刘跃超 AND OTHERS v. TIHIMI RESOURCES LTD

HCA 624/2015

[2019] HKCFI 2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 624 OF 2015

(TRANSFERRED FROM LABOUR TRIBUNAL

CLAIM NO 518 OF 2015)

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D E C I S I O N

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APPEAL

1.  This is an appeal against the Orders of Master J Wong dated 10 April 2019 (the “Orders”).  By the Orders, the default judgment obtained by the plaintiffs against the defendant on 29 September 2016 is set aside (the “Default Judgment”).

2.  A special feature in this case is that the defendant was wound up by reason of the Default Judgment.  Liquidators were appointed into the defendant.  The liquidators then applied to set aside the very judgment which put the defendant into liquidation and succeeded. I have indicated to Mr Lau Siu Hung, one of the Joint and Several Liquidators of the defendant, that he should duly consider the status of the current liquidation of the defendant given that the substratum of the liquidation has gone.  The liquidators of the defendant, as officers appointed by the Court,has a duty to consider what is the right course to take, including whether, inview of the financial position of the defendant, it is appropriate to apply fora permanent stay of the liquidation of the defendant given that the foundationof the winding up of the defendant has gone.  This Court expresses no viewon what the liquidators should do as it is not the function of the Court to give legal advice but it is clear to this Court that the liquidators have a positive duty to consider what to do with the current liquidation.

THE DEFAULT JUDGMENT

Applicable legal principles

3.  There is no dispute that the Default Judgment is a regular judgment.  The relevant applicable legal principles are set out by Mr Recorder Ma SC (as he then was) in Young Bing Ching (deceased) v Chow Yung Fong & Another [2001] 2 HKLRD 394.  At pp 398H – 399A,the learned Judge said:

“ Where, as in the present case, a regular default judgment has been obtained, the burden on a defendant is to demonstrate that he has a defence on the merits which has a real prospect of success or carries with it some degree of conviction. This is the effect of Alpine Bulk Transport Co Inc v Saudi Eagle Shipping Co Inc (The Saudi Eagle) [1986] 2 Lloyd’s Rep 221 at p. 223. This approach has been followed in Hong Kong. If a defendant is unable to discharge the burden, there is simply no point in the action continuing and the court will not, therefore, in the exercise of its discretion under O.13 r.9, set aside the judgment. As was said by Bokhary JA in Premier Fashion Wears Ltd & Another v Chow Cheuk Man & Li Hing Chung (third party) [1994] 1 HKLR 377 at p.380: ‘no court would wish to reopen a matter without merit since that would only pointlessly postpone the inevitable’. In The Saudi Eagle, Sir Roger Ormrod had this to say as a generalprinciple: ‘the primary consideration is whether the defendant ‘hasmerits to which the Court should pay heed’ … not as a rule of law but as a matter of common sense since there is no point setting aside a judgment if the defendant has no defence …’.”

4.  Further, at pp 402C – 403D, the learned Judge said:

“ The starting point in this discussion is that where there has beena regular default judgment, the primary consideration for the court will be the merits of the defendant’s case. In most cases, the determination of this aspect will be determinative of the applicationto set aside. If the defendant fails to satisfy the requisite test, therewould be no point in setting aside the default judgment: see above. On the other hand, if the defendant satisfies the test: ‘… the Courtwill not prima facie desire to let a judgment pass on which there hasbeen no proper adjudication.’ (per Lord Wright in Evans v Bartlam [1937] AC 473 at p.489). To quote again from the judgment of Bokhary JA in Premier Fashion Wears Ltd & Another v Chow Cheuk Man & Li Hing Chung (third party) [1994] 1 HKLR 377 at p.380: ‘… no court likes to decide any matter other than in accordance with the merits, if any are in real prospect, because the court’s objective is justice’. In the same case at p.219, Litton JA said: ‘Obviously, if upon the material before the court, the third party appears to have a strong defence to the claim that would be apowerful reason for setting aside the default judgment on the basis that in all the circumstances of the case it is just to do so’. Thus,where a defendant is able to show that he has merits in his defence,justice will often demand that the default judgment be set aside and he be permitted to go to trial.

Exceptionally, however, despite being able to demonstrate sufficient merits in his defence, a defendant might not be permitted to have the default judgment set aside. In my judgment, the fact that a defendant is able to demonstrate a defence of sufficient meritdoes not mean he has an automatic entitlement to have the defaultjudgment set aside. The consideration of the merits of the defence, albeit the ‘primary’ (see Evans v Bartlam [1937] AC 473 at p.489 and The Saudi Eagle [1986] 2 Lloyd’s Rep 221 at p.223(i) or the ‘dominant’ (see Shocked v Goldschmidt [1998] 1 All ER 372 at p.379) consideration, is not stated to be the only one. Indeed, asGodfrey JA pointed out in Premier Fashion Wears Ltd & Anotherv Chow Cheuk Man & Li Hing Chung (third party) [1994] 1 HKLR 377 at p.383, the requirement of a defence with a real prospect of success is ‘at least’ what a defendant must show. This presupposesthe existence of other factors to which the court should have regard.

The court is in my view entitled, indeed obliged, to exercise its discretion under O.13 r.9 with regard to all the relevant circumstances: see Premier Fashion Wears Ltd & Another v Chow Cheuk Man & Li Hing Chung (third party) [1994] 1 HKLR 377 at p.382, per Litton JA.  What will be relevant as a factor in any particular case will of course depend on the individual facts of thatcase, and these other relevant factors will then have to be weighed against the dominant factor of the merits in order to see where the justice of the case lies: see Shocked v Goldschmidt [1998] 1 All ER 372 at p.379.  It is, of course, no longer the law (if it ever was anyway) that before a judgment can be set aside, a defendant must provide a satisfactory explanation for his default; there is simply no such condition precedent and no cause for the court to lay down such rigid rules: see Evans v Bartlam [1937] AC 473 at p.480 (per Lord Atkin).  Relevant factors to be weighed against the merits factor include the defendant’s explanation of why he allowed default judgment to occur, his conduct after proceedings were served on him, any delay on his part to apply to set aside andany prejudice that would be caused to the plaintiff or to third partiesif the default judgment were to be set aside.  All this is clear from the authorities but I need only refer to a few.”

5.  Mr Chow for the plaintiffs submitted that the mere fact that the application is brought by the liquidators of the defendant should not be treated any differently.  I agree.  The defendant has to demonstrate to this Court that it has a real prospect of success in this action.

Merits

6.  The plaintiffs are Mainland residents and their claims as set out in the Statement of Claim are as follows:

“ 12. In the premises, the 1^st to 15^th Plaintiffs claim against the Defendant the arrears of wages and the arrears of annual bonus pursuant to the Oral Employment Contract and the Written Employment Contracts, and the wages in lieu of notice pursuant to Section 7 of the EO and the 9^th and 10^th Plaintiffs against the Defendant the severance payments to Section 31B of the EO as pleaded in paragraph 11 above respectively.”

7.  Mr Lau submitted that there is no dispute that the plaintiffs’ purpose in instituting the present proceedings is to claim and receive substantial amount of ex gratia payments in Hong Kong from the Protection of Wages on Insolvency Fund.  However, this course is unjust as the plaintiffs’ employment contracts are governed by the laws of the Mainland rather than by Hong Kong laws.  Hence, there are not only merits but important public interest to set aside the Default Judgment.

8.  Having reviewed the documentary evidence and carefully considered the parties’ submissions, in my judgment, there is considerable force in the defendant’s submission that all the employment contracts were governed by the laws of the Mainland and as such there are strong merits in setting aside the Default Judgment.

9.  First, it is clear from the Written Employment Contracts that they all stipulate that the governing laws of the said contracts are the laws of the Mainland.  Mr Chow for the plaintiffs submitted that these contracts are standard contracts downloaded from the internet and the subjective intention of the parties was that the contracts should be governed by Hong Kong laws.  I express no views on this subjective intention argument at this stage.  However, it is important that the Court cannot ignore the express contractual provisions of the Written Employment Contracts.  It is difficult,if not outright insurmountable, for a party to rely on a subjective intention to override the express provisions of a contract.  Mr Lau rightly reminded this Court that all the plaintiffs were conversant with the Chinese language and when they signed the Written Employment Contracts, it would have been clear to them that their contracts would be governed by the laws of the Mainland.  I agree that the defendant has a strong case that the Written Employment Contracts are governed by the laws of the Mainland.

10.  Secondly, this Court also takes into consideration that there are other clauses in the Written Employment Contracts which, on its face,do lend support to the submission that the laws of the Mainland is the governing law:

(1)  Clause 3 refers to statutory holiday as set by the nation;

(2)  Clause 9 refers to social insurance as governed by the laws of the Mainland; and

(3)  Clauses 10 and 11 refer to labour protection according to national regulations.

11.  Thirdly, although Mr Chow for the plaintiffs submitted that the 1^st plaintiff’s case is based on an oral employment contract and hence the analysis as set out above does not apply to the 1^st plaintiff,I agree with Mr Lau that the Court needs to take into account the totality of the material circumstances.  Mr Lau submitted that it is unlikely that all the 14 employment contracts were governed by the laws of the Mainland and only one employment contract was governed by the laws of Hong Kong. I am of the view that this is a matter that at least merits investigation against the entire factual matrix of the case.  Hence, there is considerable force in Mr Lau’s submission that there is a real prospect of success on the issue of the governing laws of all the employment contracts.

12.  Fourthly, Mr Chow for the plaintiffs submitted that even if the employment contracts were governed by the laws of the Mainland, there is no dispute that the plaintiffs are entitled to claim the outstandingwages and bonus from the defendant.  He therefore asked this Court to enter judgment on the outstanding wages and bonus.  I am of the view that this is not appropriate for if indeed all the employment contracts were governed by the laws of the Mainland, it is only prudent that the Court be informed of the relevant legal principles before making a final judgment.

13.  Importantly, Mr Lau for the defendant also argued that there isa fundamental issue as to whether all the employment contracts were entered into between the plaintiffs and the defendant (a Hong Kong company) or between the plaintiffs and Tihimi Resources Ltd, a British Virgin Islands company which has the same name as the defendant.

14.  Mr Lau for the defendant relied on the following facts to support his contention that the real contracting party is Tihimi Resources Ltd (BVI) rather than the defendant:

(1)  The coal mine which the plaintiffs were employed to work in Indonesia was at all material times owned and operated by Tihimi Resources Ltd (BVI);

(2)  The bank accounts used to pay wages to the plaintiffs were opened and owned by Tihimi Resources Ltd (BVI);

(3)  When the 7^th, 9^th, 10^th and 14^th defendants signed their employment contracts with Tihimi Resources Limited, the defendant’s name was changed to “Tihimi Resources (HK)Limited”.  This is to lend support to the contention that the real contracting party is Tihimi Resources Ltd (BVI) rather than the defendant.

15.  Mr Chow for the plaintiffs submitted that, first, the plaintiffs came to Hong Kong to sign the employment contracts with a company with a registered office in Hong Kong, the plaintiffs could not be expected to know that there are two companies with the same or similar name. Secondly, the plaintiffs signed with a company which carried a Chinese name.  Thirdly, the employment contracts were specifically signed in Hong Kong.  There is nothing to put the plaintiffs on notice that they were signing employment contracts with a BVI company.  I am sympathetic with the plaintiffs’ submissions.

16.  Further, whilst not pleaded by the plaintiffs at the present stage, it could well be that the plaintiffs were misled into signing their employment contracts with a BVI company.  The defendant has not given any credible explanation as to why two companies of the same or similar name were incorporated.

17.  Having said that, I am of the view that this is a facts sensitive issue.  It is not the function of this Court to make a summary determination of the issue at this stage.  I am convinced that the defendant has adduced sufficient evidence to persuade this Court that as a matter of merits, this is an issue that should go to trial.

18.  Whilst I am of the view that the defendant has a stronger case in relation to its governing laws defence than its contracting party defence,this Court has to take into account all the circumstances of the case into consideration. Overall, I am convinced that the defendant has demonstrated that it has a defence of sufficient merits.

Residual discretion

19.  Mr Chow for the plaintiffs submitted that the defendant was atfault in allowing the judgment to be entered into by default and there are nogood explanations for the delay in applying to set aside the Default Judgment. In particular, Mr Chow submitted that Madam Yiu who was the ultimate beneficial owner of the defendant did not give any evidence to support this application.

20.  Mr Chow also submitted that the evidence that this Court has now would be the evidence before the trial judge.  The plaintiffs have been denied of their entitlements under the Default Judgment for a long time and they will suffer prejudice if the Default Judgment were to be set aside.

21.  I have taken into account all the above factors into consideration.  However, I am of the view that the Default Judgment should be set aside for the following reasons:

(1)  The defendant has demonstrated that it has sufficiently meritorious defence against the plaintiffs’ claims.  This is a dominant consideration for the Court.

(2)  There is a public interest consideration as well.  If the governing laws of the employment contracts are indeed the laws of the Mainland, then the extent to which the plaintiffs should be entitled to ex gratia payments in Hong Kong from the Protection of Wages on Insolvency Fund is a serious issue that needs to be fully addressed.

(3)  Although there is delay by the defendant to apply to set aside the Default Judgment, such delay was caused by the liquidation of the defendant and the need of the liquidators to carry out proper investigations before a proper application could be taken out.

(4)  It is premature at this stage to conclude that this Court has all the evidence that the trial judge would have.

(5)  As far as prejudice to the plaintiffs is concerned, the Court has to balance the delay caused to the plaintiffs and the possibility that the plaintiffs might not be entitled to any relief at the end of the trial.

22.  In the circumstances, I am of the view that justice dictates that the Default Judgment should be set aside and all the matters can be properlyventilated in a full trial.

DISPOSITION

23.  For all the reasons stated above, I make the following orders:

(1)  The present appeal is dismissed.

(2)  The plaintiffs are to pay costs of and occasioned by this appeal to the defendant, on a party to party basis, to be taxed if not agreed.

24.  Finally, it remains for this Court to thank Mr Chow for the plaintiffs and Mr Lau of the Liquidators for their helpful assistance to the Court.