the application to set it aside was not taken out until 12 March 2005, when the petition for its winding-up was to be heard 11 days later.

13.  All these suggest that the defendant was taking steps to manufacture a case of defective service and to avoid execution of the judgment.  I would thus echo the statement of Bokhary J (as he then was) in Po Kwong Marble at 162 E to F:

“Here, there is a very real risk - suggested by the defendant company’s strange way of doing things - that any judgment which the plaintiff company may ultimately obtain would be an empty one if we do not guard against that.”

14.  I also say that if the defendant should have filed the acknowledgement of service in time, the plaintiff would not have applied for the default judgment and would have gone very far with its application for summary judgment by the middle of March 2005.  Alternatively, if the defendant should have taken out the summons to set aside the judgment at the end of December 2004, that application would have been disposed of a few months ago.  The defendant’s delay in taking out this summons has thus caused a prejudice to the plaintiff, particularly in the light of the plaintiff’s petition to wind-up the defendant and the effect of section 266 of the Companies Ordinance on fraudulent preference.  In the light of these matters, I would therefore set aside the judgment on terms. 

15.  I order that on condition that the defendant should pay the judgment sum of $1,419,996.86 into court on or before 18 August 2005, the judgment shall be set aside and the defendant be given leave to defend this action.  I also order that costs of this application should be in the cause if the defendant should comply with the payment condition because the plaintiff cannot be blamed for the entering of the default judgment as it did not know that the acknowledgement of service had been filed on 16 December 2004.  If the defendant cannot satisfy the payment condition, the defendant should pay costs of this application to the plaintiff.  I also give liberty to the defendant to apply to vary this payment condition by summons and affidavit to be filed no later than 16 August 2005.

16.  I would also say that if I were at liberty to follow the approach in Faircharm Investment Limited, I would not have set aside the default judgment and instead would have dismissed the defendant’s application with costs.

17.  The grounds of defence intimated by the defendant are, firstly, there was no contract between the plaintiff and the defendant for the provision of the logistic services and, secondly, there was a set-off.

18.  The defendant asserts that the invoices in question were addressed to one Del Prado Japan Company Limited (“DPJ”) and not the defendant Del Prado Asia Ltd.  The plaintiff somehow learned of a petition for the winding-up of DPJ on or about 22 November 2004 and thus resorted to suing the defendant for these invoices.  DPJ in fact went into liquidation on 24 November 2004. 

19.  As to this, the plaintiff replied that the freight and related services were charged to DPJ and the defendant separately, depending on who had contracted for the services.  Invoices were thus issued to DPJ and the defendant accordingly and were sent in bulk once a month to DPJ in Japan and the defendant locally respectively.  Monthly statements were also issued to DPJ and the defendant in respect of the separate charges that they had been invoiced.  Furthermore, all invoices issued up to July 2004 had been paid by the defendant and there was never any objection from the defendant.  The plaintiff also denied that it had chosen to sue the defendant because of the winding-up of DPJ.

20.  There is in fact another action taken out by the plaintiff against DPJ on 8 January 2005 for freight and warehouse charges and tax at $6,994,760 in HCA48/2005.

21.  The defendant in the second affidavit of Mr Casasampere replied to the plaintiff and repeated its denial of any agreement between the parties.  Mr Casasampere further alleged that if there was such an agreement between the parties, it had been repudiated because of the plaintiff’s failure to perform its obligations.  He further argued that the invoices of the plaintiff had not been signed and the monthly statements emailed to the defendant were for reference only.  He further said that the plaintiff never intended the defendant to settle the invoices and they were settled by DPJ.  But there was never any letter of objection by the defendant to the plaintiff on the numerous invoices sent to it in August, September and October 2004.

22.  Mr Casasampere also alleged the defence of set-off in his reply affidavit.  He alleged that the plaintiff had wrongfully detained $30 million worth of its goods.  He produced a bundle of copy bills of lading showing that a lot of goods had been shipped by DPJ as shipper to it as consignee and notify party.  However, these goods were all delivered by the forwarder on “freight collect” and not “freight prepaid” basis.  These goods had been shipped by DPJ on diverse days in 2004, starting from February 2004.  The plaintiff says that the freight for these goods is outstanding and the plaintiff is holding these goods by the exercise of a lien.  The plaintiff has undertaken to this court to file an affidavit by tomorrow to confirm this.

23.  I note that despite the substantial value of the goods and that they had been detained by the plaintiff for a long time, there is not even a letter of demand let alone an action in court for their return.  I find that the plaintiff has a good answer to the alleged defence of set-off. 

24.  On the whole, I find the defendant’s allegations unbelievable as they are based on bare assertions and without any documentary support.  If there were any substance in these assertions, there should have been contemporaneous documentary support.

25.  Despite my gloomy view of the merit of the defendant’s defence, I am not in a position to follow the Faircharm approach and I can only set aside the judgement on the terms as indicated above.

(Submission on costs)

26.  After delivering the judgment, I was shown a letter from the plaintiff’s solicitors to the defendant’s solicitors which was marked “without prejudice save as to costs”.  The letter read,

“Our client is agreeable to have the default judgment dated 17 December 2004 set aside and giving leave to your client to file a defence by consent on condition that your client do pay the principal judgment debt in the sum of HK$1,419,996.86 into court.”

27.  That proposal turned out to accord with my order, though Miss Lau said that the position of the plaintiff has always been more than a quest for payment into court of the judgment sum.  I find that this proposal, if accepted, should have disposed of the summons without the need to exchange affidavits and to prepare for the hearing.

28.  Since this proposal, which was sensibly made, was not taken up, I should, in order to reflect the court’s attitude towards a sensible proposal, revise my order of costs to say that even if the defendant should comply with the payment condition as ordered, the defendant still has to pay the plaintiff’s costs for this application.