Ng Ngon Kwan, Stephen v. Hideaki Minami and Another
Read the full judgment text of DCCJ 7989/2001 on BabelCite. This District Court judgment was delivered on 15 November 2001.
1. Today I have an application to set aside a judgment entered by the Plaintiff against the 1st Defendant for a sum of $600,000 pursuant to Order 19, Rule 2 of the Rules of the District Court, allegedly in default of the filing of a defence by the 1st Defendant within time.
Cites 5 cases
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DCCJ007989/2001 DCCJ7989/2001 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 7989 OF 2001
Coram: H H Judge Andrew Cheung Date of Judgment: 15 November 2001 ________________________ J U D G M E N T ________________________ 1.Today I have an application to set aside a judgment entered by the Plaintiff against the 1st Defendant for a sum of $600,000 pursuant to Order 19, Rule 2 of the Rules of the District Court, allegedly in default of the filing of a defence by the 1st Defendant within time. 2.The dispute between the parties arose this way: Very briefly, the Plaintiff says that he used to be in the employ of a company of which the 1st and 2nd Defendants were directors. There were disputes arising from the employment relationship and eventually that resulted in an award made by the Labour Tribunal in May 1999 for a sum of $604,100, being salary payment in lieu of notice, year-end double pay and severance payment, together with costs and interest against the company. It may be added that the award was obtained by the Plaintiff against the company in default of defence by the company. After repeated efforts by the Plaintiff to obtain satisfaction of the award against the company and from the 1st and 2nd Defendants, eventually, so the Plaintiff says, the 1st Defendant signed a deed of settlement with the Plaintiff whereunder the 1st Defendant covenanted to pay to the Plaintiff a total sum of $400,000 in full and final settlement of the award made against the company by monthly instalments of $5,000 each. I need not go into the details of other provisions in the deed. Suffice it to say the 1st Defendant did not make any payment at all in pursuance of the deed and therefore in the present action, the Plaintiff sues the 1st Defendant pursuant to the deed for payment of money. The Plaintiff also says that a similar promise, although not under seal, has been made by the 2nd Defendant to him, therefore the 2nd Defendant is also liable for the amount awarded under the Labour Tribunal award. 3.The writ was taken out on 25 April 2001 and slightly amended on 15 May 2001. It was served by registered post on the last known or usual address of the 1st Defendant on 21 May 2001. The writ was accordingly deemed to have been duly served on the 1st Defendant on 29 May 2001, leaving out the intervening Sunday from the counting. In other words, the 1st Defendant had until 12 June 2001 to file an acknowledgement of service indicating an intention to defend. This, the 1st Defendant through his solicitors, Messrs Tang & So, did on 11 June 2001. According to the Rules, the 1st Defendant had 14 days counting from the time limited for acknowledging service of the writ to file a defence as per Order 18, Rule 2(1). That would take the 1st Defendant to 26 June 2001. On 26 June 2001, the 1st Defendant through his solicitors took out a time summons asking for 21 days extension of time to file a defence, but on the following day, 27 June 2001, i.e. as soon as the time limited by the rules for the filing of a defence expired, the Plaintiff obtained a default judgment against the 1st Defendant. 4.The story behind the Plaintiff's obtaining the default judgment is like this: On 18 June, the Plaintiff, then acting in person, went to the Registry of this court and enquired about the progress of the case. He was informed, quite correctly, that if he wanted to enter a default judgment against the 1st Defendant, which it was his intention to do so at the time, this could only be done after the expiry of time for the filing of a defence and by compliance with Order 19, Rule 8A, which requires the service of a notice of intention to enter judgment against an opponent. So on the same day and purportedly pursuant to the requirement of the rules, the Plaintiff sent by post a notice of his intention to enter default judgment against the 1st Defendant upon the expiry of the time fixed for the filing of a defence to the 1st Defendant. He addressed the notice to the 1st Defendant but sent the notice not to the 1st Defendant's address but to the address of the 1st Defendant's solicitors. The solicitors said they never received the notice. But in any event, on the last date for the filing of a defence, they took out a time summons, but, as I mentioned, that notwithstanding, a default judgment was entered on the following day. 5.Now the 1st Defendant came before this court and asked for the setting aside of the default judgment. The 1st Defendant took two points: 1) the judgment so obtained by the Plaintiff was an irregular judgment, the Plaintiff having failed to comply with the requirements of Order 19, Rule 8A; 2) and in any event, the 1st Defendant asserted that he has a meritorious defence. 6.Before I deal with the two points in turn, I would like to say this: the entry of default judgment in the present case, notwithstanding the fact that a time summons had already been taken out prior to the date of the default judgment, and in particular, when the time summons was taken out before the expiry of the time limited for the filing of a defence, highlights a pitfall or an unsatisfactory aspect in this part of the procedure of the court. According to Order 19, Rule 2 and the following rules, upon or after the expiration of the period fixed for the service of a defence, a plaintiff may enter judgment, either final or interlocutory, against a defendant, depending on the relief he seeks. As I understand it, the general understanding of the effect of Rule 2 and the subsequent rules is that once the time fixed for the filing of a defence has expired, the plaintiff has a right, a discretion or a power to enter judgment against the defendant. The discretion, the power, the right, lies with the plaintiff, not with the court. He need not, as it were, make an application to the court for the entry of default judgment. He need only make an application to the Registry as an administrative or mechanical procedure to obtain the default judgment. The general understanding is that in such a case the Registry of the court has no discretion to refuse the entry of judgment against a defendant, even though before the actual entry of the default judgment there has already been pending before the court a time summons. But so I also understand, the practice has grown up that a default judgment would not be entered by the Registry if prior to application for the entry of default judgment, a time summons has already been taken out. 7.Now, I have difficulty in understanding this practice, if such practice does exist in accordance with my belief. In my reading of the Rules in Order 19, either the court has a discretion to refuse the entry of default judgment upon an application by the plaintiff after the expiry of the time fixed for the filing of the defence in an appropriate case, or it does not. If the court has the discretion, then I can well understand why the Registry may want to defer the entry of a default judgment against a defendant when there is pending before the court a time summons. It should be up to the court hearing the time summons to decide whether either to extend the time for filing of defence, in which case no default judgment should be entered, or to refuse to extend time, in which case the entry of a default judgment would be a matter of course. But in such a case, it should make no difference whether the time summons was taken out before or after the Plaintiff applied to enter default judgment. The matter should still be decided by the court hearing the time summons, and pending the hearing no default judgment should be entered in either case. 8.Now, if the court does not have the discretion in any case to refuse the entry of default judgment once a plaintiff has decided that he wants to apply for a default judgment, then whether there is pending before the court a time summons and whether that time summons had been taken out before or after the plaintiff applied to the Registry for the entry of default judgment, is neither here nor there. The Registry has no power to delay or defer the entry of a default judgment against the defendant, pursuant to his entitlement under the rules. 9.In this regard, my attention has been drawn to a passage in Hong Kong Civil Court Practice, Volume 1, edited by Mr Clark, paras. [6346]-[6386], where there is a reference to an earlier case GP Vickers & Co Ltd v Humanbo Enterprises Limited HCA No. 12076/1983, a decision by Power J (as he then was) on 16 January 1984, to the effect that a judgment in default of defence which is entered after the defendant has set down an application to extend the time for serving a defence is not irregular as the application to extend the time does not operate as a stay of proceedings. Unfortunately, a copy of the judgment has not been made available to me today, but my understanding of the position accords with what is said to have been decided in that case, namely that, strictly speaking, the taking out of a time summons is neither here nor there, and it will not per se prevent the entry of a default judgment against a defendant after the expiry of the time fixed for the filing of a defence. Nothing short of a court order either granting an interim stay of proceedings pending the outcome of the application for time under the time summons, or an actual extension of time for the filing of defence would, in my view, prevent the entry of a default judgment against the defendant upon an application by the plaintiff made after the expiry of the time fixed for the filing of a defence, assuming that under Order 19, Rule 2 and the subsequent rules, a court has no discretion to refuse the entry of a default judgment against a defendant upon the application by a plaintiff, which, as I have said, seems to be the general understanding. 10.For my part, I think the general understanding of the effect of the rules would seem to be correct given the wording actually employed in Order 19. I also think that that notwithstanding, the court must retain an inherent jurisdiction in an appropriate case to do something, as it were, to prevent the entry of a default judgment in an appropriate case, at least pending the hearing of a time summons. I can think of, as I say, and as suggested by Power J in the case I have already mentioned, the granting of an interim stay of proceedings in the meantime to allow the time summons to be heard, and at the actual hearing of the time summons a court may even grant an extension of time so as to, technically, prevent the operation of Order 19, Rule 2 and the subsequent rules, in an appropriate case. 11.So without deciding whether the general understanding of the effect of Order 19, Rule 2 and the subsequent rules is correct or not and without further commenting on whether the current practice of not entering a default judgment if at the time when a plaintiff applied for the entry of a default judgment there was already pending before the court a time summons is correct or not, I shall proceed to deal with the facts in the present case. Suffice it for me to say, in the present case there was no application by the 1st Defendant's solicitors after the taking out of the time summons for any interim stay of proceedings pending the hearing of the time summons, and moreover, in the present case, as it were, there was a standing application by the Plaintiff for the entry of default judgment once the time was up for the filing of a defence by the 1st Defendant, so that even though the time summons in the present case was taken out within time, i.e. on 26 June, the Registry, so I gather, took this as a case where the application for entry of a default judgment was made before the taking out of a time summons and, therefore, the taking out of the time summons did not prevent the entry of a default judgment in the present case. And in accordance with GP Vickers, the decision by Power J, such a default judgment entered against the 1st Defendant in the present case should not be regarded as an irregular judgment. Therefore, I do not proceed to deal with the present application on that basis. 12.Having said all this, I now turn to the two main issues raised before me today. First, whether there has been compliance with Order 19, Rule 8A. The rule says:
13.The point made on behalf of the 1st Defendant in the hearing this morning was this: 1) the notice was served by post and addressed to the Defendant, yet sent to the address of the solicitors of the 1st Defendant; 2) in any event, the 1st Defendant's solicitors said, and this was backed up by two affirmations from the firm of solicitors, that somehow they never received the notice. Now, in relation to the first point, one must go back to the wording of Rule 8A(1)(a). Under the rule, the notice is required to be served on either the defendant, if he is acting in person, or his solicitor, if he is legally represented in the action. The intention behind the rule is sufficiently plain to me, the rule being a statutory codification of a voluntary practice of solicitors in the past of giving a 48-hour notice to the other side's solicitors before applying for default judgment. The intention is to give a final warning to the person who is supposed to be responsible for preparing the defence that unless the defence is filed within the next two (clear) days, default judgment will be applied for against the defendant. So if a defendant is acting in person, quite naturally the warning should be served on the defendant himself by means allowed under the rules, and since Order 19, Rule 8A itself does not require personal service, Order 65 of the Rules applies and the service of the notice on the defendant can be done by post. Now, if the defendant is legally represented, then one would suppose that it is his lawyer, either his solicitor or counsel retained by his solicitor, who would be responsible for preparing the defence. Therefore, the rule requires that such final warning or notice should be served, again by whatever means allowed under the rules, including by post, on the solicitor who is supposed to be, very naturally, the person responsible for drafting the defence, or instructing counsel to do so. 14.What happened in the present case is a mixed up of the two. As I said, the 1st Defendant acknowledged service by solicitors and he is a party legally represented in the present action. According to the rule, the two day notice ought to have been served "on his solicitor". What had happened is that although the notice was served by post to the address of the solicitors, it was not, in my judgment, "served on his solicitor", since the named recipient of the notice was the 1st Defendant but not his solicitors, Messrs Tang & So. 15.Now, it was sought to be argued on behalf of the Plaintiff that this did not really matter. In my judgment, it was not the right question. The right question was whether this was something required by the rule and for good reason. 16.Now, in my judgment, on a proper construction of the rule, if a defendant is legally represented, the notice has to be served on his solicitor but not on him. Any service on him would not satisfy the requirement of the rule, and service on his solicitors must require that the solicitors be named as the recipient of the post, if service is to be effected by post. In fact and in my judgment, addressing the notice to the client of the solicitors would not be the equivalent of serving the notice on the solicitors. During submission, I raised this example: if a letter addressed to the client is sent to his solicitors firm's address, what can and what should the solicitors do, even assuming that the solicitors firm immediately recognises that the letter is addressed to one of the firm's clients (and there could be many clients in a big firm). I would have thought that in that situation, it would not be appropriate for the solicitors to open their client's letter at all, since the letter is addressed to their client. The appropriate thing for the solicitors to do would be to forward the letter to their client and it would be up to their client to open the letter. That, in my judgment, illustrates that it cannot have been the intention behind or be a correct construction of Rule 8A(1)(a) that a notice to be served on a solicitor may be served by simply sending it to the address of the solicitor but naming the client instead of the solicitor as the recipient of the letter. So in my judgment, there has been a non-compliance with Order 19, Rule 8A, which is a mandatory requirement ("No party shall..."). 17.So it becomes unnecessary for me to rule on the second point raised on behalf of the 1st Defendant, i.e. that as a matter of fact, the solicitors never received the notice, but I would like to mention this: according to paragraph 13/9/3 of Hong Kong Civil Procedure 2001, dealing with postal service under Order 13 which must have a similar application to a case under Order 19, it says:
This would seem to suggest that even if a party effecting service by post has complied with the requirements of the rules relating to postal service to the letter, if a defendant says he has not received the process through the post and if the court has no reason to disbelieve him, the service will be regarded as defective and whatever act or consequence following from the assumed good service of the process must be set aside as being irregular. 18.This seems to be contrary to the holding of the Court of Appeal in an earlier but well-known case, Honour Finance Company Limited v Chui Mei-mei [1989] 2 HKLR 146, overruling AG v Watson [1989] 1 HKLR 386, where the Court of Appeal held that compliance with the rules relating to postal service means that the service is a good one, notwithstanding that the defendant has never, for one reason or another, actually received the document in question. In other words, the risk as to non-service by post lies with a defendant, whereas the earlier passage in the local White Book, paragraph 13/9/3 would seem to suggest that the risk as to non-service lies with a plaintiff who has decided to resort to postal service to effect service. I note that no authority was cited in support of paragraph 13/9/3, but that certainly is quite in line with my own understanding of the recent approach of the courts in Hong Kong in this sort of situation. But, as I say, I need not decide this point and I am not sure if I have been cited all the relevant authorities on this point since the Court of Appeal case Honour Finance Company Limited which was decided back in 1989. So, I am not making any final decision on this point as it is unnecessary for me to do so, but I simply highlight this apparent discrepancy, which I note from the authorities cited to me. (In Kwan Kam Wah V Chan Wai Ming [2000] 2 HKC 378, Deputy Judge Chu (as she then was) treated Honour Finance as having been overridden by a subsequent Court of Appeal decision Chu Kam Lun v Yap Lisa Susante [1999] 3 HKC 378 re consequences of non-service by post, but Chu Kam Lun on its facts was concerned with a defendant without the jurisdiction at the time of purported service, which is a distinct situation). 19.On the facts of the present case, if paragraph 13/9/3 was to be followed, then I must say that there is really no reason for me to disbelieve the assertion by the solicitors, they being officers of the High Court, to the effect that they never received the notice required. That would have formed an additional reason for saying that the rules had not been complied with and therefore the default judgment entered is an irregular one. In any event, for the first reason I mentioned, I have already come to the conclusion that the judgment entered is an "irregular" one. But what does that mean and what consequences follow? 20.I need not repeat what has been set out in paragraph 13/9/8 of Hong Kong Civil Procedure 2001 relating to the case law in this regard. We have a number of cases, several of them decided by the Court of Appeal, including Po Kwong Marble Factory Limited v Wah Yee Decoration Company Limited [1996] 4 HKC 157 Honour Finance and Chu Kam Lun, all dealing with the consequences of labelling a judgment an irregular judgment. Recently, a fairly helpful summary of the relevant case law was done by Deputy High Court Judge Poon in Cosec Nominees Ltd v Lau Hon Ming Alan [2001] 3 HKC 290, a case dealing with a failure to serve a writ. 21.Now, it has been pressed before me that in the present case, although the default judgment may be labelled as an irregular one, the irregularity is different qualitatively from the irregularity seen in many other cases, i.e. the failure to serve the writ. In the present case, we are concerned with the failure to serve a two clear day notice of an intention to enter default judgment. The importance of such a notice is of no comparison to the importance of the proper service of a writ. I tend to agree, because even without such a warning, a defendant, particularly his solicitor if there is one, should be aware of the requirement to file a defence within time. The warning or the notice is really a reminder that something drastic or draconian is going to happen if he fails to discharge his obligation required under the Rules. So fundamentally, it is quite different from an irregularity arising from the failure to serve a writ on a defendant who is therefore denied even an opportunity to defend his case. Nothing of that sort would follow by way of consequence from a failure to serve or properly serve a notice of intention to enter default judgment. 22.In my judgment, I must go by the actual wording used by the legislature that is contained in Order 19, Rule 9, i.e. that "The court may, on such terms as it seems just, set aside or vary any judgment entered in pursuance of this order." The Court has a wide and unfettered discretion in the matter and the only relevant statutory criterion is that whatever terms the court may impose as a condition to setting aside a default judgment must be "just" in the circumstances of the case. The court must consider the whole circumstances of a case. That must include a consideration of whether the judgment is a regular or irregular judgment. That must also include a consideration of the significance or the importance of the irregularity involved. And again that must also include a consideration of whether a defendant has merits or good merits to the claim in question, for after all, to take an extreme case, if a defendant has no merits whatsoever in his supposed defence, there is really no point in setting aside a default judgment, albeit an irregular one unless the irregularity is so fundamental that it transcends the consideration of the immediate circumstances of a case but touches on something general in terms of administration of justice. In my judgment, for example, if a plaintiff deliberately failed to serve a writ on a defendant, then even if the defendant has no defence whatsoever to the claim at all, since this was such an outrageous act on the part of the plaintiff, flying in the face of the proper administration of justice, it should not be condoned in any way and the judgment should, as a matter of exercise of discretion, be set aside, even though the practical result is that it prolongs the agony of all parties concerned. This is because the action of the plaintiff in my example was so outrageous and it transcended the consideration of the individual circumstances of the case. But in the present case, as I say, the irregularity, though serious, is not that fundamental or does not belong to that class of case. 23.So in the exercise of my discretion, I think I should consider the merits of the defence as well, but in doing so, I do not think that I should adopt as high a test as used in an application to set aside a regular default judgment, as laid down by the English Court of Appeal in Alpine Bulk Transport Co. Inc. v Saudi Eagle Shipping Co Inc. [1986] 2 Lloyd's Rep 221, as adopted quite universally by the courts in Hong Kong in case of a regular judgment. For, as I said, we are not concerned with a regular but an irregular judgment which ought never to have been entered in the first place, had the irregularity been known at the time when the application to enter default judgment was made. Now, had no such default judgment been entered, then one would have thought that even if the Plaintiff was to take out an Order 14 application against the 1st Defendant, all that the 1st Defendant would be required to do was to show that he had an arguable case. Why should the 1st Defendant be in a worse position now before me just because somehow an irregular default judgment has been entered against him, i.e. that he has to demonstrate to the court that he has a defence with a real prospect of success and carries some degree of conviction, and the court would form a provisional view of a successful outcome of the action in his favour, before he may have the default judgment set aside? I do not think that in a case like the present one, one should adopt the Saudi Eagle test in considering the merits of the case, although, as I have said, I think merit is a relevant factor given the type of irregularity one is concerned with in the present case. 24.So with that in mind, I turn to the facts of the present case. The gist of the defence put forward by the 1st Defendant is that after the obtaining of the Labour Tribunal award by default against the company, the Plaintiff had used various undesirable means, allegedly, to seek satisfaction of the award against the 1st Defendant personally, even though he was only a director, or presumably a shareholder of the company, and he personally was not, according to law, responsible for satisfying the Labour Tribunal's award. Those means included writing threatening letters, not only to the 1st Defendant and the 2nd Defendant, but to business colleagues and associates and employers in Hong Kong, and in Japan (the 1st Defendant being a Japanese residing in Japan), and they also included, allegedly, the employment of debt collectors in relation to the Tribunal award and some alleged indebtedness between the parties. They also included personal disturbance, including alleged occasions of the 1st Defendant's family being disturbed by undesirable elements suspected to be connected with the Plaintiff and so forth, all for the purpose of pressurising the 1st Defendant into agreeing to satisfy the Labour Tribunal award, which as I have said, was basically a default award without any trial on the merits of the claim in question. And of course, the 1st Defendant disputed that the company actually owed the Plaintiff money, the subject matter of the Labour Tribunal award, but apparently he did not see fit or find it worthwhile to apply on behalf of the company to set aside the Labour Tribunal award. So he said under those pressurised circumstances, he executed a deed whereby he agreed to repay the indebtedness under the award up to the sum of $400,000 by instalments. He said that this was done in order to avoid the Plaintiff hurting him and his family anymore and to stop all the nuisance behaviour on the part of the Plaintiff towards him and his family, his business associates and friends, so on and so forth. Of course all this was denied by the Plaintiff. 25.This is not a place for me to try the matter on affidavit evidence. I am adopting a test akin to an Order 14 application. I think that is appropriate under Order 19, Rule 9 in the situation of the present case given the sort of irregularity involved. In my judgment, although there can be respectable arguments on both sides relating to this story and relating to the legal consequence of this story, i.e. whether it amounts to any recognised defence in law or not, such as duress, such as unconscionable bargain, and such as the lack of a genuine consent to the contract embodied in the deed and so forth, all I am concerned with is whether the 1st Defendant has sufficiently raised an arguable defence on the facts or on the law based on those facts. All things considered, I am not prepared to say that the 1st Defendant has shown no arguable case on the law or the facts at all. 26.As I have come to this conclusion, I have refrained from going into any further detail relating to the facts or the law involved, lest it might prejudice the future and further conduct of this case by the parties or any future decision relating to the merits of the case. But for my part, as I have concluded that the 1st Defendant's case is not totally unarguable and it is in fact arguable on the facts and on the law, and taking into account all other relevant circumstances in the present case, and bearing in mind that an irregularity of the magnitude that I have already described is involved in the present case, in the exercise of the discretion given me under Order 19, Rule 9, I am of the view that it is just to set aside unconditionally the default judgment in the present case and I so order. 27.The parties have indicated to me that they have no objection to my allowing this rather lengthy judgment to be published for wider circulation as it does involve some interesting points in this sort of situation. So I order that this judgment may be published in order to achieve wider circulation. (Submissions re costs) 28.So far as costs are concerned, I have heard arguments from the parties. I shall not repeat my reasons for setting aside the default judgment. I take into account the fact that an irregularity was involved in the present case. I also take into account that the Plaintiff was then acting in person and the mistake was understandable. I also take into account that it was the 1st Defendant who was late in complying with the requirement under the rules to file a defence within 14 days and he decided to wait until the last day to take out a summons for further time to do so. I also take into account that the 1st Defendant's side never took out any application for a stay pending the hearing of the time summons, a point which is not new but one which was decided by Power J in GP Vickers, which I have already referred to. Everyone is supposed to know the law. A solicitor whose client is late or is out of time in filing a defence cannot put his mind at rest by simply taking out a time summons without at the same time going before the practice master to ask for an interim stay of proceedings pending the hearing of his time summons. And as demonstrated by the facts in the present case, if he does not take those precautionary steps, he runs the risk of having a default judgment entered against his client in the meantime. In the present case it so happened that the notice required under Order 19, Rule 8A had not been properly served. So, in my judgment, the 1st Defendant must also bear part of the responsibility for what has subsequently happened. 29.And so far as the merits are concerned, all I have decided is that the 1st Defendant has shown that he has an arguable case. At the end of the day, he may win or he may lose, so therefore, I also take that into account as well in the exercise of my discretion relating to costs. The fairest order would be costs in the cause. 30.So, I order:
Representation: Present: Mr Keith Mok, instructed by Bernard Wong & Co., for the Plaintiff Mr C Y Liu, of Tang & So, for the 1st Defendant |
Cases cited in this judgment