XCHRX AU YEUNG KUN AND ANOTHER v. GREENFIELD PROPERTY LTD. AND OTHERS

HCA 1024/1999

Headnote

Appeal from Master. Whether default judgment entered against 3rd Defendant was a regular or irregular judgment. Held, it was an irregular judgment and the 3rd Defendant was entitled to set it aside without going into the merits. In any event, the Defendant had shown that it had a defence with a real prospect of success. Appeal dismissed.

HCA 1024/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1024 OF 1999

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J U D G M E N T

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1. This is an appeal from the decision of Master de Souza given on 4 May 2001 whereby he ordered that the judgment entered by the plaintiffs in default dated 9 March 2000 against the 3rd defendant be set aside. I have been told that the master found that the judgment that was entered against the 3rd defendant was an irregular judgment and the master was also satisfied that the 3rd defendant had shown that it had a meritorious defence to the plaintiff's claim.

2. The background facts show that the plaintiffs signed an agreement which has been referred to as the 1st agreement dated 2 June 1995. It is the plaintiffs' case that the 2nd defendant signed the 1st agreement on behalf of Green House Property Agency ("GHPA"). By this agreement the plaintiffs agreed to invest $1.5 million in a development project. GHPA possessed a development plan to build, inter alia, a building on a number of lots of small village houses ("the project"). The plaintiffs agreed to invest $1.5 million in the project but as Mr. Yeung, counsel for the plaintiffs, has said this was effectively a purchase by the plaintiffs of the building to be built on the lots.

3. The 1st agreement was said to be between the plaintiffs and GHPA. One main issue between the parties is whether the plaintiffs were contracting with the 3rd defendant, which was a partnership of Ms Amy Chan ("Ms Chan") and Ms Christine Fong ("Ms Fong"), or with a limited company by the name of Kennis Limited. At the material time Kennis Limited also had a trading name which was GHPA. Both the 3rd defendant and Kennis Limited operated from the same address at Sai Kung. Kennis Limited's shareholders at the material time were Ms Chan, Ms Fong and the 2nd defendant.

4. On the plaintiffs' case, they paid $1.5 million under the 1st agreement to GHPA. By cl. 9 of the 1st agreement it was stated, inter alia, that the agreement was conditional upon the project being approved by the District Lands Office. If there was a failure to obtain such approval within two years, the plaintiffs had a right to demand return of the sums invested with interest. No approval was obtained within two years of the signing of the 1st agreement.

5. The plaintiffs' case is that in or about the end of 1997 the 2nd defendant represented to the plaintiffs that the project would be taken over by the 1st defendant. On 25 March 1998 an agreement, referred to as the 2nd agreement, was signed between the plaintiffs and the 2nd defendant on behalf of the 1st defendant. There is no dispute that the terms were identical to the terms of the 1st agreement. The evidence filed by the plaintiffs also shows that it was the plaintiffs' understanding that the sums invested by them had been transferred to the 1st defendant. The project was not completed and the plaintiffs sought the return of the sums invested together with interest.

6. Initially the action was brought against the 1st and 2nd defendants. By their defence the 1st and 2nd defendants denied that the 2nd agreement was binding on the 1st defendant. As a result of the assertions in their defence the plaintiffs then added the 3rd defendant in these proceedings.

7. It is clear from the amended statement of claim that the plaintiffs' primary claim is against the 1st defendant on the 1st agreement. The claim against the 3rd defendant is in the alternative and on the basis if, which is denied, the 2nd agreement was not binding on the 1st defendant then the plaintiffs seek to make the 3rd defendant liable under the 1st agreement.

8. The question I should consider first is whether the judgment was a regular or an irregular judgment. The plaintiffs rely on O.81; r.3(1), RHC whereby service on anyone or more of the partners of a firm is good service on a firm. Mr. Chan, counsel for the 3rd defendant, submitted that the firm was dissolved before the cause of action accrued and before the writ against the 3rd defendant was issued and that this was to the knowledge of the plaintiff. That being so, it was submitted that by virtue of O.81; r.3(3) service must be effected on every person sought to be made liable. The evidence shows that although service by registered post was effected on the 3rd defendant, Ms Chan and Ms Fong, the writs served on the 3rd defendant and Ms Chan were returned to the plaintiffs' solicitors. Hence it is said that there was no proper service on every person sought to be made liable.

9. I am not convinced on the evidence that it was to the knowledge of the plaintiffs that the 3rd defendant was dissolved before the action was begun. All that can be shown from the evidence is that it was to the knowledge of the plaintiffs that the 3rd defendant prima facie ceased business on 27 June 1994. The fact that it ceased business does not necessarily mean that the firm was dissolved. The evidence from Ms Fong is that there was an agreement in June 1994 between her and Ms Chan that there would be a permanent cessation of business of the 3rd defendant. But the evidence also shows that the dissolution of the 3rd defendant was not completed, certainly by the time the agreement referred to as the settlement deed was entered into on 29 November 1997. This is clear from cl. 6 of the said deed.

10. The question to consider is whether or not the service of the writ on Ms Fong by registered post was effective service on the firm under O.81; r.3(1). She denies in her 1st affirmation that she ever received the writ. It is clear from the evidence that the writs served by registered post on the 3rd defendant and Ms Chan were returned to the plaintiffs' solicitors.

11. In Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378 and Kwan Kam Wah v Chan Wai Ming [2000] 2 HKC 378 it was held, inter alia, that the test for service of a writ was whether it had been brought to the defendant's notice and not whether it had been delivered to the defendant's last known address. Although the facts in those cases are different from the facts here, in my judgment the relevant principle from those authorities should be followed. Deputy Judge Chu (as she then was) said in Kwan Kam Wah v Chan Wai Ming @ 385 :

12. In the present case Ms Fong has denied that she was served with the writ. The plaintiffs have not filed any evidence to rebut this by producing evidence, for example, a receipt signed by Ms Fong to show that she in fact received the writ by registered post or other evidence to show that she had received or had notice of the writ before judgment was entered. In my view, although the plaintiffs had no reason to believe that service of the writ was unsuccessful, on the evidence the 3rd defendant had not been afforded an opportunity to be heard. I am of the view that the default judgment was irregular and that the 3rd defendant is entitled to set it aside without going into the merits.

13. In any event, Mr. Chan submitted that the 3rd defendant had a meritorious defence with a real prospect of success. I need not go into all the matters raised. It is sufficient for me to deal with one of the defences raised namely, that by execution of the 2nd agreement the plaintiffs have elected to pursue their remedy against the 1st defendant and not against the original party to the 1st agreement.

14. It is plain that the plaintiffs did enter into the 2nd agreement with the 1st defendant. The plaintiffs understood that the monies invested by them had been transferred to the 1st defendant. It seems to me that the defence raised that by entering into the 2nd agreement the plaintiffs have agreed that they would go after the 1st defendant if there was any problem arising over the project is a defence which has a reasonable prospect of success. It must be remembered that the primary claim by the plaintiffs is a claim against the 1st defendant on the 2nd agreement. The claim against the 3rd defendant is an alternative claim which is made on the premise, which is denied, that the 2nd agreement was not binding on the 1st defendant. Mr. Yeung submitted that there has been no election on the part of the plaintiffs as there was no informed choice made by the plaintiffs. Whether or not that is so is a matter that must be resolved at trial but it seems to me that the 3rd defendant has raised a defence with a real prospect of success.

15. In the circumstances the appeal is dismissed.