XCHRX MA HEI YIU v. CHAN KAI CHEONG formerly t/a K.C. CHAN & CO.

1995, No.A8236

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an appeal by the Defendant against the dismissal by the Registrar of his summons to set aside the default judgment entered by the Plaintiff for default of defence. The writ herein was issued on 15 August 1995. On 2 September 1995, the Defendant acknowledged service and on 18 September 1995, the Plaintiff gave extension of time of 14 days to the Defendant to file its Defence. In the event no defence was filed whether within the 14 days or at all, and on 6 November 1995 judgment in default was entered by the Plaintiff. Four days later on 10 November 1995, the Defendant issued a summons to set aside the default judgment. The hearing took place before Registrar Betts, on 8 March 1996. In the summons dated 10 November, the ground relied on by the Defendant was that the Defendant has a good defence on the merits against the Plaintiff's claim. There was no reference to any allegation that the judgment was irregular. However, before Registrar Betts, the Defendant raised for the first time the submission that the default judgment was irregularly entered in that the claim of the Plaintiff was for unliquidated damages and the default judgment was entered for a liquidated sum. The Defendant sought to amend the summons to include this new ground. After hearing the parties, Registrar Betts refused the application to amend and dismissed the summons. The Defendant appeals to this court.

2. I do not propose to go into the arguments on whether there is credible evidence before the court to support a good defence on the merits. There is an issue which can be determinative of this appeal and I have invited parties to submit to me on that issue first. And, that is the issue of causation. It is the Defendant's case that even if the Defendant was negligent in failing to give proper advice as solicitors acting for the Plaintiff at the material time in the sale and purchase of the property in question, such negligence has no causal link with the ultimate damages suffered by the Plaintiff. The damages suffered by the Plaintiff was the loss of the deposit of $280,000 paid by the Plaintiff pursuant to the sale and purchase agreement. It is common ground that the property in question was subject to the usual restriction against alienation unless a letter of satisfaction has been issued by the Crown. At the time of the making of the provisional sale and purchase agreement such a letter of satisfaction has not been given yet. It is the Plaintiff's case that the Defendant was negligent in failing to advise on the effect of such on the title of the property. Nevertheless, it is also common ground that in March the letter of satisfaction was duly issued by the government thereby clearing the restriction imposed on the alienation of the property. By that time, the deposit had already been paid. However, notwithstanding the perfection of title the Plaintiff failed to go through with the sale and purchase. It is not material to consider why the Plaintiff did so. It is the Defendant's submission that such failure by the Plaintiff to complete the sale notwithstanding the fact that title had been made good long before such breach of contract by the Plaintiff had effectively break any causal link between the damages suffered by the Plaintiff in the loss of the deposit and the alleged negligent advice, or the lack of it, at the time of the making of the sale and purchase agreement. It is the Plaintiff's submission that the negligence of the Defendant at the time of the making of the sale and purchase agreement had deprived the Plaintiff of the opportunity of certain elections which could have been opened to him had he been properly advised. It is submitted by the Plaintiff that, for example, the Plaintiff might not have agreed to purchase the property until the letter of satisfaction was ready; or might not have agreed to pay the deposit until the letter of satisfaction was ready; or might have only be prepared to agree to consider whether to pay the deposit when the letter of satisfaction was ready.

3. I find such submission to be void of merits. In the Chinese provisional sale and purchase agreement it was clearly stated that the sale and purchase was subject to the availability of a letter of satisfaction. So it is beyond dispute that the Plaintiff was well aware that a letter of satisfaction was required for completion. He might not have a good idea as to why it was required, nor the legal implications involved in the restriction imposed by the government that bring into existence the requirement of the letter of satisfaction. But, it is quite clear that he knew of the requirement of a letter of satisfaction, and notwithstanding that he had indicated a clear intention of a wish to purchase the property. I do not find it reasonable for one to assume that the Plaintiff, if he had been properly advised, would have different ideas about his desire to purchase the property. It would be more reasonable for one to find the Plaintiff to have included in the sale and purchase agreement provisions which would postpone the payment of the deposit until the letter of satisfaction was ready. In the light of the circumstance, it is unlikely that a reasonable agreement would provide an option to the Plaintiff to consider whether to pay any deposit after a letter of satisfaction was issued. The most likely agreement would be to postpone payment of deposit until after issue of the letter of satisfaction. I find it wholly reasonable for the Defendant to argue that the alleged negligence in failing to advise the Plaintiff properly on the restriction has no causal link at all on the ultimate decision of the Plaintiff not to go through with the sale and purchase thereby bringing about the forfeiture of the deposit paid. I am satisfied that the Defendant had made out a good prospect of a reasonable and arguable defence on the merits; and, therefore, leave to defence ought to be granted. There was no submission nor is there justification for any condition to be imposed. Therefore, unconditional leave should be granted. The order of the learned Registrar is set aside and unconditional leave is granted to the Defendant to defend the Plaintiff's claim.

4. In view of the delay in the proceedings and the imminent court vacation it is ordered that the Defendant is to file its defence no later than 4:00 p.m., 31 July 1996.

5. On the question of costs, it was submitted by the Plaintiff that the Defendant had waived any defect by filing an affidavit, i.e. the taking of a further step subsequent to the entry of default judgment. This would disentitle the Defendant to any costs even if the judgment is irregular. The first issue is of course whether the judgment was irregular or not.

6. I have no hesitation in finding that the Plaintiff's claim as particularised in the Statement of Claim in paragraph 17 thereof is one for unliquidated damages for an alleged breach of duty notwithstanding that in the prayer a specific sum of $280,000 representing the deposit was claimed. That being the case, the default judgment for a liquidated sum of $280,000 must necessarily be irregular.

7. On the question of waiver, I accept Mr Ng's submission that there has not been any waiver at all in the circumstances of this case. Four days after entry of the default judgment the Defendant had issued the summons to set aside. It is conceded that in the summons the ground of irregular judgment had not been pleaded. Nevertheless, I accept Mr Ng's submission that there is a distinction between the making of an application, and the grounds relied on in making such an application. The application was made 4 days after the judgment. There was no inordinate delayed in the making of the application, nor was there any further steps taken after the entry of the default judgment and prior to the making of the application to set aside. The subsequent addition of the ground of irregular judgment could not be relevant in the consideration of waiver.

8. For the reasons given, it is ordered that costs involved in the Plaintiff's giving of extension of time to the Defendant as well as the entry of the default judgment would be awarded to the Plaintiff; but costs subsequent thereto, i.e. costs for setting aside the default judgment is awarded to the Defendant against the Plaintiff.

9. The Plaintiff's own costs is to be taxed in accordance with the Legal Aid Regulations and that there will be certificate for counsel for appearance before the Registrar.

(Jerome Chan)

Judge of the High Court