CALIFORNIA INSURANCE CO. LTD. & OTHERS v. CALIFORNIA INSURANCE CO. LTD. & OTHERS

HCA 172/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 172 OF 2002

____________

____________

_______________

J U D G M E N T

_______________

1. I have before me a notice of motion for the entry of judgment in favour of the Plaintiffs against the Defendants in default of defence. I have also before me a cross-summons for the filing of a defence out of time. The two are heard together.

2. The facts are rather complicated, and this is evidenced by the long Statement of Claim which has been amended twice since the action was first commenced on 16 January 2002. The Re-amended Writ of Summons and the Re-amended Statement of Claim were dated 4 May 2002 and they were apparently served shortly thereafter. No defence was filed by any of the Defendants who are all represented by the same firm of solicitors. On 8 July 2002 the present notice of motion was taken out. One day prior to the hearing of the notice of motion, a time summons was taken out by the Defendants asking for 7 days to file and serve their defence. On the day of the hearing, Ms Wong, counsel for the Defendants, handed up to the Court a draft defence and informed the Court that a defence in like terms would be filed if the Defendants should successfully obtain an order for the extension of time to file their defence. The time summons was vigorously opposed and the battle lines were drawn.

3. As I said the facts involved are complicated. Without compromising material accuracy, I would try to simplify the facts for the purpose of this judgment in the following paragraphs. Given the nature of the application by the Plaintiffs, I must consider the Plaintiffs' application for judgment by reference only to the pleading without considering evidence and in fact, no evidence has been filed for the purpose of the Plaintiffs' application: See O. 19 r. 7(1), Rules of the High Court (Cap. 4); and Hong Kong Civil Procedure 2002 (Vol. 1) para. 19/7/11.

4. A Chiu Yeung Shoes Factory Limited ("Chiu Yeung") used to be the registered owner of two trade marks, both known as "Leaveland" in Hong Kong and in the Mainland respectively. Chiu Yeung went into liquidation on 6 November 1991. Chiu Yeung was indebted to the 1st Plaintiff in the sum of $4.5 million. Prior to its liquidation, the registered trade mark in the Mainland was Chiu Yeung's only substantial asset. However, in early 1991 Chiu Yeung assigned or purported to assign the Mainland trade mark to the 1st Defendant. The formality for the assignment was completed on 8 July 1991. On 1st July 1992, the 1st Defendant as the new Mainland trade mark registered owner granted a licence to the 2nd Plaintiff so as to enable the 3rd Plaintiff to apply the trade mark to footwear products it manufactured at a licence fee of $10.00 per pair.

5. According to the Re-amended Statement of Claim, in 1994, the 1st Defendant purported to assign the Mainland trade mark to the 3rd Defendant and applied to the Chinese Trade Mark Office for the registration of the purported assignment.

6. In 1995, Chiu Yeung acting by its liquidator, the Official Receiver, brought an action against the 1st, 2nd and 3rd Defendants. The action was funded by the 1st Plaintiff, the major creditor of Chiu Yeung. In the action, Chiu Yeung sought a declaration against the 1st Defendant that "the 1st Defendant held the Chinese Trade Mark as a constructive trustee for Chiu Yeung" and other further or alternative relief. Further, Chiu Yeung claimed against the 3rd Defendant an order that "the purported assignment of the Chinese Trade Mark by the 1st Defendant to the 3rd Defendant be set aside"; and another declaration that "the 3rd Defendant held the Chinese Trade Mark as a constructive trustee for Chiu Yeung", as well as other further or alternative relief. An interim injunction was then obtained against the 1st Defendant restraining her from dealing further with the proprietary rights in the Mainland trade mark. Moreover, upon the application of Chiu Yeung for an interim injunction against the 3rd Defendant, the 3rd Defendant gave an undertaking to the Court not to assign, transfer or dispose of in whatsoever manner any of the proprietary rights in the Mainland trade mark, and, according to paragraph 25 of the Re-amended Statement of Claim, "not to take any further steps to obtain the recordal of the assignment of the Chinese Trade Mark by the Chinese Trade Mark Office".

7. The 1995 action was compromised by a settlement agreement made in July 1996 between the 1st Plaintiff, the 2nd Plaintiff, the 3rd Plaintiff and amongst others, the 1st Defendant, the 3rd Defendant, the 4th Defendant and the 5th Defendant. It was agreed that in consideration of the 1st Plaintiff causing the 1995 action to be discontinued and the interim injunction against the 1st Defendant discharged, the 3rd Defendant would assign the Chinese trade mark to the 2nd Plaintiff and the 4th Defendant jointly so that the 2nd Plaintiff and 4th Defendant would grant a licence to the 3rd Plaintiff to apply the Chinese trade mark to footwear products it produced for a term of 7 years commencing from the date of the agreement, and so that the 3rd Plaintiff would pay to the 1st Plaintiff, by way of licence fees for the application of the Chinese trade mark, a total sum of $6 million by 6 instalments to discharge the debt owed by Chiu Yeung to the 1st Plaintiff.

8. In October 1996, Chiu Yeung acting by the Official Receiver assigned to the 1st Plaintiff all the rights and title to the choses in action in, relating to or arising out of the matters giving rise to the claims in the 1995 action.

9. Pursuant to the above matters, the 1995 action was discontinued by consent and the interim injunction against the 1st Defendant was discharged.

10. Further, following a subsequent oral variation of the settlement agreement as per paragraph 34 of the Re-amended Statement of Claim, the Chinese trade mark was assigned by the 3rd Defendant to the 2nd Plaintiff alone, which was duly approved by the Chinese Trade Mark Office on 28 January 1997.

11. However, on 28 July 1999, the Chinese Trade Mark Office cancelled the approval of the assignment of the trade mark from the 3rd Defendant to the 2nd Plaintiff, on the ground that the earlier application for registration of the assignment of the trade mark from the 1st Defendant to the 3rd Defendant had never been approved and that the proprietorship of the trade mark had always remained with the 1st Defendant. This, according to paragraph 37 of the Re-amended Statement of Claim, was caused by the "repudiatory breach" of the settlement agreement by the 1st and 3rd Defendants. The particulars given were that on a day unknown to the Plaintiffs, the two Defendants jointly applied to the Mainland Trade Mark Office to withdraw the application for registration of the earlier assignment of the trade mark from the 1st Defendant to the 3rd Defendant; and that on 17 September 1999, the 1st Defendant as the registered proprietor of the trade mark applied to the Chinese Trade Mark Office to change her name from Choung Suk Wah to Choung Yah Wah.

12. Quite obviously, the cancellation of the approval of the assignment of the trade mark from the 3rd Defendant to the 2nd Plaintiff effectively prevented the 3rd Plaintiff which had obtained a licence from the 2nd Plaintiff to make use of the Chinese trade mark from using it anymore. Presumably this had the effect of preventing the 1st Plaintiff from receiving the licence fees from the 3rd Plaintiff for the use of the trade mark in satisfaction of the debt owed by Chiu Yeung to the 1st Plaintiff, which was the whole objective of the 1995 action and the settlement agreement.

13. In the Re-amended Statement of Claim, the Plaintiffs essentially rely on four different causes of action. First, as I said, the Plaintiffs plead in paragraph 37 that the 1st and 3rd Defendants' action constituted a "repudiatory breach" of the settlement agreement. This allegedly caused the 1st Plaintiff loss and damage in the sum of $6 million, i.e. the debt owed by Chiu Yeung to the 1st Plaintiff, which was meant to be satisfied by the payment of licence fees by the 3rd Plaintiff for its use of the trade mark through a licence granted by the 2nd Plaintiff pursuant to the settlement agreement. See paragraph 51 of the Re-amended Statement of Claim.

14. Secondly, the Plaintiffs claim that the settlement agreement should be rescinded. Two grounds are relied on. First, according to paragraph 41,

"the Plaintiffs entered into the settlement agreement by mistake of fact that at the time of the making of the agreement, the 3rd Defendant was the registered proprietor of the Chinese Trade Mark whereas in truth and in fact it was not such registered proprietor and did not have, and never had the right to assign the Chinese Trade Mark whether to the 2nd Plaintiff and the 4th Defendant jointly or to the 2nd Plaintiff solely".

15. Secondly, the ground for rescission is that, "the Plaintiffs were induced into making the settlement agreement by fraud of the 1st and 3rd Defendants" (paragraph 42). The particulars of fraud given comprise entirely the action of the 1st and 3rd Defendants in applying to the Chinese Trade Mark Office to withdraw their earlier application for registration of the assignment of the mark from the 1st Defendant to the 3rd Defendant and the 1st Defendant's application to the Trade Mark Office for changing her name.

16. For these two reasons, the Plaintiffs claim an order to rescind the settlement agreement and to set aside the consent order made in the 1995 action to discontinue the action based on the settlement agreement.

17. Thirdly, following from the rescission of the settlement agreement and the setting aside of the consent order, the Plaintiff claim the recovery of the Mainland trade mark from the 1st and 3rd Defendants on the ground that the assignment of the trade mark by Chiu Yeung to the 1st Defendant was not for valuable consideration, was a sham and was made with an intent to defraud creditors of Chiu Yeung including the 1st Plaintiff. In those circumstances, the Plaintiffs claim that the 1st Defendant held and still holds the proprietary right to the trade mark and all income and profits derived from the application of the same as constructive trustee for the 1st Plaintiff.

18. Fourthly, the Plaintiffs plead a case of conspiracy between the 1st and 3rd Defendants to commit a breach of the settlement agreement with the predominant purpose to injure the Plaintiffs. The Plaintiffs claim damages for conspiracy.

19. As mentioned above, the Plaintiffs' motion for judgment in default of defence falls within O.19 r.7. The Court has a discretion whether to give judgment or to extend a party's time to plead when it is just to do so: See Hong Kong Civil Procedure 2002 (Vol. 1) para. 19/7/13.

20. Furthermore, if the defendant has put forward a defence albeit out of time and without leave, the Court should look at the merits of the defence as disclosed in deciding whether to accede to the plaintiff's motion for judgment, and if so, to what extent; the Court cannot simply disregard the defence: See Gill v Woodfin (1884) 25 Ch D 707; Gibbings v Strong (1884) 26 Ch D 66; Hong Kong Civil Procedure 2002 (Vol. 1) para. 19/7/4. Whilst in the present case, no defence has yet been filed by the Defendants and all that I have got is a time summons to file a defence as well as a draft defence presented to me by counsel on the day of hearing, in my judgment, the same principles apply in the present case. I should look at the merits of the matter.

21. Turning to the draft defence, I do not think it unfair to say that it comprises nothing but bare denials of the Plaintiffs' case. I must confess that I am not impressed by it at all.

22. But the difficulty facing the Plaintiffs in their present motion is not so much the defence or draft defence put forward by the Defendants at the last minute, but rather their own case, or put another way, their pleaded case itself.

23. I will start with the most straightforward cause of action pleaded in the Re-amended Statement of Claim, namely a repudiatory breach of the settlement agreement. On the pleaded facts as outlined by me above, I have little difficulty in concluding that based on those pleaded facts, there is a case of a breach of the settlement agreement entitling the Plaintiffs to claim damages against the 1st and 3rd Defendants. It seems to me clear that the essence of the settlement agreement was that the 2nd Plaintiff (whether alone or jointly with the 4th Defendant) would become the registered owner of the trade mark in the Mainland so that he would be able to grant a licence for the use of the trade mark to the 3rd Plaintiff; and in turn, the 3rd Plaintiff would pay the licence fees not to the 2nd Plaintiff (or for that matter the 4th Defendant) but to the 1st Plaintiff direct so as to repay the outstanding indebtedness of Chiu Yeung to the 1st Plaintiff. According to the pleaded facts in paragraphs 37 and 38 of the Re-amended Statement of Claim, and notwithstanding the bare denial of those paragraphs in the draft defence, in my judgment, a case has been made out for a most serious breach of the settlement agreement (i.e. the prevention in effect of the 3rd Plaintiff from continuing to make use of the trade mark after the revocation of the registration of the 2nd Plaintiff as the trade mark's owner by the Mainland Trade Mark Office as a result of acts done by the 1st and 3rd Plaintiffs).

24. A case for payment of damages for breach of contract has therefore been pleaded and in fact made out. This has been pleaded in paragraph C(h) of the prayer for relief. Damages will have to be assessed notwithstanding the pleaded figure of $6 million because the revocation of the registration of the 2nd Plaintiff as the owner of the trade mark by the Mainland Trade Mark Office only took place in July 1999 and therefore, there was around 21/2 years' time in which the 3rd Plaintiff under a licence from the 2nd Plaintiff could make use of the trade mark and therefore would be liable to make payment of licence fees to the 1st Plaintiff in partial satisfaction of the indebtedness of Chiu Yeung.

25. However, this is not what the Plaintiffs by their motion ask the Court to grant them judgment for. At the hearing, Mr Lau, counsel for the Plaintiffs, specifically confirmed with the Court that this is not what the Plaintiffs are seeking in their motion. Given the Plaintiffs' approach, I make no order and give no judgment by default on the claim for damages for breach of contract.

26. Nor need I concern myself with the 4th cause of action pleaded in the Re-amended Statement of Claim, namely damages for conspiracy. The pleaded conspiracy is a conspiracy between the 1st and 3rd Defendants to breach the settlement agreement. It sounds in damages. Again, this is not something which the Plaintiffs ask me to give them judgment for. Therefore, again notwithstanding the mere bare denial in the draft defence put forward by the Defendants, I make no order and enter no judgment in relation to the claim for damages arising from the pleaded conspiracy.

27. What the Plaintiffs really would like to obtain from the motion relates wholly to the 2nd and 3rd causes of action or claims, i.e. the rescission of the settlement agreement and the consequential setting aside of the consent order discontinuing the 1995 action by reason of mistake and/or fraud, and the assignment of the registered trade mark from the 1st Defendant to the 1st Plaintiff on the footing that the 1st Defendant has been holding the registered trade mark as a constructive trustee for the 1st Plaintiff, the major creditor of the original trade mark owner (Chiu Yeung), as well as consequential relief.

28. All this, in my judgment, hinges on the Plaintiffs' pleaded complaint of mistake and/or fraud thereby entitling the Plaintiffs to rescind the settlement agreement, set aside the consent order discontinuing the 1995 action, re-open the issues in the 1995 action in the present action, and claim the relief that was claimed in the 1995 action in the present action, namely, the recovery of the registered trade mark from the 1st Defendant in favour of the 1st Plaintiff.

29. I will first deal with the ground of fraud pleaded in paragraph 42 of the Re-amended Statement of Claim. As I said, the only particulars of fraud given relate solely to the joint application by the 1st and 3rd Defendants to the Mainland Trade Mark Office to withdraw their earlier application for registration of the assignment of the trade mark from the 1st to 3rd Defendants and the 1st Defendant's subsequent change of name with the Mainland Trade Mark Office on 17 September 1999.

30. As I see it, the difficulty of the Plaintiffs on their pleaded case of fraud is this: Paragraph 42 of the Re-amended Statement of Claim pleads that the Plaintiffs "were induced into making the settlement agreement by fraud". This must necessarily exclude the possibility of utilizing any fraud committed after the making of the settlement agreement to challenge the settlement agreement.

31. It is true that paragraph 37(a) pleads that "on a date unknown to the Plaintiffs" the 1st and 3rd Defendants applied to the Mainland Trade Mark Office to withdraw their earlier application for registration of the assignment of the trade mark between the two. This could mean that this was done prior to the making of the settlement agreement. But in the absence of a specific plea to that effect and particulars to support such a plea, in my judgment, this is insufficient to ground a claim that the settlement agreement was indeed induced by fraud. During the hearing, Mr Lau did not seek to rescue this defect in pleading by suggesting that what the Plaintiffs actually intended to say under paragraph 37(a) was that the application was made before the signing of the settlement agreement. In all likelihood, according to the facts pleaded in the Re-amended Statement of Claim, the application of the 1st and 3rd Defendants must have been made after the settlement agreement and indeed, after the registration of the 2nd Plaintiff as the new registered owner by the Mainland Trade Mark Office on 28 January 1997. For otherwise, i.e. if the two Defendants had already applied to the Trade Mark Office to withdraw their earlier application to transfer the trade mark from the 1st to 3rd Defendants, it would be difficult to imagine how the Mainland Trade Mark Office would have approved the registration of the 2nd Plaintiff as the new registered owner of the trade mark from the 3rd Defendant, the immediate preceding registered owner.

32. In those circumstances, in order to utilize fraud as a ground for rescinding the settlement agreement, the Plaintiffs would have to plead, or more correctly, would have to be in a position to plead and eventually establish, that the fraudulent intention on the part of the 1st and/or 3rd Defendants to do what they subsequently did was present either before or at the time of the making of the settlement agreement in 1996. If the fraudulent intention or the intention to wrongfully approach the Mainland Trade Mark Office as complained of in paragraph 37 of the Re-amended Statement of Claim only came into being after the making of the settlement agreement, then there would not be any case for a rescission of the settlement agreement based on fraud - this would only be a case for a fraudulent breach of contract sounding in damages and/or other appropriate relief for breach of contract or repudiation of a contract. As I said, the Re-amended Statement of Claim does not plead any fraudulent intention, or that the necessary fraudulent intention was present before or at the time of the making of the settlement agreement, let alone to give the necessary particulars of any such intention. Nor does the Re-amended Statement of Claim contain any material which would entitle me to draw such an inference.

33. The 1st Defendant's change of name with the Mainland Trade Mark Office on 17 September 1999 pleaded in paragraph 37(b), which is also used as supporting the case for fraud, was quite clearly done well after the signing of the settlement agreement, and cannot be relied on as something which induced the Plaintiffs into making the settlement agreement.

34. Thus analysed, I am of the view that on the pleaded case of the Plaintiffs, it is arguable - and I put it no higher than that - whether the Plaintiffs can make out a case of rescission of the settlement agreement based on the alleged fraud. For this reason, notwithstanding the most unsatisfactory defence put forward by the Defendants as disclosed in their draft defence, I am not prepared, in the exercise of my discretion, to grant judgment by default based on the alleged fraud.

35. This leaves the Plaintiffs with the remaining ground, namely, mistake, for challenging the settlement agreement and thus the consent order, and re-opening the issues and relief that were raised and claimed and subsequently compromised in the 1995 action.

36. According to paragraph 41 of the Re-amended Statement of Claim already extracted above, the Plaintiffs plead that they entered into the settlement agreement by a mistake of fact, namely that at the time of the making of the settlement agreement, the 3rd Defendant was the registered proprietor of the Chinese trade mark when in fact it was not and when in fact it "did not have, and never had the right to assign the Chinese Trade Mark" to the 2nd Plaintiff.

37. Based on the pleaded facts, the 1st Defendant was the registered owner of the trade mark in the Mainland by July 1991. In 1994, there was a purported assignment of the mark in favour of the 3rd Defendant; and on a day unknown to the 1st Plaintiff, the two Defendants applied to the Mainland Trade Mark Office for the registration of the purported assignment (paragraph 20). In the 1995 action and the interim injunction applications made by Chiu Yeung in that action, the 1st Plaintiff through the liquidator of Chiu Yeung sought to prevent the further dealing of the trade mark by the 1st and 3rd Defendants and recover the same from the two Defendants for the ultimate benefit of Chiu Yeung's creditors including its major creditor, the 1st Plaintiff. Apart from paragraph 41, there is no plea in the Re-amended Statement of Claim as to when exactly, if ever, the 3rd Defendant became the registered owner of the trade mark according to the Mainland Trade Mark Office. Paragraph 41 simply alleges as a fact that the 3rd Defendant was not the registered owner of the trade mark "at the time of the making of the [settlement] agreement".

38. At first glance, this provides an attractive basis for setting aside the settlement agreement on the basis of a fundamental mistake: The settlement agreement provided for the assignment of the trade mark by the 3rd Defendant to the 2nd Plaintiff and the 4th Defendant jointly. If the 3rd Defendant did not have title to the trade mark, the settlement agreement could not be carried out.

39. Paragraph 41 of the Re-amended Statement of Claim simply pleads to the mistake made by the Plaintiffs. It does not plead to any similar mistake by the Defendants. If the Plaintiffs are running a case of a unilateral mistake known to the other side, thereby entitling the Plaintiffs to set aside the settlement agreement, the Defendants' knowledge has not been pleaded and no particulars of knowledge have been supplied. If the Plaintiffs are running a case of a mutual mistake, the Defendants' mistake has not been pleaded and no particulars of such a mistake have been supplied. The pleading is simply defective.

40. Further, based on the pleaded facts, if the 3rd Defendant was really not the registered owner of the trade mark at the material time, the registered owner at the time must have been the 1st Defendant who had since July 1991 been the registered owner of the mark and who had, in 1994, purported to assign the trade mark to the 3rd Defendant. What is of great significance is this: Both the 1st Defendant and 3rd Defendant were parties to the settlement agreement and what is more, the two Defendants were, as it were, "in the same bed". It is the case of the Plaintiffs that in fact the 1st and 3rd Defendants together with those behind Chiu Yeung prior to its liquidation were all closely related and were all members to schemes to wrongfully dispose of Chiu Yeung's only substantial asset, namely, the Mainland trade mark, in order to defraud Chiu Yeung's creditors. According to paragraph 10 of the Re-amended Statement of Claim, the 3rd Defendant was incorporated as a shelf-company on 5 January 1993 with a $2 issued and paid up share capital. Its only shareholders and directors were the brother of the 1st Defendant and a Kot Shuk Ling who, according to what Mr Lau told me from the bar table at the hearing, was the wife of the brother.

41. Put another way, even assuming that at the time of the making of the settlement agreement, the 3rd Defendant was not the registered trade mark owner despite the purported assignment and despite the application for registration of the purported assignment of the mark between the 1st and 3rd Defendants referred to elsewhere in the pleading, and assuming that the Plaintiffs were labouring under such a mistake at the material time when they made the settlement agreement, the mistake must have been arguably (and again I put it no higher than that) an immaterial one, not justifying the rescission of the settlement agreement on account of it.

42. I say this because arguably, the Plaintiffs, on the pleaded facts of the present case, could not have cared less about who actually was the registered owner of the trade mark at the time, for so long as pursuant to the settlement agreement, title to the trade mark would be assigned by the 3rd Defendant to the 2nd Plaintiff and the 4th Defendant (as originally agreed under the settlement agreement) or the 2nd Plaintiff alone (according to the subsequent oral variation as alleged in the pleading).

43. For to the Plaintiffs, if the 3rd Defendant was indeed the registered trade mark owner at the time, then pursuant to the settlement agreement the 3rd Defendant would assign the trade mark to the 2nd Plaintiff (together with the 4th Defendant). On the other hand, if the 3rd Defendant was not the registered trade mark owner at the time, this must mean that the 1st Defendant was still the registered owner and in that event, pursuant to the settlement agreement to which both the 1st and 3rd Defendants were parties, what would and should happen as a matter of contract was for the 1st Defendant to first transfer her registered title to the trade mark to the 3rd Defendant for the latter to onward transfer the registered title to the 2nd Plaintiff (together with the 4th Defendant), or more directly, for the 1st Defendant to directly transfer her registered title to the trade mark in favour of the 2nd Plaintiff (and the 4th Defendant) at the direction of the 3rd Defendant. If the latter course was taken, I could see no objection whatsoever that could be legitimately raised by the Plaintiffs.

44. All this is said in order to illustrate my point that arguably the mistake, if there was one as alleged in paragraph 41 of the pleading, was not so fundamental that it would justify the setting aside or the rescission of the settlement agreement. It would have been otherwise if the 1st and 3rd Defendants were totally unrelated and strangers to each other or if the 1st Defendant were not a party to the settlement agreement.

45. But according to the pleaded facts, both of them were indeed parties to the settlement agreement; both of them had agreed under the settlement agreement that the registered title to the trade mark would be transferred by the 3rd Defendant to the 2nd Plaintiff (and the 4th Defendant); and the fact was that the 1st and 3rd Defendants were closely related and the registered title to the trade mark was either with the 3rd Defendant or with the 1st Defendant at the material time and no one else.

46. Because of this combination of facts, as I said, I find it arguable that the mistake, if any, was not of such a character that it would justify the rescission of the settlement agreement.

47. In any event, it is the Plaintiff's pleaded case that pursuant to the settlement agreement (and the subsequent oral variation), the 2nd Plaintiff did become the registered trade mark owner in January 1997 and thus enjoyed the use of the trade mark (paragraph 36). Its title was only disturbed 21/2 years later in July 1999 by the Trade Mark Office (paragraph 38). On those pleaded facts, I am of the view that it is arguable (and I put it no higher than that) whether the alleged mistake, if any, was sufficient to justify the grant of the discretionary relief of rescission, under those circumstances.

48. Given all these considerations and given the discretionary nature of my jurisdiction and power, in the exercise of my discretion, I refuse to grant the Plaintiffs any relief by default of defence based on the alleged mistake and/or fraud relating to the rescission of the settlement agreement, the setting aside of the consent order, the recovery of the trade mark from the 1st Defendant or other consequential relief.

44. During argument, Ms Wong also submitted forcefully on the difficulty facing the Plaintiffs in seeking declaratory relief by way of a default judgment: See Wallersteiner v Moir [1974] 1 WLR 991, 1028H-1029D and 1029H-1030G; Hong Kong Civil Procedure 2002 (Vol. 1) para. 19/7/14. In his amended draft minutes of judgment, Mr Lau asked me to give him judgment for relief based on a certain express footing rather than the declaratory judgment that was originally prayed for in the motion. All this is academic in the light of my analysis of the Plaintiffs' claim and conclusion reached.

45. At the hearing, Ms Wong also referred to a number of other matters in order to persuade me that no judgment by default of defence should be granted. Whilst I tend to agree with many of the points made, I would prefer to base my decision on the analysis of the Plaintiffs' case set out by me above.

46. On the other hand, I have not lost sight of the delay on the part of the Defendants in putting forward a defence and the wholly unsatisfactory content of the defence mentioned by me above. I have borne that in mind in considering how my discretion should be exercised. But at the end of the day, the overwhelming consideration is the pleaded case of the Plaintiffs which I have tried to analyse at some length above. I would not repeat myself here.

46. For all these reasons, I make an order extending the time for filing a defence to 7 days from the date this judgment is handed down. I make no order under the Plaintiffs' notice of motion save as to costs.

47. As regards costs, I order that the Defendants pay to the Plaintiffs the costs of and occasioned by the time summons in any event, to be taxed if not agreed.

48. As regards the costs of the notice of motion, I bear in mind that the Plaintiffs are not successful with their motion, and that the motion originally asked for declaratory relief that was not justified by the authorities (although this was subsequently rectified in the amended minutes).

49. On the other hand, I bear in mind that all this was "caused" - using the word generally or loosely - by the failure of the Defendants to file their defence within time or at least to take out a time summons for extension of time to file their defence which was not done until one day before the hearing. I am of the view that the fairest order to make is that the costs of and occasioned by the notice of motion be costs in the cause.

50. To ease the task of taxation, given that the notice of motion and the time summons were heard by me together, I further direct that in the light of the content and nature of the arguments submitted before me at the hearing, 90% of the costs of the hearing be regarded as costs incurred in the notice of motion with the remaining 10% the costs of the time summons.

47. Finally, I would like to thank counsel for their helpful assistance.