RE YIM HOI MAN t/a MAN WAH ELECTRICAL ENGINEERING CO

CACV 339/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 339 OF 2005

(ON APPEAL FROM HCB NO. 10031 OF 2004)

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Re : Debtor Yim Hoi Man trading as Man Wah Electrical Engineering Company

Ex parte : Able Engineering Company Limited

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DCCJ 2993/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2993 OF 2004

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JUDGMENT

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Hon. Cheung JA:

1.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

DCCJ 2993/2004

2.  On 7 June 2004 Able Engineering Co Ltd (“Able”) issued a writ (DCCJ2993/2004) in the District Court against Yim Hoi Man.

3.  Mr Yim did not file a notice of intention to defend and Able obtained default judgment on 9 July 2004.

4.  On the basis of that default judgment, Able served a statutory demand on Mr Yim on 1 September 2004.

5.  Mr Yim did not apply to set aside the statutory demand.

HCB 10031/2004

6.  Accordingly on 18 October 2004 Able presented a petition for Mr Yim’s bankruptcy.

7.  Mr Yim then applied for legal aid, and for that and other reasons, the bankruptcy proceedings were adjourned a number of times between January and July 2005.  In the course of this period, on 12 April 2005 Mr Yim (acting in person) filed an affirmation in the bankruptcy proceedings comprising a statement and a large bundle of exhibits. 

Application to set aside default judgment in District Court (25/7/2005)

8.  Eventually on 25 July 2005 Mr Yim issued a summons in the District Court for an order to set aside the default judgment.  Mr Yim was not legally represented.

Deputy District Judge Ko’s order (31/8/2005)

9.  The summons was heard by Deputy District Judge Ko on 22 August 2005.  In a decision handed down on 31 August 2005 the judge dismissed Mr Yim’s application to set aside the default judgment.

10.  On 12 September 2005 Mr Yim applied for leave to appeal against Dep. DJ Ko’s order. 

Bankruptcy Order (26/9/2005)

11.  However before this was heard, the hearing of the bankruptcy petition resumed on 26 September 2005.  At this hearing, Deputy Judge To made a bankruptcy order against Mr Yim.  The Official Receiver (“OR”) was made trustee of Mr Yim’s estate. 

Adjournment of application for leave to appeal Dep. DJ Ko’s order (4/10/2005)

12.  As a result of his bankruptcy Mr Yim no longer had locus standi to conduct his application for leave to appeal Dep. DJ Ko’s order.  On 4 October 2005 the OR signed a consent summons to adjourn that application sine die. 

Appeal of Bankruptcy Order (17/10/2005)

13.  Mr Yim did of course have locus standi to appeal the bankruptcy order.   On 17 October 2005 he lodged a Notice of Appeal against the order. 

Adjournments of appeal hearing (2006-2007)

14.  The appeal first came before this court (Woo VP, Cheung and Yuen JJA) on 4 July 2006.  There were two further adjournments on 7 March 2007 (Cheung and Yuen JJA and Chu J) and 13 September 2007 (Cheung and Yuen JJA and Waung J). 

15.  The first adjournment in July 2006 was sought by the OR who needed time to familiarize himself with the case.  The second adjournment in March 2007 was sought by Mr Yim who wished to apply for legal aid. 

16.  When the matter came before this court in September 2007, the position was that Mr Yim wished to appeal the bankruptcy order but that order was based on the default judgment.  Mr Yim therefore wished to resume his application for leave to appeal Dep. DJ Ko’s order but the OR was not prepared to expend funds on doing that.  The OR was however prepared to assign to Mr Yim his right to proceed with the District Court proceedings.  This court therefore adjourned the hearing in September 2007 so that the OR could effect an assignment of his rights in the District Court action to Mr Yim.  That assignment was executed on 13 September 2007.  As a result Mr Yim is now entitled in his own name and at his own risk to proceed with the District Court action.

17.  According to the usual procedure, Mr Yim would have to first apply in the District Court for leave to appeal Dep. DJ Ko’s order.  In fact Mr Yim issued such an application on 12 September 2005.  However, in light of the time this case has already taken, we decided to exercise our power under Order 58 rule 2(6) District Court Rules to allow the application for leave to appeal to be made direct to this court without first going through the District Court. 

Matters before this court (18/1/2008)

18.  With that brief summary of the procedural history of the case, I turn to the matters before the court on 18 January 2008 which were:

(a)	Mr Yim’s application for leave to appeal from Dep DJ Ko’s order;
(b)	upon obtaining leave, the appeal from Dep. DJ Ko’s order i.e. whether the default judgment should be set aside;
(c)	if he succeeds in that appeal, his appeal from the bankruptcy order.

19.  In his able submissions, Mr Gary Lam Chin Ching, counsel for Able, dealt with matters (a) and (b) together, and correctly accepted that if this court were to set aside the default judgment, then the bankruptcy order should also be set aside.  I should add that according to the OR, Able is virtually Mr Yim’s only creditor, the only other creditor being a company with a very small claim. 

Factual background

20.  At this juncture it may be helpful to summarize the factual background as revealed in the evidence before us.

Contract

21.  In 2002, the Architectural Services Department (“ASD”) engaged Able to carry out building works under a term contract No.TCL041, pursuant to which various works orders (including E4082737 and E406638) were given.

Sub-contract to Phase

22.  In turn, Able sub-contracted the electrical works to Joseph Yan Chung Yee trading as Phase Electrical Engineers (“Phase”).  Able does not dispute that in this sub-contract, Phase was not permitted to assign the sub-contracted works without Able’s prior written consent, but Able’s consent was not required for Phase to assign any sum payable to Phase under the sub-contract (clause 2.3: p. 176 Appeal Bundle).

Sub-sub-contract of works orders to Mr Yim

23.  Phase in turn sub-contracted the electrical works under the two orders E4082737 and E406638 to Mr Yim trading as Man Wah Electrical Engineering Company.  Mr Yim employed workmen to carry out the works required under the works orders. 

Meeting with Mr Lui

24.  By mid-2003, Phase had not paid Mr Yim for some time.  According to Mr Yim, he and Mr Yan (the sole proprietor of Phase) had a meeting with a Mr Lui in May 2003.  According to Mr Yim, Mr Lui was Able’s contracts manager.  According to Able, Mr Lui was the contracts manager of its building works sub-contractor Winsway Enterprises Ltd (“Winsway”). 

25.  At the meeting in May 2003 (according to Mr Yim) Mr Lui told him that Able would pay him directly if he obtained Phase’s written authorization for direct payment (p.248 Appeal Bundle).

26.  However it would appear that subsequently Able did not make any payment to either Phase or Mr Yim. 

Non-payment by Able

27.  On 28 June 2003, Phase wrote a letter of demand to Able alleging that although ASD had paid Able 2 months ago, Able was still owing Phase some $1.3million as from 24 March 2003.  Phase also said that if it did not receive payment within 7 days, it would stop work (p.409 Appeal Bundle).

28.  However the situation continued with Able not making any payments to either Phase or Mr Yim. 

Commencement of Labour Tribunal proceedings by Yim’s workmen

29.  As Mr Yim was unable to pay wages to his workmen, they commenced proceedings in the Labour Tribunal for arrears of wages and other payments against Mr Yim (“D3”) as employer, Phase (“D2”) as sub-contractor and Able (“D1”) as principal contractor under the provisions of the Employment Ordinance.  On 24 July 2003, a settlement memorandum setting our various agreed directions was signed by Able, Phase, Mr Yim and representatives of the workmen (p.211 Appeal Bundle).  It is noted that Able’s representative was a Kwok Yiu On, who (according to Able) was a group representative of Winsway.

Phase’s letter to Able on payment to Mr Yim

30.  A few days after this, on 29 July 2003, Phase wrote a letter to Able (marked for the attention of S.K. Lui).  The letter said (p.410 Appeal Bundle):

“	We refer to captioned two works orders [E4082737 and E406638] and would like to request your company to direct pay to our subcontractor Mr Yim Hoi Man director of Man Wah Electrical Engineering Co.  Mr Yim is responsible for these two work orders which including supply and fix materials and labours.
	We attach the details breakdown for this two work orders for your reference.  Should your company pay direct to Mr Yim, our company will have No objection and no any further claim as regard to these two work orders”.

31.  There is an issue between the parties as to the construction and effect of this document.  Able says that this document was merely a revocable request or mandate on the part of Phase to Able to pay Mr Yim.  Mr Yim says this letter was provided pursuant to the meeting with Mr Lui, and was Phase’s written instruction to Able to pay to him directly the sums payable for the two works orders under the sub-contract.  I will discuss this issue later.

32.  It is noted that Able has not disputed that it received this letter.  Further, if SK Lui had no authority to represent it, it has not explained why Phase addressed the letter to Able but marked it for the attention of Mr Lui.  It is noted that Able did not reply to Phase asking for clarification of the letter.  However Mr Yim did not receive any payment from either Able or Phase.

Labour Tribunal Awards

33.  Meanwhile in the Labour Tribunal proceedings commenced by Mr Yim’s workmen against Able, Phase and Mr Yim, on 8 September 2003 and 29 March 2004, various awards were made, some against Able and Mr Yim jointly and severally, and some against Mr Yim solely (p.414 and p.422 Appeal Bundle).  On 20 October 2003, various awards were also made in the Labour Tribunal, some against Phase and Mr Yim jointly and severally, some against Able solely, and some against Mr Yim solely (p.419 Appeal Bundle). 

ASD payment

34.  In the meantime Mr Yim had not received any payments from Able or Phase.  However in early October 2003 (according to Mr Yim), Mr Lui told him that Able had received $675,000 from ASD (p.251 Appeal Bundle).  Mr Lui gave him a copy of a document from ASD (p.425 Appeal Bundle) which appears to be a computer print-out of a Payment History Query printed out on 26 September 2003 showing payment of that sum under order E4082737.  According to Mr Yim, Mr Lui told him that Able would first deduct what it paid the workmen when making payment to him (p.251 Appeal Bundle).

Payments to workmen

35.  Although part of the Labour Tribunal proceedings had been adjourned to March 2004, the parties made arrangements for the workmen to be paid partly in January 2004 before the Chinese New Year.  Although the cheques were drawn on the personal account of Yip Fai Chuen a director of Winsway, the documents evidencing the arrangement were signed by Mr Kwok expressly on behalf of Able.  Winsway was of course not involved at all in the Labour Tribunal proceedings.

36.  After the March 2004 hearing, Able made further payments to the workmen.

The documents of 17 May 2004

37.  On 17 May 2004, three documents were signed between Mr Yim and Mr Kwok as Able’s representative.  These documents, prepared by Able, were in similar (although not identical) terms and said (p.439-441 Appeal Bundle):

“	申索書編號: LBTC 7050/2003
	日期: 17 -MAY -2004
	於二零零四年三月二十九日之聆訊，按照法官之裁決，D1：安保工程有限公司及D3：嚴海文經營文華電器工程公司須繳付工人（A）項欠薪部份申索，款項為港幣$161,400，連同支付給工人之50%訟費共$9,450，即合共港幣$170,850 。
	本人嚴海文現時未能支付此款項，安保工程有限公司為紓緩本人之經濟壓力，暫時代為預先支付上述工人之薪金連訟費，合共港幣$170,850, 稍後於本人之工程糧款中扣除，該筆代支付款總額為$170,850。（見附頁裁斷/命令書之項目1及項目4），並已收支票號碼   018894   作實。
	本人願意就日後可收取之工程糧款減去上述已收之款項，不足之處本人願意日後歸還。
	簽署確認	簽署
		(KWOK YIU ON)
	嚴海文	安保工程有限公司代表
	日期 : 17 -MAY -2004	日期 : 17 -MAY -2004 ”

38.  It is noted that the documents refer to Mr Yim having to “deduct” the sums paid to the workmen by Able from the construction wages he was to receive.  This arrangement applied not only to the sums for which Able was jointly and severally liable with Mr Yim but also to other sums for which Mr Yim was solely liable (p.441 Appeal Bundle).

Legal proceedings

39.  It is common ground that Able has paid a total of $206,199 to the workmen and that Mr Yim has not repaid Able.  However it is also common ground that Able has not paid anything to Mr Yim for the work done under the works orders. 

40.  A month after the documents of 17 May 2004 were signed, Able issued the writ in the District Court against Mr Yim for the said sum of $206,199.  This led to the default judgment and bankruptcy order which I have recounted in paras. 2-17 of this judgment.    

41.  There is no dispute that service of the writ was regular.  Mr Yim says that he was confused by the legal action.  He was also suffering from anxiety and depression, which is evidenced by prescriptions from traditional Chinese medicine practitioners given in August 2004 (p.460-462 Appeal Bundle).  He did not defend the action but by the time Able presented the petition for bankruptcy in October 2004, he took steps to oppose it, including eventually the application to set aside the default judgment.

42.  The issue now before this court is whether Dep DJ Ko should have set aside the default judgment.

Principles

43.  The principles to be applied when considering an application to set aside a regular default judgment have been set out in Dep. DJ Ko’s judgment (para.10) and I will not repeat them here.  Dep. DJ Ko said correctly that the most important consideration was whether Mr Yim had a real prospect of success.

44.  Dep. DJ Ko did not consider that Mr Yim had a real prospect of success and so dismissed his application to set aside the default judgment.  That order was made in the exercise of the judge’s discretion.  

45.  It is well-established that an appellate court will not easily interfere with a judge’s exercise of discretion unless he had erred in law or had misconceived a material fact or had taken an irrelevant factor into consideration or had failed to take a relevant factor into consideration, etc.  

Discussion

46.  The reasons for Dep. DJ Ko’s order appear in paras. 21 and 24-28 of his judgment.  He held that there was no contractual relationship between Able and Mr Yim which entitled Mr Yim to payment from Able, and that the three documents of 17 May 2004 did not contain a promise by Able to pay Mr Yim.

47.  However it would appear that the learned deputy judge failed to take into account one important factor, which is Phase’s letter to Able of 29 July 2003 asking Able to pay directly to Mr Yim the sums for the works orders in question (see para. 30 above).  This letter had been included in Mr Yim’s bundle of exhibits and had been referred to in the statement annexed to his affirmation, but it would be fair to say that the way Mr Yim presented his case on the papers was far from orderly or methodical.  It would appear that the learned judge had failed to take this letter into account as he had not referred to it in his judgment. 

48.  As the judge had failed to take this important factor into account, it falls to this court to exercise the discretion afresh.  In my view, Mr Yim’s case - that Phase had assigned to him the sums payable by Able for the works orders in question - has a real prospect of success. 

49.  Mr Yim’s case is that Phase’s letter constituted an assignment.  Able’s case is that it was merely a revocable request or mandate to pay, as it included words like “request” and “should your company pay direct”.  There is an issue of construction where the factual matrix has to be taken into account.

50.  The factual matrix included the following:

(1)	(according to Mr Yim), there had been a meeting between Mr Yim, Mr Yan of Phase and Mr Lui representing Able, resulting in the arrangement that Able would pay the sums directly to Mr Yim if Phase gave written authorization;
(2)	Phase’s letter was sent to Able by registered post marked for Mr Lui’s attention and a copy given to Mr Yim;
(3)	Able did not query it or ask for clarification;
(4)	Mr Lui’s supply to Mr Yim of ASD’s payment print-out in October 2003;
(5)	the reference in the documents of 17 May 2004 to “deduction” of the sums paid by Able from payments to be made to Mr Yim for the works orders.  This inferred that Able would be making payments to Mr Yim, as otherwise the arrangement for deduction would be completely meaningless.

51.  There is no evidence from Mr Lui to contradict (1) and (4).  Able’s case is that he was employed by Winsway, but a number of contemporaneous documentary evidence shows that Winsway had actual or ostensible authority to represent Able e.g. the settlement document in the Labour Tribunal was signed by Kwok representing Able, as were the documents of January 2004 and the documents of 17 May 2004.

52.  In the circumstances, I consider that it would be a proper exercise of discretion to set aside the default judgment. 

53.  Mr Lam has argued that should this court be minded to set aside the default judgment, it should only do so on terms that Mr Yim should pay the costs of the bankruptcy proceedings.  It is argued that this would be just to Able and would also concentrate Mr Yim’s mind on properly proceeding with the District Court action without further delay. 

54.  The court undoubtedly has jurisdiction to make such an order but its exercise is exceptional.  I also agree that Mr Yim’s actions have been far from speedy.  But in the present case it would not be proper to make an order for payment of money when the statement of affairs has revealed that Mr Yim has no money.

55.  If Mr Yim delays in proceeding with the District Court action, no doubt Able can make such applications to that court as it may be advised, including asking for peremptory orders or even strike-out orders.   

Order

56.  I would give leave to Mr Yim to appeal from Dep. DJ Ko’s order, allow the appeal, set aside the default judgment and order Mr Yim to file and serve his Defence and Counterclaim in the District Court within 14 days of this order, Able to file and serve its Reply and Defence to Counterclaim within 14 days thereafter.  Mr Yim should then issue a summons for directions in the District Court within 14 days after the Reply and Defence to Counterclaim is served on him.

57.  I would also allow the appeal from the bankruptcy order and set aside the bankruptcy order.

58.  Having heard the parties’ argument on costs and taking into account the number of times this appeal has had to be adjourned, I would make the following orders:

(1)	Mr Yim is to pay the costs of the District Court proceedings up to the hearing before Dep. DJ Ko in any event;
(2)	the costs of the bankruptcy proceedings up to 12 April 2005 to be Able’s costs in the cause of the District Court proceedings;
(3)	the costs of the bankruptcy proceedings after 12 April 2005 to be costs in the cause of the District Court proceedings;
(4)	there be no order as to costs of the appeals, including the adjournments.

Hon. Lam J:

59.  I agree and have nothing to add.