Re United Link Holdings Ltd.

HCCW112/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.112 OF 2002

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REASONS   FOR     DECISION

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Background

1. On 4 March 2002, Mr Low Cheung Loi ("Mr Low) commenced HCA 864/2002 against United Link Holding Limited ("the Company") on four dishonoured cheques totalling more than $30 million. He obtained a default judgment on 11 April 2002 ("Default Judgment").

2. Earlier on 29 January 2002, a winding up petition was presented by another creditor against the Company. Provisional liquidators were subsequently appointed by the court on 20 March 2002. Notification of such appointment was then sent to the Companies Registry on 22 March 2002.

3. The provisional liquidators came to know about the writ in HCA 864/2002 and the Default Judgment only on 18 April 2002. By a letter dated 3 May 2002, solicitors acting for the provisional liquidators asked the plaintiff's solicitors to set aside the Default Judgment within three days. On 6 May 2002, the plaintiff solicitors replied in the following terms :

"We refer to your letter of 3rd May 2002 and note that on 8th May 2002 the hearing for the petition to wind up the Company will be heard. You will do doubt also be award that we have entered notice to appear to support the Petition. By all intents and purposes the Company will be the subject of a winding up order on 8th May 2002 leaving our client as an unsecured creditor. As such we not (sic) see there being any mileage for our client to take any steps to enforce the judgment at all. As such, we suggest that the Winding-up Petition be allowed to run its course whereby our respective firms can save costs without having to waste costs in setting aside the judgment."

4. The solicitors for the provisional liquidators were not satisfied with the reply. On the same date, they wrote back and reiterated their request that the Default Judgment be set aside. Receiving no favourable reply, they took out a summons to ask for leave to proceed with the application to set aside the Default Judgment under section 186 of the Companies Ordinance, and to set aside the Default Judgment with costs. The hearing took place before the master on 10 May 2002. He allowed the leave and setting aside applications as they were unopposed. But he ordered that there shall be no order as to costs.

5. Dissatisfied with the costs order, the provisional liquidators lodged the present appeal. On 13 June 2002, after hearing the parties, I allowed the appeal, set aside the master's costs order and substituted in place an order that the costs below and of this appeal be to United Link Holdings Ltd ("the Company") against Mr Low Cheung Loi, the plaintiff in HCA 864 of 2002 ("Mr Low"). In lieu of taxed costs, I made a gross sum order of HK$20,000, to be paid forthwith. These are my reasons.

Legal principles

6. While the courts retains an overall discretion on the question of costs, that discretion must be exercised judicially and accords with established legal principles. When a default judgment is setting aside on the ground or irregularity, the usual costs order is for the plaintiff to bear its own costs of signing the irregular judgment and further to pay the defendant's costs of the application to set aside judgment : see Hong Kong Civil Procedure 2002, Vol.1, para.13/9/11 at p.140.

7. The Default Judgment is no doubt irregular because Mr Low had not obtained the requisite leave to proceed with the requisite application under section 186 of the Companies Ordinance. Mr Johnson, who appeared before the master and before me, did not seek to argue the contrary. It is thus apparent that the master had departed from the usual rule. That alone is not sufficient to ground an appeal against his costs order. Something more is required. For it is well established that in general a judge in chambers should not allow an appeal from an order for costs made by a master unless it can be shown, either that it was unreasonable or that the master erred in law or took into account matters which he should not have taken into account or failed to take into account matters which he should have taken into account : see Hong Kong Civil Procedure 2002, Vol.1, para.62/2/11 at p.859.

The master's errors

8. At the hearing before the master, the parties debated if the provisional liquidator needed to serve the order of their appointment to Mr Low. It was Mr Low's case that he was not aware of their appointment at the time when the Default Judgment was entered. It would appear that when he made the costs order, the master was influenced by the fact that the appointment order had not been served on Mr Low.

9. In my view, the fact that the appointment order had not been served on Mr Low at the material time was not a relevant factor on the question of costs. The master should not have taken that into account. What is relevant is this. Mr Low's solicitors were made aware of their appointment and the obvious need to set aside the Default Judgment on 3 May 2002. The question is then why they did not accede to the request to set aside the Default Judgment by a consensual means forthwith? Their failure necessitated the summons of 7 May 2002 and the subsequent hearing on 10 May 2002. The pertinent evidence as summarised above was before the master in the form of Mr So's affirmation dated 7 May 2002 filed in support of the summons. But unfortunately, he had apparently failed to address this question and consider the evidence in this regard.

10. As the master had not exercised his discretion properly, I am entitled to exercise it afresh. The explanation given by Mr Low's solicitors in their reply letter of 6 May 2002, in my view, did not amount to any reasonable excuse why they should not accede to the request to set aside the Default Judgment. As rightly pointed by Mr So appearing for the provisional liquidators before me, if the Default Judgment, which is a valid judgment until being set aside, is not set aside, Mr Low is entitled to rely on it in proving his debt. The provisional liquidators would then be placed in a difficult position. Even if a winding up order was likely to be made at the hearing on 8 May 2002, it does not entitle Mr Low to have the benefit of the Default Judgment. Whether Mr Low would enforce it is irrelevant. There is in my view simply no substance in the reply. In the circumstances, the summons and the hearing before the master were occasioned purely by the failure on the part of Mr Low's solicitors to respond properly to the request made on 3 May 2002. Mr Johnson then took a point, which he had not made before the master, that he had difficulty in taking instruction before responding to the letter of the provisional liquidators' solicitors of 6 May 2002. But with respect, he should have taken instruction on the letter of 3 May 2002 and should not have waited until 6 May 2002 to do so. I see no reason why Mr Low should not bear the Company's costs of setting aside the Default Judgment.

11. That is sufficient to dispose of the appeal. I do not propose to deal with the other subsidiary points advanced by the parties.

Conclusion

12. For the above reasons, I allowed the appeal and set aside the master's order. I then indicated that I would make a gross sum order in lieu of taxed costs. The parties made submissions on the quantum. Mr Johnson conceded a sum of $20,000 would be reasonable for the costs below that the costs of the appeal. On that basis, I fixed the amount of these costs at HK$20,000.