Kaga (H.K.) Electronics Ltd v. Sun Cupid Technology (HK) Ltd

DCCJ 2088/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 2088 OF 2013

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DECISION

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Introduction

1.This is the defendant’s application to set aside the default judgment dated 12 July 2013 (“the Default Judgment”) in the sum of JPY12,500,000 by its summons dated 20 August 2013 (“the Summons”). Shortly before this hearing, the plaintiff took out a summons dated 25 November 2013 for its application to adduce further evidence by way of the 3^rd Affirmation of Satoru Urawa (“SU”) dated 25 November 2013.

2.At the outset of the hearing, Mr Li SC, counsel for the plaintiff, informed this court that the latter summons was not contested. I thus made an order in terms of the same.

Background facts

3.First, I set out the background facts not in controversy as follows.

4.The plaintiff, Kaga (H.K.) Electronics Limited (“Kaga”), supplied LCD monitors to the defendant, Sun Cupid Technology (HK) Limited (“Sun Cupid”). The LCD monitors were manufactured by Ortus Technology Co. Ltd. (“Ortus”) in Japan.

5.Ortus is a famous manufactor of LCD products in Japan and its products are available in Hong Kong and the Mainland and Kaga is its authorized dealer in these areas.

6.The parties’ first transaction was evidenced by a purchase order dated 10 September 2012 (“the 1^st Order”). It was placed by Sun Cupid on Kaga in respect of 4,000 pieces of LCD monitors at a unit price of JPY3,600. Delivery was to be made to the office of Sun Cupid in Hong Kong.

7.The second order placed by Sun Cupid was evidenced by a purchase order dated 16 November 2012 (“the 2^nd Order”). It covered 10,000 pieces of LCD monitors at a unit price of JPY3,450. Again delivery was to be made to the office of Sun Cupid in Hong Kong.

8.It is common ground these two orders were completed without complications. Sun Cupid duly paid Kaga the goods sold under these two Orders.

9.It should be mentioned that prior to the 1^st Order, Ortus and Sun Cupid Technology (Shenzhen) Limited (“Sun Cupid Shenzhen”) signed an agreement relating to the development of “TFT-LCD Monitors” dated 10 April 2012 (“the Agreement”). Later, Ortus sent to Sun Cupid Shenzhen a document entitled “Specifications for TFT-LCD Monitor” (“the Specifications”) as an attachment to its email dated 26 June 2012.

10.Pursuant to the request of Ortus, on 27 June 2012 Sun Cupid Shenzhen signed the Specifications to approve the same.   

11.The present dispute arouse out of a purchase order dated 16 November 2012 (“the PO”) placed by Sun Cupid on Kaga, which was signed by Sun Cupid. The subject matter of the PO was expressed to be 10,000 pieces of DX4M704.8HD LCD Monitor (Long Lead Time Materials) (“LLT Materials”) at a unit price of JPY1,250.00. Under the title “Remarks”, there are three items:

1. Official PO for whole unit of LCD monitor will be placed on 15 December 2012.

2. Completed LCD monitor will be delivered to our Hong Kong office by 15 February 2013.

3. No party can cancel this purchase order without confirmation form both parties.

12.Prior to the placement of the PO, on the same day, there was an email attaching thereto a quotation issued by Kaga to Sun Cupid Shenzhen (No.POB 232100001) (“the Quotation”) and the subject matters included 10,000 pieces of DX4M704.8HD LCD parts (CF, LSI, FPG-ASSY). According to the evidence by way of affirmation of SU, CF, LSI, FPG-ASSY stand for “colour filter”, “large scale integration semiconductor” and “flexible printed circuits” respectively and all these are essential components for the LCD monitors manufactured by Ortus.

13.Again on the same day, Kaga placed a purchase order with Ortus (No. QW12110169) (“Kaga’s PO”) for 10,000 pieces of LLT Materials (SU, CF, LSI, FPG-ASSY) at a unit price of JPY1,200. The shipping address was that of Sun Cupid and the delivery date was specified to be 15 February 2013. The Kaga’s PO was dated 16 November 2013.

14.It can be seen that under the PO, Sun Cupid undertook to place an official PO (“the official PO”) for the finished products (LCD monitors) on 15 December 2012. On 14 December 2012, Steve Khan, Deputy Managing Director of Sun Cupid, sent an email to Kaga (“December Email”) informing Kaga that Sun Cupid needed to delay the issuance of the official PO to end of December to wait for market response. He added that Sun Cupid was confident that it would be able to give Kaga a reply regarding the official PO by the end of December.

15.On 25 December 2012, Kaga sent an email to Steve Khan to remind him of the promise of Sun Cupid that it would issue the official PO before 15 December to replace “main parts PO”. I believe that it actually referred to the PO. Kaga made it clear that Sun Cupid had promised to Ortus to issue a purchase order involving 20,000 pieces and that was the reason why Ortus gave a discount of JPY150/piece off the normal price. Kaga requested Sun Cupid to issue the official PO before 27 December pursuant to the PO.

16.Pausing here, I note that the unit price of a LCD monitor under the 2^nd Order indeed cost JPY150 less than that under the 1^st Order.

17.On 2 January 2013, Steve Khan replied to Kaga by way of an email. He told Kaga that while he did not have instructions from the sales department in relation to the 2^nd batch of 10,000 LCD monitors, Sun Cupid wanted to conform the delivery date of the 10,000 LCD monitors under the 2^nd Order.   

18.On 7 May 2013, Steve Khan sent an email to SU (“the Email”). Since the contents of the Email are of high relevance to the dispute herein, they are reproduced (typographical mistakes inclusive) as follows:

Dear Mr Urawa,

I am sending this email to you on behalf of Sun Cupid regarding XJD-2012-1067 to Kaga (HK) Electronics Ltd on the 16^th November 2012 for the long team time materials for Ortustech DX4M704.8HD LCD Monitor.

This P.O. states that Sun Cupid will deliver an official P.O. for whole unit of LCD before 15 December 2012. As a matter of fact, we had already placed a 4K P.O. during that period, and also place another 10K P.O. already. But due to market response, our product cost was unreasonably higher than competition and therefore, our product is not going out well as expected. Hence, we did not send you an official P.O. before 15^th December 2012.

This long lead time material P.O. is a very heavy burden for Sun Cupid, as we are still hardly managing to sell the 14K Smartphone which we have on hand. We would sincerely hope Ortustech to use these standard components (with a long lead time) to other products customers as it seems impossible for us to purchase any more of LCD for our current product. The main issue is that Ortustech’s LCD for our current product. The main issue is that Ortustech’s LCD is at least 50% more expensive than other LCDs out in the current market with using an unfavourable LCD technology (MVA), whereas end-users only accepts IPS technology at this moment.

We hope Ortistech can use these materials for other customers such as Pantech, who uses the same LCD as us and they have the capability of moving hundreds of thousands of LCD for each lot. In this way, we will not have to face such a heavy burden and Ortustech can move using these components elsewhere effectively.

Thank you very much for your kind attention.

Best regards,

Steven Khan  

19.There came a reply email dated 10 May 2013 (“the Reply Email”) by Kaga. By the email, SU informed Steven Khan that whilst Ortus agreed not to insist on the issuance of the official PO, Kaga insisted that Sun Cupid should complete the PO in end of May 2013 and delivery of the PO components would be made to Sun Cupid. SU further stated that if Sun Cupid had any disagreement or objection to settle the PO, they should inform Kaga by 13 May 2013.

20.SU issued a follow-up email to Sun Cupid on 20 May 2013 in the absence of any response from Sun Cupid. SU further asked for the consent of Sun Cupid to settle the PO by end of May 2013.

21.On 21 May 2013, SU sent a follow up email to Steve Khan of Sun Cupid. On the same day, Steve Khan replied by an email and asked SU to wait for the reply of one Michael Sit, Chairman of Sun Cupid.

22.Later on that day, Steve Khan replied that Michael Sit insisted that those components would be useless to Sun Cupid and they would only be a waste. Therefore, he urged SU to communicate with Ortus so that those components under the PO could be used elsewhere. He made it clear that Sun Cupid did not have the capability to absorb those components.

23.In view of the negative reply, Kaga instructed Messrs Fred Kan & Co (“FK”) to issue a demand letter dated 24 May 2013 (“FK’s Letter”) to Sun Cupid demanding payment of the sum under the PO and arrangement on the part of Sun Cupid to take delivery of the LLT Materials under the PO. This letter was both faxed and mailed to the office of Sun Cupid in Hong Kong.

24.Absent any reply, Kaga commenced these proceedings by the Writ dated 10 June 2013. The Writ together with the Statement of Claim were served on Sun Cupid at its registered office in Hong Kong on 25 June 2013. On 12 July 2013, Kaga obtained the Default Judgment after Sun Cupid failed to its Notice of Intention to Defend. Kaga has proceeded to execute the Default Judgment by way of garnishee proceedings. A garnishee order to show cause was granted on 23 July 2013. The parties agree that there be a stay of execution pending the determination of the Summons.

25.Lastly, I should add that Ortus issued a letter dated 8 October 2013 (“the Confirmation Letter”) after the commencement of these proceedings in order to confirm that the purchase price under the Kaga’s PO had been fully settled. I note that no particulars such as when and how the Kaga’s PO was settled was given to support this bare assertion and Kaga adduced no documentary evidence to further prove the settlement of the Kaga’s PO.

Reasons for the Default

26.The explanation of Sun Cupid for its default is that its business is mainly operated in its Shenzhen office and Michael Sit only came across the packet of legal documents including the Writ herein sent by Kaga to its Hong Kong office in late July 2013. By then, the Default Judgment was already granted against Sun Cupid. Nothing was said about the FK’s Letter, to which Sun Cupid also failed to reply.

27.This explanation was actually given by Steve Khan by way of hearsay evidence in his affirmation. No reason is given for Michael Sit’s failure to explain the full circumstances of the default by himself. This is very unsatisfactory and indeed the explanation given is utterly unacceptable and inexcusable. The goods under the purchase orders issued by Sun Cupid were to be delivered to its Hong Kong office. The Hong Kong office is clearly a usual place of business of Sun Cupid and it is not seldom attended to as alleged.  Even if the explanation is true, it only means that Sun Cupid was grossly negligent, having ignored all the legal documents duly served on it and it should naturally take the consequences. This explanation is unhelpful, if not damaging, to the application of Sun Cupid.    

Purported Defence

28.I shall turn to the purported defence. Sun Cupid now raises three matters and says that it has a strong and meritorious defence. First, it contends that Kaga was just a middleman and the real contracting parties to the PO were Ortus and Sun Cupid. Second, it contends that the PO is only a sham and cannot be enforceable. Lastly, it contends that Kaga is not entitled to the price of the LLT Materials under the PO in any event because of Kaga’s non-delivery of the same to Sun Cupid. I shall deal with these matters in turn.

Kaga was an agent only?

29.Sun Cupid insisted that it contracted with Ortus to purchase its LCD products and Kaga was just the middleman of Ortus. In this connection, Sun Cupid relies on an email issued by Wang Qing Quan (“Wang”), Manager of Kaga dated 21 August 2012. There, Wang reported to Steve Khan on his discussion with Ortus regarding the delivery date of LCD monitors. Wang further urged Steve Khan to place an official purchase order as soon as possible.

30.I am not convinced that the said email is indicative that Kaga was a mere agent of Ortus in its dealing with Sun Cupid. It is common ground that the ultimate supplier of LCD monitors would be Ortus and Kaga was only a trader. It is only natural that Kaga had to consult Ortus about the delivery date so as to complete any sale of LCD monitors manufactured by Ortus.

31.Sun Cupid further relies on the following matters. First, as shown by the Agreement and the Specifications, prior to the 1^st and 2^nd Orders, Sun Cupid and Ortus were engaged in direct discussion in respect of the sale of LCD monitors to Sun Cupid. At one stage, Sun Cupid sent a purchase order to Ortus directly. By an email dated 25 April 2012, Ortus then refused to take the order and advised Sun Cupid to place the order with Kaga on the ground that Kaga was its agent in China.

32.Be that as it may, it does not mean that Kaga did not contract with Sun Cupid in its own capacity in respect of the 1^st , 2^nd Orders and the PO. It is in no way contradiction of the evidence of Kaga that it was the exclusive distributor and hence authorized dealer of Ortus’s LCD monitors in China and Hong Kong and any sale of the LCD monitors of Ortus in China and Hong Kong must be concluded by Kaga as a result. Ortus rightly refused to take the order placed by Sun Cupid and instead referred it to Kaga. Being the ultimate supplier, it was no surprise that Ortus provided follow-up service and technical support to Sun Cupid and this fact cannot possibly alter the legal position of Kaga.

33.On the other hand, this contention of Sun Cupid is wholly untenable in light of the documentary evidence of Kaga. As shown by the Kaga’s PO, Kaga had to place a corresponding purchase order with Ortus so as to fulfill its contractual obligations in the PO. Under the Kaga’s PO, where no reference to the PO was made, Kaga undertook separate and independent legal obligations of its own and its performance of those obligations was not made conditional upon the performance of the legal obligations in the PO by Sun Cupid. It is clear that Kaga contracted with Sun Cupid in its own right and not on behalf of Ortus as its agent.

34.In the premises, there is no merit in the “agent only” defence. I have no hesitation in rejecting this purported defence.

The PO was a sham?

35.The next contention is that the PO is a mere sham. The argument is developed in the following manner. After the 1^st Order, Kaga sought to persuade Sun Cupid to purchase 20,000 more LCD monitors manufactured by Ortus. Initially, Sun Cupid hesitated and wanted to wait until the receipt of the goods under the 1^st Order before placing another order.

36.Kaga then suggested that Sun Cupid should place an order of 10,000 pieces first and place another purchase order for the materials of another 10,000 pieces. Kaga claimed to Sun Cupid that the business of Ortus was very good and hence late delivery was likely. Ordering the materials first would ensure that the manufacturing process would be kicked off and as a result late delivery of the finished products could be avoided. Kaga also assured Sun Cupid that in case Sun Cupid was not happy with the quality of the monitors sold under the 1^st Order, it could refuse to complete the sale under the 2^nd Order. At the end, Sun Cupid was allegedly persuaded and so it placed the PO even though those LLT Materials could not be of any use to it.  

37.I fail to understand how Sun Cupid could be convinced by the alleged suggestion. In any event, this contention is completely rebutted by the correspondence exchanged between the parties in particular the December email and the Email. It is noteworthy that the present allegation of a sham did not feature in any of such correspondence. Sun Cupid’s non-performance of its obligations under the PO was plainly because of the market condition and had nothing to do with the quality of the LCD monitors supplied under the previous orders.     

38.The purpose of the PO is very clear. The parties envisaged that it would be replaced by the official PO in respect of 10,000 LCD monitors to be issued by mid December 2012. On the part of Sun Cupid, it wanted to gauge the market response in respect of the LCD monitors supplied under the 1^st Order before making full commitment of placing 20,000 LCD monitors under the 2^nd Order and the PO. The promise of Sun Cupid to place an order of 20,000 LCD monitors, as explained by Kaga and not rebutted by Sun Cupid, convinced Ortus to cut the price of its LCD monitors and hence Sun Cupid obtained a discount in the 2^nd Order. To Kaga, the PO provided an assurance that Sun Cupid would order the second batch of 20,000 LCD monitors eventually and at the very least, Sun Cupid already committed to purchase the LLT Materials for the 10,000 LCD monitors under the PO.

39.Mr Lam, counsel for Sun Cupid, submits that the parties could not have intended to perform the PO as the LLT Materials were not defined or specified in the PO.

40.I disagree with this submission. As pointed out by Mr Li, the PO must be read in conjunction with the Quotation. It should be noted that the PO was actually issued by Sun Cupid. Sun Cupid could not be heard to complain that it did not know what exactly the LLT Materials meant when on the face of the PO, it agreed to pay JPY12.5 million for such LLT Materials.

41.Mr Lam then complains that even if Sun Cupid knew what the LLT Materials included, there was no detail of their manufacturers provided in the Quotation and/or the PO.

42.I find no substance in this complaint. It might be in the best interest for Sun Cupid to find out such information and have them set out in the PO but the mere absence of such information would not render the PO void for want of certainty. Sun Cupid knew what LLT Materials were required for the manufacture of the LCD Monitors manufactured by Ortus. Samples of the LCD Monitors were made available to Sun Cupid for its inspection in the office of Kaga in Shenzhen in April 2012 as per the email of Ortus dated 25 April 2012. Sun Cupid never made enquires about the LLT Materials in its correspondence.

43.Lastly, Mr Lam draws my attention to the fact that there was no delivery date specified for the LLT Materials in the PO. He submits that this is indicative of the bogus nature of the PO and the PO was not intended to be performed. I disagree.

44.There was a delivery date for the LCD monitors, i.e. 15 February 2013, in the PO. The LLT Materials were supposed to be used in the manufacture of the LCD monitors to be supplied under the official PO, which Sun Cupid agreed to issue on 15 December 2012. The parties envisaged that PO would be replaced by the official PO to be issued by Sun Cupid pursuant to the PO but if the official PO was not issued, they were still bound by the PO.

45.Therefore, construing the terms of the PO as a whole, the delivery date of the LLT Materials to Sun Cupid should fall on the same delivery date of the LCD monitors.      

46.In the circumstances, the PO evidences a genuine commercial transaction though Sun Cupid might not really want to purchase the LLT Materials alone from Kaga. The PO had a clear commercial purpose to serve and was of commercial value to both parties. It was expressly provided that no party could cancel the PO without confirmation by both parties. It was to all intents and purposes a binding agreement. I reject the allegation that it is only a sham.  

Kaga’s entitlement to price?

47.The last point raised by Sun Cupid is about the appropriateness of the relief granted to Kaga under the Default Judgment. Mr Lam argues that Kaga at most is only entitled to damages to be assessed and not the full price under the PO.

48.Mr Lam first submits that the LLT Materials under the PO were future goods within the meaning of section 2 of the Sale of Goods Ordinance, Cap. 26 (“SOGO”), which provides that “future goods” means goods to be manufactured or acquired by the seller after the making of the contract of sale.

49.Mr Lam continues to submit that the LLT Materials being future goods were unascertained goods. Hence the agreement between the parties as evidenced by the PO was only an agreement to sell within the meaning of section 3 of the SOGO.

50.Section 3(4) of the SOGO provides that where the transfer of the property in the goods is take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

51.Mr Lam further relies on section 18 of the SOGO and submits that the LLT Materials being unascertained goods, no property in the LLT Materials is transferred to Sun Cupid unless and until the LLT Materials are ascertained. Mr Lam submits that the burden is on Kaga to prove that the property of the LLT Materials has been passed to Sun Cupid.  

52.Mr Lam refers me to section 19 of the SOGO for the purpose of finding out whether the property in specific or ascertained goods has been transferred to Sun Cupid though he maintains that the LLT Materials remain unascertained goods. He further submits that section 20 is inapplicable to the present case because neither Kaga nor Sun Cupid has appropriation of the LLT Materials as at the present time.

53.Mr Lam rightly highlights section 51(1) of the SOGO, which provides that the seller under a contract of sale can maintain an action for price against the buyer where the property in the goods has passed to the buyer.

54.Mr Lam then argues that Kaga could not maintain an action for price and can only claim damages only even if Sun Cupid was in breach of the agreement to sell the LLT Materials.

55.Mr Li accepts at the outset that the Default Judgment was entered for the full price of the LLT Materials and pursuant to section 51(1) of the SOGO, to maintain the present action against Sun Cupid for the price of the LLT Materials, Kaga must prove that there was a contract of sale and the property in the goods has passed to Sun Cupid.

56.Mr Li’s analysis is as follows. He accepts that the PO was a sale of future goods within the meaning section 7 of the SOGO since the LLT Materials were to be acquired by Kaga only after the PO was created. Section 7(3) provides that where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods. Thus, section 3(4) of the SOGO is engaged.

57.Mr Li submits that the Confirmation Letter despite all the criticisms made by Mr Lam about the lack of collaborative evidence remains a genuine document evidencing Kaga’s payment of the price under the Kaga’s PO. It shows that as a result the LLT Materials have been ascertained and appropriated for use for manufacturing LCD monitors.

58.Mr Li submits that Kaga by chasing after the official PO to be issued by Sun Cupid in December 2012 by emails shows that the LLT Materials had been ascertained and appropriated for the purpose of manufacturing the LCD monitors. The ascertainment of the LTT Materials was further evidenced by Kaga’s request for Sun Cupid to settle the PO so that delivery of the LTT Materials to Sun Cupid could be made. Lastly, Mr Li relies on the contents of the FK’s Letter as an indication of the ascertainment and appropriation of the LTT Materials for the PO by Kaga.

59.Mr Li then submits that the LLT Materials having been ascertained, they were appropriated for the PO by Sun Cupid with the assent of Sun Cupid. The assent of Sun Cupid was either express or could be inferred from the circumstances and in this regard Mr Li relies on Chitty on Contracts, Hong Kong Specific Contracts, 3^rd ed. para 11-163.

60.Mr Li submits that the property in the LLT Materials was transferred to Sun Cupid at such time as the parties intended it to be transferred and for the purpose of ascertaining the intention of the parties, this court should take into account the terms of the contract, the conduct of the parties and the circumstances of the present case: section 19 of the SOGO.

61.On the evidence, Mr Li submits that the parties intended the property in the LLT Materials to pass to Sun Cupid (1) when the LLT Materials had been ascertained and appropriated for production of the LCD Monitors as per the official PO to be issued by Sun Cupid or (2) when Kaga asked Sun Cupid to take delivery of the LLT Materials in May 2013 after Sun Cupid refused to place the official PO.

62.In the premises, Mr Li submits that the claim of Kaga is covered by section 51(1) and the Default Judgment was rightly entered for the price of the LLT Materials.

Analysis

63.The LLT Materials were, as agreed by the parties, unascertained and future goods when the PO was created. They were then yet to be acquired by Kaga from Ortus.

64.Whilst I do not agree that all future goods are unascertained goods: Varley v Whipp [1990] 1 Q.B. 513, in the present case, the LLT Materials were yet to be ascertained when the PO was created. Though they related to the components of a particular model of the LCD monitors manufactured by Ortus, they were not specific chattels and still had to be ascertained.

65.The central question is, as at the date of the PO, when the property in the LTT Materials was intended by Kaga and Sun Cupid to be transferred to the latter. On this issue, Rule 5(1) of section 20 of the SOGO is pertinent. It provides, unless a different intention appears:

“where there is a contract for the sale of unascertained or future goods by description, and goods of that description, and in a deliverable state, are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer. Such assent may be express or implied, and may be given either before or after the appropriation is made.”

66.In the present case, when the PO was created, it must be the intention of the parties that Kaga should appropriate the LTT Materials unconditionally and make them available as soon as possible (since they were long lead time materials) to Ortus for the manufacture of the 10,000 LCD monitors for the purpose of Sun Cupid (of course with its assent). Such LCD monitors would be the subject matter of the official PO to be issued by Sun Cupid by 15 December 2012 pursuant to the PO.

67.In the event that the official PO was issued and as a result 10,000 LCD monitors were manufactured for Sun Cupid, the LTT Materials would be delivered to Sun Cupid as components of the finished products by 15 February 2013 pursuant to the official PO. In the event that the official PO was not issued, nevertheless, the LTT Materials would still be delivered to Sun Cupid pursuant to the PO.

68.The Reply Email shows that Kaga unconditionally appropriated the LLT Materials in a deliverable state from Ortus for the purpose of the PO with the implied assent of Sun Cupid. The LLT Materials were ascertained when, if not at an earlier time, by the Reply Email, Kaga demanded Sun Cupid to perform the PO and accept delivery of the LLT Materials after a discussion with Ortus. Ortus should have earmarked those LTT Materials to be delivered to Sun Cupid pursuant to Kaga’s PO. The Reply Email shows clearly the readiness and willingness of Kaga to deliver the LLT Materials to Sun Cupid. There is no contrary evidence and Mr Lam does not argue otherwise.

69.Thus, the property in the LTT Materials has, in my judgment, passed to Sun Cupid despite Sun Cupid’s refusal to accept delivery. Kaga is entitled to maintain an action for the price of the LTT Materials and hence the Default Judgment is justified.

70.Mr Lam submits that it would be a windfall to Kaga to be paid the full price of the LTT Materials without delivering the same to Sun Cupid. This submission ignores Sun Cupid’s refusal to take delivery of the LTT Materials in spite of repeated demands.

Conclusion and Orders

71.I am not convinced that Sun Cupid has a meritorious defence with a reasonable prospect of success. Nor is there a good explanation for the default. The Default Judgment should not be disturbed and I therefore dismiss the Summons.

72.There is no reason why costs should not follow the event. I make an order nisi that Sun Cupid do pay costs of and occasioned by the Summons to Kaga, to be taxed if not agreed, with certificate for counsel.

73.Lastly, I thank Mr Li and Mr Lam for their helpful assistance in this matter.

Mr Li Chau Yuen, SC, instructed by Messrs Fred Kan & Co, for the plaintiff

Mr Allen Lam, instructed by Messrs K.H. Lam & Co, for the defendant