William Thomson v. Roland John Jeans and Another

Case No.DCCJ 3388/2005[2006] 3 HKLRD 307

Court

District Court

Date—

Judge—

Case Document

100%Judiciary

DCCJ 3388/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3388 OF 2005

______________________

BETWEEN

	WILLIAM THOMSON	Plaintiff
	and
	ROLAND JOHN JEANS	1^st Defendant
	TANNER DE WITT (a firm)	2^nd Defendant

______________________

Coram : Deputy District Judge K.W. Wong in Chambers (open to public)

Date of hearing : 10^th March 2006

Date of Handing Down of Decision : 22^nd May 2006

______________________

DECISION

______________________

1.This is the 1^st Defendant’s application by summons dated 11^th January 2006 to set aside a summary judgment entered against him in his absence by Master T. Chan on 5^th December 2005.

Nature of the Dispute Between the Parties

2.The dispute relates to a sum of HK$500,000 paid by the Plaintiff to the 2^nd Defendant, who was the 1^st Defendant’s solicitors at the material times. The money was allegedly paid at the oral request and direction of the 1^st Defendant as subscription money for certain shares of a company called Wanchai Bierkeller Limited (“Bierkeller”) to be procured by the 1^st Defendant who claimed to be its major investor. The subscription never took place and Bierkeller later went into liquidation. The Plaintiff claims for return of the money on the grounds of money had and received because of a total failure of consideration, or alternatively, wrongful conversion or misappropriation, and damages for misrepresentation on the part of the 1^st Defendant.

3.The gist of the 1^st Defendant’s Defence is that it has been agreed between the Plaintiff and the 1^st Defendant that the money invested by the Plaintiff into Bierkeller would be paid to the 2^nd Defendant’s account and would be utilized straight away for the business of Bierkeller even before the share certificates were issued and number of investors, and thus shareholders agreement, finalized. In the meantime all investors were treated as owners of the business. The Plaintiff had been fully advised of the development of the problems of the business. The Plaintiff was also involved in meetings to discuss about problems of Bierkeller. He had made no guarantee to the Plaintiff that the business would be profitable. It now turned out the business suffered a loss. He should not be held liable for such loss.

The History of the Proceedings

4.The Plaintiff commenced his action on 16^th July 2005 against both Defendants by issue of a generally indorsed writ. It was later amended on 28^th October 2005. An acknowledgment of Service was signed by the 1^st Defendant personally and was received by the Registrar on 26^th September 2005. In it, the 1^st Defendant indicated his intention to defend the proceedings and stated thereon the address for service being c/o OCH 104 Lockhart Road, Wanchai. The Statement of Claim was filed and served on 29^th July and amended on 13^th October 2005. The 1^st Defendant’s Defence was filed on 10^th October 2005.

5.On 17^th November 2005, the Plaintiff filed a summons for summary judgment against the 1^st Defendant for a sum of $500,000. That summons came before Master T. Chan on 5^th December 2005. According to the affirmation of the process server of the Plaintiff Wong Po Chun affirmed on 2^nd December 2005, two separate sets of Order 14 summons together with the supporting affidavit of the Plaintiff were sent on the 1^st Defendant at respectively two addresses, namely the address for service and another address at Li Chit Street, being his usual or last known address. According to a subsequent affidavit by Mr. John Ip, the Plaintiff’s solicitor, they were sent on 18^th November 2005 by ordinary post. Neither the 1^st Defendant nor anyone representing the 1^st Defendant showed up at the hearing. Accordingly summary judgment was given for the Plaintiff in the absence of the 1^st Defendant for $500,000 together with interest and costs.

6.On 11^th January 2006, the 1^st Defendant issued the present summons to set aside the said summary judgment together with his supporting affidavit of the same date. In the meantime, the Plaintiff had issued bankruptcy proceedings against the 1^st Defendant. The Plaintiff responded with an affidavit of his solicitor Mr. John David Ip dated 23^rd January 2006. Each of the 1^st Defendant and the Plaintiff filed and served an affidavit respectively dated 20^th and 27^th February 2006.

Tests to be Applied

7.It has not been stated in the 1^st Defendant’s summons under which provision of the Rules of District Court (“RDC”) the application was taken out. As the 1^st Defendant is not represented, he did not, as expected, offer any assistance in this respect. The Plaintiff approached the application on the basis that it was one issued under O.14 r.11 of RDC.

8.Order14 Rule11 of RDC reads:

Any judgment given against a party who does not appear at the hearing of an application under rule 1 or rule 5 may be set aside or varied by the Court on such terms as it thinks just.

Apparently the above provision falls squarely on the situation of the 1^st Defendant against whom a summary judgment in default of appearance has been entered. I consider it the only relevant rule of the court under which the present application can be taken out, as the application is not couched in the form of an appeal. I do so approach the application as one taken out under O.14 r.11.

9.As observed by Keith JA in O Mark Polyethylene Products Factory Limited v Reap Star Limited [2000] 2 HKC 330, a question arises as to the test on merits which should be applied for O.14 r.11 application: whether the test to be applied for summons for summary judgment under O.14, which apparently has a lower threshold, or the test to be applied in setting aside default judgment under O.13 r.9, which is a higher test in the event of regular judgment. There is a practical difference between the two tests and His Lordship has decided to leave it open in that case. Since in O Mark the defendant has satisfied the higher test,he considered that it was unnecessary for him to decide on the matter.

10.In the same case, Godfrey, V-P stated that in his view there should be no difference in the test to be applied in Hong Kong to set aside a default judgment under O.14 r.11 from that to be applied on such application under O.13 r.9. He, however, expressly acknowledged the issues raised by Keith JA in O Mark and an earlier case of Morigood Development Ltd v Sunny Trading Co (a firm) [1999] 2 HKC 710. He therefore expressly regarded his views in O Mark obiter dicta, hoping that his views might be helpful for guidance of judges of the first instance in similar future cases.

11.The views expressed by Godfrey, V-P in O Mark, though considered obiter, was followed by Ma J (as he then was) in the Court of First Instance decision of Chekiang First Bank Limited v Ng Chun Hing Benjamin (unreported) HCA3474/2000, 12^th December 2001, Ma J. Accordingly I consider myself bound by the guiding views of Godfrey JA in O Mark, though obiter. The principles applicable in setting aside a default judgment obtained under O.13 r.9 are therefore to be applied to the present case.

12.The test to be applied under O.13 r. 9 depends on whether the judgment was regular or irregular. If the judgment is irregular the Hong Kong position is that such judgment is to be set aside as of right. If the judgment is regular, the merit of the defence needs be examined.

Was the Judgment Regular?

13.The 1^st Defendant explained in his affidavit dated 11^th January 2006 the reason for not attending court as follows:

“It was sent to me by ordinary post and apparently I was out when it arrived and a friend staying with me collected it from the mailbox together with many advertising pamphlets and promotional junk mail [.] It was in the flat and not brought to my attention as it was put under a pile of magazines [.] Had I received it I would surely have appeared to defend it as both the First and Second Defendants had put in notices of intention to defend and detailed defences.”

14.Mr. Ip, solicitor appearing for the Plaintiff, explained in his affidavit filed herein that the documents sent to the 1^st Defendant comprised 45 pages of A4 size and was about half an inch thick. He said that the 1^st Defendant would not have missed such bulky documents nor mistaken the envelope to contain advertising or promotional junk materials. It was only when the 1^st Defendant was served personally with a statutory demand under the Bankruptcy Ordinance on 9^th January 2006 at his Li Chit Street home that the 1^st Defendant realized his problem and took action. He invited the Court to reject the 1^st Defendant’s explanation on the ground that such explanation was unbelievable and was with a view to obstruct and delay enforcement of judgment against him.

15.In the 2^nd Affidavit filed by the 1^st Defendant, he mentioned that the mail was sent to his home. Presumably he was referring to the address at Li Chit Street. There was no mention whether the documents served on him at his address for service could reach him or not. Assuming they failed to reach him, the question is whether the 1^st Defendant can argue that the judgment obtained is an irregular one.

16.Regarding the allegation of the 1^st Defendant that although the documents did reach his home, he was not aware of them because he mistook them to be promotion or advertising materials. I do not consider this explanation acceptable. I accept Mr. Ip’s submission that an envelope containing 45 pages is quite a big one. It is quite unconcievable that one may miss such big envelope in his home except that he deliberately turns a blind eye to any mails. The fault for what occurred lies primarily with the 1^st Defendant. He is the only one to blame and has to bear the consequence that follows.

17.In Morigood, the defendant provided an address for service which she had subsequently moved out. However, she did not inform the other side of her new address. The application to set aside the summary judgment was grounded on the judgment being irregular because service was effected neither at the last known address nor principal place of business but at the address for service which it had moved out. Keith J (as he then was) rejected such argument. He considered the judgment regular because service was effected at an address which was informed by the defendant and such had never been withdrawn. In the present case, there had been affirmation evidence that service had been effected at the address for service. There is no evidence to the contrary that the documents have not been served at the address for service. The presumption that service has been effected on the second working day after posting referred to in Practice Direction 19.2 applies. Even assuming the 1^st Defendant has for some reason failed to get the documents from that address, the authority of Morigood says that since the address has not been withdrawn at the time of service, service at the address for service is still regarded good one. I have no doubt that the judgment entered herein was a regular one.

Prospect of Success

18.The Plaintiff’s claim, as I have said, is for return of money because the purpose for which the money is paid has failed, and there has been misappropriation of the money and misrepresentation on the part of the 1^st Defendant. It is noted that the so-called representations of the 1^st Defendant were pleaded in paragraph 2 of the Amended Statement of Claim. It was made by the 1^st Defendant in early January 2004 at the Basement de Fenwick. In paragraph 4 of the said pleading the Plaintiff pleads that in reliance on the said representations the Plaintiff, inter alia, paid the said sum of $500,000. However it is also stated in the 1^st Affidavit of the Plaintiff (paragraph 7(e)) that he was induced to deposit the sum of $500,000 when he met the 1^st Defendant and the 2^nd Defendant’s staffs, one Mr. Eddie Look and one Ms. Lee some time on 21^st January 2004. Particulars of the inducement were not stated. Neither was it stated in the pleadings nor any affidavit in sufficient details the circumstances under which the Plaintiff deposited the money, although he did say that at no time it was suggested to him that the money would be for the business immediate use before execution of the shareholders agreement. Without further elaboration, there appears to be at least uncertainty, and if pitching the problem to the highest, some inconsistencies, as to what actually made the Plaintiff pay the money to the 2^nd Defendant. What exactly the inducement is remains unclear from the affidavit evidence. The Plaintiff’s position on these crucial factual matters, at least as revealed in the documents before the court, was not entirely satisfactory.

19.Although none of the affidavits of the 1^st Defendant expressly verified the facts pleaded in his Defence, it is plain that is what the 1^st Defendant intended to do. The 1^st Defendant’s defence is, as revealed in the Defence and his 2^nd Affidavit, that there has been oral discussion of the risk involved in the business. It had also been alleged that there was agreement that before the finalization of the number of investors and thus signing of the shareholders agreement, the money put in by the Plaintiff would be used right away. The 1^st Defendant’s case was that Plaintiff expressed that he understood and agreed to such arrangement. The Plaintiff was therefore a beneficial owner of the business.

20.It can be gathered from what the 1^st Defendant had said is that the money is an investor’s loan to the company and/or shareholder capital in the eye of equity. If the 1^st Defendant’s version of story is accepted, I consider that he has a good defence to the claim. In my judgment, the ultimate outcome of this case will depend substantially on which of the Plaintiff, the 1^st Defendant and even representatives of the 2^nd Defendants are to be believed on crucial issues of the representations and the purpose for which money was paid, which were all made orally. The draft agreement produced by the Plaintiff cannot help because it was unsigned.

21.One of the main arguments of the Plaintiff in support of his claim for misrepresentation was that from the outset, the 1^st Defendant has represented to the Plaintiff that the company to be invested had a share capital of $165,000. He later found out that the company, i.e. Bierkeller had a share capital of $10,000. However, is it not the Plaintiff’s evidence that after the alleged representation of the 1^st Defendant and prior to depositing the money, he had received a draft of the shareholders agreement (see paragraph 7(d) of the Plaintiff’s 1^st Affidavit)? In that draft, the share capital has expressly been stated to be $10,000. So it would appear at least by then, it was made known to the Plaintiff that the business to be or already set up had a share capital different from what he had been told before. As such, without knowing exactly what had been exchanged between the witnesses, it would be difficult to assess whether this alleged representation, being one of which the Plaintiff claimed to have relied on, really plays a part in making the Plaintiff pay the money.

22.A defendant who seeks to set aside a regular judgment must at least show that he has a real prospect of success. What he has to show to the court is that his case and the evidence he has adduced in support of it carries some degree of conviction so that the court can form a provisional view of the probable outcome of the action: see Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC, 213.

23.However, if the outcome of a case cannot sensibly be formed without an assessment of witnesses, and that cannot be done until the witnesses were examined at trial, the appropriate test to determine whether a defendant has a real prospect of success is to ask whether the defence “could well be established” at trial: see Allen v Taylor 1 PIQR 255 cited with approval in Morigood. If the evidence of the defence witnesses could well be believed at trial, the defendant has established a real prospect of success.

24.This is the test that I adopt in the present case in assessing whether the 1^st Defendant has a real prospect of success at trial. In my view and after balancing the affidavit evidence of the parties as mentioned above, the 1^st Defendant could well be believed at trial. It follows that the 1^st Defendant’s defence has a real prospect of success.

Conclusion and Order

25.For reasons which I have stated above, I make the following order:

i) the summary judgment dated 5^th December 2005 entered against the 1^st Defendant in favour of the Plaintiff be set aside;

ii) order nisi on costs of the Order 14 application be in the cause;

iii) order nisi on costs of the 1^st Defendant’s setting aside application be paid by the 1^st Defendant to the Plaintiff in any event, to be taxed if not agreed; and

iv) the order nisi will become absolute unless either party applies to be heard on the question of costs within 14 days from the day of handing down of this decision.