Aggressive Construction Co Ltd v. Yick Wai Cheong

HCA1889 / 2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1889 OF 2008

____________

BETWEEN

____________

Before : Deputy High Court Judge Au in Chambers

Date of Hearing: 29 June 2009

Date of Decision: 29 June 2009

______________

D E C I S I O N 

______________

A.  Introduction

1.This is the Defendant’s appeal against Master Levy’s Order dated 13 March 2009 refusing to set aside the default judgment (“the Default Judgment”) in the sum of HK$1,800,000.00 entered against him on 4 November 2008. 

2.The bases of the Defendant’s application to set aside the Default Judgment are that (a) it was an irregular judgment as the Writ was not properly served on him, and (b) he has a meritorious defence.

3.To understand the Defendant’s contentions in proper context, I will set out what I regard as the relevant background leading to the Default Judgment.

B. Background

4.The Defendant is the sole director and shareholder of Data-Form Engineering Ltd. 

5.Under a sub-contract (“the Sub-Contract”) made between the Plaintiff and Data-Form in relation to the design, supply and delivery of system formwork for a project at Tin Shui Wai, New Territories, Data Form was contracted to, inter alia, deliver steel raw materials for the system formwork to the fabrication factory in the Mainland within 10 days from the date of the receipt of an advance payment of HK$1,800,000.00 by the Plaintiff to Data-Form.

6.In relation to the Sub-contract, the Defendant executed a personal guarantee (“the Guarantee”) dated 20 June 2008 to guarantee Data-Form’s delivery of the steel raw materials within 10 days from the date of receipt of the interim payment of HK$1,800,000.00.  The relevant parts of the Guarantee provide as follows:

“In consideration of [the Plaintiff] paying the amount of HK$1,800,000.00 to Data Form as the 1^st interim payment in June 2008, I [the Defendant] [HKID Card No….], being the Director of [Data-Form] hereby unconditionally and irrevocably guarantee the due and punctual performance of the Sub-Contract by Data-Form to ensure that the mild steel raw materials for the System Formwork for the whole project will be delivered to the fabrication factory at Mainland China, which is owned by DongGuan Pek King Steel Structure Engineering Co Ltd., within 10 days from the date of receipt of the sum of HK$1,800,000.00 and to procure [Data-Form] to allow the representatives of [the Plaintiff] to attend as witness to confirm the delivery of the materials to the fabrication factory and further to ensure that the fabrication works will be commenced at once and will be completed in accordance with the programme as agreed by [the Plaintiff].

I further guarantee that, should the abovementioned materials are unable to be delivered to the assigned factory within the same time frame, upon demand in writing by [the Plaintiff], I shall unconditionally pay to [the Plaintiff] an amount of HK$1,800,000.00 within 10 days from the date of the demand, without prejudice to the obligation of [Data-Form] under the Sub-Contract.

This personal guarantee shall be treated as fully discharged upon completion of fabrication of Steel Wall Form to Tower 7, Tower 8 & 9 of the captioned project at the factory.”

7.There is no dispute that on 24 June 2008, the Plaintiff duly paid HK$1,800,000.00 to Data-Form as mentioned above.

8.However, it is the Plaintiff’s case that notwithstanding the payment, in breach of its obligation, Data-Form had failed to deliver the steel raw materials within 10 days from the receipt of the payment (i.e., 4 July 2008) or thereafter.

9.By a letter dated 6 September 2008, the Plaintiff demanded under the Guarantee the Defendant to pay the sum of HK$1,800,000.00 within 10 days from the date of the letter. 

10.The Defendant did not pay the HK$1,800,000.00 to the Plaintiff, and Data-Form replied by a letter dated 11 September 2008 stating that the materials had already been delivered to the factory on schedule.

11.Then followed with a series of correspondence between the Plaintiff and Data-Form, whereby Data-Form denied its breach as alleged by the Plaintiff and instead contended that it was the Plaintiff who was in breach of the Sub-Contract.

12.On 30 September 2008, the Plaintiff issued the present action against the Defendant claiming for HK$1,800,000.00 in relation to the Defendant’s liability under the Guarantee.

13.The Plaintiff’s solicitors served the Writ of this action on the Defendant at an address of Princess Terrace (“the Princess Terrace Address”) on 30 September 2008 by inserting the same through the letterbox of the Princess Terrace Address. 

14.The Defendant did not file any acknowledgement of service of the Writ. 

15.On the application of the Plaintiff, the Court granted the Default Judgment on 4 November 2008.

16.On 30 December 2008, the Defendant took out a Summons to seek to set aside the Default Judgment.  As indicated above, on 13 March 2009, Master Levy dismissed the Summons after hearing the parties.  Apparently, the learned Master did not accept that, on the basis of the evidence before her, the Default Judgment was an irregular one and that Defendant had shown a meritorious defence.

C. Applicable principles

17.The principles applicable to an application to set aside a default judgment are trite and as follows:

(1) If the Defendant can show that the default judgment is an irregular one, in that it was not properly served on him, it should be set aside as of right without reference to the merits of the defence.

(2) If however the default judgment is a regular one, the Court has a discretion to set it aside unconditionally or with conditions, if the Defendant can show that he has a meritorious defence which has a real prospect of success.

See:    Hong Kong Civil Procedure 2009, paras 13/9/1 to 13/9/15.

18.In relation to whether there was good service on a defendant made under O.10 r 1(2) of the Rules of High Court (Cap 4):

(1) It is not uncommon that a defendant will or may have more than one addresses which would constitute his usual or last known addresses for the purpose of service under the rules, and it is sufficient for a plaintiff to have effected service on one of these addresses:  The Hong Kong Mortgage Corporation Ltd v Ching Kit Yu & Wong Kam Cheong (unrep., HCMP 2226/2002, Deputy High Court Judge To, 15 April 2003), paras 9-13; Hong Kong Civil Procedure 2009, para 10/1/12.

(2) Once the plaintiff has shown that the writ was prima facie served on the defendant’s usual or last known address in accordance with the rules, it is for the defendant to explain by “convincing evidence” why the writ was not brought to his knowledge.  The court is not bound to accept a bare assertion of no knowledge:  Bank of China (Hong Kong) Ltd v. Cheung King Fung [2007] 1 HKLRD 462 (CA), paras 30-34 per Tang JA (as the learned Vice-President then was).

D. The Defendant’s application to adduce new evidence for the purpose of the appeal

19.By a summons dated 23 June 2009 (ie., issued a week before this hearing), the Defendant sought leave to file and rely on new evidence to support his appeal.  The new evidence is in the form of the Defendant’s 4^thAffirmation and an affirmation of Chu Hoi Yu both dated 23 June 2009.   Ms Chu is said to be the ex-girlfriend of the Defendant and the registered owner of the property at the Princess Terrace Address.

20.The gist of the new evidence is to deal with some of the criticisms and observations made in relation to the Defendant’s case and evidence (both on the issue of whether there was a regular service of the Writ and the merits of the proposed Defence) by the Plaintiff through its opposing affirmation filed before the learned Master and submissions made by the Plaintiff’s counsel in the Court below.

21.All the new evidence contained in these 2 affirmations is evidence that was clearly available when the Defendant took out his application and by the time when he filed his 2^nd Affirmation, to raise for the first time the ground of a meritorious defence and to reply to the Plaintiff’s opposing affirmation concerning the Defendant’s evidence on irregular service.  There is however no explanation in the Defendant’s new affirmation as to why this evidence was not or could not have been filed for the hearing before the learned Master.  

22.The Plaintiff opposes the Defendant’s application for leave to file and rely on the new evidence.  Mr Chiu (counsel for the Plaintiff) submits that under the new O.58 r 1(5) of the Rules of High Court (Cap 4), which came into effect on 2 April 2009, the Court should only allow new evidence for an appeal from Master on special grounds being shown.  As no special grounds are shown here, the Defendant’s application must be rejected. 

23.The new O 58 r (1)(5) provides as follows:

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.”

24.I agree with the Plaintiff’s submissions.   I do not accept the Defendant’s submissions that the new O 58 should only apply to proceedings which are issued after the commencement of the new rules, as there are no transitional provisions provided under the new O.58 to that effect.  I therefore hold that the procedural rules under the new O 58 shall apply to the present application for leave to adduce new evidence.  

25.I also do not accept that the Defendant’s submissions that this amounts to giving a retrospective effect of the rules.  There is no question of retrospective application since the application to adduce new evidence was taken out after the coming into effect of the new rules.  

26.In the premises, as no special grounds have been shown by the Defendant as to why he should be allowed to adduce the new evidence, which should have already been available before the learned Master, I refuse to grant leave to the Defendant to file and rely on the new evidence, with costs to the Plaintiff.

27.I will therefore only confine myself to the evidence that was before the Court below in considering the merits of this appeal, which I will now do.

E. This appeal and the grounds to set aside the Default Judgment

E1.    Whether the Default Judgment is a regular judgment

28.The Defendant says the Default Judgment was obtained irregularly as the service of the Writ was irregular for the following reasons:

(1) The Princess Terrace Address was not the usual or last known address for the purpose of service under O. 10 r.1, because it was clear that the Plaintiff had been communicating with the Defendant before the action at a To Kwan Wan address (“the To Kwa Wan Address”), which is the address of Data-Form.    The Defendant had not himself ever supplied the Princess Terrace Address to the Plaintiff.

(2) In any event, the Princess Terrace Address is the address of his ex-girlfriend’s home, and he was not residing there, and he had not received the Writ and thus had no knowledge of the same.  There was therefore no effective service.

29.I reject the Defendant’s submissions. 

30.From the evidence and applying the principle set out in paragraph 18(1) above, I am satisfied that the Princess Terrace Address is one of the usual or last addresses known to the Plaintiff for the purpose of effecting service under O. 10 r. 1.   I have come to this view because:

(1) The Defendant was representing to the outside world that the Princess Terrace Address was his residential address by putting the same as his address in Data-Form’s company annual returns filed with the Companies Registry in August 2008.

(2) By 17 October 2008, upon the Plaintiff’s solicitors’ further search conducted at the Companies Registry database, the above information remained un-amended and thus correct.

(3) In most of the previous correspondence exchanged between the Plaintiff and the Defendant when the Plaintiff demanded for payment under the Guarantee, the Plaintiff had sent (by either ordinary and/or registered post) the letters to the Princess Terrace Address albeit copies of the same were also faxed or provided to Data-Form at the To Kwa Wan Address.  Even though it is the Defendant’s case that he only received these letters through the copies sent to the To Kwa Wan address, I find it unconvincing that if it were true that he would not have been able to receive any documents sent through the Princess Terrace Address, he had not even once pointed out in his replies to these letters that the Princess Terrace Address was either incorrect or of no effect for the purpose of communicating with him.

(4) The Defendant has not provided any other residential address in his evidence to show that he has been residing somewhere else but not at the Princess Terrace Address.

31.In the circumstances, I am satisfied that the Plaintiff was entitled to effect service of the Writ on the Princess Terrace Address under O. 10 r. 1(2)(b).

32.Given my above ruling, I am also not persuaded that the Defendant has shown by convincing evidence that he had no knowledge of the Writ despite of the fact that it was served on the Princess Terrace Address.  The Defendant’s denial of no knowledge of the Writ is in my view nothing but a bare assertion which is contradicted by the following evidence: 

(1) There is no explanation whatsoever in the evidence that if the Princess Terrace Address was not an effective residential address to communicate with the Defendant, why he would have intentionally put the address in the company’s annual return with the Companies Registry as his address.  Thus, prima facie the Defendant was informing the world that the Princess Terrace Address represented an effective address for communicating with him.

(2) He in fact received a copy of the Default Judgment when this was sent to him by the Plaintiff’s solicitors to the Princess Terrace Address under a cover letter dated 6 November 2008.  There is no explanation by the Defendant as to why he somehow had received a copy of the Default Judgment but not the Writ which was sent to the same address.   The absence of an explanation is particularly illuminating when the Defendant’s counsel accepts that he is not challenging the affirmation of service that the Writ was in fact inserted into the letterbox of the Princess Terrace Address.

33.Mr Wong for the Defendant however submits that the Defendant’s case of no knowledge is supported by his solicitor’s letter dated 27 October 2008.  The relevant parts of the letter stated as follows:

“We act for Mr. Yick Wai Cheong.

Your letter dated 18th September 2008 to our client was handed to us for our handling.

Please be informed that we are now perusing the documents and obtaining further information from our client.  Kindly withhold any proceedings against our client at this stage and we shall let you have our reply as soon as possible.”

34.Mr Wong says this letter shows unequivocally that even by 27 October 2008 (contrasting the purported service of the Writ on 30 September 2008), the Defendant’s solicitors were not provided with a copy of the Writ as this was not mentioned in the letter, and the solicitors were still asking the Plaintiff to “withhold any proceedings”.   As such (Mr Wong further contends), the court should draw an irresistible inference that they were not even aware of the fact that proceedings had already been issued against the Defendant.  In the circumstances, it is similarly unequivocal to infer and conclude that the Defendant himself also had not received the Writ as there would have been no good reasons for him not to pass on a copy of the Writ to his solicitors had he received one.

35.I am not persuaded by the submissions.

36.I cannot draw such an “irresistible inference” from this solicitors’ letter.  This is because:

(1) In their letter dated 22 November 2008 sent to the Plaintiff’s solicitors after they had received a copy of the Default Judgment, the Defendant’s solicitors still employed the words “kindly withhold any proceedings against our client” when they informed the Plaintiff that they had instructions to set aside the Default Judgment.  By this time, the Defendants’ solicitors must have been fully aware of the fact that proceedings had been issued by the Plaintiff.  Thus, the use of the phrase “kindly withhold any proceedings” does not have the unequivocal effect of showing that the Defendant’s solicitors were not aware of the fact that proceedings had already been issued or on foot as now contended by the Defendant. 

(2) There may well be many reasons (commercial or otherwise) why the Defendants’ solicitors did not specially mention the Writ in their letter if they had in fact received one from the Defendant, and it is not for the Court to speculate.  The fact is, there is no direct evidence from the handling solicitor to confirm that he or she was not provided with a copy of the Writ when the letter was written. 

37.Mr Wong further argues that the fact is that the Defendant has instructed solicitors to apply to set aside the Default Judgment after having knowledge of it.  This lends weight (Mr Wong submits) to the Defendant’s case that he was not aware of the Writ beforehand, as otherwise, why would he have left it to the more costly and risky task of seeking to set aside the Default Judgment instead of filing a Defence in the first place.

38.I am equally not persuaded by this submission that this amounts to convincing evidence of proof of no knowledge of the Writ.    Again, there may well be many reasons (commercial or otherwise) why a defendant would not have responded initially to an issued writ, and have only reacted to it when he realizes that a default judgment is entered against him and enforcement proceedings are taken out.  Perhaps he may have thought that he would have more time to deal with matter before the plaintiff would proceed to enter judgment against him.  Perhaps he may have thought that he did not have a good defence.  Again, it is not for the court to speculate on the reasons, but suffice to say that I do not think that the mere fact that the Defendant has taken out an application to set aside the Default Judgment per se is sufficient evidence to show that he did not have knowledge of the Writ in the first place.

39.For the above reasons, the Defendant has failed to show to me that he did not have knowledge of Writ before the Default Judgment was obtained. 

40.I am therefore satisfied that the service on Writ on the Defendant was a valid one under O. 10 r 1(2), and thus the Default Judgment is a regular judgment.

41.I would not set aside the Default Judgment as of right. 

D2.    Whether there is a meritorious defence with a real prospect of success

42.The ground of there being a meritorious defence was only raised by the Defendant for the first time in his reply affirmation, but not in his first supporting affirmation.  Further, this ground was raised simply and solely by reference to a draft Defence exhibited to his reply affirmation. 

43.The substantive defences raised in the draft Defence are:

(1) The Guarantee is not supported by valuable consideration as the Data-Form was already entitled to receive the advance payment of HK$1,800,000.00 under the Sub-Contract, and thus there is no new consideration provided by the Plaintiff for the Guarantee.

(2) Data-Form in fact had provided all the steel raw materials on schedule in accordance with the Sub-Contract.  There was therefore no breach of the Sub-Contract by Data-Form to deliver the steel raw materials after receipt of the advance payment, and the Plaintiff was not entitled to demand the Defendant to pay under the Guarantee.

44.The burden is on the Defendant to show that the defences bear a real prospect of success. 

45.However, the contents of the draft Defence are not even verified by the Defendant in his affirmation.  The Defendant has also not provided:

(1) Any evidence, including the Sub-Contract, to show that Data-Form was independently entitled to the advance payment of HK$1,800,000.00 from the Plaintiff.

(2) Any evidence such as delivery notes or purchase orders to support the defence that the raw materials had been fully delivered to the mainland factory on schedule as alleged. 

46.In light of this total lack of evidence, I am not satisfied that the Defendant has demonstrated to me that the defences he raised in the draft Defence have a real prospect of success. 

47.I therefore also would not set aside the Default Judgment on this ground.

F. Conclusion

48.For the reasons given above, the learned Master was right in refusing to set aside the Default Judgment and I dismiss this appeal.

49.I further order that costs of the appeal be to the Plaintiff, to be grossly assessed.

Mr. Simon Chun-Wan CHIU, instructed by Messrs To, Lam & Co., for Plaintiff.

Mr. Philip WONG, instructed by Messrs May Cheng & Co., for Defendant.