XCHRX L & M SPECIALIST CONSTRUCTION LTD. v. WO HING CONSTRUCTION CO. LTD.

HCCT1/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO.1 OF 2000

----------------------

------------------------

J U D G M E N T

------------------------

1. On 8 March 2000, an interlocutory judgment for the plaintiff was entered in default of the defendant filing and serving its Defence and Counterclaim in time. By consent the time for filing the Defence had been extended to 29 February. The defence had issued a summons for a further 14 days extension on 29 February. That summons was returnable on 9 March. Notwithstanding that appointment, the plaintiff, as it was entitled to do, entered a default judgment on the previous day, 8 March. It was a regular judgment. The defendant does not contend otherwise.

2. The defendant by this summons, applies to set aside the judgment. On 9 March, the court directed that the defendant have leave to file an affirmation in support by 15 March and the plaintiff have leave to file an affirmation in reply by 20 March. These directions were complied with. However, on 22 March, the defendant purported to file an additional affirmation (Lau Yew Ming's 4th affirmation). The plaintiff objects to its filing. I heard both the plaintiff's objection and the issues on the setting aside of the judgment together. I indicated that I would give a decision, in this judgment, as to the admissibility of the 22 March affirmation, as a preliminary matter.

RULING ON LAU YEW MING'S 4TH AFFIRMATION

3. I refuse to admit it. The defendant had every opportunity to deal with all relevant matters by way of the one affirmation it had leave to file. There must be some finality in respect of the filing of evidence by affirmation in interlocutory matters. The plaintiff was clearly put at a disadvantage in receiving further evidence one day before the hearing. The purpose of the directions was to avoid such a situation. However, my refusal to admit does not defeat the defendant's application for the reasons which follow.

THE DEFAULT JUDGMENT

4. My decision on whether or not to set aside the judgment entered in default is determined by a consideration of two issues :-

(a) The timing of the entering of the judgment.

(b) The merits of the defence.

(a) The timing of the judgment

5. The judgment was obtained on the day before the defendant's application for an extension of time for a further 14 days to file the Defence. The plaintiff was aware of this application. The draft Defence and Counterclaim had been prepared and was ready to be filed. A copy was sent to the plaintiff's solicitor on 8 March 2000. Both sides were fully aware of what was happening. The plaintiff had been informed as to the reason for the delay (certain facts had to be verified before the Defence could be filed and the employee of the defendant who could verify them was not available). The defendant knew that the plaintiff would enter judgment as soon as they could if no defence was filed. They did. They were perfectly entitled to do so. It was not sharp practice as suggested by the defence. In the sense that the rules and time limits are there to keep litigation under control, no criticism can be levelled at the plaintiff. However, the fact remains that had they waited one more day and allowed the defendant to apply for further time to file its defence, the overwhelming likelihood is that a short extension would have been allowed. Even one day would have been sufficient for the defendant because its pleading would have been, by 9 March, ready to be filed. The inevitable consequence, therefore, of their entering judgment promptly was this application to set aside the judgment. Tactically, of course, it puts the plaintiff in a slightly stronger position because the threshold the defence must reach in persuading a court to set aside a regular judgment is higher than if it was resisting an Order 14 application. In the latter the defence must show just an arguable defence on triable issues. In this application they must show real prospects of success. To this limited extent, it can be said that the plaintiff's conduct was tactical. I emphasize, however, that this is not a reason to grant the defendant's application. It is, however, a factor to be weighed in the balance if the issues are otherwise borderline and there is a risk that justice will not be done if the judgment is not set aside.

(b) The merits of the defence

6. The court must make a value judgment as to whether there is a degree of conviction in the defence and that there is a real prospect of success. In making this value judgment the court should be assisted by affidavit evidence setting out the merits of the defence. In this case, the plaintiff complains, in the absence of the "4th affidavit" which I have declined to admit, that the affidavit evidence filed by the defence is inadequate. It is not a case where there is no evidence, it is a case where the adequacy of the evidence filed is the subject of criticism and complaint.

7. In my judgment, a full, lengthy and comprehensive affidavit of the defendant's case is not always strictly necessary. For the purposes of this application, it is neither necessary nor desirable to dissect and analyze the affidavit evidence which has been filed to determine its sufficiency.

8. Having heard counsel argue their respective corners and having read their detailed skeleton arguments, it does not seem to me to be a case where the plaintiff are in the dark about the nature of the defence which they have to deal with. The defendant's affidavits may fall short of the level of particularity which might normally be expected but not so paper thin as to defeat their application on this limb of the argument alone.

9. The final hurdle for the defendant to cross is that stated by Godfrey JA in Premier Fashion Wears Ltd v. Li Hing Chung [1994] 1 HKC 219 :-

"A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. To do so, he must satisfy the court that his case and the evidence he has adduced in support of its carries some degree of conviction. It seems to me that unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success."

10. What has to be "real" is the prospect of success, not the fact of it. Also he does not have to show a real prospect of being wholly successful. It is sufficient that there is a real prospect of being successful wholly or in part.

11. A "real" prospect is more than "a prospect of success" but less than "a good prospect" of success. The prospect must be more than fanciful, it must be discernable and understandable and credible.

12. The core issue in this case is who should bear the responsibility for the fact that an underground tunneling device got seriously stuck and the financial implications thereafter. At this stage, the court can only make an overall assessment of the merits. There have been, as one would expect, submissions and counter-submissions about the quality of the points being made by each side.

13. At this stage there seems to be some force in the contention that the plaintiff has a good case. However, not so good that it can be said that the defendant's prospects of resisting the claim wholly or in part are unreal. I refer to one matter which it seems to me will present the defendant with a real difficulty, namely clause 3.17 of the agreed terms contained in a letter from the plaintiff to the defendant :-

"In the event that the equipment becomes stuck underground for 'whatever cause', the main contractor/owner shall be fully responsible for the recovery costs. The main contractor will proceed immediately the recovery and complete within a reasonable time (4-5 weeks)."

14. However, the difficulty is not so insurmountable as to shut them out of all further litigation at this stage.

15. Thus, although I am going to accede to the defendant's application to set aside the judgment, for a combination of all the matters set out above, I am satisfied that it is a case where I should only do so on the most stringent conditions whilst remaining within the bounds of reasonableness.

16. The interlocutory judgment entered in default on 8 March 2000 will be set aside on the following terms :-

(i) The defendant's Defence and Counterclaim to be filed within three days of the date hereof.

(ii) The defendant to pay into court the full amount of the sum claimed in paragraph 1 of the prayer in the Statement of Claim, namely $2,152,208 - plus interest at prime plus 1% from the date of the writ within 10 days of the date hereof.

(iii) Failure to comply with either of (i) or (ii) above will result in the re-instatement forthwith of the judgment entered on 8 March 2000.

17. Both parties addressed the court on the question of costs. I now make this final order. The costs of and arising from the summons be the plaintiff's in any event.