UNITED SMART DEVELOPMENT LTD. v. TREASURE LAND PROPERTY CONSULTANTS (a firm)

Civil Appeal No. 76 of 1995

Headnote

Service on a company by registered post. Time service effected. Section 356 Companies Ordinance (Cap. 32), s. 8 Interpretation and General Clauses Ordinance (Cap. 1). O10 r1 RSC.

IN THE COURT OF APPEAL

1995, No. 76
(Civil)

______________

______________

________________

J U D G M E N T

________________

Nazareth, V.-P. :

1. This is an appeal by the defendant against the order of Bewley J made on 10th February 1995, restoring a judgment in default of acknowledgement of service set aside by Registrar Betts. The facts can conveniently be taken from the judgment of Bewley J.

2. By an agreement for sale and purchase dated 9th December 1993 made between the defendant as purchaser and Colby & Staton Distributing Services Ltd as vendor, the defendant agreed to purchase the 10th floor of Wing On Plaza in Kowloon ("the Suit Premises") at the price of HK$163,954,120.

3. By a written sole agency agreement ("the Sole Agency Agreement") also made on 9th December 1993 between Treasure Land Property Consultants ("TLC") and the defendant, the defendant appointed TLC as the sole selling agent in respect of the Suit Premises for a period of two months (i.e. from 9th December 1993 to 8th February 1994, "the agency period"). TLC would be entitled to a 1% commission in the event that a Sub-sale and Sub-purchase Agreement was entered into during the agency period irrespective of the source of introduction.

4. TLC's case was that a sub-sale agreement was reached by the defendant and Henga Limited ("Henga") during the agency period and TLC is therefore entitled to 1% commission (amounting to HK$1.93m). On 4th May 1995 TLC took out its writ against the defendant claiming the said sum of HK$1.93m. The writ was served by TLC on the defendant on 5th May 1994 by pre-paid registered post sent to the defendant's then registered address at Room 10A Capital Building, 6-10 Sun Wui Road, Causeway Bay, Hong Kong. No acknowledgement of service or intention to defend was filed by the defendant and judgment was entered against the defendant on 24th May 1995. On 27th July 1994, a petition to wind up the defendant was filed on the ground that the defendant was insolvent and unable to pay its debt.

5. On 15th September 1994, the defendant took out a summons to set aside the judgment on two grounds:

(a) that the judgment was irregular in that:

(i) the plaintiff is non-existent and/or lacking a legal entity to sue; and/or

(ii) the judgment was obtained prematurely;

(b) the defendant has a meritorious defence.

6. The defendant's summons came before Registrar Betts on 7th December 1994 and he set aside the judgment. That was not surprising. The position before him appears to have been clearly that the plaintiff did not exist; there was no evidence that it did. Nor was any application made to amend or any indication that such was intended.

7. Bewley J reinstated the default judgment against the defendant on 10th February 1995. He did so by allowing an application, by summons issued on 24th January 1995, for the plaintiff's name to be inserted as Treasure Land Investments Limited ("TIL").

8. Before us, Mr E.C. Mumford QC, who with Mr Allen Lam, appears for the defendant, complains that the defendant was unfairly treated. It had made only one mistake, i.e. it failed to comply with O12 r5 in not acknowledging service in time, which was not contumelious in any way. Whereas, he submitted, the plaintiff made numerous procedural mistakes, including in particular its persistence in using the name of a non-existent entity both before Registrar Betts, and until amended, before Bewley J; yet in every case it had received the indulgence of the court. Moreover, its persistence in using that improper name continued after it had been made aware of the position by the first affirmation by the defendant about 15th September 1995. It then applied before Bewley J to amend its name without any explanation, which, in Mr Mumford's submission, compounded the serious doubts that arise as to the propriety of the plaintiff having been permitted to amend its title. However, he recognised that the sensible course was to permit the plaintiff's name to be amended; he submits, however, that should have been done on terms, the least of which should have been that the default judgment remain in place.

9. Turning then to the grounds of appeal, Mr Mumford proceeded upon three main grounds:

(1) that the plaintiff should not have been allowed to amend, or only upon terms that the judgment was not reinstated;

(2) that the service of the writ was irregular, and that the ordinary course of post had to be established by evidence;

(3) that the defendant had shown a sufficient defence on the merits.

10. Having regard to the concession that the sensible course was in any event to allow the amendment, I do not propose to address the first ground.

11. Proceeding to the second ground, it arose before the judge in the following way. For the plaintiff, it was submitted that the judgment was premature. The writ was sent by registered post on 5th May. In that regard s. 356 of the Companies Ordinance, Cap. 32 provides:

"356. Service of documents on company

A document may be served on a company by leaving it or sending it by post to the registered office of the company."

Section 8 of the Interpretation and General Clauses Ordinance. Cap. 1 provides:

"8. Service by post

Where any Ordinance authorises or requires any documents to be served or any notice to be given by post or by registered post, whether the expression 'serve' or 'give' or 'send' or any other expression is used, the service or notice shall be deemed to be effected by properly addressing, pre-paying the postage thereon and dispatching it by post or by registered post, as the case may be, to the last known postal address of the person to be served or given notice, and, unless the contrary is proved, such service or notice shall be deemed to have been effected at the time at which the document or notice would be delivered in the ordinary course of post."

12. Order 10 r1 of the RSC was also referred to:

"1. General provisions (O 10 r 1)

(1) A writ must be served personally on each defendant by the plaintiff or his agent.

(2) A writ for service on a defendant within the Jurisdiction may, instead of being served personally on him, be served-

(a) by sending a copy of the writ by registered post to the defendant at his usual or last known address, or

(b) if there is a letter box for that address, by inserting through the letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant.

(3) Where a writ is served in accordance with paragraph (2) -

(a) the date of service shall, unless the contrary is shown, be deemed to be the seventh day (ignoring Order 3, rule 2(5)) after the date on which the copy was sent to, or as the case may be, inserted through the letter box for, the address in question;

(b) any affidavit proving due service of the writ must contain a statement to the effect that-

(i) ...

(ii) in the case of service by post, the copy of the writ has not been returned to the plaintiff through the post undelivered to the addressee.

(4) ...

(5) ...

(6) ...

(7) This rule shall have effect subject to the provisions of any Ordinance and these rules and in particular to any enactment which provides for the manner in which documents may be served on bodies corporate."

The RSC in England are, in the context of this appeal, significantly different; in particular, they do not provide for registered post.

13. It was submitted to Bewley J that the English provisions did not apply, that the matter had to be determined under O10 r1 and O12 r5, under which the defendant had 14 days after the service of the writ, (including the day of service) to file an acknowledgement of service; and that since judgment was entered on 24th May, it was premature.

14. The judge rejected that submission; in his view, O10 r1 is not intended to apply to service on a limited company. In my view, he was clearly right. Although in general terms, rather than with specific reference to a writ, s.365 of the Companies Ordinance makes express provision which, read with s.8 of the Interpretation and General Clauses Ordinance, can be seen to have a different effect from O10 r1. And O10 r1 in subrule (7) expressly states that rule 1 shall have effect subject to the provisions of any Ordinance. Since the matter was mentioned to this Court, it may be added that the Hong Kong Supreme Court Practice 1994, at the end of the penultimate paragraph at p.46 of Vol. 2 appears to overlook subrule (7). The judge accordingly rightly concluded that the date of service had to be determined in accordance with s.8 of Cap. 1, i.e. what would be the ordinary course of post and that this was a matter of evidence in the absence of a practice direction corresponding to that in England. He then proceeded to deal with the matter in the following way:

"In R (Petty) v Down County Court Judge [1946] NI 12 it was held that there was no rule requiring judicial notice to be taken of the ordinary course of post and that in every case it was a question of fact to be proved by evidence. It is certainly a question of fact but, although a judge is not required to take judicial notice of a fact, it is open to him to do so in a proper case.

The writ was posted in Central. The defendant's registered office was at that time in Causeway Bay. It would have been different had it been at say Tai O. I am satisfied that I can take judicial notice of the fact that a registered letter does not take more than four days to reach Causeway Bay from Central in the ordinary course of post. Allowing four days for the post, the Acknowledgement of Service should have been filed on 22nd May. The judgment on 24th May was therefore not premature."

15. Mr Mumford submits that the judge was not right in his view of the R (Petty)case; what it decided was that judicial notice will not be taken of the ordinary course of post. On my reading it is clear that the court there accepted the earlier dictum of Palles L.C.B. in Doogan v Colquhoun (1886) 20 LR Ir 361, 367:

"What that ordinary course of post is, is a matter of fact that, in every instance, must be proved ..."

A similar approach was adopted by Lord Esher MR and Lopes LJ in Kemp v Wanklyn[1894] 1 QB 583, 585, 586, where each had regard to the evidence. Those decisions are not binding on this Court, but they seem to me to be right. In that regard, it should perhaps be mentioned that it is stated in para. 2-21 of the 14th edition of Phipson on Evidence that "the court will take judicial notice of facts which are notorious e.g. ... the course of post". However, the two authorities cited reveal that this has been with reference to the open nature of a postcard and the inference or presumption of publication from that notorious fact in the context of claims for defamation. They simply do not support the judicial notice taken by the judge in this case. One cannot, I suppose, rule out the possibility that the delivery time of local registered letters may become so notorious a matter or that the delivery time addressed being so vastly in excess of what seems to and would be generally accepted to be the factual position, that a court could properly take judicial notice. But this is not even remotely that case. In my judgment, the judge was wrong to take judicial notice of what he believed to be the ordinary course of post and in the absence of any evidence on the matter, it must follow that the appeal succeeds.

16. Proceeding then to the defendant's third ground, this originally turned upon the terms of the Sub-sale and Sub-purchase Agreement and the construction and effect thereof. The judge approached the matter in the following way. He said that:

"Faced with a regular judgment, the defendant to succeed has to show a defence with a real prospect of success. It is not sufficient simply to show an arguable defence."

It is not necessary to take any point on that view. Clause 2 of the agency agreement, upon which the plaintiff sues, provides:

"In the event that a Sub-sale and Sub-purchase Agreement is entered into during our sole agency period, irrespective of the source of introduction (emphasis supplied), we shall be entitled to a fee equivalent 1% of the agreed purchase price payable by your firm to this firm upon the signing of a legally binding agreement of Sub-sale and Sub-purchase of the captioned premises between the Confirmor and the Purchaser or his nominee or sub-purchaser."

The sole agency period, as I have said, was a period of two months following the making of the sole agency agreement, i.e. 9th December 1993 to 8th February 1994. The question that then fell to be determined was whether the sub-sale agreement between Henga and the defendant, the only agreement produced in evidence, was entered into during that period. The agreement was dated 4th March 1994 and on its face is outside the sole agency period. However, the agreement provides for payment in the manner provided in Part III of the First Schedule which is in the following terms:

The argument advanced on behalf of the plaintiff is that if the second instalment of $23.95m had to be paid on or before 10th February 1994 and the first instalment of HK$5m had to be paid at the signing of the agreement which in the ordinary way would have to be before the second instalment was paid, then the high probability must be that the agreement was signed prior to 8th February.

17. The judge dealt with the matter in the following two passages:

"The defendant has exhibited five cheques representing the deposits referred to in paras a), b) and c), but which have been issued by the defendant's solicitors, not those of the vendor. There is no evidence as to when these payments were made to the defendant's solicitors. The latter were to hold the deposits as stakeholders under the agreement with Henga and not release them to the defendant unless and until Henga had accepted title. One would expect a prudent prospective purchaser to make proper enquiries about the title. One would also expect intervals of time between the three deposits. Yet the defendant is silent as to when the first $5 million was paid by Henga. That is information easily obtainable from the defendant's solicitors. In its absence and there being no suggestion that Henga is in breach of its agreement with the defendant, I infer that there was an agreement with Henga before 8th February, 1994.

As matters stand, therefore, the defendant is a long way from showing that it has a real prospect of success were this action to go to trial. The appeal is allowed and the judgment against the defendant restored. I make an order nisi against the defendant in respect of costs both here and before the master."

18. For the defendant, it is suggested that no purchaser is likely to pay a substantial deposit of the sort in question prior to signing a sale and purchase agreement. In that regard there is some suggestion of an earlier provisional agreement. That, Mr Mumford seeks to discount by submitting that the reference to a Sub-sale and Sub-purchase Agreement in the agency agreement can only mean a formal Sub-sale and Sub-purchase Agreement and not the equivalent of a sale and purchase agreement. I cannot say I am persuaded. But it is not necessary to address the point for the following reasons.

19. In the course of the argument, Bokhary JA pointed to the terms of para. 4 of the Statement of Claim:

"4. By a written sole agency agreement ("the Agency Agreement") made on 9th December 1993 between the Plaintiff and the Defendant, the Defendant appointed the Plaintiff as the sole selling agent in respect of the Suit Premises on the terms and conditions contained therein."

Paragraph 9 of the Statement of Claim provided:

"The Defendant and Henga Limited then entered into and executed a formal Sub-sale and Sub-purchase Agreement dated 3rd March 1994 ... in respect of the sale and purchase of the Suit Premises."

There is no averment whatsoever that the defendant used an agent. The pleadings therefore on their face do not show an arguable cause of action, much less one with a real prospect of success. Mr Benjamin Chain, for the plaintiff, in an endeavour to meet the problem, argues that one of the affirmations put in by the defendant shows that the defendant negotiated the sale with an agent of a purchaser from Singapore. In my view, the employment of an agent by the purchaser does not mean the vendor is in breach of a sole agency agreement, and an averment to the contrary would not have a real prospect of success. It follows that the appeal must also be allowed on the third ground, i.e. the merits of the defence. I would accordingly allow the appeal, set aside the orders of the judge below and make an order nisi that the defendant have unconditional leave to defend and also its costs both of the appeal to this Court and of the appeal to the judge below.

Bokhary, J.A.:

20. I would allow this appeal with costs here and below by reference to the merits.

21. In my judgment, there is a line of defence which has at least a real prospect of success.

22. The line of defence which I have in mind is this.

23. The plaintiff had the sole agency. It did not have the sole right to sell. By the agency agreement, the defendant in terms appointed the plaintiff its "sole selling agents".

24. Clause 2 of the agency agreement says that if an agreement to sell is entered into during the sole agency period, the plaintiff will be entitled to its commission "irrespective of the source of introduction". It does not say that the plaintiff would be entitled to commission irrespective of whether there was any introduction.

25. And the result is this. The plaintiff was entitled to its commission even if the defendant sold through another agent. But it would not be entitled to any commission if the defendant sold by itself.

26. Mr Chain for the plaintiff concedes that he cannot contend that the foregoing would have no real prospect of success if argued. He contends, however, that the defendant should not be permitted to argue it since it was not argued below.

27. It is admittedly a line of defence raised for the first time in this Court. Indeed, it was raised by me in the course of the argument. But I take the view that it must be entertained nevertheless. And that is because it has to do with what has and has not been pleaded rather than what evidence has or has not been filed.

28. There is no averment in Statement of Claim that the defendant had sold through another agent. It is only averred that the plaintiff had sold during the agency period.

29. There is some evidence, being some further evidence which the defendant had wanted in and which the plaintiff had originally succeeded in keeping out but which eventually came in on the application of the plaintiff itself, which evidence suggests that there was another agent involved.

30. But such evidence does not suggest that that agent was a selling agent or any agent for the defendant. Rather, the evidence suggests that that agent was one who got involved on behalf of the purchaser and who, if she received any commission at all, received the same from the purchaser and certainly not from the defendant.

31. Moreover, the evidence suggests that such transaction took place outside the sole agency period. I doubt if evidence alone without amendment can repair the lack of averment in the plaintiff's pleadings. But assuming that evidence could, the evidence which I have just mentioned cannot, in my judgment, take away from the line of defence which I have just outlined its real prospect of success.

Leonard, J.:

32. I too would allow this appeal with an order nisi for costs here and below to the defendant.

33. The facts are stated in the judgment of Nazareth V-P.

34. The argument that the plaintiff replaced a non-existent plaintiff is without merit. It is plain that the proceedings were all along brought by the present plaintiff and that a misnomer has been corrected.

35. I respectfully agree, for the reasons given by Nazareth V-P that the judge misdirected himself that he was entitled to determine, without evidence, that a period of four days is the ordinary course of post for a registered letter in Hong Kong. Even in relation to ordinary mail, the receipt of which is far more common than the receipt of registered mail, it was felt necessary in England to issue the Practice Direction which appears at page 155 of Volume II of the Supreme Court Practice, 1995. It would appear to be desirable to consider the issuing of a Practice Direction in Hong Kong to deal with the question as to when an item of registered mail should be deemed to be delivered in the ordinary course of post. In the meantime a plaintiff may avoid evidential problems by arranging for the copy writ to be left at the registered office of the company in accordance with the provisions of section 356 of the Companies Ordinance, Cap. 32. If he uses the mail, evidence as to the ordinary course of post or proof of delivery may be required.

36. In the present case, it is clear from the defendant's evidence that the writ was delivered and the defendant proceeded to ignore it. The objection here is a technicality, without merit, but a valid one. The judgment was premature and therefore irregular.

37. There is a defence with a real prospect of success. It became apparent to the court during the hearing that the Plaintiff puts its claim simply on the basis that the property in question was sold by the defendant during the period of the sole agency agreement. There is no averment that the defendant sold through an agent. According to the terms of the agency agreement, the plaintiff was appointed "sole selling agent". It is arguable, with a real prospect of success, that the plaintiff had not been granted the sole right to sell the property. It follows that it is arguable that the defendant had the right to effect a sale himself and that he would be under no duty to pay commission to the plaintiff unless he sold through another agent acting for him. In my judgment, it is strongly arguable that a sale through a purchaser's agent would not give rise to any obligation upon the defendant to pay commission to the plaintiff.

38. As matters presently stand, the defendant has a real prospect of success in the action and it would be wrong to let the default judgment stand, even if it were a regular one. There must be a proper adjudication of the plaintiff's claim and I agree that there should be an order nisi giving unconditional leave to defend.