BANK AUSTRIA AKTIENGESELLSCHAFT v. SUWARDI SUKAMTO

HCA15309/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.15309 OF 1998

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J U D G M E N T

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1. There is no dispute that on 18 November 1997 the plaintiff by a loan facility agreement extended to the defendant banking facilities of up to US$20,000,000 to be utilised for the cash advances and/or the purchase of securities, options, calls, puts or other investments, plus a further US$5,000,000 for forward foreign exchange contracts. On 9 September 1998 the plaintiff issued proceedings against the defendant for the sum of US$2,456,453.18 being money lent pursuant to the loan facility agreement.

2. The defendant's address given in the loan facility agreement was in Singapore, but he is an Indonesian citizen. Following various attempts at service on the defendant in Singapore and Indonesia, Master Cannon on 31 March 1999 granted leave for substituted service of the writ in Singapore, by way of newspaper advertisement. Then on 20 May 1999 judgment was entered in default of the defendant filing a notice of intention to defend.

3. The defendant applied to set aside the default judgment and on 13 July 2001 Master Cannon ordered that the judgment, the order granting leave for substituted service, and the substituted service itself all be set aside on the ground of irregularity on condition that the defendant do within 28 days pay into court US$1,228,000, to be held to the credit of the action. The defendant now appeals against that part of the Master's order which imposes the condition for payment into court. There is a cross-appeal by the plaintiff. Stay of execution of the order for payment into court was granted on 8 August 2001. This appeal is by way of rehearing and I am not concerned with any question of the correctness or otherwise of the Master's decision.

4. I am obliged to the plaintiff's counsel for his full chronology of events in this case and in particular the various addresses given by the defendant, or others for him. This shows that in the beginning the defendant provided the plaintiff with a copy of his passport which showed his address as 5 Balmoral Road, #04-06, The Alpine, Singapore ("the Balmoral Road address"). However the Account Opening and Custodian Agreement stated the defendant's address as 39 lB Orchard Road, 26/F and Penthouse, Ngee Ann City, Tower B ("the Orchard Road address"). This was the address used in the loan facility agreement.

5. On 27 August 1998 the plaintiff's solicitors sent a demand letter to the defendant at 9 Scotts Road #07-01, Pacific Plaza, Singapore ("the Pacific Plaza address") demanding repayment of US$2,451,163.69 and threatening, unless payment was made by 7 September 1998 the immediate issue of proceedings. The defendant received that letter, and on 31 August 1998 replied to the effect that due to continuous economic turmoil in this region, he had decided to go back to his country, Indonesia and that effective immediately all future correspondence should be sent to him at Rajawali Condominium Unit 2206-Selatan, Jalan Rajawali, Selatan, I, Jakarta ("the Rajawali address").

6. On 9 September 1998 the plaintiff issued proceedings against the defendant and their solicitor, Mr Parker, applied for service out of the jurisdiction at the "last known" address, namely the Orchard Road address. A concurrent writ was issued and service was attempted on the defendant on 18 September 1998 at the Orchard Road address and on 23 September 1998 at the Pacific Plaza address. Both were found to be unoccupied. On 29 September 1998 service was attempted at the Balmoral Road address and this too was unsuccessful.

7. Then on 31 October 1998 Mr Parker applied to amend the order for service out of the jurisdiction at the Rajawali address. He filed a supporting affirmation in which he stated that the defendant's letter giving this address had only been brought to his attention on 23 September 1998. The order for service was accordingly amended by order dated 3 December 1998. One attempt was made on 12 December, and two on 15 December 1998 to serve the writ personally on the defendant at the Rajawali address. It appears from a joint affirmation by those instructed to effect service that it appeared that no one was living in the premises, and that they were told that the apartment was owned by Hashim Sukamto, the defendant's brother. Then on 16 December they were told on the telephone by one Hasan Sukamto, who said that he was the defendant's brother, that the defendant was abroad but that the writ could be delivered at PT Hasdimustika Utama ("the PT address"). This was attempted on 18 December when Hasan Sukamto told the process servers the defendant "was not presently residing in Indonesia" but that he, Hasan, would ensure that the writ reached the defendant.

8. Then on 12 January 1999 Mr Parker applied for an order for substituted service by newspaper advertisement in Jakarta, exhibiting the joint affirmation of the Indonesian process servers and deponing to his belief that the defendant was evading service. A query was raised by a court clerk as to why this would be effective if the defendant was not residing in Indonesia and as to whether substituted service could be effected in accordance with Indonesian law. Mr Parker then on 8 February 1999 applied for substituted service by advertisement in Singapore, on the basis that he had obtained information that the defendant was no longer residing in Indonesia; that his brother spent time in Hawaii and inquiries had been made there and to no effect; and that an information search showed that the defendant was a director of 20 companies in Singapore. Further, a process server who had unsuccessfully attempted to serve a writ on the defendant's brother Sia Sukamto in Singapore had also failed to serve the writ in these proceedings on the defendant at the same time.

9. Another query was raised, this time by Master Jones, as to the information contained in the information search and the solicitors wrote to his clerk a letter dated 25 February 1999 from which it appears that Sia Sukamto, and not the defendant Suwardi, is the director of 20 Singaporean companies. However, the defendant is a director of one Arton Pte Ltd at whose address inter alia the process server had unsuccessfully attempted to serve Sia Sukamto. The solicitors enclosed a proposed re-amended order for service in Singapore.

10. Nothing happened for a while and the solicitors made inquiries with the court on 24 March. On 31 March Master Cannon made the order re-amending the summons to allow service of the concurrent writ in Singapore and ordering substituted service there. Newspaper advertisements followed in accordance with the order, on 16 and 17 April 1999.

11. On 20 May 1999, the plaintiff obtained default judgment in these proceedings. They registered it in Singapore. Its registration was advertised in the Straits Times newspaper there on 9 October 1999. This was followed by the advertisement in Singapore of the statutory demand against the defendant on 9 April 2000, and the bankruptcy petition against him, based on the judgment in these proceedings, on 21 September 2000.

12. It appears from the defendant's first affirmation that a friend told him of the bankruptcy proceedings some time in September 2000. Correspondence began on 9 October when his Singapore solicitors wrote to the plaintiff's Hong Kong solicitors stating that they confirmed the defendant's instructions that the default judgment was irregular and would be sending affidavits to Hong Kong. The defendant's affidavit followed on 7 October and on 24 October the Singapore court ordered that an application to set aside the Hong Kong judgment must be made by 18 December 2000, otherwise a bankruptcy order would be made by that court. Accordingly the defendant applied on 11 December 2000 to set aside the default judgment and the order for substituted service, and the service itself. The matter came before Master Cannon on 13 July 2001 and the order was made which is the subject of this appeal.

13. The defendant's affirmations consists mainly of legal argument but the facts deposed to are these. He first heard of the present proceedings when his friend in Singapore told him of the bankruptcy proceedings there some time in September 2000. He applied to set aside the registration of the default judgment there and the High Court of Singapore ordered a stay of proceedings pending the present application. As to his whereabouts he says that the plaintiff all along knew that he was an Indonesian citizen. His Indonesian identity card shows that he had an address at Karang Bolong, Jakarta ("the Karang address"). He had given the plaintiff the Rajawali address as a correspondence address, and this was good from September to November 1998, but after that he had ceased to use the Rajawali address and at all material times thereafter had resided at the Karang address. If proper searches had been made he could have been found there. There was no basis on which the plaintiff could have believed that he could be found in Singapore. Hasan Sukamto was not his brother and had never told him of these proceedings. He further denied that he had been seeking to evade service and in support of this relied particularly on his having given the plaintiff the Rajawali address.

14. In support of his allegation that he could have been found at the Karang address, the defendant relied on an e-mail message from Indonesian attorneys to the effect that an address could be searched for manually by using the individual's identity card number or passport number, the latter being easier. The plaintiff's evidence on this is based on information from Indonesian lawyers that information contained in a passport is taken from that in the holder's identity card; that a passport is valid for five years, during which time the holder may move without notifying the passport office of change of address and that in any event the authorities would be unlikely to disclose information contained in a passport voluntarily unless requested by a Government department or an "inside" source.

15. It is to be noted that the defendant never gave the plaintiff his Karang address, nor did they ever see, before the judgment was obtained, a copy of his identity card which shows that address. That card was in fact renewed on 17 November 1997. The Indonesian address in his passport, which he did give the plaintiff, was the Balmoral address in Singapore, where the passport had been renewed in September 1997.

16. It is also to be noted that nowhere in the defendant's evidence does he say anything about the merits of the action; he merely says that he does not have to raise any defence at this stage.

17. The defendant through counsel argues that the judgment was fundamentally defective. It should be set aside ex debito justitiae simply because the defendant never had notice of the proceedings. He relies in particular on dicta of Godfrey JA (as he then was) in Fok Chun Hung v. Lo Yuk Shi [1995] 2 HKC 648. He further argues that the judgment is irregular because there was no evidence before the Master that the defendant was not resident in Indonesia, or that he was resident in Singapore, and therefore there was no basis on which to make an order for service or substituted service in Singapore. There are various other arguments, but this is Counsel's summation of them and it is not necessary to reproduce them in detail.

18. In Fok Chun Hung regular service of the writ was made by registered post, and the plaintiff obtained default judgment. However subsequently the registered letter was returned by the Post Office. The regular judgment was set aside on terms at first instance. The Court of Appeal held that it should have been set aside unconditionally. This appears to be authority for the proposition that in any case where service, however regular, is ineffective, the judgment should automatically be set aside. However in Po Kwong Marble Factory Ltd v. Wah Yee Decoration Co. Ltd [1996] 4 HKC 157 CA, Sears J took the view that even where the judgment is irregular, having regard to Order 13, rule 9 of the Rules of the High Court, which provides that the court may on such terms as it thinks just set aside or vary any judgment entered in default of notice of intention to defend, there is a residual discretion in the court, apart from consideration of merits of the defence, to impose terms upon the setting aside of the judgment. Nazareth VP, though he had misgivings, did not dissent from this. Bokhary JA (as he then was) agreed with the view of Sears J.

19. In Desirable International Fashions Ltd (In Liq) v. Chiang Shi Chau [1997] 3 HKC 170, Waung J in dealing with the question of whether an irregular judgment can be set aside on terms or must be set aside unconditionally, said at page 175F :

"The intense disagreement at the hearing between the parties is the discretionary power of the court as a result of irregular judgment. Three possibilities were put forward:

(1) a defendant has an absolute right to set aside the judgment and neither the merits of the defence nor the conduct of the parties could take away that right of the defendant to set aside the judgment ('Absolute Right Principle');

(2) a defendant has only the limited right to set aside an irregular judgment and although the merits of the defence do not need to be shown, the court is entitled to take into consideration everything else apart from the merits of the defence in exercising its statutory duty under O 13 r 9 ('Limited Right Principle');

(3) a defendant has no right to set aside an irregular judgment and the court in the exercise of its statutory duty under O 13 r 9 must take everything into consideration including the merits of the defence ('No Right Principle')."

20. Waung J after analysis of Po Kwong Marble Factory Ltd held that the "Limited Right Principle" applied. He went on to hold that the court should not go into the merits otherwise the distinction between regular and irregular judgments would be lost and the defendant of an irregular judgment would be put in an invidious position; in the normal case where there is a fundamental defect the judgment should be set aside unconditionally; but that the conduct of both parties could be taken into account in deciding whether other default judgment may be set aside and on what terms. This analysis was followed by Keith J (as he then was) in Wing Lung Bank Ltd v. Ho Man Lam [1999] 3 HKC 368.

21. It is clear from these cases that there is no absolute right to have a judgment set aside unconditionally on the ground that service has been ineffective. There is a limited right subject to the court's discretion, though that will be exercised differently as between where the judgment is regular and where it is irregular. In particular where the judgment is irregular it will not be necessary to go into the merits.

22. On the question of whether this judgment is regular or irregular it is necessary to consider whether or not the orders for service out of the jurisdiction and substituted service were irregular.

23. Order 11 of the Rules of the High Court, which provides for service out of the jurisdiction, provides by Rule 4(1)(b) that an application for an order for such service must be supported by an affidavit stating "in what place the defendant is, or probably may be found".

24. Order 65, rule 4 provides:

"(1) If, in the case of any document which by virtue of any provision of these rules is required to be served personally or in the case of a document to which Order 10, rule 1, applies, it appears to the Court that it is impracticable for any reason to serve that document in the manner prescribed on that person, the Court may make an order for substituted service of that document."

25. The Court in deciding whether or not to make such order must consider whether the form or service proposed is likely to be effective. See Chan Kam Kee v. Chan Kam Man [1998] 3 HKC 416 and Chan Yeuk Mui v. Ng Shu Chi [1999] 2 HKC 702.

26. In this case it was clearly impracticable to serve the writ personally on the defendant in Indonesia. The plaintiff's agents had tried, using the only address which the defendant had given the plaintiffs, and had then followed up unsuccessfully at another address given to them by someone claiming to be the defendant's brother. To say that the plaintiffs should then have gone on to search for him in Indonesia, after the one address given by him turned out to be false, is to put too high a duty on them. But substituted service would have been appropriate assuming that such can be effected under Indonesian law.

27. At this stage however, the best information which the plaintiff had was that according to someone who claimed to know, the defendant was not in Indonesia. The solicitors then chose Singapore on the basis that the plaintiff was likely to be there; but as it turned out, the best they had was a number of addresses which coincidentally turned out to be unoccupied, and one limited company, of which the defendant was a director, at whose address service of other proceedings turned out to be impossible. It seems to me that it remained an open question, at this stage, whether the defendant was or might be found in Singapore. It is true that he had connections there; he had given various addresses there and he had his brother Sia there but it would not necessarily follow that he was there. The plaintiff later tried to rely on the likelihood that he as an ethnic Chinese Indonesian would have been likely to leave Indonesia because of the anti-Chinese disturbances there but even if this is so he could no doubt have gone to many other places. If there was no obvious likelihood that he was to be found in Singapore then substituted service there would be unlikely to be effective.

28. I conclude that the order for substituted service was irregular, and therefore the service itself was irregular and so was the judgment which followed on it. I have no doubt that it should be set aside. The question is whether that should be unconditionally or on terms. There is no doubt that the court has the power to impose terms; see Po Kwong Marble Factory Ltd. As to the criteria for imposing terms some assistance is to be obtained from the judgment of Bokhary JA at page 161F :

"'Ex debito jusititiae' or as of right means without going into the merits of the defence. It does not mean shutting one's eyes to the circumstances surrounding the question of service and why things went wrong in that regard. The Court's statutory jurisdiction is unfettered.

Here, there is a very real risk - suggested by the strange way of doing things - that any judgment which the plaintiff may ultimately obtain may be an empty one if we do not guard against it. The way to guard against it is to impose the condition proposed by my brother Sears. And there is jurisdiction to do so".

29. In the instant case the defendant, having been advised that proceedings would be issued against him within a matter of days, gave the plaintiff a correspondence address in Indonesia. In fact this address turned out effectively to be false. Giving a correspondence address rather than an actual residential address is always indicative of an intention to cover one's tracks. In this case the defendant knowing that he was about to be sued for over US$2,000,000, gave a correspondence address and then went to ground somewhere else, and did not reappear for a very long time. In the circumstances of this case it seems to me to show an intent to evade service.

30. As I have indicated the defendant has given no indication of whether or not he has a defence. It is argued that whether he has or has not is quite irrelevant. It is not for the court at this stage to consider the merits at all. Here we do not know if the defendant has a defence at all, let alone if it had any merits. The defence would be easy enough to state. This is a loan case. Either he borrowed the money, or he did not; and there seems to be no dispute that he did. Either payment became due or it did not. If it did, either he has paid in whole or in part or he has not. If he is still owing, after three years, it is time he paid up.

31. In Pollard Construction Co. Ltd v. Yung Yat Fan [1999] 3 HKC 109 Cheung J (as he then was) held that in considering whether a judgment which was irregular because entered for too great a sum should be set aside or simply amended, the court should consider the merits of the defence. As he put it (page 111I).

"If, for example, a party is bound to lose on a subsequent application for summary judgment it would be pointless to set aside the existing judgment; see the observation of the English Court of Appeal in Faircharm Investments Ltd v. Citibank International plc (The Times, 20 February 1998) (unreported)"

32. The Court of Appeal considered the Faircharm case in Chu Kam Lun v. Yap Lisa Susanto [1999] 3 HKC 379. The court found the dictum attractive but held that Faircharm was not binding, and in any event it could not be said that the defendant was bound to lose if given the opportunity defend, so the issue as to whether to adopt Faircharm did not arise. The Court went on to follow Po Kwong Marble Factory Ltd and held that the irregular judgment should be set aside without going into the merits of the defence.

33. For what it is worth I find the Faircharm approach every bit as attractive as did Nazareth VP in Pollard Construction. If there is no defence, then there cannot be any point in prolonging the agony. To do so is to rely on empty formalism in the name of justice. It is as well to remember that if justice requires that a defendant irregularly sued should have the judgment set aside, it equally requires that a defendant who owes money and has no defence should have a judgment against him.

34. Here it is tempting to say that there is no defence. Certainly the defendant is in no better position that a defendant who has filed no defence at all or whose defence consists of a bare denial and is therefore unlikely to be able to resist an application for summary judgment. However I think it would be imprudent of me to take that step. There may be some defence. I cannot consider the merits, or decide whether to follow Cheung J in adopting Faircharm. I can however take into account the defendant's behaviour in declining to put forward any defence at all. He claims to be seeking justice but will not make it clear whether or not justice is ultimately on his side. In effect the defendant is saying "catch me if you can". This is further borne out by the fact that in June this year the plaintiff's solicitors asked the defendant's solicitors whether they had irrevocable instructions to accept service if the Master set aside the judgment and the orders for service on which it was based. The answer was that they did not think they had. Obviously the defendant wishes to keep his bolt-hole open so that he can go to ground again if necessary.

35. Here it seems to me that if the judgment is set aside unconditionally the plaintiff is returned exactly to the position it was in when the defendant went to ground in late 1998. It will have to start the whole process of service out of the jurisdiction and substituted service over again; and because the defendant has been successful in evasion. Further, as in Po Kwong Marble Factory Ltd there is a real risk that any judgment that the plaintiff ultimately obtains will be empty and the plaintiff is entitled to some protection against this. The way to provide that protection is by setting aside the judgment on terms, as did the Master.

36. Accordingly the defendant's appeal against the Master's decision is dismissed, with costs to the plaintiff in any event. Those costs will include the costs of the application for stay which are in the cause of the appeal. The plaintiff's cross-appeal is dismissed with costs to the defendant in any event. It will follow that the defendant will have 28 days to make the payment into court, as ordered by the Master. The costs orders are nisi.