Tse Fui t/a Tsz See Hing Yip Electrical Engineering v. Hung Cheung Kwong and Another Both t/a Waison Engineering Consultants

CACV 417/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 417 OF 2006

(ON APPEAL FROM DCCJ NO. 6336 OF 2003)

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BETWEEN

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Before:  Hon Tang VP and Waung J in Court

Date of Hearing: 13 February 2007

Date of Judgment: 13 February 2007

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J U D G M E N T

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Hon Tang VP (giving the judgment of the Court):

1.The plaintiff was a sub-contractor of the defendants.  The defendants are two brothers, Hung Cheung-kwong and Hung Cheung-hung, who were referred by the judge Deputy District Judge M. Chow (“the judge”) as the 1^st and 2^nd defendants respectively.

2.By a writ dated 5 November 2003, the plaintiff sued the defendants in the District Court for the sum of $404,806.50, said to be shortfall in payment for services in engineering consultancy works provided by the plaintiff to the defendants between 1999 and 2001.

3.There was a letter before action dated 18 July 2003 written by Messrs Wong & Tang, the Solicitors for the plaintiff, addressed to the defendants.

4.There were three replies from the defendants.  The first is dated 21 July 2003, which was 4 pages long.  It was written under a letterhead giving the President Commercial Centre address.

5.That was followed by a letter dated 28 July 2003, which had attached to it, alleged defects and deficiencies of the plaintiff, which ran to more than 15 pages.  That letter went on to say:

“… the additional details in support of our request for additional information and object to your client’s intention to commence legal proceedings against our company will be submitted separately.”

It also supplied three contact telephone numbers.

6.The 3^rd letter is dated 4 August 2003.  It was 13 pages long.  All three letters were signed by the 2^nd defendant.  The addresses in the stationery for the 28 July and 4 August 2003 letters gave the Ho King Commercial Centre’s address.

7.Up until July / August 2003, the defendant’s principal place of business was what the judge described as the “Old Address” which was at Ho King Commercial Centre.

8.The defendants moved to what the judge called the New Address (in the President Commercial Centre) in July / August 2003.  The New Address was notified to the business registry on 5 August 2003.  In other words from July / August 2003, the defendants ceased to conduct business at the Old Address.

9.The writ was sent to by registered post to the Old Address on 5 November 2003.  That was done pursuant to O. 81 r. 3(1)(c) which permits service by registered post “to the firm at the principal place of business of the partnership within the jurisdiction”.  However, as the evidence shows, by the time the writ was served, the Old Address was no longer the principal place of business of the partnership.

10.Judgment in default of notice of intention to defend was given on 4 December 2003.  At that time, the plaintiff was represented by Wong & Tang.

11.The judge held that because the writ had not been served in accordance with O. 81 r. 3(1)(c), the judgment was irregular.

12.However, the judge refused to set aside the judgment on the ground that there had been unreasonable delay on the part of the defendants to set aside the judgment.

13.The plaintiff by a respondent’s notice contended that the judgment was regular.

14.I have no doubt that the judgment was irregular.  First, at the time of service, the Old Address was no longer the principal place of business of the defendants.  Secondly, applying Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378 by analogy, I am of the view that “service is effective when the proceedings are brought to the notice of the defendant and not on mere delivery of the writ”.  per Leong JA (as he then was) at 382C.

15.However, the judge refused to set aside the judgment because of unreasonable delay on the part of the defendants in applying to set aside the judgment.

16.The judge identified three possible periods of delay, depending on when the defendants could be said to have become aware of the judgment.

17.I will deal with the last period first.

18.This is the delay of 10½ months referred to by the judge in para. 56 of the judgment.  This is based on the defendants’ claim that the judgment came to their notice on 29 April 2005, but that the summons to set aside was only taken out on 21 March 2006, after the plaintiff’s solicitors had been pressing the defendants’ solicitors to arrange for the personal service of a statutory demand on the 1^st defendant by letters dated 10 March and 15 March 2005 respectively.  The judge said at para. 58:

“58.   There is simply no reasonable explanation for such a long delay.  This long period of delay does not come within the meaning of ‘reasonable time’.

19.The judge seemed to have overlooked some material evidence.

20.According to the 1^st defendant, he learned of the proceedings or judgment when he received the plaintiff’s then solicitors Messrs Ng & Lam (“Ng & Lam”) letter of 29 April 2005.  See para. 21 of the affirmation of the 1^st defendant dated 21 March 2006.

21.The defendants replied by letter dated 3 May 2005 which was signed by both defendants to Ng and Lam.  Ng & Lam replied on 12 May 2005 and sent to the defendants copies of the writ as well as the default judgment.  That letter added that unless the judgment was satisfied that day, they had “standing instruction to proceed bankruptcy proceedings without further notice”.

22.That led to five letters from the defendants to Ng & Lam dated between 14 and 16 May 2005.  Mr Domminick Chung, who appeared on behalf of the respondent, argued forcefully that the conduct of the defendants had been “dubious” and he pointed to the fact that in the letter dated 3 May 2005, no address was given and then in the five letters between 14 and 16 May 2005, only the residential address of the 2^nd defendant was given.  But I do not regard such conduct as “dubious”.  The defendants were certainly not trying to hide from the plaintiff.  As for the fact that those letters did not give the business address of their firm, from the evidence, it seems that certainly by 2005, the firm was no longer trading.

23.Then, in July 2005, the plaintiff’s solicitors attempted to serve statutory demands on the 1^st defendant, but was unable to effect personal service.  The defendants then appointed Messrs Pansy Leung, Tang & Chua (“PLTA”) as their solicitors.  PLTA by letter dated 9 August 2005, after asserting that the judgment was irregular, suggested that the judgment should be set aside “by way of consent summons with no order as to costs”.

24.The evidence is not very clear but it seems that following that letter, Ng and Shum wrote to the plaintiff’s former solicitors Wong and Tang whose practice had been taken over by a new firm called Li, Kwok & Law for information.  This letter was referred to by PLTC in their letter of 12 October 2005 to Ng & Shum, so presumably it had been copied to PLTC.

25.The letter dated 12 October 2005 from PLTC to Ng & Shum, stated that the defendants would apply to set aside the judgment with costs, unless they received a concrete reply on or before 19 October 2005.

26.According to the 1^st defendant’s affirmation of 21 March 2006, after the letter of 12 October 2005, there were without prejudice letters between the solicitors until 24 February 2006, but because no agreement could be reached, the defendants took out the application to set aside, which was dated 21 March 2006.  See para. 27.

27.That was accepted as correct by the plaintiff.  See para. 31 of the plaintiff’s affirmation of the 25 April 2006.

28.Having regard to the evidence set out above, I cannot agree with the judge’s conclusion that the defendants had been guilty of unreasonable delay.  Insofar as he appeared to have placed no weight on the correspondence and the without prejudice negotiation referred to above, I believe he erred.

29.The other two periods of delay depended on the judge’s view on when the judgment first came to the knowledge of the defendants.

30.It is clear from the language adopted by the judge that he took an unfavourable view of the defendant’s change of address in August 2003.  This is what the judge said in para. 17 to 20 of his judgment:

“17.   The Defendants moved away from the Old Address on 5th August, 2003 without notifying the Plaintiff.

18.    However, the Plaintiff did cause change of address promptly on the business registry on 5th August, 2003.

19.    In ordinary course of business dealing, any businessman would inform others in advance of the change of address.

20.    It is obvious that the Defendants’ motive purposely not to inform the Plaintiff’s solicitor of their New Address was dubious.”

31.There were more expressions in a similar vein.  They echoed the plaintiff’s complaint which can be found in his affirmation.

32.But with respect, I am unable to conclude on the affidavit evidence alone, that the defendants had been “dubious” in any way.  The plaintiff should have checked the business registration prior to the service of the writ.  It is true that the defendants had not informed the plaintiff of the change of address but their letter of 21 July 2003 was written under the letterhead of the New Address.  Furthermore in the letter of 28 July 2003, as I have said the 2^nd defendant gave the Wong & Tang three contact telephone numbers.  Nor could I draw any sinister inference form the fact that the letter of 28 July and 4 August were written in letter papers showing the Old Address.  That could simply be explained on the basis that they were using old stationery in this transitional period.

33.As for knowledge on the part of the defendants, this is what the judge said in para. 30 to 34.

“30.   The Defendant took out the summons on 21.3.2006 for an application to set aside the judgment which was obtained on 4th  December, 2003.  The Plaintiff says there was a 2 years and 3 months delay.

31.    The Defendants states that they did not have knowledge of the writ or the judgement until 29th April, 2005.

32.    The judgement was obtained on 4th December, 2003, 4 days later the Plaintiff’s then solicitors send a copy of the judgement to the Defendants Old Address by post.  The 2nd Defendant then wrote back to the Plaintiff’s solicitor on 29th December, 2003. There was a gap of 5 months between 5th August, and 29th December, 2003. Between these 5 months, there was no communication between the parties and within 3 weeks of sending of the judgment to the Defendant, the 2nd Defendant picked up correspondence with the Plaintiff’s solicitors.

33.    I noted that the content of these letters did not address to the issue of the judgment, but the Defendant was referring to the Plaintiff’s claim of the outstanding amount.

34.    The reasonable inference was that the Defendants had had notice of the judgment by at least 29th December, 2003.”

34.The judge went on to note on para. 35 to 37:

“35.   In the 29th December, 2003 letter, the 2nd Defendant had made known to the Plaintiff’s solicitor of his residential address for purpose of further correspondence.

36.    On 27th January, 2004, the Plaintiff’s solicitor advice the Defendants to file a defence to the claim if they so wish.  But no defence was forth coming.

37.    If I were wrong that the Defendants were aware of the judgment by December, 2003, they should have notice of the proceedings by February, 2003 (sic)”

35.I do not agree the letter of 29 December 2003 was sufficiently unequivocal.

36.But more importantly the judge has failed to note that in Wong & Tang’s letter of 27 January 2004, they said:

“We are also instructed to commence the proceedings forthwith so as not to delay the matter.  If you do have a valid defence to the above recovery proceedings, it is up to you to file your defence.  If you succeed in your defence, you can claim costs against our clients.”

37.This letter is difficult to explain having regard to the fact that by 27 January 2004, the plaintiff had already obtained default judgment.  There is no attempt to explain this letter. 

38.The second period involved a charging order.  According to para. 38 of the judgment “on 4^th February, 2003 (sic), a letter from the plaintiff’s then solicitors” notified the 2^nd defendant to show cause of why the charging order should not be made absolute.  The letter was sent to the 2^nd defendant’s home at the so-called Saddle Bridge address.  The 2^nd defendant was absent on the return date, so the charging order was made absolute on 20 February 2004.  The judge was of view the 2^nd defendant was aware of the charging order and hence of the judgment.   See para. 38 of the judgment.

39.The defendants’ evidence is that the 1^st defendant did not live with the 2^nd defendant at the Saddle Bridge address.  The 2^nd defendant lived there together with their 80-year old father.  The 2^nd defendant was receiving treatment and was admitted to the hospital between 2 February 2004 and 13 March 2004.  Then he was transferred to Day Hospital which he attended between 16 March 2004 and 11 July 2005.  So the defendants’ evidence is that they were not aware of the charging order.

40.The judge’s comment on the medical evidence produced on behalf of the 2^nd defendant showed that he was unimpressed.  He was of the view that the 2^nd defendant was perfectly capable of managing his affairs.

41.This is what the judge said at paras. 43 and 46 of the judgment:

“43.   The fact that the 2nd Defendant was admitted into the Day Hospital did not mean that he had no knowledge of the legal documents sent by the Plaintiff’s solicitor.

44.    Day Hospital means the patient only stays in the hospital during daytime. It does not equate with the facts that the patient stays in the Hospital over night.

45.    When all the legal documents were sent to 2nd Defendant’s resident address, section 18 of the Partnership Ordinance comes into operation.

46.    Even if the 2nd Defendant could not handle legal documents, it did not prevent the 2nd Defendant to pass on the legal documents to the 1st Defendant for him to take care of the matter and/ or to appoint a solicitor to act for them.”

42.It is relevant to note the medical condition of the 2^nd defendant at the time, which is supported by a medical report from the Shatin Hospital.  The report showed that he was suffering from paranoid schizophrenia, and that he had a history of mental illness for more than 10 years.  He was hospitalized from 2 February 2004 to 15 March 2004.  He then attended the Day Hospital from 16 March 2004 to 11 July 2005.  In such circumstances, the 2^nd defendant’s evidence that he had no knowledge of the charging order may well be true.

43.I do not believe the judge’s conclusion that the defendants must have been aware of the charging order is correct.  I do not believe that on the evidence before him his conclusion could be supported.  Having regard to the defendants’ initial reaction to the plaintiff’s letter before action of 18 July 2003, which, as I have said, led to very long letters disputing liabilities, I do not believe it is likely that the defendants would have been content to allow the judgment to go by default, had they known about the proceedings.  Also having regard to their reaction to the statutory demand, it is difficult to believe that the 2^nd defendant, had he known about the charging order, he would not have done anything about it.

44.For the above reasons, I would allow the appeal and set aside the default judgment dated 4 December 2003.

Hon Waung J:

45.I agree.

Hon Tang VP:

46.The appeal is allowed with costs here and below.

Mr. Domminick Chung, instructed by Messrs K. M. Tang & Co., for the Plaintiff.

Mr. Tony C. Y. Li, instructed by Messrs Pansy Leung, Tang & Chua, for the Defendants.