BANK OF CHINA (HONG KONG) LTD v. HORIZON ENGINEERING SERVICES LTD AND OTHERS

HCA 2612/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2612 OF 2000

____________

____________

_______________

J U D G M E N T

_______________

I. Introduction

1.  On 16 July 2001 the Bank obtained summary judgment against Ma for $11 million plus interest.  That sum was due under a guarantee dated 27 November 1997 apparently signed by Ma in support of facilities granted by the Bank to Horizon.

2.  On 23 December 2003 the Bank assigned the benefit of its judgment to Umbrella Finance Company Ltd.  On 21 September 2004, in execution of the judgment, Umbrella obtained a charging order nisi against a Sceneway Garden flat registered in Ma's name.

3.  By Summons dated 20 November 2004 Ma applied to set aside the judgment against him.  Ma also asked for the charging order to be discharged in consequence.

4.  Ma raises several arguments in support of his case.

5.  First, he claims that he never signed the guarantee on which the judgment was based. 

6.  Second, he says that he only learned of the Bank's action in October 2004.  That knowledge came about (Ma says) through his personal secretary noticing an envelope (containing a copy of the charging order) at the Sceneway Garden flat and then forwarding the envelope to Ma in Melbourne.  Ma claims to have been in Melbourne since August 2004.

7.  At the hearing of the Bank's Order 14 application, Messrs. Benson Li & Co. (BLC) represented Ma.  But Ma denies ever having instructed BLC to act for him. 

8.  Third, Ma argues that service of the writ on him, by post at a Hong Kong address, was irregular.  Between January 1999 and December 2001, Ma says that he was in "administrative detention" in the Mainland.  He could neither contact, nor be contacted by, anyone.  Since he was outside Hong Kong, postal service of the writ under Order 10 Rule 1(2) was not possible.

II.      Background

9.  This action was originally brought by China and South Sea Bank Limited, Hong Kong Branch (CSS).  By the Bank of China (Hong Kong) Limited (Merger) Ordinance (Cap.1167), CSS' undertakings and assets (including the benefits of CSS' judgment against Ma) were assumed by the Bank of China as from 1 October 2001.  In this Judgment, the expression "the Bank" refers interchangeably to CSS and Bank of China.

10.  The Bank issued its writ on 15 March 2000.  It was posted to Ma at Room 1202, China Resources Building, 26 Harbour Road, Wanchai.  That was Ma's address according to the Bank's records.

11.  BLC filed an Acknowledgment of Service as "Solicitors for the 3rd Defendant" on 30 March 2000.

12.  On 7 April 2000 the Bank obtained judgment in default of notice of intention to defend against Horizon and Mayland.  Both were liable for $11 million plus interest, Horizon as borrower, Mayland as guarantor.

13.  On 18 May 2000 BLC filed a Defence, ostensibly on Ma's behalf.  The Defence consisted of bare non-admissions and denials.  The Defence did not specifically allege that Ma had never signed a guarantee in the Bank's favour.

14.  On 27 June 2001 the Bank took out its Order 14 summons. The return date was 16 July 2001.

15.  On 13 July 2001 BLC applied to cease acting for Ma.  The reason given was that, Ma being in the custody of the Mainland authorities, BLC could not obtain instructions for the conduct of the defence.  The summons was returnable on 19 July 2001. 

16.  On 16 July 2001 Master Kwan refused BLC's invitation to hear the application to cease to act at the same time as the Order 14 summons.  The Master instead heard the Bank's application alone.

17.  According to her note of the Order 14 hearing, Master Kwan believed that, even if Ma were in custody and could not be communicated with, "it [was] illogical for [BLC] to suggest Adj SD with LTR [adjournment sine die with liberty to restore] for O14 Summons & for P to serve D3 [Ma] in prison".

18.  Mr. Benson Li of BLC submitted that, without instructions from Ma and knowing nothing about the relationship between Horizon and Ma, Mr. Li could not say whether the signature on the guarantee was actually that of Ma.

19.  Nonetheless, Master Kwan held in the Bank's favour and gave summary judgment.

20.  On 19 July 2001 the Court gave BLC leave to cease acting for Ma.  BLC never informed Ma that the Bank had obtained summary judgment.

21.  In January 2004 the Bank attempted to notify Ma of the assignment of the benefits of the summary judgment.  The Bank did this by writing to Ma at addresses in Shandong and Auckland.  There is no evidence that Ma received these notices.

22.  On 27 December 2003 Ma purchased the Sceneway Garden flat for $3.35 million.

23.  Master Kwan having granted a charging order nisi over the flat on 21 September 2004, Umbrella's solicitors served a copy of the order on Ma by post to his Sceneway Garden address.  There, in the course of a visit, Ma's secretary noticed the envelope containing with the copy order.  Ma, having been informed of the same, then applied on 20 March 2004 to set aside Master Kwan's judgment and thereby prevent the charging order from becoming absolute.

24.  On 22 March 2005, Master Kwang dismissed Ma's application.  The Master stated:-

"	16.	The judgment was obtained regularly.  It was sealed and perfected.  There was no appeal made against that judgment within the time limit.  That judgment was final and conclusive.  This court is functus.
	17.	What I think would be more appropriate for the Defendant to do if he really wants to reopen the matter is to appeal the said judgment out of time and to persuade the judge to allow him to reopen the issue if the court wishes to exercise that discretion despite the long lapse of time.
	18.	Accordingly, I need to dismiss the 3rd Defendant's summons on this technical ground.  Of course, as a result of my ruling, I do not need to go on to deal with the merits of the defence.  If the 3rd Defendant feels aggrieved by my decision, of course he can always appeal my decision and, as a result, the appeal will be a rehearing and parties can, of course, argue whatever issue that they wish to address the court and the judge is not bound by any of my ruling made today."

25.  The charging order nisi became absolute.

26.  Ma appealed.  Following Master Kwang's suggestion, he has also applied for leave to appeal out of time against Master Kwan's judgment.

27.  I heard Ma's application on 12 May 2005.  At the time, I suggested to counsel that this might be a rare situation where the Court would be helped by cross-examination on the affidavits adduced by the parties.  I also raised the possibility of Mr. Li being subpoenaed to explain how he was instructed on Ma's behalf.

28.  I adjourned the hearing to 4 June 2005.  This was to enable Ma to file further evidence.  The parties would also have time to consider whether to subpoena Mr. Li and arrange for their deponents (Ms. Tsiang Tsui Bik of the Bank and Ma) to be cross-examined.

29.  At the hearing on 12 May 2005 all parties accepted that, where a deponent was not tendered for cross-examination, the Court could not attach much (if any) weight on that person's affidavit.

30.  On 4 June 2005 I heard evidence from Ma, Mr. Li and Ms. Tsiang.  The hearing was then adjourned for counsel to prepare written closing submissions.

III. Discussion

A.1 Should Ma have leave to appeal out of time?

31.  Ma was apparently incommunicado (or virtually so) on the Mainland between January 1999 and December 2001.  Even if one assumes that BLC had properly been instructed on Ma's behalf, Ma might never have actually learned of the outcome of the proceedings against him until recently. 

32.  BLC came off the record 3 days after the Bank obtained judgment.  Mr. Li testified that he never told Ma that the Bank had succeeded against him on Order 14. 

33.  Ma was not released until some 5 months later.  It is plausible that afterwards, not hearing anything from BLC, in the hurly-burly following return to normal life after long detention, Ma assumed that there was nothing to be done for the time being on the Bank’s action.  He would not have known that there was a judgment against him which he had to challenge within a prescribed time.

34.  Accordingly, I believe that it would be unjust, despite the time that has elapsed, to refuse Ma leave to appeal out of time against Master Kwan's summary judgment.

B. Should Ma's appeal against the summary judgment be allowed?

35.  Ma affirms that he did not sign the guarantee.  Ms. Tsiang swears to the contrary.  There is documentary evidence (such as internal Bank minutes of meeting) supporting Ms. Tsiang.  But Ma identifies discrepancies in the documents and suggests that they cannot be taken at face value.

36.  I am sceptical of Ma's assertion that more than one Bank document (including the guarantee of Horizon's facilities), although apparently bearing his signature, is a forgery.  But Mr. Bell (appearing for Ma) has identified sufficient inconsistencies in the Bank's supporting evidence, so that I cannot say at this stage that Ma's alleged defence is “pure moonshine".  For example, Mr Bell points out that Ms Tsiang’s explanation for the post-dating of the guarantee (namely, to match the date of the Horizon loan agreement) does not square with the facts.  The loan and guarantee bear different dates.

37.  Plainly, summary proceedings cannot adjudicate between the parties’ competing claims.  Regrettably, despite the time that has lapsed since Master Kwan's judgment, I have concluded that Ma's appeal should be allowed and the genuineness of his signature on the guarantee put to trial.

C. Should judgment be set aside in any event for bad service?

38.  Ma was outside Hong Kong at the time the writ was issued and served.  Service by posting to a Hong Kong address was therefore not valid service on him.

39.  On the other hand, BLC filed an Acknowledgement of Service on Ma's behalf.  At the time of acknowledgment, BLC reserved the right to query whether service had properly been effected.  Nonetheless, if BLC was actually instructed by Ma, any defect in service would have been waived by the time of the Order 14 hearing (if not earlier).  No point on service appears to have been taken before Master Kwan.

40.  Thus, whether or not judgment should be set aside on the ground of bad service, depends on whether Ma in fact instructed BLC.

41.  Mr. Li testified that, although he was initially approached by Ma's former wife (Ms. Lam Lee) to represent Ma, Ma himself confirmed the retainer over some 3 telephone calls with Mr. Li.  According to Mr. Li, over the telephone, Ma personally authorised the filing of the Acknowledgment of Service and the Defence.  Mr. Li produced his handwritten file notes in support of his evidence.

42.  Ma denied ever contacting Mr. Li by telephone.  Mr. Bell submits that Mr. Li (who was not so familiar with Ma) either spoke to someone falsely claiming to be Ma or Mr. Li is lying when he claims to have spoken to Ma.  Mr. Bell goes so far as to suggest that Mr. Li’s file notes may be recent fabrications.

43.  Having heard Mr. Li, I do not believe that he was making up a story.  I think that he genuinely spoke over the telephone with someone who identified himself as Ma.  I have no reason to doubt the authenticity of the file notes which he showed to the Court.

44.  But, whether the person who spoke to Mr. Li was in fact Ma, is something that I am unable to determine in these interlocutory proceedings.  I cannot at this stage rule out the possibility that someone impersonating Ma called Mr. Li and purported to confirm the instructions originally received by Mr. Li from Ms. Lam.

45.  Nevertheless, in light of my conclusion that the summary judgment should be set aside, it is unnecessary for me to determine whether Ma actually called Li. 

46.  Where a default judgment is set aside ex debito justitiae on account of invalid service, a defendant is often awarded the costs of his application to set aside.  Given my decision in Section III.B above, the issue of bad service therefore really only affects the incidence of costs on the applications before me.  However, even if I were to hold that service was invalid as Ma contends, it would be wrong in view of the time that has elapsed since the summary judgment, to order that the Bank pay Ma's costs of setting aside.  See further Section III.E below.  I therefore propose to say nothing more on this issue.

D. Should the charging order be set aside?

47.  The charging order is based on the summary judgment.  If the judgment is set aside, it logically follows that the charging order should likewise be set aside.

48.  The Sceneway Garden flat may be Ma's sole asset within Hong Kong.  There is the possibility that, contrary to what he claims, Ma has only now belatedly applied to set aside the Bank's judgment, simply because execution was threatened against his property.  I have considered whether, in light of such possibility, I should impose a condition on any setting aside of the summary judgment or giving leave to appeal out of time.  For example, I have reflected on whether, by way of condition, the charging order should be maintained pending trial of the Bank's claim.

49.  But I have concluded that it would be incorrect to impose a condition along the lines just sketched.

50.  Realty is not as easily dissipated as personalty.  Knowing of the Sceneway Garden flat, the Bank can monitor future transactions recorded in the Land Registry in relation to the flat.  If there is a real risk of Ma disposing of the flat to render himself judgment-proof, the Bank can apply for a Mareva injunction to forestall such tactic. 

51.  Further, although I am sceptical, I do not think that Ma's denial of his signature on the guarantee can be characterised as a "shadowy" defence.  Therefore, on principle, I should not now grant a defacto Mareva, by imposing a condition, in the absence of evidence of a real risk of dissipation on Ma's part.

E. Costs

52.  Judgment having been given long ago, the Bank and Umbrella have since conducted themselves on the reasonable assumption that it was valid.  Although Ma has effectively prevailed before me, I think that it would be wrong in light of the time that has elapsed, to order costs in his favour at this stage. 

53.  It seems to me that the appropriate order is for costs to be in the cause.  If Ma's assertions are found to be true upon trial, he will eventually have the costs.  If, however, Ma's assertions are found to be false, I do not think that it would be right for him to have the costs of his late applications to set aside.

54.  I therefore make an order nisi that the cost here and below of Ma's applications to appeal out of time and set aside the summary judgment and charging order be in the cause of the Bank's action against Ma.

IV. Conclusion

55.  Leave to appeal out of time against Master Kwan's order is granted.

56.  Master Kwan's order for summary judgment is set aside.

57.  The charging order absolute is discharged.

58.  There will be an order nisi that costs here and below be in the cause.

59.  The parties are to try to agree directions for the expeditious resolution of the Bank's action against Ma.  Agreed directions can be submitted to me for approval by way of a consent summons.  If there is no agreement, this matter should be restored before me as soon as possible for further consideration.