HO KWOK WAH v. GROUP JEWELLERY ARTS LTD AND OTHERS

CACV 152/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 152 OF 2000

(ON APPEAL FROM HCA 130/1999)

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J U D G M E N T

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Hon Rogers JA :

1. This is an appeal from an order of Yam J of 31 March this year on a striking out application. The matter appears to have been dealt with in two hearings and, after further argument in the second hearing, the judge allowed a derivative action to remain on foot but he struck out the action against the 3rd defendant for repayment of monies paid by the plaintiff for the 1st defendant's expenses.

2. I should briefly set out the facts relevant to this application.

3. The plaintiff and the 3rd defendant are 50/50 shareholders of the 1st defendant. There were four directors of the 1st defendant and they are divided into the plaintiff and his wife, the 3rd defendant and a director apparently appointed by her but nothing turns on that. The 3rd defendant and the plaintiff had negotiated at one stage on the basis that the 3rd defendant would be dropping out of the picture as regards the 1st defendant and its business. Whether or not the negotiations between the plaintiff and the 3rd defendant resulted in an enforceable deed or whether the deed which resulted was unenforceable, for one reason or another, does not matter as far as this application is concerned.

4. The facts upon which this case arise are that the 1st defendant owed some $996,178 to the 2nd defendant. The 2nd defendant was a company owned by the 3rd defendant by means of which the 3rd defendant held her interest in the 1st defendant. There was the first action, as I shall term it. That was an action to enforce the deed to which I have referred. It was an action brought against the plaintiff. The present plaintiff's defence in the first action was drafted on the basis that such a sum was owing by the 1st defendant. At some stage, the plaintiff paid off some $500,000 of that amount together with some $80,000 in interest.

5. Following that, the 3rd defendant caused, what I shall term, action No. 2, to be brought. That was an action which was brought by the 2nd defendant against the 1st defendant in respect of the balance which was left owing after the payment of $500,000.

6. The writ in the second action was served at the registered office of the 1st defendant. The plaintiff and his wife had seemingly been conducting the business of the 1st defendant but had vacated the registered office. It is said, and there is no apparent dispute this, that the 3rd defendant was aware that the plaintiff had vacated that registered office. But it must be remembered that both the plaintiff and the 3rd defendant were still directors of the 1st defendant. As a result of the writ being served at the registered office, no action was taken by anybody on behalf of the 1st defendant to defend that action. Eventually, judgment was allowed to go in default.

7. The plaintiff says that the judgment was obtained by fraud and seeks to bring the derivative action to set that judgment aside. The judge below held that the service of the writ was irregular. He took a dim view of the 3rd defendant's tactics which he felt were deliberate in order to enable default judgment to be obtained. But he went on to hold that the 1st defendant had no merits as regards the defence. In his second judgment, he held because the judgment had been obtained irregularly, it should be set aside.

8. In my view, the judgment was not irregular. Section 356 of the Companies Ordinance, Cap. 32 states that :-

"A document may be served on a company by leaving it at or sending it by post to the registered office of the company."

9. Turning to the Rules of the High Court, Order 10 deals with general provisions relating to the service of proceedings and starts off with :-

"(1) A writ must be served personally on each defendant by the plaintiff or his agent.

(2) A writ for service on a defendant within the jurisdiction may, instead of being served personally on him, be served-

(a) by sending a copy of the writ by registered post to the defendant at his usual or last known address, or

(b) if there is a letter box for that address, by inserting through the letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant;

...

(7) This rule shall have effect subject to the provisions of any Ordinance and these rules and in particular to any enactment which provides for the manner in which documents may be served on bodies corporate." (emphasis added.)

10. Order 65 rule 3 is a rule which specifically deals with personal service on body corporate. Sub-rule (1) states :-

"(1) Personal service of a document on a body corporate may, in cases for which provision is not otherwise made by any written law, be effected by serving it in accordance with rule 2 on the chairman or president of the body, or the clerk, secretary, treasurer or other similar officer thereof." (emphasis added.)

11. It appears to me quite clear, when one reads together section 356, Order 10 and Order 65, that a writ may be served on a company by simply leaving the writ at the registered office of the company. A company after all, apart from its servants, agents and its directors, has no other animate entity but at least it has a registered office which may be determined by a simple company search in the Companies Registry and it is to that which, inevitably, people should look, in my view, when serving documents. If there were any doubt, in my mind, about the effect of these provisions, it is fortified by the judgment in the Court of Appeal of Vice-President Fuad in the case of United Venture Navigation Co. Ltd v. Shum Yuen Nim [1991] 2 HKC 73. At pages 85 to 86, he sets out the provisions to which I have referred and he concludes at the top of page 86 with the words :-

"There can be no doubt that service of the writ was effected on the company in accordance with s 356 which contains no requirement of the kind to be found in 0 10 r 1(3)(b)(i). Thus, even if we had allowed Mr Sarony to resile from his earlier concession and to make an appropriate amendment to the company's grounds of appeal, which we were not inclined to do, the indulgence he would have been granted would have been to no avail."

12. On the basis that service was regular, it then falls on any person wishing to have any resulting judgment set aside to establish that there would be a real prospect of success if the service had been set aside. On the judge's finding in the court below that had not been shown.

13. Mr Au Yeung, on behalf of the plaintiff, said that he was not in a position to say whether the 1st defendant would have a defence.

14. In my view, in those circumstances, it is impossible to say that the judgment below should be set aside or a derivative action should be brought on some basis or another on the footing that the judgment was improperly obtained. In my view, it was properly obtained, perhaps without the knowledge of some of the directors, but, so be it.

15. The plaintiff cross appeals on the order of the judge to strike out paragraphs 13-17 in the amended statement of claim and the corresponding prayers for relief which relate, in particular, to the failure of the 3rd defendant to sign cheques of the plaintiff which led to the plaintiff having to bear the cost of many of the 1st defendant's expenses. The claim is, in respect of those expenses which have been particularised in the annex to the statement of claim and amount to some $853,629.95. In respect of that, it seems to me that these are pleaded as being legitimate expenses of the 1st defendant. In those circumstances, the plaintiff would clearly be entitled to reimbursement by the 1st defendant of those expenses which he has himself borne on its behalf. Again, in those circumstances, I find it difficult to see how any damage has been suffered either by the plaintiff or by the 1st defendant. Damage appears to me to be the root of this particular cause of action.

16. Mr Au Yeung sought to say that this was a matter for particulars and the plaintiff should be allowed to provide those particulars after discovery. But at present, he was unable to identify or suggest any damage as such, which he could say, could be the subject of recovery by the plaintiff whether for himself or on behalf of the 1st defendant.

17. In my view, the judge was correct in his approach in this respect and he correctly struck out this part of statement of claim and the corresponding prayers for relief and in those circumstances, it seems to me that the 2nd and 3rd defendants' appeal must be allowed and the cross appeal by the plaintiff must be refused.

Hon Leong JA :

18. I agree and have nothing to add.