LANBASE SURVEYORS LTD. v. HOLYROOD LTD.

HCA481/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.481 OF 1999

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J U D G M E N T

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1. The plaintiff is an incorporated firm of surveyors. It is suing the defendant for the balance of professional fees in the sum of $952,800.

The Background

2. The following background are not in dispute.

3. The defendant is the developer of Inland Lot No. 7878 on the Peak. P&T Architects and Engineers ("P&T") is the architect for the defendant. The defendant has applied to the Lands Department for modification of the lease. By a letter dated 27 April 1998, the Lands Department informed the defendant that the premium payable was $13.8 million.

4. By a letter dated 11 May 1998 sent by P&T to the plaintiff, P&T sought the advice of the plaintiff on the following :

"(a)	the chance of obtaining a premium reduction;
(b)	the time required for application of premium reduction;
(c)	your consultancy fee for application of premium reduction.

...

Please be advised that building works are scheduled to commence at the captioned lot in June 1998 and therefore any application for reduction of premium has to be submitted to and reviewed by the Lands Department as a matter of urgency to avoid any delay to the master programme."

5. By a letter dated 13 May 1998 sent by the plaintiff to P&T, the plaintiff stated the following :

"Thank you for your letter of 11 May 1998. In view of the current market conditions, the chance of obtaining a premium reduction is reasonably high. It would take about two weeks to prepare the premium appeal submission and about two months for the Lands Department to process it.

Our fee for lodging an appeal and subsequent negotiation with the Lands department are:

1.	A fee of HK$30,000.00 for the preparation of the appeal. 50% payable on confirmation of instruction and 50% payable on submission.
2.	A negotiation fee at 8% of the reduction in premium. Such fee shall be payable on receipt of the revised assessment from government."

6. On 18 May 1998, the defendant countersigned the above letter and confirmed and accepted the terms of the letter ("Engagement Letter").

7. By a letter dated 20 May 1998 sent by the plaintiff to the Lands Department, the plaintiff stated the following :

"We act on behalf of Holyrood Limited to lodge an premium appeal for the captioned property. The authorization letter is enclosed for your reference.

We refer to your basic terms offer letter dated 27 April 1998 and would like to advise that all the terms are acceptable except the premium figure. Our valuation of the premium is being prepared and will be submitted to you very soon. The administrative fee has been settled and a copy of the receipt is also enclosed for your attention."

8. On 16 June 1998, the plaintiff enclosed the draft written submissions to the Lands Department for P&T's comment.

9. On 19 June 1998, the plaintiff submitted to the Lands Department the appeal against the premium assessment and the written submissions stated that the premium should be reduced to $2.57 million ("1st Submissions").

10. On 30 September 1998, the plaintiff submitted the revised premium assessment for the reference of the Lands Department and stated the premium should be further reduced to $990,000 ("2nd Submissions"). The 2nd Submissions were prefaced by the following :

"As per request, we submit herewith our revised premium assessment for your reference."

11. By a letter dated 9 October 1998 sent by the defendant to the plaintiff, the defendant stated the following :

"We refer to your letter dated 13/5/98 in which you gave us a quote for preparing premium appeal submission on the understanding that such submission will take only two weeks for preparation.

To our surprise your letter of appeal was submitted to the District Land Office 6 weeks later, i.e. on 22/6/98. This is contrary to the terms you had previously promised.

Furthermore in view of the current economic situation in Hong Kong there is a sentiment in the market that the Government is encouraging developer to build. This sentiment is in fact the consensus among the property developers, and is in fact happening: Government is reducing the land premium across the board.

Moreover our project like many others has come to a standstill waiting for the market to improve. Unless there is improvement it is not at all profitable for us to proceed.

In view of the above situation we are not prepare to pay your requested high negotiation fee of 8%. (bearing in mind you have already breached your promise in the first place by failing to submit the appeal in two weeks)"

12. By a letter dated 19 October 1998 sent by the Lands Department to the plaintiff, the Lands Department stated the following :

"I refer to your letters dated 20 May and 30 September 1998 appealing against the premium assessed in respect of the above proposed lease modification.

Your appeal has been carefully considered but I regret to advise you that your counter-offer is unacceptable to the Government. After reviewing the case with reference to your submission, Government is now prepared to revise the premium to $1.89 million.

The above revised premium is open for acceptance within 21 days from the date of this letter and I shall be obliged to hear from you within this period. If no written acceptance is received within this time limit, the terms previously offered by this Department including the above revised premium will be deemed to have been withdrawn.

In the letter dated 27 April 1998 issued by the District Lands Office/Hong Kong West, it is stated that if you appeal and your appeal is rejected, the administrative fee paid is not refundable. Your appeal, as mentioned above, has been considered and rejected. Therefore, the administrative fee paid by your client will not be refunded."

13. On 20 October 1998, the plaintiff wrote to the defendant c/o P&T informing the premium reduction of 86.3% from $13.8 million to $1.89 million. The plaintiff enclosed the debit note for the professional fee of $952,800 being 8% of the reduction in premium.

14. On the same day, P&T wrote to the defendant referring to the premium appeal submitted by the plaintiff on behalf of the defendant and informed the defendant of the reduction.

15. On 6 November 1998, P&T wrote to the defendant referring to the premium appeal submitted by the plaintiff on behalf of the defendant and reminded the defendant that the Lands Department's revised premium offer was open for acceptance until 9 November 1998.

16. On 9 November 1998, the defendant accepted the revised premium in a telephone conversation with P&T. On the same day, P&T wrote to the plaintiff informing it the acceptance by the defendant and asked the plaintiff to proceed with the written acceptance letter to the Lands Department before 9 November 1998.

The plaintiff's case

17. The plaintiff's case is as follows:

(1)	it lodged the appeal on behalf of the defendant;
(2)	the lease modification premium was reduced by $11.9 million;
(3)	the plaintiff is entitled to the negotiation fee of $953,800 being 8% of the premium reduction pursuant to the terms of the Letter of Engagement.

18. Mr C K Chan ("Chan"), a director of the plaintiff at the material time, gave evidence for the plaintiff. Chan said that the so called premium appeal procedure was an administrative procedure and was not laid down in any statutory rules. Once the surveyor gave notice to appeal and the administrative fee was paid, the case would be put in the queue pending consideration at an internal meeting of the Lands Department. There was no fixed appeal period but the waiting time was usually about two months. The relevant date for the assessment of the premium would be the date of the internal meeting. Hence, the surveyor would find out the date of the internal meeting and keep track of any adjustments between the date of the initial submissions and the meeting.

19. Chan said his assistant found out the date of the internal meeting. Shortly before 30 September 1998, he telephoned Mr James Cho ("Cho") of the Lands Department to discuss the matter and Cho said the arguments in the 1st Submissions were quite clear already. He wanted to refer to further comparables and Cho suggested that he send in further submissions in writing.

20. After he received the letter dated 9 October 1998 from the defendant, he had two telephone conversations with Mr Charles Woodhouse ("Woodhouse"), General Manager of the defendant at the material time. Chan refused to accept a fee cut. Woodhouse never terminated the service of the plaintiff. There was no conversation before 30 September 1998.

The defendant's case

21. The defendant's case is as follows :

(1)	it is an implied term of the Engagement Letter that time is of the essence and the appeal must be submitted within about two weeks of the engagement (i.e. by about 31 May 1998);
(2)	the plaintiff was in breach of the Engagement Letter by submitting the appeal on 19 June 1998;
(3)	prior to 30 September 1998, the defendant terminated its service of the plaintiff;
(4)	the plaintiff made the 2nd Submissions without the authority of the defendant;
(5)	in any case, the plaintiff has not entered into negotiation with the Lands Department and is not entitled to receive the negotiation fee;
(6)	even if there were any negotiation, the plaintiff's work was not causative of the reduction in premium as the appeal was rejected and the reduction was caused by a downward movement in property market generally.

22. Woodhouse gave evidence for the defendant. He said after 15 September and before 30 September 1998, he had two telephone conversations with Chan. In the first conversation, he complained that the plaintiff was late in making the 1st Submissions, and unless the plaintiff was willing to accept a substantial reduction of fee to about 10% of the 8%, its service would be terminated. Chan said he had to consult his partners. In the second conversation, Chan refused to reduce the fee and he terminated the plaintiff's service.

23. Woodhouse said the defendant's letter dated 9 October 1998 was signed by Mr Law Fong, director of the defendant, and not himself. Both Law and himself agreed that the plaintiff's service was terminated, but Law was kind hearted and did not want to mention it in the letter.

24. Woodhouse was involved in the premium assessment of the redevelopment of the Depot of the China Motor Bus. Unlike the present case, there was negotiation between the developer and the Government.

Termination of service

25. Mr Au for the defendant submitted that P&T had made it clear to the plaintiff that the appeal must be proceeded with as a matter of urgency, and the defendant stated in the Engagement Letter that the preparation of the appeal would take about two weeks. Hence, it should be implied as a term of the Engagement Letter that time was of the essence and the 1st Submission should have been lodged within about two weeks. The defendant was entitled to terminate the plaintiff's service for delay in making the 1st Submissions.

26. Alternatively, the Engagement Letter could be terminated by the defendant giving reasonable notice.

27. Mr Yin for the plaintiff that the "timetable" of about two weeks for the preparation of the appeal was an indication only in response to P&T's enquiry and the use of the word "about" could not make time the essence of the Engagement Letter.

28. I reject Woodhouse's evidence that he had ever terminated the plaintiff's service in late September. Termination was not mentioned in the defendant's letter dated 9 October 1998. The letter mentioned the lodging of the 1st Submissions in six instead of two weeks, and sought a reduction in fee. I see nothing in any kind heartedness in not mentioning any termination if it had taken place. I also fail to see why P&T were not informed if the plaintiff's service had been terminated.

29. Further, even if there were breach of the implied time clause, the defendant must have waived it and affirmed the contract. The 1st Submissions were sent to P&T for comment before submitted to the Lands Department. No complaint was raised. All subsequent correspondence between P&T and the plaintiff and/or the defendant pointed to the engagement of the plaintiff still being on foot.

30. I find that the defendant has never terminated the service of the plaintiff prior to the acceptance of the revised premium assessment by the defendant. Hence, it does not befall me to find whether time is of the essence of the Engagement Letter, or whether the defendant is entitled to terminate the plaintiff's service by giving reasonable notice.

Negotiation Fee

31. Mr Au submitted that on the proper construction of the Engagement Letter, two fees are chargeable :

(1)	A fixed fee of $30,000 for all preparatory works for lodging the appeal and the written submissions;
(2)	The Negotiation Fee on "subsequent negotiation" resulting in any reduction in the premium.

32. Mr Au referred to the meanings of "negotiation" and "negotiate" in The New Shorter Oxford English Dictionary on Historical Principles :

"negotiation 2 A process or act of conferring with another or others to arrange some matter by mutual compromise or settlement, a discussion with a view to some compromise or settlement. 3 The action or process of negotiating with another or others, discussion with a view to settlement or compromise. 4 The action of crossing or getting over, round or through some obstacle.

"negotiate 1a Communicate or confer (with another or others) for the purpose of arranging come matter by mutual agreement; have a discussion or discussions with a view to some compromise or settlement."

33. Mr Au submitted that negotiation needs not be oral, but must be interactive, to and fro, with a view to a compromise.

34. Mr Au submitted that the appeal was lodged when the 1st Submissions were made on 19 June 1998, and not by the plaintiff's letter dated 20 May 1998, which was only an intention to lodge an appeal later. There was no evidence of any negotiation subsequent to the lodging of the appeal. Contacting and enquiring as to when the appeal would be considered could hardly be negotiation. The 2nd Submissions were included in the fixed fee and were not part of the subsequent negotiation.

35. Mr Au submitted that Chan's evidence that he had contacted the Lands Department and Cho suggested him to put in further written submissions was not credible as it was not mentioned in Chan's witness statement, but instead, Chan stated that he put in the further submissions in view of the movement of the property market since the lodging of the appeal. Chan originally said he requested a meeting with Cho but Cho said it was not necessary as the 1st Submissions were quite clear. Under cross-examination, Chan said he could not recall whether he requested a meeting.

36. I accept the evidence that Chan had contacted Cho to discuss about the revised assessment shortly before the 2nd Submissions. The 2nd Submissions were prefaced that the revised premium assessment were submitted for the reference of the Lands Department as per request.

37. Looking at the Lands Department's letter dated 19 October 1998, it is clear that the Lands Department regarded the appeal was initiated by the plaintiff's letter dated 10 May 1998. It stated that the plaintiff's counter-offer was unacceptable to the Government. It re-offered the revised premium of $1.89 million to the defendant, which was open for acceptance within 21 days. I find it beyond reasonable argument that such a process of counter-offer and re-offer is a process of negotiation, albeit in writing.

38. I find that the plaintiff did represent the defendant in negotiation by means of the 1st and 2nd Submissions and the telephone conversation between Chan and Cho of the Lands Department.

Rejection of the appeal

39. Mr Au referred to the statement of Chan that the extent of reduction of the premium after the appeal was due to the in-depth research, market analysis and good presentation of argument put forward in the appeal submission rather than the downturn of the property market. As the appeal was rejected by the Lands Department, the plaintiff's efforts were fruitless and not causative of any premium reduction offered by the Government.

40. Mr Yin submitted that the 1st and 2nd Submissions constituted negotiation with the Lands Department, and the state of the property market was fortuitous. The structure of a percentage contingency fee best reflected the reward of the plaintiff's efforts being dependant on the result of the reduction. As the 1st Submissions were adequate, it would be too whimsical to depend on whether any revised submissions were required.

41. It should be noted that the Lands Department did state in their letter of 19 October 1998 that after reviewing the case with reference to the plaintiff's submissions, the Government was prepared to revise the premium to $1.89 million. The Lands Department clearly referred to the plaintiff's submissions in offering the reduced premium. I reject the argument that the plaintiff's work was not causative of the premium reduction.

42. Granted that property prices must have come down during the relevant period. After all, premium assessment is concerned with relevant movements in the property market. In the instant case, all the conditions for the lease modifications were accepted apart from the premium figure. There is nothing incongruous between the plaintiff's efforts and the downward trend in the property market.

Conclusion

43. Judgment is entered in favour of the plaintiff in the sum of $952,800, with interest at judgment rate from the date of the writ. Subject to any costs order made previously, the defendant shall pay the costs of the action to the plaintiff.

Representation:

Mr Michael Yin, instructed by Messrs A. Tse & Fung, for the Plaintiff

Mr Thomas Au, instructed by Messrs P.C. Woo & Co., for the Defendant

HCA481/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.481 OF 1999

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REASONS FOR DECISION

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1. This is the Defendant's appeal against the order of Master Cheung dated 6 July 1999 dismissing the Defendant's application to set aside the default judgment entered on 9 February 1999.

2. At the end of the hearing on 26 August 1999, the default judgment was partially set aside and leave to defend was granted conditional upon the Defendant making a payment into court. The following are the reasons for the decision.

3. The Plaintiff brought this action against the Defendant for an alleged outstanding balance of fees payable for work done and services rendered. Mr Yuen for the Defendant fairly accepted that the default judgment was entered regularly. It is therefore necessary to examine the proposed defence to see if the Defendant can establish that the defence has merits.

4. There is no dispute between the Plaintiff and the Defendant that they entered into an agreement evidenced by a letter dated 13 May 1998. The letter was a typed-up document on the Plaintiff's letterhead. Since part of the defence is related to its terms, I propose to set out the relevant parts therein :-

"... In view of the current market conditions, the chance of obtaining a premium reduction is reasonably high. It would take about two weeks to prepare the premium appeal submission and about two months for the Lands Department to process it.

Our fees for lodging an appeal and subsequent negotiation with the Lands Department are :-

1. A fee of $30,000 for the preparation of the appeal, 50% payable on the confirmation of instruction and 50% payable on submission.

2. A negotiation fee at 8% of the reduction in premium, such fee shall be payable on receipt of the revised assessment from government." (underline supplied)

5. The scope of work to be undertaken by the Plaintiff thereunder has been described in the affirmations filed by the respective parties : at paras.8 to 9 of the affirmation of Mr Woodhouse dated 21 April 1999 (for the Defendant) and at paras.7 to 9 of the 3rd affirmation of Mr Chan (for the Plaintiff).

6. According to the Defendant, a premium appeal is comprised of two stages. Stage one involves lodging written submissions with the Lands Department. Stage two involves negotiations with the Lands Department which includes arranging and attending meetings with officers of the Lands Department.

7. According to the Plaintiff, the procedure of a premium appeal involves :-

1. preliminary considerations;

2. preparation of the appeal;

3. lodging the written submissions;

4. preliminary approval of the written submissions by the District Lands Office;

5. processing of the appeal by the Lands Department; and

6. discussions/negotiations with the Valuation Section of the Lands Department.

8. The Plaintiff stated that it is no longer necessary to arrange or attend meetings with officers of the Lands Department and discussions/negotiations (described as stage-two by the Defendant) are now undertaken by way of telephone conversation. Revised submissions may sometimes be necessary.

9. Up to now, the only sum paid by the Defendant to the Plaintiff pursuant to the agreement was $15,000 (i.e. the 50% of fee for the preparation of the appeal). The default judgment entered on 9 February 1999 was for :-

(a) $15,000 (being the other 50% of the fee for the preparation of the appeal).

(b) $952,800 being the negotiation fee at 8% of the amount of premium reduced.

10. The said letter dated 13 May 1998 evidencing the agreement was signed and accepted by the Defendant on 18 May 1998. According to the Plaintiff, the written submissions were lodged on 19 June 1998 : see para.14 of Chan's affirmation. This has not been disputed by the Defendant : see para.15 of Woodhouse's affirmation. In fact, during the hearing, Mr Yuen accepted that the submissions had been lodged by the Plaintiff.

11. The Defendant's complaint regarding the written submissions was that it was only lodged on 19 June 1998, about one month after the Defendant's acceptance of the letter dated 13 May 1998, and not within the two-week period promised by the Plaintiff. Even if the Defendant's contention of delay was correct, I do not consider that this would entitle the Defendant to rescind the agreement. In fact, the Plaintiff's conduct from at least 19 June 1998 to the end of September 1998 was consistent with an affirmation of the agreement. The Defendant cannot therefore now rely on this delay to rescind the agreement. The Defendant has also failed to establish that it suffered any loss arising from this delay. I therefore find that the Defendant has not been able to establish any defence regarding the Plaintiff's claim for $15,000 which remains outstanding. In fact, Mr Yuen for the Defendant did not seek to argue against this part of the default judgment.

12. The Defendant's defence to the Plaintiff's claim for $952,800 can be summarized as follows. The agreement provided that stage-two work ought to be carried out in two months' time, i.e. by about 18 July 1998. However, in breach of this provision, the Plaintiff failed to do so even up to the end of September 1998. As a result, the Defendant decided to terminate the agreement and this was communicated to the Plaintiff at the end of September 1998.

13. The above defence was denied by the Plaintiff who claimed that it never received any notice from the Defendant to terminate the agreement. The Plaintiff, however, admitted that it received a letter dated 8 October 1998. This was in the following terms :-

"... Furthermore in view of the current economic situation in Hong Kong there is a sentiment in the market that the Government is encouraging developer to build, ... and is in fact happening. Government is reducing the land premium across the board.

Moreover, our project like many others has come to a standstill waiting for the market to improve. Until there is improvement it is not at all profitable for us to proceed.

In view of the above, we are not prepared to pay your requested high negotiation fee of 8% (bearing in mind you have already breached your promise in the first place by failing to submit the appeal in two weeks)." (underline supplied)

14. This letter is at least arguably consistent with the Defendant's assertion that it did not want to proceed further with the agreement. Various issues arise out of this alleged notice (not to proceed further with the agreement) which include :-

(a) whether the Defendant has given the said notice of termination at the end of September 1998;

(b) if so, whether the Defendant was justified in doing so. This will in turn depend on whether :-

(1) the Plaintiff has breached the agreement by reason of undue delay regarding the stage-two work (or, as the Plaintiff contended, the two-month provision in the agreement was merely an estimate);

(2) the Plaintiff has in fact performed (wholly or in part) stage two of the agreement, and if so, whether the stage-two work was performed before the notice of termination was given;

(c) whether the reduction in the premium was brought about by the Plaintiff's stage-two work even if the Plaintiff has performed such work.

15. Mr Yuen's submissions regarding point (c) above were based on the legal principles relating to commissions payable to agents. I do not consider that they are relevant because the $952,800 claimed by the Plaintiff was negotiation fee for work done and services rendered.

16. Mr Cheung, for the Plaintiff, argued that even if these arguments were available to the Defendant in theory, they are insufficient for the purpose of an application for setting aside a default judgment. This is because in order for the Defendant to succeed in such an application, the defence raised must not only be "arguable" but must carry with it a real prospect of success. In order to find out whether his argument is correct, it is necessary to consider this area of the law.

17. The law in Hong Kong regarding the test to be adopted in determining what defence is sufficient to justify setting aside a regular default judgment is not without difficulties. The difficulties arise from what is at least an apparent difference between the approach adopted by the Hong Kong Court of Appeal and that by the English Court of Appeal.

18. In Hong Kong this point seems to have been stated authoritatively in Premier Fashion Wears Ltd. v. Li Hing Chung [1994] 1 HKC 213. The Court of Appeal said at pp.219-20 :-

"... it is generally not sufficient for a defendant merely to show an arguable defence although that alone would justify leave to defend being given under O.14. A defendant who seeks to set aside a regular judgment must at least show that his case has a real prospect of success. To do so, he must satisfy the court that his case and the evidence he has adduced in support of it carries some degree of conviction. It seems to me that unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success."

19. In the English Court of Appeal case of Day v. RAC Motoring Services Ltd. [1999] 1 All ER 1007, the Court of Appeal decided inter alia that "the court did not need to be satisfied that there is a real likelihood that the defendant would succeed, but merely that the defendant had an arguable case which carried some degree of conviction". This was expanded in the judgment of Ward L.J. at p.1011 as follows :-

"... That yet again raises the question as to the proper approach for the court to adopt in an application of this kind. The approach has seemed to change. It moved from the view taken by the court in Vann v Awford (1986) Times, 23 April that an arguable case was sufficient. That movement was shown in the judgment of Sir Roger Ormrod in Alpine Bulk Transport Co Inc v Saudi Eagle Shipping Co Inc, The Saudi Eagle [1986] 2 Lloyd's Rep 221. His Lordship there endeavoured to review the 'general indications to help the court in exercising the discretion' (Evans v Bartlam [1937] 2 All ER 646 at 656, [1937] AC 473 at 488 per Lord Wright). ..."

His Lordship then referred to a number of passages in Evans v Bartlam and traced the various observations made on the point in Grimshaw v Dunban [1953] 1 QB 408, The Saudi Eagle [1986] 2 Ll Rep 221 and Allen v Taylor [1992] PIQR 255 and continued (at pp.1013-4) :-

"I note, however, that when the court came to apply their own test to that case we see (at 224) that when the issue of the construction of the charterparty was being considered what was looked for was : 'The real question is whether it is a 'prima facie' defence ... a 'serious' defence ... or has merits to which 'the Court should pay heed' ...'

The rigour of that test was commented upon by Dillon LJ in Allen v Taylor [1992] PIQR P255 at P259. Having recited from The Saudi Eagle, he said :

'It is quite impossible to be dogmatic about the extent to which the court must be satisfied of the validity of the suggested defence. There must be numerous cases where the issue will turn entirely on the assessment of the facts at trial; each party's case would carry conviction if it stood alone and without conducting a trial the court is not able to say which will succeed. The present [case] is, it seems to me, one of those cases. If the case briefly indicated in the statement of claim is right, the plaintiff will win. If however there was, as the defendant claims, adequate supervision and one child chose to jump on the plaintiff unexpectedly, it could well be established that there was no fault on the part of the defendant or in the system which he established.'

That apparent divergence of views has now received comment in the notes to The Supreme Court Practice 1999, part of which I have already read. The editors (para 13/9/18) say of the view in Allen v Taylor (that it is enough that certain exculpatory facts 'could well be established') that it -

'is not easily reconcilable with the robust approach of The Saudi Eagle and is a dilution thereof. The preferred view is that unless potentially credible affidavit evidence demonstrates a real likelihood that a defendant will succeed on fact no 'real prospect of success' is shown and relief should be refused.'

For my part, I am a little concerned about that note. I think it is yet another move of the goalposts. This may be largely a matter of semantics and it would be better if the differences in language in these cases could be viewed as the emphasis in a particular case to the particular facts of that particular case. Perhaps the best guidance of all is in Sir Roger Ormrod's judgment that this is not a rule of law but a matter of common sense. Thus, it is usually easy to identify the case which is hopeless and say 'there is no real prospect of success'. I add the emphasis to make the point that one is looking at the matter negatively. The approach is distorted if one uses 'real prospects of success' as a positive test. That wrongly encourages a test of judging fact on affidavit and then coming to a provisional view of the probable outcome. I agree, however, that the arguable case must carry some degree of conviction but judges should be very wary of trying issues of fact on evidence where the facts are apparently credible and are to be set aside against the facts being advanced by the other side. Choosing between them is the function of the trial judge, not the judge on the interlocutory application, unless there is some inherent improbability in what is being asserted or some extraneous evidence which would contradict it." (at pp.1013-4) (underline supplied)

20. The observation in Allen v Taylor at p.259 (quoted above) applies most aptly to cases where the outcome of the case depends on credibility and each side's affidavit is as credible standing on its own as the other side's. A literal application of the "real prospect of success" test would almost invariably lead to a refusal to set aside the judgment because, in such a case, the court cannot properly conclude whether to believe the plaintiff or defendant, the defendant cannot be said to have shown a defence with a real prospect of success.

21. It could be that there was no real difference between the test propounded in the Day case and that in Premier Fashion apart from semantics. The language used in the two cases however was sufficiently different for it to be arguable that the Hong Kong court intended that a different test should be applicable. This is particularly so when the Hong Kong Court of Appeal stated in effect that the hurdle for the defendant is higher in a setting aside application than in a summary judgment application.

22. I am bound by the Hong Kong Court of Appeal decision. For present purposes, I will determine the merits of the defence assuming that a higher hurdle must be surmounted by the Defendant.

23. Mr Yuen argued that the Defendant has shown a real defence as to whether the Plaintiff has performed any stage-two work. He referred to exhibits "CKC-6" and "CKC-7" to the affirmation of Mr Chan and argued that these attendance notes do not establish any "negotiation" work but merely telephone enquires about the progress of the appeal. On the other hand, Mr Cheung referred me to :-

(a) para.17 of the affirmation of Mr Chan; and

(b) exhibit "CRW-8" (to the affirmation of Mr Woodhouse) being the revised written submission dated 30 September 1998.

The relevant paragraph of Chan's affirmation said :-

"As three months had lapsed since the filing of the written submission ... I [i.e. Mr Chan] considered it necessary to make adjustment to the premium assessment in the written submission. I had a discussion with Mr James Cho [of the Lands Department] ... After the discussion, I prepared a revised premium assessment and submitted it to the Lands Department on 30 September, 1998 for their consideration." (underline supplied)

The relevant part of the revised written submission dated 30 September, 1998 (exhibit "CRW-8") stated :-

"As per request, we submit herewith our revised premium assessment for your reference." (underline supplied)

Mr Cheung argued that these passages show that negotiation work had been undertaken at least prior to the preparation of the revised written submissions.

24. As regards the issue of whether the Defendant had given a notice of termination at the end of September 1998, Mr Yuen submitted that the Defendant's letter dated 8 October 1998 was consistent with this part of the Defendant's case. On the other hand, Mr Cheung argued that the Defendant's allegation relating to the notice of termination was incredible because :-

(a) the letter dated 8 October 1998 never mentioned that the agreement had been terminated;

(b) the subsequent letters from the Defendant's architect to the Plaintiff were inconsistent with it.

25. As regards Mr Yuen's argument that there is a real defence as to whether the Plaintiff's work caused the Lands Department to reduce the premium, I agree with Mr Cheung's argument that the letter dated 19 October 1998 was sufficient evidence to such effect. The relevant parts of this letter stated :-

"I refer to your letters dated 20 May and 30 September 1998, appealing against the premium assessed ...

... After reviewing the case with reference to your submission, Government is now prepared to revise the premium to $1.89 M." (underline supplied)

The above passages show that the reduction of premium was clearly related to the Plaintiff's revised written submission dated 30 September 1998.

26. Thus, I consider that the Defendant has shown that there is an arguable defence regarding :-

(1) whether the Defendant had given a notice of termination at the end of September 1998;

(2) whether the Plaintiff had performed any stage-two work, and if so, whether it did so prior to the notice of termination (if any).

However, on the materials now before me I do not find that the Defendant had established any defence regarding what caused the reduction of premium. The Defendant may be able to adduce further evidence at trial in support of its case regarding this point at a later stage. This, however, is not something which is relevant to my decision.

27. Bearing in mind the high standard of proof which a defendant in Hong Kong must face in a setting aside application, I consider that although it is appropriate to give leave to the Defendant to defend the Plaintiff's claim for $952,800, leave to defend should only be given conditional upon the Defendant paying the whole sum into court.

28. The appeal was allowed to the extent indicated above.

29. By agreement of the parties, costs of the appeal were ordered to be in the cause of the action.

30. As regards the costs of the application before the Master taken out on 21 April 1999 (and returnable in the 3-minute chambers list on 26 April 1999), the costs order I made on 26 August 1999 was :-

(a) the costs of that application on and before 26 April 1999 be to the Plaintiff in any event;

(b) the costs of that application after 26 April 1999 be in the cause of the action.

31. I indicated on 26 August 1999 that the reasons for making this costs order would be given later. These are the reasons.

32. Since the Defendant accepted that the default judgment sought to be set aside was a regular one, I consider that the usual rule set out in The Supreme Court Practice 1999, Vol.1, para.13/9/18 (at p.160) citing Cox (Peter) v. Thirwell [1981] 12 S.J.481 to be applicable. Thus, the costs of the Defendant on or before 26 April 1999 must be awarded to the Plaintiff in any event.

33. However, neither the Defendant nor the Plaintiff has been wholly successful in relation to this application (as shown by the outcome of the appeal). The Plaintiff was unsuccessful in resisting the application in that the Defendant managed to obtain leave to defend the disputed part of the Plaintiff's claim. On the other hand, the Defendant has not been successful in that leave to defend was only given conditionally.

34. For the above reasons, I consider the appropriate order for the costs incurred after 26 April 1999 to be that costs should be in the cause of the action (following the parties' agreement as to the costs regarding this appeal).

Representation:

Mr Ernest Cheung, inst'd by M/s A. Tse & Fung, for the Plaintiff

Mr Rimsky Yuen, inst'd by M/s P. C. Woo & Co., for the Defendant