TINDIXS SERVICES LTD. v. CHENG WING CHUN

CACV 106/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 106 OF 1998

(On Appeal from HCA 9491 of 1998)

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J U D G M E N T

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Rogers J.A.:

1. This is an appeal from a Decision and Order Barnett J. given on 17th March of this year whereby he allowed an appeal from an Order of Master Woolley and he set aside a judgment in default of notice of intention to defend. He granted leave to the Defendant to file a Defence and Counterclaim within 14 days and he dealt with the costs.

2. This application arises out of a comparatively simple action brought for non-payment of rent. The writ in the action endorsed with the Statement of Claim was dated 9th September and on that day the Plaintiff's solicitors served the writ on the Defendant by post. There is no dispute that that was good service but, in accordance with Order 10 r. 1(3)(a), that service would take effect on the seventh day after the day on which the copy had been posted.

3. However, on 11th September, which was two days later, the writ was served on the Defendant personally. The Defendant took the postal copy of the writ to his solicitors and the Defendant's solicitor was unaware of the personal service.

4. Relying, therefore, on the extended period because of postal service, acknowledgement of service was not entered until 30th September. However, the time for entering the acknowledgement of service in fact expired on 25th September (because of the personal service the 14 days could be counted from the 11th). On the 27th September the Plaintiff's solicitors applied for judgment in default.

5. So far the proceedings were regular. The judgment in default was simply a judgment for possession of the premises and an order for the payment of arrears of rent and mesne profit together with damages to be assessed and costs.

6. There was no reference there to any stay of execution and in particular no reference to matters which should have been inserted by reason of Section 21F(3) of the High Court Ordinance. Section 21F applies to re-entry or forfeiture in respect of land for reason of non-payment of rent; sub-section (3) reads:-

"If-

(a) the action does not cease under subsection (2) (Sub-section provides that the action shall cease if the arrears of rent had been paid within the time for acknowledging service); and

(b) the Court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture,

the Court shall order possession of the land to be given to the lessor at the expiration of such period, but not being less than 4 weeks from the date of the order, as the Court thinks fit, unless within that period the lessee pays into court all the rent in arrear and such sum as the Court shall direct on account of the costs of the action."

I note at this stage that that section is mandatory; it requires that the court shall order possession of the land to be given by the lessor. I should also mention sub-section 10(a) of Section 21F which provides that:-

"Nothing in this section shall be taken to affect-

(a) the power of the Court to enter final judgment in a case where the defendant fails to give notice of intention to defend;"

7. After the judgment was duly drawn up and entered on the 4th October of last year following the application on the 27th September, the Defendant's solicitors then applied to set aside the judgment. That application was dated 20th October. The hearing itself did not come on for hearing before acting Registrar Woolley until the 22nd of January of this year. On that application the Defendant sought leave to defend on the basis that he was entitled to relief against forfeiture on payment of the rent and that that constituted a defence. The acting Registrar rightly rejected that. Unfortunately, at that stage reference was not made to the fact that the order did not provide for delayed possession in accordance with Section 21F(3) and this was not drawn to the Registrar's attention at the time.

8. The Registrar having refused to set aside the judgment, that matter was then taken on appeal before the judge below. The judge below came to the conclusion that, first of all, the postal service should be taken as effective service and secondly, that the relief against forfeiture constituted a defence which could be pleaded in the action.

9. As I have indicated, the service that was effected personally on the 11th September was perfectly good service and there is no reason why the Plaintiff should not rely on that service as on any other service.

10. The matter for relief against forfeiture is, in my view, now governed by statute. Section 21F(3) makes it mandatory to order possession of the land. The situation has therefore arisen where the Plaintiff was entitled, in my view, to judgment on 27th September but that judgment for possession should have been stayed for four weeks to enable the Defendant to pay the arrears of rent. Under Section 21F(4), it is provided that:-

"The court may extend the period specified under subsection (3) at any time before possession of the land is recovered in pursuance of the order under that subsection."

And under Section 21F(5) it is provided that:-

" Subject to subsection (6), if-

(a) within the period specified in the order; or

(b) within that period as extended under subsection (4), the lessee pays into court-

(i) all the rent in arrear; and

(ii) the sum directed to be paid on account of the costs of the action, he shall hold the land according to the lease without any new lease."

Whereas the matter of the 4-week period is a mandatory period, if the Plaintiff does not seek an order of some sort in respect of the costs of the action that, in my view, is not a mandatory matter and if costs are not dealt with in the order no sum has to be paid.

11. In my view, this appeal should be allowed. The judgment should be restored but should be amended to contain a provision providing for the 4-week period from the date of the original order.

Mortimer V-P:

12. I also agree that this appeal must be allowed. It is an appeal against the order of Barnett J of 17 March 1998 giving the defendant leave to defend the action.

13. The first issue which we have to consider is whether the judgment entered in default of acknowledgement of service was a regular judgment.

Background to default judgment

14. The history very briefly is this. A writ was issued by the plaintiff on 9 September 1997 together with the statement of claim, claiming arrears of rent and forfeiture. The writ was served personally on the defendant on 11 September 1997. It was served also in a number of other ways but that is quite irrelevant. The personal service is the service relied upon by the plaintiff. The consequence was that there was 14 days for acknowledgement of service if the defendant wanted to defend the action. That period is laid down in the Rules - O12 r5. The expiry date therefore was 25 September 1997. There having been no acknowledgement of service, on 29 September 1997 the plaintiff took out a summons for judgment in default. That judgment was entered on 4 August 1997. In those circumstances there can be no question but the judgment was a regular judgment.

The defendant's solicitor's affirmation

15. The reason why there was no acknowledgement of service is set out in an affirmation by the solicitor representing the defendant. It appears that when the defendant took advice from the solicitor, he had with him only the documents which had been served by post. The consequence was the solicitor thought he had longer to acknowledge service than he had in fact. That is not a matter which can be taken into account on the question whether the judgment was regular, although it is a matter which could be taken into account as to whether the regular judgment should be set aside.

16. The judge came to his conclusion that the judgment was regular because he took the postal service as the starting point for the time for acknowledgement of service. He decided the appeal from the master accordingly. I am quite satisfied he was wrong.

The application to set aside

17. Therefore it falls to this Court to exercise its own discretion as to whether this judgment should be set aside. After the judgment was entered against the defendant on 4 October, the defendant took out a summons in order to set it aside on 20 October. That came before Master Woolley on 22 January 1998. He dismissed the defendant's application and it was on appeal from Master Woolley that the matter came in front of Barnett J below.

18. The judgment entered did not accord with s.21F of the High Court Ordinance (Cap. 4). This has been mentioned by Rogers JA in his judgment and I do not wish to say anything further about it.

The principle

19. On the question as to how we should exercise our discretion on the application to set aside the default judgment, for my part, I find the passage at 13/9/14 in the Supreme Court Practice to be of considerable assistance. It encapsulates the indications in the Saudi Eagle [1986] 2 Lloyd's Report 221:

"The discretionary power to set aside a default judgment which has been entered regularly is unconditional, and the court should not lay down rigid rules which deprive it of jurisdiction. The purpose of the discretionary power is to avoid the injustice which may be caused if judgment follows automatically on default. The primary consideration in exercising the discretion is whether the defendant has merits to which the court should pay heed, not as a rule of law but as a matter of common sense, since there is no point in setting aside a judgment if the defendant has no defence, and because, if the defendant can show merits, the court will not prima facie desire to let a judgment pass on which there has been a proper adjudication. Also as a matter of common sense the court will take into account the explanation of the defendant as to how the default occurred."

The equitable relief against forfeiture for non-payment of rent is governed entirely by statute. Section 21F of the High Court Ordinance (Cap 4) reflects the equitable principle that forfeiture is primarily a security for the payment of rent. The scheme is simply that if a writ asks for forfeiture and payment of rent, the defendant can put an end to the proceedings if he complies with subsection 2 which reads:

"If, within the time prescribed by rules of court for acknowledging service of the writ by which the action was commenced, the lessee pays into court all the rent in arrear and the costs of the action, the action shall cease and the lessee shall hold the land according to the lease without any new lease."

Now that did not happen in this case. So what is the normal consequence? This can be found in subsection 3 which reads:

"If -

(a) the action does not cease under subsection (2); and

(b) the Court at the trial is satisfied that the lessor is entitled to enforce the right of re-entry or forfeiture,

the Court shall order possession of the land to be given to the lessor at the expiration of such period, but not being less than 4 weeks from the date of the order, as the Court thinks fit, unless within that period the lessee pays into court all the rent in arrear and such sum as the Court shall direct on account of the costs of the action."

Prima facie that applies so that the court at trial "shall order possession".

20. Finally, subsection 10 provides that:

"Nothing in this section shall be taken to affect -

(a) the power of the Court to enter final judgment in a case where the defendant fails to give notice of intention to defend; ..."

Conclusion

21. So in this case, it seems to me to be quite clear that the plaintiff was entitled to his order for possession. There was no defence to the action. It is to be noted that the scheme under s.21F does not, in my judgment, provide a defence. It provides for relief against forfeiture. The relief is that under s.2 he can put an end to the proceedings altogether or, under subsection 3 - which is the one that applies in this case - the plaintiff is entitled to his judgment but subject to the right of the defendant to have not less than 4 weeks within which he can still obtain his relief against forfeiture.

22. For those reasons, I would allow the appeal and restore the judgment entered against the defendant subject to it being amended to comply with s.21F subsection (3).

Nazareth, Acting CJHC :

23. I agree for the reasons my Lords have given that the appeal must be allowed and the order of Master Woolley restored subject to the qualification they have mentioned.

24. As my Lords have demonstrated, the respondent failed to file his acknowledgement of service in time. That leads to the conclusion that the judgment was a regular judgment with the consequences that my Lords have mentioned.

25. However it is section 21F of the High Court Ordinance, subsection (3), that has a crucial effect upon the matter in requiring the court to order possession to be given to the plaintiff at the expiration of such period not less than 4 weeks as the court thinks fit unless within that period the respondent pays into court all the rent in arrear and such sum directed by the court on account of the costs.

26. It remains only to say that s.58 of the Conveyancing and Property Ordinance, which is relied upon by Mr Hylas Chung who has at a very late stage been brought in for the respondent, does not avail, as subsection (10) expressly provides that s.58 does not (save as mentioned in subsection (4), which does not apply in the circumstances here) affect the law relating to re-entry or forfeiture or relief in case of non-payment of rent.

27. The appeal is accordingly allowed and the order of Master Woolley restored subject to the qualification mentioned.