Dah Chong Hong (Engineering) Ltd. v. Boldwin Construction Co. Ltd.
Read the full judgment text of HCA 1291/2002 on BabelCite. This High Court CFI judgment was delivered on 4 October 2002.
Cited by 9 cases · Cites 5 cases
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HCA001291/2002 HCA1291/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.1291 OF 2002 ---------------------
---------------------- Coram: Hon Ma J in Chambers Date of Hearing: 4 October 2002 Date of Decision: 4 October 2002 Date of Handing Down of Reasons for Decision: 11 October 2002 ------------------------------------------------------ REASONS FOR DECISION ------------------------------------------------------ Background 1)Before I deal with the applications before the court, it is useful to set out the background. 2)The dispute between the parties involves the construction of a residential development at Tsing Yi Station, located at 132 Tsing King Road, Tsing Yi, New Territories ("the Development"). By a main contract dated 27 January 1998, the Defendant was engaged as main contractor by the developer, Shinta Limited ("the Employer"). 3)By a subcontract in writing dated 25 May 1999 ("the Subcontract"), the Plaintiff was in turn engaged by the Defendant for the supply and installation of external and internal stone works. The Subcontract was in standard form. 4)There was contained in clause 22 of the Subcontract an arbitration agreement whereby any disputes or differences between the Plaintiff and the Defendant were to be referred to arbitration. As will later become apparent, there is no controversy over the effect of this clause. 5)Work having been carried out by the Plaintiff, debit notes were issued to the Defendant demanding payment. The Plaintiff alleges that there is a sum of $3,507,331.77 due under 10 debit notes dated variously between August 1999 and October 2001. By a letter dated 7 March 2002, the Defendant demanded that the Plaintiff make payment of this sum. A letter before action dated 28 March 2002 was sent to the Defendant by the Plaintiff's solicitors. 6)No payment having been made by the Defendant, on 6 April 2002, the Writ of Summons in the present action was issued and served. The Defendant's response was a letter dated 16 April 2002 in which it was suggested that, in view of the existence of a winding-up petition that had been presented against it (HCCW 340/2002), the present action should be stayed pending the hearing of the petition. 7)There was no response to this suggestion. The Defendant, however, failed to enter an Acknowledgement of Service and give notice of intention to defend. Neither did it seek to stay the action under section 181 of the Companies Ordinance. 8)On 30 April 2002, judgment in default of notice of intention to defend was entered pursuant to RHC Order 13, rule 1 ("the Default Judgment"). This judgment, however, was not served on the Defendant. 9)On 28 May 2002, Master Lung made three garnishee orders to show cause directed at The Hongkong and Shanghai Banking Corporation Limited ("HSBC"), Hang Seng Bank ("HSB") and Bank of China (Hong Kong) Limited ("BOC"). These orders were served on the Defendant. 10)On 18 June 2002, the Defendant issued a summons to set aside the Default Judgment and for an order that the present action be stayed pursuant to section 6 of the Arbitration Ordinance ("the Ordinance"). 11)On 11 September 2002, Master S Kwang discharged the garnishee orders to show cause directed at HSB and BOC, but adjourned the order in relation to HSBC to the judge hearing the 18 June 2002 summons, in the meantime ordering HSBC to pay $3,648,758.07 into Court pending the determination of the summons. The costs of the hearing on 11 September 2002 in relation to all three garnishee orders to show cause were reserved also to the judge hearing this summons. The present applications 12)The 18 June 2002 summons to set aside was amended by Order of Burrell J on 16 September 2002 and this was the summons before me on 4 October 2002. Together with the matters adjourned by Master S Kwang on 11 September 2002, the following matters accordingly fell to be determined :
13)After hearing submissions from Mr John Scott SC for the Plaintiff and Peter Clayton for the Defendant, I ordered as follows :
14)I indicated to counsel that I would hand down the Reasons for my Decision at a later date. The application to set aside the Default Judgment 15)RHC Order 13, rule 9 simply states :
We are not concerned in the present case with the applicability of Order 13, rules 7(3) and (4). 16)The Default Judgment was a judgment regularly obtained. The original summons dated 18 June 2002 seemed to suggest that the Default Judgment may have been an irregular one, but it is clear from Mr Clayton's submissions that the Defendant now accepts it was a regular judgment. 17)The principles to be applied in applications to set aside default judgments are well-known and are succinctly set out in Hong Kong Civil Procedure 2002 Vol.1 at 13/9/12-13/9/14. Among the matters that the applicant must show in applying to set aside (and often this is the most important, if not decisive, element in the exercise of the court's discretion) is the existence of a defence that has a real prospect of success or, as is sometimes put, a defence that carries some degree of conviction : see Hong Kong Civil Procedure Vol.1 at 13/9/14 referring to, among other cases, L&M Specialist Construction Limited v. Wo Hing Construction Company Limited [2000] 3 HKLRD 262 (Court of Appeal). As Mr Justice Ribeiro JA said in that case at 265J-266B :
18)Thus, this requirement to demonstrate a defence that has a real prospect of success (which I shall call "the Defence Requirement") is very much a dominant factor, although it has to be pointed out that it is not necessarily in every case decisive. The court must also weigh in the balance other factors such as the reasons for letting the default judgment occur, any delay in applying to set aside, and the intervention of third party interests : see the cases referred to in Hong Kong Civil Procedure 2002 Vol.1 at 13/9/13. In most cases, though, the Defence Requirement will be the most important, if not decisive, factor. 19)The present case, however, poses an unusual feature. It will be recalled that there is in existence an arbitration agreement between the parties dealing with the resolution of disputes and differences between them. In these circumstances, does the requirement of demonstrating the existence of a defence that has a real prospect of success, apply at all or at least not to its full rigour? 20)The arguments in favour of the proposition that the Defence Requirement is inapplicable in these circumstances can be summarised as follows :
21)In my judgment, the arguments set out in the previous paragraph are compelling and lead to the conclusion that the Defence Requirement (as defined above) has no initial part to play in an application to set aside where an arbitration agreement is in existence and it is the stated intention of one of the parties that a stay of the action would be sought once the default judgment is set aside. I use the word "initial" because the approach of the court in such circumstances can be summarised as follows :
22)I have not ignored Mr Scott's submissions (in relation to the Defence Requirement) that even though there may exist an arbitration agreement, this would not make a default judgment obtained in court proceedings brought by a plaintiff, an irregular one and therefore a defaulting defendant will still be required to set aside a regular judgment of the court. This is of course correct as far as it goes, but it does not follow that the court can ignore the existence of the arbitration agreement in the exercise of its discretion when it is the stated intention of the defendant to apply for a stay should the default judgment be set aside. In other words, the regularity of the default judgment does not assist in the exercise of the court's discretion in deciding whether or not to set aside. It seems to me in the application of Lord Wright's oft quoted words in Evans v. Bartlam at 489 that : "... if merits are shown the Court will not prima facie desire to let a judgment pass on which there has been no a proper adjudication", one has to bear in mind that the proper forum for the adjudication in this context is the arbitral tribunal and the court is largely prohibited from pre-empting the function of this chosen arbitral tribunal. 23)In the present case, Mr Scott accepts that should the Default Judgment be set aside, the Plaintiff would not be able to resist the stay application. In these circumstances, it seems to me irresistible that the Default Judgment should be set aside. There are no other factors which are relevant in relation to this. The court should not go into the merits of the defence raised by the Defendant in the present case, for that is the function of the arbitral tribunal chosen by the parties. The court should no more ask itself the question, "Is there any point going to arbitration?" (from a merits point of view) in an application to set aside anymore than it should in an application for a stay under section 6 of the Ordinance or Article 8 of the Model Law. True, as Mr Scott says, the disputes or differences will still have to be resolved and the arbitral tribunal is merely an alternative forum to hear the disputes or differences, but in my view, it is crucial to appreciate the limited role of the courts here. 24)The above is sufficient to dispose of the application to set aside and it would be wrong as a matter of principle for the court to consider the merits of the defence. 25)However, in case the approach identified above is in error and the Defence Requirement must first be satisfied, I should perhaps just say a few words about this. 26)If it had been necessary, I would also have found that the Defence Requirement has been satisfied by the Defendant in the present case :
The stay application 27)As I have said, Mr Scott accepted that should the Default Judgment be set aside, the Plaintiff could not resist the application for a stay. This was, with respect, entirely correct and I am grateful for his candour. It follows that the action should be stayed and the disputes and differences between the parties referred to arbitration. The garnishee proceedings concerning HSBC 28)It is accepted and it follows from the above that these proceedings should be discharged and set aside, once the Default Judgment is set aside. Payment out of $3,648,758.07 and interest 29)Mr Scott submitted that in view of the way the Defendant has conducted itself, this money should remain in court. He points to three instances where one of the deponents in the defendant's affidavit evidence, has been wrong in his assertions. He categorises these errors as being lies and a deliberate attempt to mislead. 30)In L&M Specialist Construction Limited, Mr Justice Ribeiro JA dealt generally with the question of the imposition of terms in the setting aside of default judgments : see 268H-269J. The learned Justice of Appeal said that it must be rare that payment into court is made a condition for setting aside. One example given was if the defence is shadowy (although these days a shadowy defence would probably not enable a defendant to satisfy the Defence Requirement). Reference was also made (at 269) to the words of the English Court of Appeal in City Construction Contracts (London) Limited v. Adam (unreported), The Times, 4 January 1998, where it was said that the imposition of conditions was "not to punish the defendant but to encourage the proper future conduct of the litigation and to provide a measure of security for the plaintiff". 31)In the present case, I do not believe that the three instances where mistakes had clearly been made in the affidavit evidence, were deliberate attempts to mislead. Further, even if they were, they were not by themselves serious enough to merit the imposition of what would in a fact be a payment into court of security for the claim. As Mr Justice Ribeiro JA also noted in L&M Specialist Construction Company Limited at 268I, in most cases in practice, the power to impose terms would relate to costs. I would venture to add that in most cases, a suitable order for costs will often be the only appropriate term to be imposed on a defendant. Costs 32)Although Mr Clayton argued that the entering of the Default Judgment was neither party's fault and therefore the costs order should reflect this, he did not (rightly) press this. In my view, the Default Judgment was regular and the Defendant had no reason to suppose that the Plaintiff would not pursue the action to its logical conclusion and take all appropriate steps. There was, after all, no response to the letter dated 16 April 2002 (referred to in paragraph 6 above). 33)It was therefore hardly surprising that the Plaintiff obtained the Default Judgment and took steps to levy execution. In my view, the fault (if that is the right term) for the Default Judgment being entered, lay with the Defendant. 34)In these circumstances, as the Defendant is seeking an indulgence from the court, the normal order should follow and this is reflected in the cost order I have made.
Representation: Mr John Scott, SC, instructed by Messrs Wong & Fok, for the Plaintiff Mr Peter Clayton, instructed by Messrs Sanny Kwong & Co., for the Defendant |
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