Hannah Broquard and Another v. Wah Sun Hong Ltd
Read the full judgment text of HCA 2602/1978 on BabelCite. This High Court CFI judgment.
1. In a joint action Hannah Broquard trading as Intercontinental Chemical Corporation as first plaintiff and Intercontinental Chemical Corporation Ltd. as the 2nd plaintiff sued Wah Sun Hong Limited for damages for breach of contract. The writ of summons was served on the defendant on the 10th August, 1978 and no appearance having been entered by the defendant, judgment was entered in default.
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HCA002602/1978
Coram: Trainor, J. in Chambers. Date of Judgment: 31st October, 1978. ----------------- JUDGMENT ----------------- 1. In a joint action Hannah Broquard trading as Intercontinental Chemical Corporation as first plaintiff and Intercontinental Chemical Corporation Ltd. as the 2nd plaintiff sued Wah Sun Hong Limited for damages for breach of contract. The writ of summons was served on the defendant on the 10th August, 1978 and no appearance having been entered by the defendant, judgment was entered in default. 2. Subsequently to obtaining judgment the plaintiffs had the goods of the defendant seized under a writ of fieri facias, and at the same time obtained garnishee orders against the bank accounts of the defendant. A stay of execution of the writ of fieri facias was obtained from the Registrar of the Supreme Court, and the garnishee orders were set aside on the defendant lodging in Court the full amount of the judgment and costs. The defendant then applied to the Registrar to have the judgment set aside and also sought permission to enter an appearance and defend the action. 3. The application to the Registrar was for "an order that the judgment entered herein and all subsequent proceedings (a) be set aside for irregularity with costs to be taxed and paid forthwith by the plaintiffs to the defendant on the grounds that:-
(b) be set aside on the grounds that the defendant has a good defence to the plaintiffs' claims herein and that the defendant be at liberty to defend this action by entering an appearance within 7 days and
4. The learned Registrar ordered that the judgment be set aside and that there be no order as to the costs in respect of the application to set aside. He ordered that all costs incurred and subsequent to entering judgment be reserved to the trial judge in so far as they had not already been dealt with; that the defendant be at liberty to enter an appearance and defend; and that the defendant's application for security for costs be adjourned sine die with liberty to restore. The defendant appealed against that order and sought that the order of the learned Registrar be rescinded, and that in place of it it be ordered that the judgment be set aside ex debito justitiae and that the plaintiffs pay all costs in and arising out of the action and that there be certificates for two counsel. They further sought an order that the plaintiffs be ordered to give security for the defendant's costs. 5. It was the contention of Mr. Mumford of counsel who appeared for the appellant with Mr. Litton that the decision of the Registrar for setting aside the judgment was wrong in that he did so because he decided that the defendant had a good defence and therefore should be entitled to come in and defend. It was his argument that the judgment was obtained by reason of an irregularity and that the defendant was entitled as of right to have the judgment set aside; not by reason of any discretion on the part of the Registrar but ex debito justitiae. That being so, he contended, the Registrar should have awarded costs to the defendant. One of the grounds of his argument was indeed a novel one and it might well warrant the consideration of our legislature. It was based on section 31 of the Supreme Court Ordinance. Section 31 reads:
6. It was the contention of Mr. Mumford that since the enactment of the Rules of the Supreme Court in 1967 no such thing as a specially endorsed writ exists and therefore that proviso is of no application. 7. As I said a moment ago this is a novel point, but the words are still in the Ordinance and must be interpreted. To do so reference must be made to the Rules of the Supreme Court as they now exist. Under those rules proceedings such as those with which I am dealing must be commenced by a writ, and order 6 provides that before a writ is issued it should be endorsed with a Statement of Claim or, if the Statement of Claim is not endorsed, there must be a concise statement of the nature of the claim made or the relief or remedy sought. 8. To those of us of an older generation the words "specially endorsed writ" have a well remembered meaning. Prior to 1967 proceedings might be commenced with a writ on which there was a general endorsement of claim. After it was served and an appearance entered the plaintiff then delivered a Statement of Claim. But the plaintiff had the choice at the time of the issue of the writ of endorsing on it in full what his claim was and that endorsement was usually in the form of a Statement of Claim; such a writ was known as a specially endorsed writ. The position in practice has not greatly changed. What has been done is to indicate to the plaintiffs that to expedite proceedings there should be endorsed on the writ a Statement of Claim; but proceedings are not defective if the Statement of Claim is not so endorsed. Clearly therefore when the legislature retained in the Supreme Court Ordinance the words "specially endorsed writ" they were referring to a writ with the Statement of Claim endorsed. It might however avoid legal practitioners from falling into a trap by misconstruing the intention of the section if those words were deleted from it. The point that Mr. Mumford made was that as the proceedings in this case had been commenced in the summer vacation there was no necessity for an appearance to be entered until the new term started. He argued that judgment should never have been entered in favour of the plaintiffs by reason of non-appearance and therefore that the appellant was entitled as of right to have the judgment set aside and costs should follow the event. Interesting though the point was I held against him, and that an appearance should have been entered within the time prescribed. 9. Another point made by Mr. Mumford was that the claim of the respondent as set out in the Statement of Claim, because of certain parts of it, could never be substantiated and that judgment could never have been given on those parts. He maintained that that was an irregularity in the Statement of Claim and warranted the judgment being set aside, and set aside ex debito justitiae. He pointed out a number of instances where the respondent made such claims, and it was obvious that they were substantially in excess of what the plaintiffs were entitled to; indeed such was conceded by counsel for the respondent. Mr. Mumford contended, as I understood him, that there was an obligation on the Registrar to consider what was claimed before judgment was entered in default of appearance. 10. With great respect to Mr. Mumford and the persuasive way in which he presented his arguments I can find nothing of substance in them. There was another point that was taken in the affidavit of the solicitor for the respondent that the writ had not been signed by the plaintiff or his legal representative. That matter was disposed of by the replying affidavit of the solicitor for the plaintiff to the effect that he believed it was signed by him. If it was signed by him, or if it was signed by his clerk it made no difference. The writ was regularly issued and served. It complied with the Rules of Court and there was no irregularity on the face of it. I dismissed the appeal. 11. But there was another ground on which I would have dismissed this appeal. 12. The appellant sought to have the judgment set aside on two grounds, and from the summons as drafted there was a clear indication that the appellant was indifferent as to on which ground the judgment was set aside; i.e. on the ground of irregularity or on the grounds that he had a good defence and ought be allowed defend. Rather than claim "further or in the alternative" the plaintiffs claimed simply (a) or (b) as in the summons. I understand from counsel that when the matter was argued before the Registrar it was presented to him in that way. I was told that counsel without any specific direction of his argument sought merely that the judgment be set aside. That being so the appellant got what he sought and it is not known on what grounds the Registrar did make his finding though it was conceded by Mr. Mumford that in all probability the reason for the Registrar's decision was that he had a good defence. If that was the reason selected by the Registrar for his decision then it was clearly in his discretion to refuse costs. I was then asked by the appellant to deal with the second part of the sommons: that the respondent be ordered to give security for costs. It was objected to by Mr. Jackson-Lipkin who appeared for the respondent that I should entertain this application at all. He said the matter had been brought before the Registrar who had adjourned the matter with liberty to re-enter; that he was still seized of the question; and therefore it ought not be considered by me until the learned Registrar had made a pronouncement of it one way or the other. 13. The argument of Mr. Jackson-Lipkin on this point had some attractions but the idea of sending the matter back to the Registrar to have him deal with it and then possibly have his decision appealed against to a judge with the consequent delay and costs did not appeal to me. Such delay and increased costs seemed unjustifiable to me if it could be avoided. But apart from the practical and common sense approach I was satisfied that I had power to assume the application and deal with it. 14. I do not propose to go into the history in England of the delegation of the powers of a judge in chambers to the Masters of the High Court. Suffice it to say that until 1867 all matters in chambers were dealt with by the judge. In that year legislation was enacted which enabled the Masters of the High Court to deal with certain matters formerly dealt with by a judge in chambers. It was not an exclusive jurisdiction that was conferred on the Masters, and it did not take away from the judge the powers or the jurisdiction that he had in chamber matters. It is perhaps of some interest that the title of the act that gave these powers to the Masters was "Judges' Chambers Despatch of Business Act, 1867". The Act gave power to the judges to make rules empowering the Masters:
were theretofore done by judges in chambers. By section 38 of the Supreme Court Ordinance the Registrar in Hong Kong has the same jurisdiction powers and duties as the Masters, Registrars and like officers of the Supreme Court of Judicature in England and such other jurisdiction, powers and duties as may be conferred on him by rules of court. Order 32 rule 11 of the Rules of the Supreme Court provides that the Registrar shall have power to transact all such business (with certain exceptions) and exercise all such authority and jurisdiction as under the Ordinance (that is the Supreme Court Ordinance) or the Rules of the Supreme Court as might be transacted and exercised by a judge in chambers. 15. The powers that were given to Masters in England, or the Registrar here were for the purpose of convenience and the expedition of business, and were given to leave the judges free to deal with other matters. They in no way deprived the judge of the right to hear those matters in chambers which, usually, are heard by the Registrar, and the powers of the Registrar are in the nature of delegated powers. 16. In the circumstances, as the parties were all before me and aware of the application that was to be made by the appellant I considered that common sense demand that I assume the matter from the Registrar, and exercise the power which I always had and deal with the application for security for costs. 17. It is clear from the wording of the summons that when the appellant sought security for costs it was relying on section 357 of the Companies Ordinance. The wording of that section is:
From the wording of the section it is obvious, and it is a matter, as I understood it, that was conceded by counsel, that the Registrar had no jursidiction to hear an application for security. 18. I understood from what counsel said that when the counsel on both sides had been heard before the Registrar the learned Registrar adjourned for a short time and on his return ordered that the judgment be set aside, and then, without application from counsel on either side, adjourned the matter of security of costs. It was common case that an appeal lay against such an order for adjournment. As such an appeal lay then the matter was before me to be dealt with by me as an actual re-hearing of the application which led to the order under appeal. That being so I considered the evidence that was presented or available when the matter was before the Registrar. In addition to that evidence I had before me a number of affidavits filed on behalf of both parties subsequently to the order of the Registrar. 19. Outlining the case for the appellant Mr. Litton said that prior to proceedings being brought the 1st plaintiff Hannah Broquard transferred her assets in the firm Intercontinental Chemical Corporation to the respondent. The respondent, he said, is a limited liability company with a paid up capital of $2 and the two shareholders are the same Hannah Broquard and her husband. He alleged that the respondent then transferred its assets to another company called Intercontinental Polymers Corporation Limited, a company whose paid up capital is also $2 and once more the sole shareholders are Hannah Broquard and her husband. He said that this assignment of assets of the respondent was shortly before a provisional liquidator of the respondent was appointed. He referred to a Notice of transfer dated the 21st July, 1978 published in pursuance of s.3 of the Fraudulent Transfers of Business Ordinance in the official gazette. He pointed out that in that notice it was stated that the transferees would not assume any liabilities incurred by or arising out of the business of the respondent. Mr. Litton referred to a letter from the respondent dated 12th August, 1978, and addressed to M. & I. Limited, a subsidiary of the appellant, in which the respondent informed M. & I. Limited that the letter was an official instruction to it to hold certain godown warrants in the name of the respondent to the order of Intercontinental Polymers Corporation Limited, and to transfer all outstanding accounts of the respondent to the account of the Intercontinental Polymers Corporation Limited effective as from the date of the letter. He maintained that that letter confirmed that the assets of the respondent had been transferred in pursuance of the agreement referred to in the Notice of Transfer. Mr. Litton also referred to the affidavit of Mr. Soo the solicitor for the defendant which showed that at the date of the affidavit, that is the 23rd October of this year, the 2nd plaintiff was involved in 32 cases in either the High Court or the District Court in 16 of which the 2nd plaintiff is the defendant. Mr. Litton said in all the circumstances of this case there must be a grave suspicion that the respondent would not be in a position to pay costs should it be unsuccessful in its action. Mr. Litton emphasized that all the evidence tended to show that there had been a transfer of the assets of the respondent to Intercontinental Polymers Corporation Limited and said that nowhere was this positively denied by the plaintiff. He referred to the affidavit of a Mr. Cotterill, solicitor for the plaintiffs and said that the limit to which Mr. Cotterill would go was to say that Mr. Broquard of the respondent had informed him that the sale of assets did not take place nor was any such a sale contemplated. He said so far as Mr. Broquard was concerned in his affidavit he went no farther than to say that he confirmed that he told that to Mr. Cotterill. 20. In reaching my conclusions in this case I found that an examination of the chronological order of events to be of considerable interest. Firstly there was the Notice of Transfer of the 21st July, 1978 announcing the agreement by the respondent to sell its assets to the Intercontinental Polymers Corporation Limited. That notice announced the transfer of all the assets of the respondent leaving with it all its liabilities. The second matter was a petition dated the 12th August, 1978, to appoint a provisional liquidator, and the appointment of such a liquidator on the 17th August. Although it was stated in the order appointing the provisional liquidator that his powers were limited, something pointed out by Mr. Cotterill in his affidavit, nevertheless the powers that were granted to him were fairly comprehensive. He had powers to collect the books and documents of the company and to break open doors and cupboards or other containers of the company in the exercise of those powers. He was empowered to sell the assets of the company without liability, and he was empowered to investigate the circumstances of the transfer of the company to other companies or directors connected with other companies. He was also empowered to operate accounts of the company. 21. On the 12th August there was the letter to which I have already referred written by the respondent to M. & I. Limited notifying them of the transfer of the goods represented by the godown warrant which they enclosed with the letter to Intercontinental Polymers Corporation Limited. 22. The provisional liquidator was discharged and the petition was dismissed by consent, according to the affidavit of Mr. Broquard, when a comprehensive settlement was reached with the petitioner concerning a number of claims by the petitioner against the respondent and a number of claims by the respondent against the petitioner. 23. I was not told as to the background or the basis of the petition, but more particularly I was concerned about the Notice of Transfer which appeared in the gazette. It is true that I have been told by counsel that no sale was in fact carried out and no assets were transferred. I was told that the Notice appeared in the Gazette after it had been decided not to proceed with the agreement referred to in it but that it was too late to stop it appearing. I was told that the provisional liquidator was aware of the position and that in fact he had never acted, apart from approving of the respondent's action in pressing the present claim. But it did occur to me as being suspicious, to say the least of it, that the respondent had agreed to transfer all its assets to another company of which the directors and shareholders were exactly the same as of the respondent and the paid off capital of which was $2. It occurred to me as being suspicious that the respondent contemplated denuding itself of all its assets while retaining all its responsibility for liabilities very shortly before the proceedings were taken by the petitioner for liquidation. 24. Mr. Broquard attempted to explain the matter in his affidavit of the 25th October, 1978. In it he said the intended transfer was to enable the transferee to conduct business with some of the respondent's suppliers and customers in consideration of "a payment the amount of which was dependent on the amount of such business. It was never intended to deplete the 2nd plaintiff's assets". I found that reasoning hard to appreciate. I was given an explanation of the letter of the 12th August. In a nut shell the effect of the explanation was that that letter was a mistake and did not refer to assets of the respondent; that the goods to which the godown warrants referred were in fact goods which belonged to Intercontinental Polymers Limited but M. & I. Limited incorrectly made out the warrants in the name of the respondent. With regard to the actions referred to in the affidavit of Mr. Soo in which the respondent is a party I was told that the respondent is unaware of some of them; that in some of them judgment has been obtained in favour of the plaintiff, that is to say the 1st plaintiff or the respondent; in others settlements have been reached and that others are in the process of settlement. I understand that there were others in which the respondent was the defendant and which have now been settled. But one of the cases settled perturbs me. It was a case in which after judgment was obtained against the respondent it was agreed that the amount due would be paid by instalments. But in his affidavit of the 23rd October, 1978, Mr. Soo the solicitor for the appellant states that he has been informed by the solicitors of the plaintiffs in actions 1293 and 1294 of 1978 that up to the 14th October the debts of his client, and Mr. Soo refers to them as judgment debts, have not been recovered from the respondent. I have not been told when judgment was obtained but the writs in both of these cases were issued on the 7th May, 1978. Mr. Broquard in his affidavit of the 25th of October includes those two cases as being included in "the comprehensive settlement" which led to the termination of the liquidation proceedings but makes no reference to the deposition regarding them of Mr. Soo. 25. I find the affidavits sworn by Mr. Broquard on behalf of the respondent to be vague and unsatisfactory. Nowhere has he been explicit as to the state of the respondent's financial position; in most cases he has dealt in generalities. An example of this is where speaking of the first plaintiff and referring to the affidavit of Mr. Soo, Mr. Broquard said:
Paragraph 12 of his affidavit is, I think, also worth quoting. He said:
26. The exhibit was produced by a firm of accountants and is endorsed "Statement of Accounts for the period from the 3rd December 1976 (date of incorporation) to the 31st August 1977". On the first page there is what is called the Accountant's Report which reads as follows:
Then follows a balance sheet as at the 31st August, 1977; it is certified to be true and correct by Mr. Broquard. 27. It is also of interest to note that in that balance sheet the fixed assets, furniture, fixtures, equipment, motor cars and boat are all valued at cost. No indication as to when they were purchased is given and nothing has been allowed for depreciation. The information provided in that document is useless so far as I was concerned in assessing whether or not the respondent is able to meet costs of the proceedings if such are awarded against it. It is of no assistance to me to know that the company made a profit for the time there set out. I am concerned with the position of the company as it is today. I had no satisfactory explanation as to why I should be given figures up to the 31st August, 1977, even if they were acceptable, but no statement as to the position of the company as it is today. It was of no help to me to know that there is more owing to the respondents than it owes. It is of little help to know what the turnover of the respondents was from the 1st September, 1977 to date without knowing what has to be off-set. 28. Having regard to all that was presented to me by counsel I was left in the firm and grave belief that the respondents would be unable to pay the costs of the appellant if the appellant were successful in his defence and accordingly I ordered security to be given by the respondent. 29. On pronouncing my decision Counsel for the respondent immediately sought leave to appeal to the Court of Appeal against my decision on the appeal from the decision of the Registrar. The matter was adjourned and on the adjourned hearing I refused leave.
Representation: Mr. H. Litton, Q.C. & Mr. Mumford (Samuel Soo & Co.) for Appellant/Defendant Mr. Jackson-Lipkin, Q.C. & Mr. Wei (Hampton, Winter & Glynn) for Respondent/Plaintiff. |