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HCA 1116/2014
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1116 OF 2014
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| BETWEEN |
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ASIA INSURANCE COMPANY, LIMITED |
Plaintiff |
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(亞洲保險有限公司) |
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and |
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WARM HOME CONSTRUCTION CO, LTD |
1st Defendant |
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(嘉群建築有限公司) |
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NG SUI CHEUNG (伍瑞祥) |
2nd Defendant |
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LAM SUK CHUN (林淑珍) |
3rd Defendant |
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| Before: Deputy High Court Judge Campbell‑Moffat SC in Court |
| Date of Hearing: 8 July 2015 |
| Date of Decision: 16 July 2015 |
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D E C I S I O N
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Background
1. This is an application by the 2nd defendant, Mr Ng, a director and shareholder of Warm Home Construction Co Ltd (“Warm Home”), seeking to set aside a default judgment entered by the plaintiff on 22 July 2014.
2. Warm Home was the main contractor on a construction project under which the incorporated owners of Mei Foo Sun Chuen –Stage VIII (“the Employer”) had engaged Warm Home to carry out building works. The main contract had been entered into between Warm Home and a company called Broadway‑Nassau Investments Ltd (“Broadway‑Nassau”) for and on behalf of the incorporated owners.
3. Pursuant to Clause 31 of the Construction Contract and Clause 7.1 of section 5 of the Supplemental Contractual Clauses, Warm Home was obliged to provide a demand bond (“the Bond”) in favour of the Employer as a performance guarantee. To that end, on 3 May 2013, all three defendants entered into an Indemnity Agreement with the plaintiff insurance company, who in turn acted as surety upon the Bond in the sum of HK$ 5,665,000.
4. Subsequently, Warm Home was found to be in breach of the construction contract and a letter of demand was issued under the Bond on 7 May 2014, which was paid by the plaintiff on 30 May 2014.
5. Thereafter, the plaintiff relied upon the Indemnity Agreement and sought recovery of the sum paid out under the Bond. No payment was made. A writ was taken out by the plaintiff on 19 June 2014 and judgment in default was obtained on 22 July 2014. The defendants were ordered to pay HK$4,915,000 (HK$5,665,000 less HK$750,000 collateral deposit) together with interest thereon at the contractual rate of 10% per annum from 30 May 2014.
6. The defendant company paid HK$200,000 towards that sum in September 2014 but then stopped all further cheques and has not to date paid the outstanding debt. On 19 December 2014, the plaintiff filed a bankruptcy petition under HCB 9820/2014 against the 2nd defendant, which has been adjourned from time to time to allow for this application to be dealt with.
7. The 2nd defendant took out a summons under Order 13, rule 9 of the Rules of the High Court (“RHC”), on 23 April 2015 to have the default judgment set aside and the execution of the judgment stayed. On 12 June 2015, that summons was dismissed by Master J Wong and he now seeks to appeal that decision under Order 58, rule 1 of the RHC.
The argument
8. The plaintiff’s claim relies upon an Indemnity Agreement dated 3 May 2013 between the plaintiff and the 2nd defendant. It commences:
“In consideration of Asia Insurance Co., Ltd, (hereinafter called ‘the Company’, which expression shall include its successors and assigns) agreeing to become surety at my request in the bond numbered as above for an amount of Hong Kong Dollars Five Million Six Hundred Sixty five Thousand only (HKD 5,665,000.00) in favour of Broadway‑Nassau Investments Ltd for and on behalf of The Incorporated Owners of Mei Foo Sun Chuen – Stage VIII in connection with a contract for Interior & Exterior Alteration and Addition Works for Building Renovation Work (with scaffolding) (10 blocks) at Stage VIII, Mei Foo Sun Chuen, 94‑132 Broadway Kowloon undertaken by Warm Home Construction Co., Ltd which contract bond is hereinafter referred to as ‘the Guarantee’.”
And by Clause 3 it reads:
“The Company may pay immediately any and all amounts claimed from it or which the Company may become liable to pay under or in connection with the Guarantee without reference to or further authority from me/us and without being under any duty to enquire whether any claims on the Company are properly made, even if I/we dispute the validity of any such claim, and I/we shall accept any claim on the Company and any payment which the Company makes purporting to be in accordance with the Guarantee as binding on me/us.” (my emphasis)
9. That Guarantee (the Bond), was called upon by way of a letter of demand from Broadway‑Nassau on 7 May 2013. On 8 May 2013, the plaintiff replied to that demand asking for the letter to be signed by two authorised signatories of the Employer with full name, position and Hong Kong identity card number in accordance with Clause 2 which states:
“2. Upon demand in writing made by two authorised signatories of the Employer upon the Surety from time to time or at any time during the validity of this Bond without proof or contestation or further conditions on the Employer the Surety shall forthwith pay to the Employer the sum or sums mentioned in the demand.”
10. That met with a short and crisp response from Lo & Lo Solicitors representing the incorporated owners, confirming that the demand letter and signatures thereon were duly authorised. As a consequence payment was made on 30 May 2013.
11. It is the failure to properly comply with Clause 2 upon which the 2nd defendant places all of his reliance. It is a technical point given that he accepts that he was indeed in breach of the contract of construction and that in the normal course of events the Bond would fall due and the Indemnity Agreement would be triggered.
12. The 2nd defendant argues that the letter of the 8 May 2013 did not contain two authorised signatures and that in any event Broadway‑Nassau was one legal entity and two signatures from the same entity were not sufficient to satisfy Clause 2.
13. It is easy to see why, at first blush, the plaintiff (and the 2nd defendant) believed there to be just one signature upon the letter of demand. Both signatures have been appended within the single Broadway‑Nassau chop. A second glance and reference to the original contract signatures clearly helps to identify not one but two signatures on the letter.
14. Nevertheless, the defendant submits that by its letter of 8 May 201, the plaintiff had queried not just the number of signatures upon the demand letter but also the authorisation of Broadway‑Nassau as an authorised signatory for the purposes of the demand.
15. This submission has no merit. This is not what the plaintiffs sought to do. There was never a suggestion that Broadway‑Nassau could not act on behalf of the Employer or that Broadway‑Nassau was a single entity for the purpose of complying with the requirement for two authorised signatures.
16. Even so, the defendant now submits that Broadway‑Nassau was a single legal entity and that under section 127 of the Companies Ordinance, Cap 32, it could not provide two authorised signatories. But this misses the point that the Bond does not require two signatories from two entities, it requires two authorised signatories “of the Employer”; a requirement which the 2nd defendant had clearly accepted previously when there were two signatures from Broadway‑Nassau on other contractual documents.
17. In any event, it was not the Bond which was sued upon and in consideration of which the plaintiff obtained judgment, it was the Indemnity Agreement. It is under that Indemnity Agreement that the 2nd defendant is primarily bound and in respect of which he had nothing to say save that it did not cover payment made upon an invalid demand despite the wording of Clause 3 of the agreement under which the 2nd defendant had agreed to:
“… accept any claim on the Company and any payment which the Company makes purporting to be in accordance with the Guarantee as binding on me/us.”
The law
18. The nature of this hearing is an appeal from the judgment of a master to a judge in chambers and is by way of rehearing of the application which led to the order under appeal. Before the master, the 2nd defendant sought to set aside the default judgment obtained by the plaintiff.
19. Order 13, rule 9 of the RHC states:
“Without prejudice to rule 7(3) and (4), the Court may, on such terms as it thinks just, set aside or vary any judgment in pursuance of this order.”
20. The parties accept that the default judgement was obtained regularly. If so, this court has a discretionary and unconditional power to set it aside if the 2nd defendant can demonstrate a defence on the merits for there is little point in setting a judgment aside in circumstances where there is no prospect of success for the 2nd defendant. On the other hand, the court would be slow to shut a defendant out from properly defending an action which should be adjudicated upon for “the court will not prima facie desire to let a judgment pass on which there has been no proper adjudication”: Evans v Bartlam [1937] AC 473 HL at 489.
21. I take into account that it is not sufficient for the 2nd defendant to show a “merely arguable defence” which would justify leave under Order 14, but that he must show that he has a “real prospect of success” and therefore the court must consider the likely outcome of the proceedings should they go to trial. But that alone may not be sufficient, for in exercising its discretion, the court should also take into account all of the relevant circumstances including why the default occurred, the 2nd defendant’s conduct after notice of proceedings, prejudice to the plaintiff and any third parties etc which in turn must be set against the merits.
Discussion
22. I have reached the conclusion that this is not a proper case to allow the default judgment to be set aside.
23. The argument as to the lack of validity of the demand letter is at best spurious. Broadway–Nassau had at all times dealt with the defendants and representatives of Broadway‑Nassau had signed the construction contract. There were two signatures on the demand letter and they had been authorised by the Employer as confirmed by the Lo & Lo letter of 13 May 2013. In any event Clause 3 of the Indemnity Agreement covers a situation where the plaintiff makes a payment purportedly in conformity with the Bond. Given that I have come to that view, it is unnecessary to answer the many subsidiary points raised by the 2nd defendant as they do not in any way strengthen his position.
Conclusion
24. I accordingly conclude that the application to set aside default judgment be dismissed and the judgment of 22 July 2014 remains to be complied with.
25. There will be an order nisi that costs on the application to set aside judgment be to the plaintiff.
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(A P Campbell-Moffat SC) |
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Deputy Judge of the Court of First Instance |
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High Court |
Ms Wallis Chung, instructed by Paul C K Tang & Chiu, for the plaintiff
Mr Ivan Cheung, instructed by Wong & Lawyers, for the 2nd defendant
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