PO KWONG MARBLE FACTORY LTD. v. WAH YEE DECORATION CO. LTD.

1996, No.153
(Civil)

IN THE COURT OF APPEAL

(On Appeal from the District Court

Action No.9236 of 1996)

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J U D G M E N T

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Sears, J. :

1. This is an appeal against the decision of H.H. Judge Muttrie in the District Court made on 15th May 1996 whereby it was ordered that the defendant's summons of 4th May seeking leave to set aside a judgment, entered into in default of defence, be dismissed with costs.

2. The background facts can be stated quite simply.

3. The plaintiff carried out, pursuant to a contract with the defendant, the supply and fixing of marble panels at a hotel. The contract was in the region of some $2 million. A substantial amount had already been paid, and in December1995, the plaintiff's solicitors issued a demand letter for some $85,000 which was said to be the balance on the contract due and owing to the plaintiff. There was no reply to that letter. Certain delay occurred and eventually the plaintiff issued proceedings in the District Court - the amount of money being within the jurisdiction of the District Court - for that sum.

4. The writ in the District Court is addressed to the defendant and said :

"Judgment may be obtained against you and enforced without further notice unless within 14 days of the service of this writ you admit the claim or file at the Court a defence or counterclaim."

At the bottom of the writ is found the registered office of the defendant situated at Room 1903 Cornell Centre, 15 Wing Tai Road in Chai Wan.

5. The plaintiff used the services of a process server to effect service. He went along to the building after office hours to the 19th floor. We have been provided with photographs and a plan showing the layout of this floor. When one comes out of the lift lobby, on one side there is a room, which is called Room 1909 which has the name "CIL Limited" which is apparently the name of the holding company (albeit that they have the full name Collection Interior Limited) and is the registered office of that company. He did not consider that to be the office of the defendant and therefore turned to the other side of the lift lobby and found a pair of doors. On one of those doors was found the name of the defendant company written in both English and Chinese. He pushed open the door and found ahead of him a locked door. He assumed that this was indeed the registered office of the defendant. There was no number on the door but he pushed the writ underneath the door. He subsequently sworn an affirmation that he had served the writ at the registered office of the defendant company and no defence having been served, judgment was entered in default. The application therefore before the District Court Judge was to set aside his Order. He listened to the evidence and came to the conclusion that the writ had been properly served. It therefore being a regular judgment, he did not consider there were sufficient merits shown to set it aside.

6. The statutory provision which is relied upon here for service, it being on a company, is under s.356 of the Companies Ordinance,Cap.356 which reads as follows :

"356. Service of documents on company

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

The Judge below was satisfied that service had been properly made, as it appeared to him that the defendant itself had put up the notice and as he said : "They had held out the room next door to their registered office as their registered office."

7. The clear fact, however, is that this writ was never served at the registered office. It was served at Room 1902. I have no doubt that the process server acted in good faith and he was clearly misled by the notice being placed on the outside of the doors which could be opened and he naturally assumed that when he went into the further door, he would be entering Room 1903. However there was no number on the door, there was nothing to indicate that it was the registered office, and although in my judgment, one can well understand his actions. He did this outside office hours and of course, there is a risk when one seeks to serve outside office hours, that one may find the wrong office. In my judgment, the factual position is that he never served it by leaving it at the registered office. Section 356 of the Ordinance must be complied with. He should have recognized the problems which he encountered by this locked door. He should either have gone back to the solicitors and said that service should be effected by post, or alternatively an application could have been made for substituted service. Whilst, therefore, I have considerable sympathy with the predicament the process server found himself in, in my judgment there has not been a proper service in accordance with s.356.

8. It follows therefore that the judgment which was obtained was an irregular judgment. The point of difficulty which arises in this case is what the Court should then do. The provision in the District Court Ordinance giving the Court power to set aside a judgment is similar to O.13, r.9 in the Rules of the Supreme Court which gives a wide discretion to the Court to set the judgment aside on "such terms as it thinks fit". The body of jurisprudence which has grown up on this order has differentiated between judgments regularly obtained and judgments irregularly obtained. It has been said that a judgment which has been irregularly obtained can be set aside ex debito justitiae which, as Latin is not often used nowadays in these courts, means "as of right".

9. The late Hunter J.A. in Honour Finance Co. Ltd. v. Chui Mei-mei [1989] 2 HKLR 146 was of the view that where a judgment was obtained irregularly, the defendant had a "confident expectation" that it would be set aside. More recently, Godfrey J.A. in Fok Chun-hung v. Lo Yuk-shi [1995] 1 HKLR 420 expressed the view that a judgment which was irregularly obtained should be set aside unconditionally and he was of the view that the dicta of the late Hunter J.A., where the Court did not have the benefit of adversarial argument, did not stand with subsequent decisions such as Barclays Bank of Swaziland Ltd. v. Hahn [1989] 1 WLR 506 and Willowgreen Ltd. v. Smithers [1994] 2 All ER 533 which itself cites passages from White v. Weston [1968] 2 QB 647. These decisions appear to indicate that the judgment must be set aside as of right Godfrey J.A. said :

"To take any other course would be a perversion of justice; whether the judgment was obtained before, or after, the return, undelivered, of the copy of the writ, such a course would involve treating the defendant as one who is craving an indulgence, rather than one who is (rightly) protesting at having been given no chance to be heard."

10. The provisions of O.13, r.9, as I have said, are wide in their context. In my judgment, whilst it can be rightly said that a judgment which has been obtained irregularly ought to be set aside as of right, in other words that the merits of the particular defence to the claim do not have to be entered into by the court, nevertheless, there is always a residual discretion in the court to have regard to the conduct of the parties. For example, if a judgment has been obtained irregularly and the writ comes to the notice of the defendant, he may delay for a certain period of time before taking any action on the writ. In my judgment, the court still has a discretion - having regard to what the defendant himself has done - to deprive him, if necessary, of that judgment or alternatively, to impose terms upon the setting aside of the judgment which accord with justice having regard to the facts of the particular case.

11. Here, there was some 17 days delay, but the problems which have been caused in this case were due primarily to the method of virtually disguising the registered office of this company. If anyone posted a letter to the company, it would not go to Room 1903, but to Room 1909 which is the reception area of the holding company. Indeed, the defendant conceded that if this writ had been left in the reception area, it would have been taken in by a receptionist and it would have been accepted that that would be good service. I therefore have come to the conclusion that the Judge was wrong not to set this judgment aside. I would allow the appeal but I hold that the Court does have power to set it aside on terms. Counsel has submitted what those terms should be. The defendant has in fact paid the money. The term therefore that I would impose for setting this judgment aside should be that the money, currently in the hands of the defendant company, should be repaid by the defendant and brought into Court.

Bokhary, J.A.:

12. The judge did not find that service had been effected at the defendant company's registered office. Rather, he said that service was effected at adjoining premises which the defendant company had held out as its registered office. I can follow his thinking there. But in my view, the evidence does not go quite so far as to establish such a holding out.

13. Having said that, I must express sympathy for the process-server. The layout with which he was confronted was - of the defendant company's making - a highly confusing one. Nevertheless, leaving the writ where he left it did not constitute effective service after all. Postal service was an option. It was not resorted to however. The immediate result is that service was not achieved. And the consequential result is that the default judgment is irregular.

14. That being so, there is no need for the defendant company to show a defence on the merits. And it certainly has not been shown by the plaintiff company that the application to set aside the default judgment is so utterly and manifestly divorced from any merit as to amount to an abuse of process.

15. I, too, would allow the appeal to set aside the default judgment.

16. And I, too, would impose the condition proposed by my brother Sears. That can be done. The decision of this Court in Fok Chun-hung v. Lo Yuk-shi [1995] 1 HKLR 420 could be read as suggesting otherwise. But I am driven to accept that the Court might have done otherwise than it did if I had made myself clearer sitting at first instance as an additional judge of the High Court in that case. In particular, I could have underlined the decision of the Court of Appeal in England in Singh v. Atombrook Ltd [1989] 1 WLR 810.

17. Another thing I might have done was to underline the nature of the statutory jurisdiction. "Ex debitio justitiae" or as of right means without going into the actual merits of the defence. It does not mean shutting one's eyes the circumstances surrounding the question of service and why things went wrong in that regard. The court's statutory jurisdiction is unfettered.

18. 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. The way to guard against it is to impose the condition proposed by my brother Sears. And there is jurisdiction to do so.

19. So I, too, would allow the appeal with that condition.

Nazareth, V.-P.:

20. I also would allow the appeal for the reasons given by my Lords. However, I feel bound to mention the misgivings I have about the propriety of setting aside the judgment below conditionally, since the appellant is entitled ex debito justitiae the defendant not having been served. My doubts relate to matters and considerations of the nature mentioned in Fok Chun-hung v. Lo Yuk-shi [1995]1 HKLR 420 at 423-424. That said, I am not disposed to press my doubts to the point of dissent upon that incidental matter, particularly as the plaintiff has no objection to the payment into Court. I would therefore concur in the order proposed by my Lords.

21. Accordingly, the appeal is allowed. The judgment is set aside with an order that the amount of the judgment debt, which has already been paid, be deposited in Court.