AKWG INTERNATIONAL LTD v. ATI INC LTD AND ANOTHER

HCA 955/2017

[2019] HKCFI 453

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 955 OF 2017

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DECISION

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1.  This dispute concerns an interior decoration contract between the plaintiff (“AKWG”) and the decoration contractor, the 1^st defendant (“ATI”). The 2^nd defendant (“Ng”) is the sole shareholder and director of ATI, and was involved in the alleged settlement agreement between the parties upon failure of ATI to meet the deadline for the completion of the work.

2.  AKWG managed to obtain default judgment against both defendants on 5 September 2017.  By summons filed on 11 December 2017, Ng applied to set aside the judgment against him.  On the same day, Ng filed another summons for striking out of the claim in this action against him.  Logic dictates that unless and until the judgment against him has been set aside, Ng would not be in a position to proceed with his striking out application[1].

3.  ATI has so far not entered appearance.

4.  On 20 April 2018, the master, now Registrar, set aside the judgment against Ng.  AKWG was awarded the costs of the setting aside application and of the entering of the default judgment in any event.  The master made no order as to costs of the hearing.

5.  By notice filed on 3 May 2018, AKWG appeals the master’s decision in respect of both the setting aside of the judgment and the costs order.

The appeal

6.  The judgment was obtained pursuant to Order 13 of the Rules of the High Court, after regular service of the claim on the defendants who have failed toenter appearance.  The law is trite.  In order to set aside a regular judgmentpursuant to Order 13, rule 9, the defendant has the burden to show that it has a bona fide defence with a real prospect of success.  This appeal under Order 58 serves as an effective re-hearing of whether Ng has discharged such burden.

Basis of the judgment—the pleaded claim

7.  Evidence is not, as it should not be, referred to for the purpose of an application for default judgment under Order 13.  The judgment was the entered against Ng on the basis of the following pleaded case of AKWG.

8.  On 17 April 2016, ATI provided AKWG with its quotation for the renovation of latter’s office premises at the lump sum cost of HK$1,000,000.  It provided that the work would take45 days to complete.  In default, ATI would be liable for liquidated damages at the rate of HK$500 per day of delay.  AKWG accepted the quotation.  This is the defined “Renovation Agreement”.

9.  AKWG handed the keys to the premises to ATI on 29 April 2016.  Counting 45 days pursuant to the Renovation Agreement, the deadline for completing the work is said to be 13 June 2016.

10.  Between April and July 2016, AKWG has paid ATI a total sum of HK$922,127.62 for the renovation.

11.  The alleged deadline elapsed without completion of the renovation work.

12.  The parties met on 9 August 2016.  Settlement was discussed, and the terms of which were eventually documented by Andy Wong (“Wong”) of AKWG—what is defined as “the Document”.  Essentially, the terms set out in the Document were such that ATI would complete the renovation in accordance with specifications set out in the Renovation Agreement on or before 28 August 2016.  In default, the defendants (or alternatively, Ng) shall (i) return to AKWG the sum already paid; (ii) pay to AKWG a sum of HK$1,000,000 as liquidated damages; and (iii) pay another sum of HK$197,850 as AKWG’s loss of rental.  The total sum would be HK$2,119,977.62.

13.  Wong signed on the Document.  Amy Chung (“Chung”) and one Jason Ng (“Jason”) signed on the Document as witnesses of AKWG and ATI respectively. However, Ng left without signing the Document, excusing himself from the meeting to take a telephone call.  In the course of that, Ng left behind his wallet.

14.  Three hours later, Ng returned in order to retrieve the wallet. Chung asked Ng to sign the Document, but he refused.  She then drafted a note in terms that if Ng failed to turn up at AKWG’s office premises at 3 pm on the following day, 10 August 2016, to further negotiate the terms of a settlementwith AKWG, the defendants (or alternatively, Ng) would be deemed to have agreed to the terms of the Document.  This Ng did sign, and so did Chung.  This is defined as “the Note”.

15.  At around 2:55 pm on 10 August 2016, Ng turned up at the office premises of AKWG.  He informed Amy Chung that he was very busy and would not take part in further discussion on settlement.  He then left.

16.  AKWG says that pursuant to the Note, the defendants (or alternatively, Ng) were deemed to have agreed to the terms of the Document as those of the parties’ settlement.  This is what AKWG defines as “the Settlement Agreement”.

17.  AKWG claims against the defendants (or alternatively, Ng) forbreach of the Settlement Agreement, and seeks the sum of HK$2,119,977.62 mentioned above.  This is its primary cause of action in this action.

18.  In the event that the Settlement Agreement is found to have never been concluded or enforceable, AKWG claims against ATI for breachof the Renovation Agreement and seeks damages representing the liquidateddamages for 210 days of delay in the work at the daily rate of HK$500.  The total sum would be HK$105,000.  This is its alternative cause of action in this action, and directed against ATI only.

19.  Before turning to Ng’s defence and the evidence (which became available for the purpose of Ng’s application to set aside the default judgment),the following features of AKWG’s pleaded case in respect of its primary cause of action are readily apparent.

20.  First, AKWG is not alleging an oral settlement agreement. The terms of settlement orally discussed are said to have been reduced into writing by Wong.  Hence the Document, which was expected, at least by AKWG, to be signed by the parties to be binding.  Ng never signed it on behalf of ATI or at all, but left.  The Document did not constitute a binding agreement between the parties.

21.  Second, upon Ng’s return, Chung prepared the Note for an agreed appointment to meet at 3 pm on the following day, as pleaded, “to further negotiate the terms of a settlement”.  This again reflects the lack of a concluded settlement agreement at that stage.  This is reinforced by the need to put in a deeming provision in the Note whereby Ng would be deemed to have agreed to the terms of the Document as the settlement terms only if he did not turn up as appointed to further negotiate.

22.  Third, AKWG contends that Ng was deemed to have agreed to the terms of the Document as the settlement terms on the basis of his default in acting in compliance with the terms of the Note.  I doubt that even on the basis of its pleaded case.

23.  As pleaded, Ng did turn up before the appointed time.  Only that he refused to “negotiate further for the terms of a settlement” and left.  No doubt AKWG may take the view that attendance at the appointed time and negotiation for a settlement should come hand in hand in order to make sense out of the appointment.  Mr Lung, appearing for AKWG, indeed submitted that Ng was faced with two options pursuant to the Note, namely:  

   (1)   Ng attended the meeting as appointed and the parties might discuss and negotiate a settlement (in which case the Document would not take effect); or

   (2)   Ng did not attend or alternatively he did attend but did not negotiate further (in which case be would be bound by the terms of the Document).

24.  Mr Lung submitted that Ng has by conduct elected (2) above.  But I do not see how the consequence he referred to should follow pursuant to the Note.  Be it refusal to negotiate further or further negotiation but without agreement, the only and same position of Ng was that he refused to conclude a settlement with AKWG.  It is difficult to see how AKWG could treat Ng’s refusal to settle upon his attendance as appointed as his default to act in accordance with the Note.

25.  It is therefore also not difficult in the circumstances to understand why the then Registrar would raise requisition on 27 June 2017 in respect of AKWG’s application for default judgment.  Amongst other things, the Registrar questioned:

“ The Settlement Agreement is not agreed by all parties. Should it be enforceable? If not, please state why P can claim for the amount as stated in the Settlement Agreement as per para.13.2 and prayer (1) of the Statement of Claim and para (i) and (ii) in the draft judgment.”

26.  As to AKWG’s answer to the requisition, I shall discuss that when coming to AKWG’sappeal in respect of the costs order made by the master below.

The defence and the evidence

27.  Upon the application by Ng to set aside the judgment, relevant evidence, including the various documents pleaded in the claim, became available before the court.

28.  The Document set out the consequence of ATI’s failure to meet the further deadline for the completion of the work, which, as pleaded,would include the return of the money paid by AKWG.  The documents show that the money was paid pursuant to the invoices issued by ATI, and there isno dispute that the money was paid to and received by ATI, not Ng.  Further,the Document was prepared for signature by AKWG, which Wong signed for and on its behalf with its company chop, and by “全發行負責人Winson Ng”, which was not signed.

29.  In the circumstances, there exists a proper issue as to whether it was intended to be the undertaking of liability by Ng personally or for and on behalf of ATI pursuant to the terms set out in the Document.  This will also dictate the identities of the parties privy to the Note and the effect that the Note sought to achieve.

30.  As to the Note, it was in the following terms:

「現已 [以]此協議書證明全發行有限公司負責人Winson Ng會於2016年8月10日到……進行進一步會議，商討關於協議書 (2016年8月9日所提出的協議書，附件已有Jason Ng簽署) 所指出的賠償及交場細節，2016年8月10日下午3點前Winson Ng未有出現，即代表Winson Ng已同意2016年8月9日賠償協議書所提出的內容及項目」 [underline added]

31.  In other words, the actual wordings of the Note were such that Ng agreed to attend a further meeting on 10 August 2016.  The purpose was to discuss the terms contained in the proposed agreement, ie, the Document.  If Ng did not turn up by 3 pm on the appointed day, he would be deemed to have agreed to those terms in the Document.

32.  The actual wordings of the Note do not at all undermine the proper understanding of the pleaded wordings of the Note as discussed above.  The parties were supposed to further meet and discuss the settlement terms.  While Ng must turn up as appointed, whether or not the parties would settle in any terms would be uncertain.  It cannot be said that Ng defaulted in acting in accordance with the Note, when he indeed turned up as agreed, though he refused to discuss or agree to settlement that was supposed to be discussed in the further meeting.  In case of ambiguity, Mr Chow, appearing for Ng, also borrowed the principle of contra proferentem in construing the wordings of the Note against AKWG, on which behalf Chung drafted it: see Chitty on Contracts (32^nded) Vol 1 at §§13-086 – 88.

33.  For the present purpose, the issue of proper construction of the Note suffices as a bona fide defence with real prospect of success.

34.  By his affidavits, Ng also gave his account of what happened.  So did Chung in response.  They reveal the following factual dispute:

   (1)   which party was to blame for the delay in the work;

   (2)   which party came up with the terms of settlement offer;

   (3)   how Jason came to sign as witness on the Document whereas Ng left without signing it;

   (4)   the circumstances in which Ng came to sign the note; and

   (5)   what happened upon Ng’s arrival on 10 August 2016.

35.  As far as the primary cause of action directed against Ng personally is concerned, (1) above may not be material.

36.  As to (2) above, AKWG’s allegation that it was Ng who offered those terms for settlement has to be assessed in the light of the undisputed fact that Ng persisted in refusing to agree to such terms or any settlement.

37.  As to (3) and (4) above, Ng alleged that he left the meeting at a haste.  Whilst Jason somehow signed the Document as a witness, Ng was adamant that he did not agree to the terms of the settlement contained in the Document by the time when he left the meeting.  The pretext of his return to AKWG later on the same day was to retrieve his wallet.  As mentioned, the pleaded case of AKWG is that Ng indeed returned “in order to retrieve his wallet”.  Ng added that at one point, Chung wanted himto sign the Document before agreeing to return the wallet to him.  Only upon his refusal did Chung propose and draft the Note, which Ng signed reluctantly.  It was in these circumstances that Ng also alleges duress.

38.  As the case of Ng is that he did act in compliance with the provisions in the Note, the defence of duress, which, if established, would have vitiated the Note as a contractual document, may not be that material. Nevertheless, as mentioned, the circumstances in which he came to sign the Note remain matters of factual dispute.

39.  As to (5) above, Ng says that fearing that the Note would be used against him, if he did not turn up by the appointed time on the following day, he did so as appointed.  Upon his arrival, he was given by Chung to understand that Wong was actually not there and Ng was requested to come back later the same day.  Ng refused and left.

40.  The dispute in respect of what happened upon Ng’s arrival as appointed pursuant to the Note lies in whether Wong was actually there to meet with him, and whether it was Chung or Ng who suggested to meet later that day instead.  Again, this is a relevant factual dispute.  Irrespective of that, there was no further meeting that day or at all.  As discussed, be it refusal tofurther discuss or refusal to agree after further discussion after Ng has turned up as appointed, the fact remained that Ng did not agree to a settlement.

41.  In the circumstances, the evidence, which was not available at the time of the application for default judgment, gives rise to factual dispute that could not be categorized as less than genuine.  Consideration of the evidence, particularly the actual wordings of the Document and the Note as well as what undisputedly happened after the Note, only reinforces the above reservation about the prospect of enforcing the Settlement Agreement, which is based solely on the deeming provision in the Note, and enforcing it against Ng personally.

42.  For the present purpose, Ng has at least discharged his burden ofshowing a bona fide defence with a real prospect.  I also reject the argument thatthis case warrants the imposition of condition precedent to Ng’s right to revive his defence.  I would have come to the same decision as that of the master to set aside the default judgment against Ng unconditionally.

The costs order

43.  AKWG argued that even assuming that Ng succeeds in setting aside the judgment against him, he ought to be made to bear its costs of and occasioned by his application, including the costs of the hearing before the master.  The master indeed so ordered, save and except the costs of the hearing before him, in respect of which he made no order.

44.  What AKWG argued is in line with the general practice of the court in exercising its discretion as to costs upon the setting aside of a regularly entered default judgment.  Mr Chow, appearing for Ng before the master and in this appeal, made a similar concession.  As recorded in the transcript of the hearing, the master was clearly aware of that.  What caused the master to exercise his discretion differently was the existence of special circumstances.

45.  As mentioned above, consideration of the matters pleaded in the statement of claim alone gives rise to skepticism about the basis on which AKWG says that Ng was deemed to have agreed to the terms of the settlement set out in the Document pursuant to the Note.  The then Registrar shared the skepticism and raised requisition accordingly.  AKWG answered the requisition, essentially taking the stance that by virtue of his default in entering appearance, Ng should be taken to have admitted the matters pleaded, including the consequence and effect of Ng’s conduct as pleaded (relying on the then 2017 edition of Hong Kong Civil Procedure at §13/0/10).  Upon that, default judgment was entered.  However, the master hearing this application took the view that this was precisely the respect of AKWG’s case failed. As discussed above, I express a similar view upon consideration of AKWG’s pleaded case, which is reinforced upon consideration of the evidence.

46.  One must make no mistake that the master or this court is suggesting that the default judgment ought not to have been entered in the first place so that it was not a regular judgment.  But the practice that a defendant succeeding in his application setting aside a regular judgment should expect to pay the plaintiff’s costs of and occasioned by the application is short of a rule.  Costs are a matter of discretion, the exercise of which requires the court to consider all the relevant circumstances of the case.

47.  The issue of whether Ng has defaulted in acting in compliance with the Note, when he undisputedly turned up as appointed but refused to discuss or to agree to a settlement, so that he could be deemed to have agreed to the terms set out in the Document pursuant to the Note was readily apparent from AKWG’s own pleaded case, and is only reinforced upon consideration of the evidence in this application.  That the master had doubtas to whether it was reasonable for AKWG to press on with the hearing, and hence his decision to deprive AKWG of its costs of the hearing, in my view, is understandable.  It cannot be said that such exercise of the discretion as to costs was not permitted in principle or in the circumstances.

Order

48.  The appeal is dismissed with costs to Ng in any event, to be taxed if not agreed.  In the absence of application to vary in 14 days, this costs order nisi shall become absolute without further order.

Outstanding matters

49.  Mr Chow referred to Mr Lung’s observation in his written submission[2] that if Ng manages to succeed in his application, the judgment vis-à-vis ATI should also be set aside.  Reading those paragraphs, I cannot be certain whether this was indeed the position intended by Mr Lung or whether this formed part of his analysis with reference to the position of ATI, which remained absent whilst under the control of Ng.  If AKWG indeed concedes that it can no longer hold onto the judgment against ATI in view of this decision, it would of course be under a duty to the court to consent to have it set aside as well.

50.  As mentioned, there is Ng’s summons for striking out of the claim against him.  Whilst the materials in support and opposition of the summons should not differ from those before the court already, the threshold that Ng has to meet as the applying party in a striking out application differs from the present one.  It is for Ng to consider if he would proceed with this outstanding summons in view of this decision, and, if he so decides,he should have it listed before a master[3].