GUANGDONG INTERNATIONAL TRUST AND INVESTMENT CORPORATION HONG KONG (HOLDINGS) LTD. v. YUET WAH (HONG KONG) WAH FAT LTD.

1996 No. A3503

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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[(1) Section 356 of the Companies Ordinance (Cap. 32) does not apply to the service of a writ of summons on a limited company. Ord. 10 r. 1 applies to such service, with such modifications as are required by Ord. 65 r. 3(2). Dicta to the contrary in Treasure Land Property Consultants v. United Smart Development Ltd. [1995] 3 HKC 30 not followed.

(2) The reference to a defendant's "last known address" in Ord. 10 r. 1(2)(b) is a reference to the defendant's last address known to the plaintiff. A defendant may have more than one such last known address.

(3) Where a provisional view of the probable outcome of the action cannot sensibly be formed without an assessment of the witnesses, an appropriate test to determine whether the defendant has a real prospect of success is to ask whether the defendant's witnesses could well be believed at trial.]

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J U D G M E N T

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INTRODUCTION

1. On 27th March 1996, the Plaintiff issued a writ of summons against the Defendants. The claim against the 1st Defendant (D1) was for the repayment of a loan. The amount inclusive of interest was in excess of $34m. It was alleged that the 2nd Defendant (D2) had orally guaranteed the repayment of the loan. The Defendants did not give notice of intention to defend the action. Accordingly, on 19th April, judgment was entered against both of them in default. In due course, they applied for the judgment against them to be set aside. They contended that the writ had not been properly served on them. On 13th February 1997, Master Jennings ordered that the judgment be set aside. The Plaintiff now appeals against that order. All dates in this judgment are in 1996, except where otherwise stated.

SERVICE OF THE WRIT

2. The Plaintiff's solicitors purported to serve the writ on the Defendants by sending copies of the writ on 27th March by both ordinary and registered post to both Defendants. The address to which they posted the writs to both Defendants was an address in Tsim Sha Tsui. In addition, their clerk on 27th March pushed copies of the writs under the door at that address. Was this proper service of the writs on either of the Defendants?

(i) D1. The general provisions relating to the service of a writ are to be found in Ord. 10 r. 1. Ord. 10 r. 1(2) permits postal service at a defendant's "esual or last known address". However, D1 is a limited company, and in Treasure Land Property Consultants v. United Smart Development Ltd. [1995] 3 HKC 30, Nazareth V.-P. expressed the view that Ord. 10 r. 1 was not intended to apply to service on a limited company. That was because section 356 of the Companies Ordinance (Cap. 32) provides:

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

Nazareth V.-P.'s reasons for concluding that service of a writ on a limited company was governed by section 356, rather than by Ord. 10 r. 1, were as follows (p.34 H-I):

"Although in general terms, rather than with specific reference to a writ, section [356] of the Companies Ordinance makes express provision which, read with section 8 of the Interpretation and General Clauses Ordinance, can be seen to have a different effect from Ord. 10 r. 1. And Ord. 10 r. 1 in sub-r. (7) expressly states that r. 1 shall have effect subject to the provisions of any Ordinance."

3. However, Ord. 10 r. 1(7) also rendered Ord. 10 r. 1 subject to the Rules of the Supreme Court, and it does not look as if Ord. 65 r. 3(2) was drawn to the court's attention. That provides:

"Where a writ is served on a body corporate in accordance with Order 10, rule 1(2), that rule shall have effect as if for the reference to the usual or last known address of the defendant there were substituted a reference to the registered or principal office of the body corporate ..."

Plainly, Ord. 10 r. 1 is intended to apply to service of a writ on a limited company, with such modifications as are necessary to reflect the fact that a limited company is a body corporate. I must follow the plain words of Ord. 65 r. 3(2). Accordingly, the question is whether the address in Tsim Sha Tsui was either the registered office or the principal office of D1 on 27th March.

4. The address in Tsim Sha Tsui had been D1's registered office prior to 14th February. On 14th February, the Companies Registry was notified that D1's registered office was from then on to be at an address in Wan Chai. However, it takes time for the Companies Registry to update its records to show that a limited company has a new registered office. In this case, it had not done so by 14th March when the Plaintiff's solicitors caused a search of D1 to be made at the Companies Registry, and were given the address at Tsim Sha Tsui as D1's registered office.

5. The Companies Ordinance does not state when an address becomes the new registered office of a limited company. If it becomes the new registered office as soon as the Companies Registry is notified of the change, the registered office of D1 changed to the address in Wan Chai on 14th February, and service on 27th March at the office in Tsim Sha Tsui was not service at its registered office. If an address becomes the new registered office when the Companies Registry registers the new address, there is a gap in the evidence. Although there is evidence that the address for the new registered office had not been registered by 14th March, there is no evidence as to whether it had been registered by 27th March. It is for the Plaintiff to prove that D1's registered office was still at the address in Tsim Sha Tsui on 27th March. It is therefore for the Plaintiff to prove that the address in Wan Chai had not been registered by 27th March. It has not proved that. I therefore rule that, on the evidence before me, the Plaintiff has not proved that the writ was served on D1 at its registered office.

6. I turn to whether the address in Tsim Sha Tsui continued to be D1's principal office on 27th March. On this issue, the evidence is all one way. The uncontradicted evidence of D2 is that D1 had been in dispute with the landlord of the Tsim Sha Tsui address. Accordingly, D1 had been looking for new offices since January 1996. It found new offices at the address in Wan Chai, and it finally moved to that address on 13th March when it delivered vacant possession of the Tsim Sha Tsui address to the landlord. In these circumstances, the only evidence before me on the issue is that by 27th March D1's principal office had become the address in Wan Chai. It follows that the writ was not served on D1 at its principal office. Since the writ had not been served on D1 at either its registered or principal office, there had not been proper service of the writ on D1 at all.

(ii) D2. D2 was a director of, and the majority shareholder in, D1. If D2 was not going to be served personally with the writ, he had to be served in accordance with the provisions of Ord. 10 r. 1(2). That required him to be served "at his usual or last known address". There is not sufficient evidence before me to enable me to come to a conclusion as to where his usual address was on 27th March. However, I do not see how his usual address can have been the address at Tsim Sha Tsui, because by then that address had ceased to be D1's principal office. If D2's usual address was where he usually worked, the closure of the office at the address in Tsim Sha Tsui meant that by 27th March D2 no longer usually worked there.

7. Was the address in Tsim Sha Tsui D2's last known address? The words "last known" have been held in the U.K. to mean last known to the Plaintiff: Austin Rover Group Ltd. v. Crouch Butler Savage Associates [1986] 1 WLR 1102. I agree. A defendant's last known address must have been intended to be an alternative to a defendant's usual address in case the plaintiff was unaware of a recent change in the defendant's usual address. In these circumstances, the address in Tsim Sha Tsui continued on 27th March to be D2's last known address, because that was his last place of work known to the Plaintiff.

8. In reaching this conclusion, I have not overlooked the evidence that D2's address was an address in Tung Choi Street. That evidence was as follows:

(a) D1's annual return for the year ending 25th June 1995 had been filed with the Companies Registry on 17th July 1995. The Plaintiff was therefore deemed to have notice of its contents. It gave D2's address as the address in Tung Choi Street.

(b) A document prepared by the Plaintiff's solicitors, and executed by both the Plaintiff and D2 on behalf of D1 on 15th March, gave D2's address as the address in Tung Choi Street.

However, I see no reason why a person cannot have more than one last known address - for example, the address where he was last known to be living and the address where he was last known to be working. Accordingly, the fact that the Plaintiff knew that as late as 15th March D2 had an address in Tung Choi Street did not mean that the address in Tsim Sha Tsui did not continue to be where he was last known to the Plaintiff to be working. Accordingly, since the writ had been served on one of D2's last known addresses, the writ had been properly served on him.

THE EFFECT OF NON-SERVICE ON D1

9. Mr. Barrie Barlow for the Plaintiff argued that the Plaintiff's failure to serve the writ on D1 should not automatically result in the setting aside of the judgment against D1. Relying on the recent decision of the Court of Appeal in Po Kwong Marble Factory Ltd. v. Wah Yee Decoration Co. Ltd. (CA 153/96), he argued that it was open to the court to refuse to set aside the judgment, or at least to set it aside on terms.

10. I accept that there are passages in the judgment of Sears J. (p.5I-K of the transcript) and Bokhary J.A. (p.6O-Q) which suggest that the court has power, in an extreme case, to refuse to set aside a judgment even if it has been obtained irregularly. What there is no doubt about, however, is that in Po Kwong the court held, despite Nazareth V.-P.'s misgivings which he did not press to the point of dissent, and despite Godfrey J.A.'s powerful judgment in Fok Chung Hung v. Lo Yuk Shi [1995] 1 HKLR 420, that terms can be attached to the setting aside of a default judgment which had been irregularly obtained because the writ had not been properly served. That was because Ord. 13 r. 9 gives the court power to set aside such a judgment "on such terms as it thinks just". However, the court also decided that in determining the terms on which it would be just to set aside such a judgment, it would not be right to consider whether the defendant has a defence on the merits.

11. Mr. Barlow argued that if the judgment is to be set aside, it should only be set aside on terms, because the Defendants have been attempting to evade service. That can only have been because they wished to avoid judgment for the sums claimed being entered against them. The factors giving rise to the suggestion that the Defendants had been attempting to evade service are as follows:

(i) The Defendants had known for some time prior to the purported service of the writ that the Plaintiff would be taking proceedings against D1 if the loan was not repaid. The Plaintiff had written to the Defendants telling them that in January. Moreover, negotiations to reduce the agreement for the loan into writing, and to identify a new repayment schedule, had been accompanied by warnings in February and March to the Defendants' solicitors that proceedings would be issued if such a document was not executed. A loan deed was executed by D2 on behalf of D1, but he did not execute a written guarantee as he had been requested to do. Accordingly, it is said that the Defendants both knew that the issue of proceedings against D1 was imminent.

(ii) In addition, it is said that D2 knew that the writ had been issued. That is because, after the purported service of the writ, Wu Man Ling, a director of the Plaintiff, received a telephone call from a friend of D2, who tried to persuade Mr. Wu to withdraw the proceedings against the Defendants. Since Mr. Wu had not told anyone about the issue of the proceedings, D2's friend could only have heard about the proceedings from D2. Moreover, the unchallenged evidence is that D1 changed its registered office again a few months later to another address in Tsim Sha Tsui.

12. I do not think that all this is a sufficient basis for concluding that the Defendants were attempting to evade service. The fact that D2 knew that the proceedings were imminent is by itself entirely neutral. I accept that Mr. Wu's evidence about D2's friend is significant, but D2 denies having spoken to his friend about the litigation, and D2's friend has not himself sworn an affidavit confirming that D2 told him about the litigation. Again, no explanation has been given for the change of D1's registered office yet again, but a plausible and unchallenged explanation was given for the change of D1's registered office to the address in Wan Chai, and I am not prepared to infer, simply from the absence of an explanation about the reason for the subsequent change, that the change was in order to evade service.

13. In summary, therefore, this is not a case in which it would be appropriate to refuse to set aside the judgment against D1 (assuming, which I doubt, that the court has power to do so). Nor am I prepared to order D1 to pay the judgment debt, or any part of it, into court as a condition of setting aside the judgment. It follows that Master Jennings was, in my view, correct to set aside the judgment against D1 unconditionally.

THE EFFECT OF SERVICE ON D2

14. D2 claims that the reason why he did not file a notice of intention to defend was because he did not know that the writ had been duly served on him. For the reasons I have given, I proceed on the assumption that that is true, and that he has not been attempting, albeit unsuccessfully, to evade service. Accordingly, subject to one point which Mr. Ambrose Ho for the Defendants took on the affirmation of service, the issue as to whether the judgment against D2 should be set aside depends on whether he has a meritorious defence to the Plaintiff's claim against him.

15. In Premier Fashion Wears Ltd. v. Li Hing Chung [1994] 1 HKC 213, Godfrey J.A. said at pp.219H-220A:

"A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. To do so, he must satisfy the court that his case and the evidence he has adduced in support of it carries some degree of conviction.... [U]nless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he would succeed on fact, he cannot have shown that he has a real prospect of success."

Godfrey J.A. added that "[t]he court ... has to form a provisional view of the probable outcome of the action."

16. The Plaintiff's case is that D2 orally agreed to guarantee D1's debt to the Plaintiff. He is alleged to have done so at a meeting some time in the middle of 1995 with Mr. Wu. Two other men are alleged to have been present. Both Mr. Wu and those two men have made affirmations confirming the personal guarantee which D2 is supposed to have given orally. For his part, D2 remembers attending the meeting to which Mr. Wu referred, but denies that he orally gave the guarantee alleged. Moreover, the fact that D2 is supposed to have given this oral guarantee was not referred to in a letter written by the Plaintiff to the Defendants in January. Nor was it referred to in the Plaintiff's solicitors' letters in February or March. It is true that these letters were more concerned with the documents which they wanted the Defendants to execute, but since the letter of 23rd February also threatened legal proceedings, it is not without significance that the letter referred only to proceedings to recover the loan from D1.

17. In these circumstances, has D2 established to my satisfaction that his claim that he did not personally guarantee the repayment of the loan have a real prospect of success? In answering that question, I find myself in something of a dilemma. On the one hand, the authorities require me to form a provisional view of the probable outcome of the action. On the other hand, it may not be possible to form even a provisional view when the outcome of the action is so dependent on whose evidence is likely to be accepted. In my judgment, this is one of those rare cases in which a provisional view of the probable outcome of the action cannot sensibly be formed without an assessment of the witnesses. A not dissimilar problem was discussed by the Court of Appeal in Allen v. Taylor [1992] 1 PIQR 255. At p.259, Dillon L.J. said:

"It is quite impossible to be dogmatic about the extent to which the court must be satisfied of the validity of the suggested defence. There must be numerous cases where the issue will turn entirely on the assessment of the facts at trial: each party's case would carry conviction if it stood alone and without conducting a trial the court is not able to say which will succeed."

In such cases, an appropriate test to determine whether the defendant has a real prospect of success is to ask whether the defence "could well be established" at trial. I propose to apply a similar test here: could D2 well be believed at trial? In my view, D2 could well be believed at trial, and it follows that D2's defence has a real prospect of success.

18. There is one other factor which I have regarded as important. Whether D2 personally guaranteed the repayment by D1 of the loan depends on the words he used. I appreciate that the Plaintiff's case is that the effect of the words D2 used was that he was guaranteeing the repayment by D1 of the loan, but I do not know what it is claimed he actually said. I would be uneasy about assuming that the words D2 is supposed to have used had a particular legal effect when none of the affirmations of the three men who were present spell out exactly what D2 said.

19. For these reasons, I think that Master Jennings was correct to set aside the judgment against D2 unconditionally. In those circumstances, it is unnecessary for me to address the point taken by Mr. Ho about the affirmation of service.

CONCLUSION

20. Accordingly, this appeal must be dismissed. At present, I see no reason why the costs of the appeal should not follow the event, or for disturbing the order for costs made by Master Jennings. I therefore make an order nisi that the Plaintiff pays to the Defendants their costs of the appeal in any event, to be taxed if not agreed.