FUNG SHING HONG ENGINEERING CO LTD v. LEUNG SIU HAR

DCCJ 522/2018

[2018] HKDC 933

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 522 OF 2018

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JUDGMENT

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1.  This is the defendant’s application filed on 28 May 2018 for an order that the default judgment entered on 23 May 2018 be set aside.

Background

2.  The plaintiff as a renovation contractor and the defendant as the owner of an apartment situated at Kenswood Court in Tin Shui Wai, New Territories (“Premises”) entered into a renovation contract (“Contract”) on 25 October 2017.

3.  Under the Contract, the defendant agreed to engage the plaintiff to carry out various renovation works for a sum of HK$360,000.  The plaintiff alleges that the defendant requested the plaintiff to source additional and different materials as well as to carry out additional renovation works at the Premises, which were particularized in a variation order (“Variation Order”).  But upon payment of the 1^st and 2^nd installments, the defendant refused to make any further payment and unilaterally terminated the Contract.

4.  As a result, the plaintiff claims against the defendant for the outstanding payments under the Contract and Variation Order, compensation stipulated under the Contract, and loss and damages in the sum of HK$911,065.

Events leading to the present application

5.  The plaintiff issued the writ of summons on 5 February 2018.  The statement of claim was filed on 8 March 2018.  Notice of intention to enter judgment was issued on 21 March 2018.

6.  The defendant was required to file the defence and counterclaim on or before 6 April 2018.  By way of a consent order dated 6 April 2018, the deadline for the defendant to file the defence and counterclaim was extended to 4 May 2018.

7.  One day prior to the aforesaid deadline, ie 3 May 2018, the defendant issued a letter to the plaintiff requesting, inter alia, (i) copies of documents referred to in the statement of claim; (ii) further and better particulars; and (iii) another time extension.

8.  On the day when the defence and counterclaim was due to be filed, ie 4 May 2018, the defendant did not seek any relief from the court despite receiving no reply from the plaintiff.

9.  On 5 May 2018, the plaintiff made an ex parte application for interlocutory judgment against the defendant.

10.  On 10 May 2018, the plaintiff replied to the defendant’s request dated 3 May 2018, refusing to agree to another time extension while acceding to the defendant’s request for copies of documents but not the further and better particulars.

11.  By way of a letter dated 15 May 2018, the defendant invited the plaintiff to agree to her request for particulars and extension of time.

12.  On 23 May 2018, interlocutory judgment was entered against the defendant.  The defendant made an application to set aside the default judgment by way of summons on 28 May 2018.

Legal principles

13.  The judgment in default was a regular judgment.  There is no dispute as to the applicable principles.  The primary consideration is whether the defendant has a real prospect of success in defending the action.  In Maryo Development Ltd v Tsang Yau May, CACV 101/2015, 11 January 2016, Harris J (with whom Yuen and Barma JJA agreed), sets out the court’s approach at §§12-15:-

(a)  A defendant who seeks to set aside a regular default judgment must at least show that his case has a real prospect of success that carries some degree of conviction.

(b)  While it has been said that the court would be required to form a “probable outcome of the action”, it is not required to undertake a mini-trial on affirmations.  What is required is for the court to form a provisional view as to whether or not the defendant has a realistic prospect of successfully defending the action.

(c)  Such determination will involve the court assessing whether or not the defendant’s evidence on disputed factual matters has a realistic prospect of being accepted and, if it has, that the defendant has a realistic prospect of establishing a defence in law.  The assessment has to be carried out mindful of the interlocutory nature of the application with a sense of proportionality.

(d)  Although the merits of the defence is the primary consideration, it has to be balanced against other factors such as the reason why judgment was allowed to be entered, and any delay in making the application to set aside.

14.  A regular default judgment may be set aside on terms.  These terms could include payment of or giving security for the plaintiff’s costs, or bringing the money claimed into court.  They may be imposed where the defence is shadowy, or there have been breaches of the procedural rules by the defendant so that a payment into court is necessary to ensure the proper future conduct. A condition, if imposed, should be one which the defendant can reasonably comply with. See Hong Kong Civil Procedure 2018, Vol 1 at §13/9/15.

The parties’ respective cases

15.  The defendant’s case is that the plaintiff had failed to complete the renovation works within 60 days ie by 25 December 2017; and had only performed 30% of the renovation works as of 25 January 2018, in breach of both the written and oral terms of the Contract.  In light of the plaintiff’s breaches, the defendant accepted its repudiation of the Contract on or about 26 January 2018.  The defendant also denied having requested additional renovation works as she had refused to sign the Variation Order presented by the plaintiff.

16.  The defendant has set out her proposed defence, including the issues to be tried and evidence to be adduced in connection with, inter alia, the (a) oral terms of the Contract, (b) incomplete and defective works, (c) penalty clauses under the Contract and (d) Variation Order.

17.  It is contended that based on the merits of the defence which could well be established at trial, and in light of the factual disputes which ought to be resolved at trial, this court shall not let a judgment pass on which there has been no proper adjudication.

18.  As to the defendant’s conduct and her reason for the default, it is explained that the defendant requested documents one day before the extended deadline because it was necessary for her to obtain the particulars and copies of documents in order to prepare the Defence.  The defendant was in anticipation of the documents that the plaintiff’s solicitors agreed to provide, and was ambushed by the plaintiff’s entering the interlocutory judgment against her on 23 May 2018.

19.  The plaintiff’s case is that there was no fixed completion date between the parties, and the defendant had requested additional works and changes to be carried out in her letter dated 20 January 2018.  Due to her request, the completion date for all works under the Contract was postponed to 6 February 2018. It was the defendant who had acted in breach of the Contract due to her premature termination of the same.  The defendant fails to demonstrate a real prospect of success for her case and her setting aside application should be dismissed accordingly.

Decision

20.  After assessing the respective cases of the parties, I do not consider at this stage one can conclude from the evidence that it was the defendant and not the plaintiff who repudiated the Contract.

21.  A substantial part of the plaintiff’s claim is based on the variation works particularized in the Variation Order.  However, in §52 of the plaintiff’s affirmation, it is admitted that the defendant had repeatedly refused to sign the Variation Order presented by the plaintiff.  The defendant also intends to adduce a surveyor’s report, which was enclosed in the correspondence between the parties, in support of her allegation that the plaintiff had only completed 30% of the renovation works as of 25 January 2018.

22.  In my view, the proposed defence, and the evidence to be adduced in support of her case, carries some degree of conviction, and could well be established at trial should the defendant come up to proof.  In addition, I am satisfied that no prejudice will be caused to the plaintiff in setting aside the default judgment.

23.  For the above reasons, the default judgment should be set aside.

Setting aside unconditionally

24.  The plaintiff contended in its affirmation that if the default judgment is to be set aside, this court should do so with conditions.  This point was not pursued by Ms Leung, the plaintiff’s counsel, at the hearing.  I am mindful that imposition of a condition is appropriate when the defence is considered shadowy.  When the defence in this case cannot be said to be either shadowy or without substance, it would be wrong in principle to impose a condition that would normally reflect a high degree of doubt as to the viability of the defence.

25.  It would also be improper for this court to impose a condition where there have not been serious breaches of procedural rules by the defendant that warrant such an imposition.

26.  I therefore would set aside the default judgment unconditionally.

Costs

27.  Ms Leung referred this court to Ko Sin Yun v Chan Chuen [2007] 1 HKLRD 324 at §21, in which Cheung JA stated that where a judgment was set aside not because of it being irregular but because of a meritorious defence, the general rule is that the defendant should bear the costs of the application to set aside the default judgment.  As an alternative the costs of the application can be in the cause of the action.

28.  Mr Chan, the defendant’s counsel, submitted that this court should follow the post-CJR case of Welson International Ltd v Jebson Investments Ltd, HCA 2620/2008, 29 June 2010 at §§16-23, in which Chung J was of the view that once the basis of the defendant’s defence has been disclosed, the costs for resisting the setting aside application ought to follow the event in order to deter unmeritorious opposition.

29.  In any event, as to the question of costs it is not disputed that the court has a wide discretionary power.  The discretion has to be exercised judicially depending on the circumstances of each case, which would include conduct of the parties.

30.  Mr Chan drew this court’s attention to an open letter from the defendant to the plaintiff dated 19 June 2018. In the letter, the defendant offered the following terms in full and final settlement of the setting aside summons:

“1. The default judgment entered by the Plaintiff on 23^rd May 2018 be set aside;

2. The Defendant shall file and serve her Defence within 14 days after the provision of your client’s answer to the request for Further and Better Particulars made on 3^rd May 2018;

3. Save that the Defendant do pay the Plaintiff the fixed fee for attending the call-over hearing in the sum of HK$700 and the costs of entry of the default judgment summarily assessed at HK$1,500, there be no order as to costs of the Defendant’s set aside summons.”

31.  Fingers have been pointed at the plaintiff’s replied letter dated 10 May 2018 as having led the defendant to anticipate further documents from the plaintiff, instead of a default judgment entered by the plaintiff.  However, I must not lose sight of the fact that throughout the affirmations filed by the defendant, and the submissions made by Mr Chan, there has been an absence of explanation as to the defendant’s failure to seek appropriate relief from the court on 4 May 2018 or thereafter, despite receiving no reply from the plaintiff.

32.  The fact of the matter is with or without the plaintiff’s replied letter dated 10 May 2018, the defendant was in default of defence on 4 May 2018.  The plaintiff was entitled to apply for interlocutory judgment against her and rightly did so.  The defendant’s default was self-imposed without any reasonable explanation.

33.  In view of the aforesaid, the costs offer to settle the setting aside summons given by the defendant to the plaintiff dated 19 June 2018 cannot be considered as a sensible and reasonable offer.

34.  For the above reasons, the defendant should bear the costs of this application.

Conclusion

35.  I therefore make the following order:-

(a)  the default judgment entered on 23 May 2018 be set aside;

(b)  costs of the present application be paid by the defendant to the plaintiff in any event, with a certificate for counsel, to be taxed if not agreed.

36.  I thank Ms Leung and Mr Ng for their assistance.