ARTS ENTERPRISE LTD v. CHING SAU LING SONNY AND ANOTHER

DCCJ 588/ 2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 588 OF 2004

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JUDGMENT
ON 2ND DEFENDANT’S APPLICATION
TO SET ASIDE JUDGMENT

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1. By a provisional sale and purchase agreement dated 28 October 2004, the 2^nd defendant for and on behalf of the 1^st defendant agreed to buy and the plaintiff agreed to sell the property known as Flat 1 on 43^rd Floor together with Portion of Roof thereof of Block C, Imperial Court, No. 62G Conduit Road, Hong Kong (“the subject flat”) at $9,100,000.  The 2^nd defendant paid the sum of $780,000 in 2 cheques (for $440,000 and $340,000 respectively) issued by herself as initial deposit.  The 2 cheques were dishonoured.  She subsequently failed to pay up the sum or further sums.  She failed to complete the transaction.  The vendor claimed the value of the 2 cheques.  The vendor obtained judgment in default of notice of intention to defend.  The 2^nd defendant takes out the present summons to set aside such judgment.    

The Issues in  this summons

2. The 2^nd defendant raises 2 issues:

(1)  whether the judgment was regular;

(2)  whether she has shown a meritorious defence. 

Was the judgment regular?

3.  The vendor’s case is that the Shatin address was the only address known to the vendor.  The 2^nd defendant had given no address in the provisional agreement.  Mr. Cheng, the estate agent, refused to disclose the 2^nd defendant’s address due to company policy.  The vendor could only, and it did, engage a private investigator.  The private investigator found that the 2^nd defendant had invariably given the Shatin address in official public documents submitted to the Companies Registry from 1997 to 2002 (BD 187, 189, 196, 197, 199, 202, 203, 204, 205, 208, 209, 210, 211, 212, 213).  The 2^nd defendant last acknowledged the Shatin address on 10 April 2002 when she signed on the Application for Deregistration of a Defunct Private Company, Topson Limited (BD 213).

4.  She criticizes the vendor for not having fully and frankly disclosed to the court the fact that her address of “3A Resident 14, Chinese University of Hong Kong, Shatin, New Territories, Hong Kong (“the Shatin address”) was found from her company’s (Topson Limited’s) public records at the Companies Registry, or through a private investigator.  I do not see the relevance of such disclosure nor her criticism because the simple fact was that, by stating the Shatin address in public records, the 2^nd defendant was representing to the public that she could be reached at that address.  It could be regarded as her “usual and last known address” for service of the writ of summons.

5.  Personal service and services by post were unsuccessful in February and March 2004.  It could be regarded as “the usual and last known address” of the 2^nd defendant in February 2004.  I do not think that it matters at all as to how the vendor came to know of the address.  Even on her own case, it was a true address she had given in public records.  Whether the source of information was disclosed or not, there was nothing unfair to her in the plaintiff’s applying for substituted service upon failure to reach her at that address.   

6.  The 2^nd defendant’s case is that Mr. Cheng would have talked to Lily Tang, who would in turn contact the 2^nd defendant or disclose the 2^nd defendant’s contact telephone number and address.  The writ of summons was returned through the post office.  The 2^nd defendant did not put her address on the provisional agreement.  The plaintiff knew of no other means of contact or address for service.

7.  On 23 March 2004, the court ordered substituted service.  On 17 April 2004, pursuant to the master’s order, substituted service was effected by advertisement in Sing Pao Daily News, a Chinese newspaper published and widely circulating in Hong Kong, and also licensed for advertising legal notices.  The 2^nd defendant’s case is that she did not read this newspaper, and besides, its circulation was not large enough.  The test was never whether the defendant had actually received or seen the writ of summons.  The 2^nd defendant elected not to give any address in the provisional agreement on the one hand while having a single address in public records which, she now says, could not have reached her on the other hand. 

8.  I agree that the course adopted by the vendor was most reasonable and the highest of what it could have done in all the circumstances.  I find the judgment regular.  The 2^nd defendant has to show a meritorious defence in order to set it aside.         

Whether a meritorious defence had been shown?

9. The plaintiff claims the sum of $780,000 in 2 dishonoured cheques (for $440,000 and $340,000 respectively) issued by the 2^nd defendant.  It was the initial deposit for the purchase of the subject flat.  The 2^nd defendant signed the provisional agreement for and on behalf of the purchaser.  Due to no fault on the part of the vendor, the purchaser refused to complete.  According to clause 7 of the provisional agreement (which was referred to as the “2^nd provisional agreement” by the 2^nd defendant), the vendor shall forfeit the deposit.

10. According to 13/9/14 of the HKCP 2004, in order to set aside a judgment, it is not sufficient to show a merely arguable defence that would justify leave to defend under O. 14.  The defendant must show that he has a real prospect of success.  To do so, he must satisfy the court that his case and the evidence that he adduces in support of it is potentially credible and carries some degree of conviction.  Thus, the court must form a provisional view of the probable outcome of the action.

11. The 2^nd defendant’s case is that on 27 October 2003 she signed the 1^st provisional agreement to offer to buy at $8,800,000 and tendered a cheque for $440,000.  She had not yet got the name of the vehicle-company.  Mr. Cheng advised her to put down the 1^st defendant’s name as the purchaser, and sign her name for and on behalf of the 1^st defendant.  As she was aware that the vendor had already agreed to sell the subject flat to another purchaser, she requested Mr. Cheng to put in a condition precedent to the effect that the vendor had already cancelled the previous sale.  She instructed Mr. Cheng not to pass the cheque, and the 1^st provisional agreement to the vendor to sign, unless the vendor had provided proof of cancellation of the previous sale and upon the vehicle-company’s name being known and named as the purchaser.  On behalf of the vendor, Mr. Cheng agreed to comply with such conditions.  Her offer was turned down by the vendor.

12. She instructed Mr. Cheng to prepare a 2^nd provisional agreement.  She increased the offer to $9,100,000.  She again requested Mr. Cheng to include the same conditions in the 2^nd provisional agreement.  On the same date, Mr. Cheng prepared the 2^nd provisional agreement (“TLC-13”).  Mr. Cheng had not taken her through each clause in the 2^nd provisional agreement before she signed.  She tendered an extra cheque for $340,000 as extra deposit.  On behalf of the vendor, Mr. Cheng agreed to comply with such conditions before encashing the 2 cheques.  She later came to learn that Mr. Cheng had failed to include these conditions in it.  As she was genuinely upset, Mr. Cheng promised to retrieve it from the vendor and tear it up.  On the same date, Mr. Cheng prepared a 3^rd provisional agreement (“TLC-14”), which she signed.

13. On the following day, namely 29 October 2003, she was in a position to give the name of the vehicle-company.  She instructed Mr. Cheng to put forward the 3^rd provisional agreement to the vendor.  Mr. Cheng told her that he had already passed the 2 cheques to the vendor, who had signed the 2^nd provisional agreement.

14. The 2^nd defendant’s case is that she had been induced to sign the 2^nd provisional agreement and tendered the 2 cheques by the oral assurances of the plaintiff made through Mr. Cheng, an agent acting for the plaintiff.  The understanding was that the 2 cheques would not be presented for payment before her conditions were fulfilled.  She was not liable for the value of the cheques. 

 Was the 2^nd defendant’s case potentially credible?

15. In her 1^st affirmation, she stated that she had never used the Shatin address as her correspondence address.  In her 2^nd affirmation, she admitted that the Shatin address had been entered as her address in Topson Limited’s public records at the Companies Registry.  She explained that she had meant to use Topson Limited to buy another property.  The most convenient address was then the Shatin address.  The transaction, however, fell through.  Topson Limited was dormant.  She had to travel to Japan on business.  So she forgot about Topson Limited.  She only remembered it when the accountant firm prepared forms for her to sign to deregister it in 2002.  She signed without noticing the Shatin address stated there.  I find this aspect of her case not potentially credible.

16. Further, it was a transaction of $9,100,000, a very large sum of money.  Mr. Cheng was an estate agent to the 2^nd defendant.  He was performing his professional task.  There was no other relationship between him and the 2^nd defendant.  There was no reason for her not to require him to set out in clear terms the condition precedent of having the vendor cancelled the previous sale, nor for her to accept Mr. Cheng’s suggestion (without his giving a reason) that the 1^st defendant’s name be put in as the purchaser for the time being pending knowledge and naming of the vehicle-company, nor for her to sign the 2^nd provisional agreement without a full and proper understanding of its terms and effect.  I find these aspects of her case not potentially credible.

17. The 2^nd defendant’s case is not potentially credible in various crucial aspects.  Besides, in order to establish a condition precedent, the 2^nd defendant must start with proving that Mr. Cheng was the vendor’s agent at the material time.  Whilst Mr. Cheng acted as the agent for both the vendor and the 2^nd defendant in the sale and purchase of the subject flat, there is no evidence capable of suggesting that Mr. Cheng was the actual or the ostensible agent of the vendor in this particular regard.

18. The 2^nd defendant has failed to show a meritorious defence.  I dismiss this summons with costs to the plaintiff.

Dated this 14 October 2005