XCHRX LAW KWOK HUNG v. TSE PING MAN AND ANOTHER

HCA 15104/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15104 OF 1998

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DECISION

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1. This is the 1st Defendant's appeal from the decision of a master giving him conditional leave to set aside a judgment entered in default of Notice of Intention to defend. The condition was that the 1st Defendant had to pay into Court $9.64m., the full amount of the claim, within 28 days. The 1st Defendant seeks an order that leave to set aside the judgment be made unconditional.

Issues

2. The 1st Defendant's arguments were as follows:-

(a) The writ had not been served properly as it had been posted to an address which was not his "usual or last known address" under O.10 r.2(a)of the Rules of the High Court.

(b) Therefore, the judgment was irregular.

(i) Applying the "Limited Right" principle for setting aside irregularly obtained judgments (as defined in Desirable International Fashions Ltd v Chiang [1997] 3 HKC 170, 175) the Court may consider all the circumstances but not the merits of the defendant's case, and should exercise its discretion under O.13 r.9 in favour of the 1st Defendant so that he may set aside the judgment unconditionally.

(ii) If contrary to (i), the Court should also consider the merits of the 1st Defendant's case under the "No Right" principle, the 1st Defendant says he has a defence in that no demand had been made against him for payment: under the Guarantee on which the Plaintiff is suing, the guarantors are only liable to pay "on demand", and there was no proper demand, because the demand had also been sent to an address which was not his "last known address".

(c) If contrary to (a), service was proper and the judgment regularly obtained, the 1st Defendant relies on the same point raised in (b)(ii) above.

(d) On the basis of the above, the 1st Defendant submits that leave to set aside the judgment should have been unconditional. As a fallback, he submits that even if a condition should be imposed, the master ought not have imposed the condition of payment in of the full amount of the claim, because he had insufficient assets and that would be tantamount to shutting him out from prosecuting his defence.

Facts

3. The relevant facts, briefly, are as follows. The 1st Defendant is a qualified accountant who worked as a financial consultant. He is and was the majority (90%) shareholder, and one of the two directors, of a number of companies set up for the purposes of dealing in units of a redeveloped building in Wongtaisin, Kowloon. The other director and minority shareholder was the 2nd Defendant, a solicitor.

- Loan

4. Two of the companies, viz. Eastern Star Ltd and Weal Target Ltd., sought bridging loans totalling $10m. from the Plaintiff in late November 1997. According to the 1st Defendant, he did not know the Plaintiff, who was known to the 2nd Defendant. This has not been contradicted by the Plaintiff, save to say that he knew that the 1st Defendant was an accountant.

5. Previously in these proceedings, the 1st Defendant had argued that the sum was never lent, but Mr Chong no longer pursued this point, and the evidence exhibited shows that the Plaintiff did draw a cheque for the said amount of $10m. in favour of the 2nd Defendant's firm.

- Guarantee

6. On 28 November 1997, the day after this cheque was cleared, a 2nd Legal Charge of the units owned by the 2 companies was executed by the 1st Defendant on behalf of the companies in favour of the Plaintiff.

7. On the same day, a Guarantee was signed by the Defendants in favour of the Plaintiff.

8. The Guarantee provided amongst other things that in consideration of the Plaintiff making or continuing loans or advances already made or otherwise giving credit to the 2 companies whose registered office was situate at an address in Houston Centre, the Defendants who were said to be both of the same address in Houston Centre (an office building), jointly and severally guaranteed to the Plaintiff the due payment by the companies of all such advances and all debts and liabilities which were then or should at any time be owing or accruing to the Plaintiff by the companies and agreed to pay and satisfy to the Plaintiff "on demand which may by letter posted to us at the abovementioned address" (sic) all sums of money which were then or should at any time be owing to the Plaintiff.

9. The Guarantee carried on to provide that any notice or demand thereunder should be deemed to have been duly given if sent by prepaid post letter to the "last-known address or to the address herein given of the person to whom ... such notice is to be given, and shall be assumed to have reached the addressee in the course of post."

- Demand

10. By the end of July 1998, the Plaintiff wanted to call in his loan and instructed solicitors.

11. According to the Affirmation of Leung Yin Lee, a clerk of the solicitors, on 31 July 1998 he went to the Houston Centre address given in the Guarantee, which was also the registered office of the 2 companies.

12. There he was told by a man that the Defendants and the 2 companies were no longer occupying the unit. The man declined to accept any correspondence and said that he did not know their whereabouts. The clerk then returned to his firm and reported the matter to his employers.

- The Houston Centre unit address

13. The 1st Defendant has confirmed in his 2nd Affirmation that the Houston Centre unit was occupied by a toy-trading company called Wayear International Ltd., a name entirely different from those of the 2 companies.

14. The 1st Defendant does not explain what his relationship is with that company, why he said he was "of" that address in the Guarantee, and what (if any) instructions have been given to the staff to deal with documents delivered to him there or with persons asking for him there.

15. Paragraph 2 of the 1st Defendant's 2nd Affirmation says only:-

"I have made inquiry with the occupier of Houston Centre address. The occupier is Wayear International Ltd. the tenant of the Houston Centre address doing business of toys trading. The Houston Centre address is that shown on the guarantee. I was told by Mr Li Chi Wah, a director of Wayear that there was no one in that office who replied to any visitor that I am not occupying the address. As a matter of fact, I have been using this address sometimes from mid-1997 up to September 1998 for correspondences purpose. Even if I was not always occupying the address, it does not mean that the address cannot be used to accept letters or service of legal documents. If documents are served by post or by hand on this address, the document can still be collected by me sometimes later."

16. Although he says that he had been told by a director of Wayear that "there was no one in that office who replied to any visitor that I am not occupying the address", the extent of the inquiries made by that director is not made known.

- The Hong Ning Road address

17. Meanwhile, in view of the response given to the clerk of the Plaintiff's Solicitors at the Houston Centre unit, the Plaintiff looked for the 1st Defendant's residential address. (The annual returns of the companies at that time had given the same Houston Centre unit address as the 1st Defendant's address).

18. The Plaintiff knew that the 1st Defendant was an accountant. In the 1998 edition of the Hong Kong Society of Accountants, a residential address in Hong Ning Road was given under the 1st Defendant's name. The letter of demand was accordingly posted to him there. It has not been returned by the Post Office.

19. However it is clear from the evidence before the Court that this property (previously owned by the 1st Defendant's brothers, and previously his residence) had been sold by 24 June 1997. It is not disputed by the Plaintiff that the 1st Defendant did not receive the letter of demand sent there. The only issue is whether that could be regarded as his "last known address", being an alternative to the Houston Centre unit for sending demands as agreed in the Guarantee.

- Part payment

20. The companies were aware of the demand because there was payment to the Plaintiff on 24 August 1998 of the interest and part payment of the principal, leaving the outstanding balance of $9.64m.

- Service of the Writ

21. The Writ was issued on 5 September 1998, and was sent by post to the 1st Defendant at the Hong Ning Road address. It was not returned by the Post Office.

- Default Judgment

22. On 4 December 1998, judgment was entered against the 1st Defendant. He says he came to know about the proceedings on 7 December 1998, and a summons to set it aside was issued on 31 December 1998.

(a) "Last-known address"

23. Reverting then to the issues before me, the first is whether the writ had been served at the 1st Defendant's "last known address" under O.10 r.1(2) RHC. It is common ground that what this phrase means is the 1st Defendant's address last known to the Plaintiff.

24. The Plaintiff's submission is simple - this was the address given by the 1st Defendant to his professional body, disclosed to members of the public in the current List of the Hong Kong Society of Accountants. It mattered not that perhaps with further inquiry, a different address might have been discovered (cf National Westminster Bank v Betchworth (1975) 234 EG 675).

25. The 1st Defendant's submission was that this was only the address last known to the Hong Kong Society of Accountants. It was not an address he meant to be made known to the Plaintiff for the purposes of service of Court documents.

26. In my view, it is not legitimate to add such a condition to the rule. The rule does not say that the defendant should be served at "the address he last intentionally made known to the plaintiff".

27. The rule is simply that the defendant may be served at the address last known to the plaintiff.

28. A plaintiff is entitled to acquire knowledge of the defendant's address by any reasonable means available to him. I see no reason why such means should be restricted to the intentional divulging of information by the defendant. The rule does not say so.

29. Mr Chong says that this may lead to abuse, as a plaintiff may deliberately serve the writ at an address at which the defendant would not be likely to attend. However the rules have provided for that risk.

30. Order 10 r.1(3)(b)(i) RHC stipulates that the affidavit of service of a writ by post must state that the writ had been served at the address last known to the plaintiff and that in the plaintiff's opinion it would come to the defendant's knowledge within seven days. That opinion must be a reasonably held one.

31. If a defendant impeaches the good faith of that opinion, the Court can determine whether the plaintiff did or did not have any reasonable grounds to hold the opinion asserted in the affidavit of service. If there were no reasonable grounds, then the service would have been irregular for non-compliance with the rules.

32. In the present case, the Plaintiff knew that the 1st Defendant was an accountant. The 1st Defendant's name was in the current list of his professional body which was available for inspection by the general public, and the Hong Ning Road address was the address that the 1st Defendant had given to his professional body. In my view those were reasonable grounds for the Plaintiff's opinion that the writ would have come to the 1st Defendant's knowledge there.

33. I note the contents of the 1st Defendant's 2nd Affirmation in which he says that he had given that address to the Hong Kong Society of Accountants in 1992, and that he did not change the address because he did not practise as an accountant thereafter. That may be so, but that does not detract from the fact that he continued to be a member of his professional body, his name remained on its current list, and one would normally expect a professional man to keep the details reported to his governing organization correct.

34. The result is that I find that the Writ had been served in compliance with O.10 r.2(a) and the judgment had been entered regularly. The Court should therefore consider the merits of the 1st Defendant's defence under the usual Saudi Eagle principles. This is set out in section (c) below.

(b) If judgment had been irregularly obtained

35. If however I am wrong in my conclusion above, I should also set out my views on the submissions made by both parties on the premise that the judgment had been obtained irregularly.

36. In Desirable Fashions 175, Waung J. listed 3 possible views of an application under O.13 r.9 to set aside a default judgment irregularly obtained.

(1) The "Absolute Right" view

37. On this view, a defendant has an absolute right to set aside such a judgment: the Court has no regard to either merits, or even conduct - see the obiter dictum of Godfrey JA in Fok Chun Hung v Lo Yuk Shi [1995] 2 HKC 648, 653.

38. The reason for this view is that the defendant is not craving an indulgence of the Court - he is protesting at not having had the chance to be heard.

(2) The "Limited Right" view

39. On this view, the Court looks at the circumstances, but not the merits of the Defendant's defence - see the decision of the Court of Appeal in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1994] 4 HKC 160 which is binding on this court.

40. The reasoning was that whilst the judgment should be set aside as of right for failure to comply with the rules (so that the defendant need not show merits), nevertheless the language of O. 13 r.9 gives the Court a residual discretion. This discretion would be exercised taking into account all the circumstances of the case. In Po Kwong, it was the defendant's act of disguising the registered office of his company.

41. In the more recent case of Chu Kam Lun v Yap Lisa Susanto CACV 86/99 (unrep), the Court of Appeal also followed this line.

(3) The "No Right" view

42. On this view, a Defendant had no right to set aside a judgment irregularly obtained. All the circumstances of the case, including the question whether the Defendant had any merits in his defence, would be considered by the Court - see the obiter dictum of the late Hunter, JA in Honour Finance v Chu Mei Mei [1989] 2 HKLR 146, 148, 150.

43. Mr Chain has also referred me to the unreported decision of the Court of Appeal in Edward Wong & Co Ltd v Twin Express Ltd Civ App Nos. 34 and 35 of 1996 (unrep), decided before Po Kwong but which was not mentioned in the later judgment. There are a number of passages there which may be said to be support for the Hunter view, but since there was an application by the defendant there for extension of time under O.12 r.8, that court could in any event have taken the merits into account in its overall consideration whether it should exercise its discretion in favour of the defendant.

44. In Chu Kam Lun, the Court of Appeal was referred to the more recent English decision of Faircharm Investments Ltd v Citibank International plc (Times Law Report, 6 February 1998) which espoused the view that the defendant's merits (or lack of them) should be considered, because if the defence is hopeless, it would be pointless to set aside the judgment even if irregular. A more recent decision along the same lines was BCCI (Overseas) Ltd v Habib Bank Ltd. [1999] 1 WLR 42.

45. Nazareth VP said he was attracted by the Faircharm view and Leong JA said it was a practical approach. However, the matter did not arise for decision because in that case, the defendant's merits were sufficiently strong to survive the merits test if it had to be applied.

46. The end result is that Po Kwong is still good law and it is binding on this court. Therefore, where a judgment has been obtained irregularly, a Defendant would not need to show merits, although the court may consider all the other circumstances of the case in deciding whether to impose conditions.

47. Applied to the present case, if I had found that service was irregular, I would have given unconditional leave to set aside the default judgment. As for the evidence of the solicitors' clerk as to the response he got when he tried to deliver the demand at the Houston Centre unit, there is no evidence before the Court that the conduct of the staff member who had refused receipt of the demand was instigated by the 1st Defendant.

(c) No merits in 1st Defendant's defence

48. Having found that the service was regular, I now consider the 1st Defendant's defence on the well-established Saudi Eagle threshold.

49. The only defence proffered by Mr Chong was that no demand had been made against the 1st Defendant for payment because the demand had been sent to the Hong Ning Road address which was not his "last known address".

50. However ex hypothesi since I have taken the view that the service of the writ was regular because the Hong Ning Road address was the address last known to the Plaintiff, such a defence must fail because the Guarantee uses the same words "last known address", and on top of that, there is the deeming provision in the Guarantee.

51. In the circumstances, I find that the 1st Defendant has failed to satisfy the test for setting aside a regular judgment.

(d) Condition of payment in

52. The master's condition was that the entire amount of the claim be paid into Court within 28 days of the Order. The 1st Defendant says that he has insufficient assets to do so.

53. However he has failed completely to disclose any evidence in support of such a bald assertion. Mr Chong said the master had given the 1st Defendant no opportunity to do so. However the 1st Defendant has not put in any evidence of this nature in the nearly 2 months between the master's order and the appeal, nor has Mr Chong asked me for time on his behalf. No list of assets, bank statements, passbooks, investment portfolios, etc have been exhibited.

54. The 1st Defendant's details of his work experience since he left Grant Thornton in 1992 shows that he has been in high-earning positions, or at least shows that he has been in positions with high-earning opportunities. There is a reference to a BVI company controlled by him. He has however chosen not to place any evidence of his financial position before the Court, and he cannot therefore complain about the order for payment in of the full sum.

Order

55. In conclusion I would dismiss the appeal with an order nisi for costs to the Plaintiff.