SINOKAWA INVESTMENT (HOLDINGS) LTD v. LI CHUN

                 HCA 15641/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15641 OF 1999

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BETWEEN

                 HCA 15643/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 15643 OF 1999

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REASONS FOR JUDMENT

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1. In each action the defendant applied by summons dated 1 August 2005 to set aside the default judgment entered by the plaintiff.  The plaintiff in Action No. 15641 of 1999 (“Action 15641”) entered a default judgment in the sum of $446,449.14 together with interest, damages to be assessed and costs on 19 November 1999.  The plaintiff in Action No. 15643 of 1999 (“Action 15643”) entered a default judgment in the sum of $370,000 together with interest and costs on 24 November 1999.

2. On 23 June 2006 I made orders setting aside the default judgments on terms.  In Action 15641 I made an order that the judgment be set aside on the condition that the defendant do pay the sum of $334,818.27 into court within 28 days.  In Action 15643 I made an order that the judgment be set aside on the condition that the defendant do pay the sum of $370,000 into court within 28 days.  I also made an order that if the conditions imposed on the defendant are complied with then the costs of the applications are to be costs in the cause but that if the terms are not complied with then the costs of the applications are to be costs to the plaintiff.   I indicated at the time of making my orders that I would give my reasons in writing. This I now do.

3. The cause of action in Action 15641 is for breach of an agreement to buy shares in a company.  The cause of action in Action 15643 is on a dishonoured cheque.  The writs of summons together with the statements of claim in both actions were issued on 30 September 1999.  In order to serve the writs on the defendant they were inserted into the letter box at the defendant’s address at Convention Plaza. This was said to be the usual or last known address of the defendant.

4. As no notice of intention to defend was given by the defendant, judgment in default was entered against him.  In Action 15641this was for the sum of $446,449.14 plus interest and damages to be assessed and costs.  In Action 15643 this was for the sum of $370,000 with interest and costs.  

5. The defendant’s case is that he was not living at the Convention Plaza address at the time the writ was issued and when it was inserted into the letter box at that address.  He had moved to another address.  

6. Initially, the defendant’s case as affirmed by him was that he was staying at a flat at Robinson Place in September 1999 and not at the Convention Plaza address.  At para. 11 of his first affirmation the defendant relied on filings in the Companies Registry to show that his address at the material time was Robinson Place and not the Convention Plaza address.  However, the plaintiff’s evidence in opposition made it plain that the documents relied on by the defendant in his first affirmation were not in fact filed with the Companies Registry.  Hence it was misleading to put these forward as documents which had actually been filed with the Companies Registry.

7. The defendant in his 2^nd affirmation apologized for wrongly recollecting that he had lived in Robinson Place in September 1999.  He said that he had forgotten that he did move into Robinson Place after he had moved out of Convention Plaza and that by September 1999 he had already moved to Valiant Park in Conduit Road.  However, he did not explain why in his first affirmation he relied on documents purportedly filed with the Companies Registry but which were not in fact filed showing his address at Robinson Place.

8. Mr Jim, for the plaintiff, also submitted that the evidence as to where the defendant lived was conflicting and that the Court should infer that he was in fact living at the Convention Plaza address at the time of service.  He pointed to the fact that in the Annual Return dated 21 June 1998 in respect of the company Best Wide Development Food Products Ltd the defendant’s address was given as the Convention Plaza address.  The defendant’s case is that he was no longer living at the Convention Plaza address at that time.  

9. The point was also made that in the documents filed in the Companies Registry in respect of the different companies where the defendant was a director the Convention Plaza address was shown as the address of the defendant at the time of the service of the writs in September 1999.

10. Be that as it may, in my view there is cogent evidence that in September 1999 the defendant was not living in Convention Plaza but somewhere else.  The electricity bill and Towngas bill in respect of Robinson Place adduced in evidence supports the evidence of the defendant and his secretary that the defendant lived in Robinson Place from about May 1998 to the end of 1998.  And the Towngas bill in respect of Valiant Park supports their evidence that the defendant lived in Valiant Park in September 1999.  The said utilities bills provide cogent evidence that in September 1999 the defendant was living at Valiant Park and not at Convention Plaza. 

11. In the circumstances it seems to me that the defendant has established that he was not living in Convention Plaza at the time of service of the writs.  He says that he did not have notice of the writ before judgment was entered against him.  Mr Jim, however,submitted that the Court could infer that the writs had been brought to his notice.  However, he failed to identify any sufficient facts from which this inference could reasonably be drawn.  It seems to me that the defendant did not have notice of the writs before judgment was entered.

12. O.10;r.1(1) RHC provides that a writ must be served personally on a defendant or his agent.

13. O.10;r.1(2) RHC provides for an alternative mode of service.  It provides that a writ may, instead of being served personally on him, be served (a) by sending a copy of the writ by registered post to the defendant at his usual or last known address or (b) if there is a letter box for that address, by inserting through the letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant.

14. Where a writ is served in accordance with r. 1(2), O.10, r.1(3) provides that the date of service shall, unless the contrary is shown, be deemed to be the seventh day after the date on which the copy was inserted through the letter box for the address in question.  The words “unless the contrary is shown” make it plain that it is open to a defendant to show that he did not have notice of the writ.

15. The test for service of a writ was whether it had been brought to the defendant’s notice and not whether it had been delivered to the defendant’s last known address (Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378; Kwan Kam Wah v Chan Wai Ming [2000] 2 HKC 378; Cosec Nominees Ltd v Lau Hon Ming Alan[2001] 3 HKC 290; Bank of China v Christina Hung & another HCA 69/2000 and HCB 5837/2003 unreported judgment 3 September 2004). 

16. As the writs were not brought to the defendant’s notice, it seems to me that the service was irregular.  A judgment which has been obtained irregularly ought to be set aside as of right.  This simply means that the merits of the defence do not have to be considered.  But the Court retains a residual discretion in the matter.  Sears J in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co. Ltd [1996] 4 HKC 157 said at 161 :

“ The provisions of O. 13; r. 9 as I have said, are wide in their context.  In my judgment, whilst it can rightly be said that a judgment which has been obtained irregularly ought to be set aside as of right, in other words that a particular defence to the claim do not have to be entered into by the court, nevertheless, there is always a residual discretion in the court to have regard to the conduct of the parties.  For example, if a judgment has been obtained irregularly and the writ comes to the notice of the defendant, he may delay for a certain period of time before taking any action on the writ.  In my judgment, the court still has a discretion—having regard to what the defendant himself has done—to deprive him, if necessary, of that judgment or alternatively, to impose terms upon the setting aside of the judgment which accord with justice having regard to the facts of the particular case.”

17. In Liu Chong Hing Bank Ltd v Union World (HK) Ltd & ors [2005] 1 HKC 20 it was held that the court had an unfettered discretion to have regard to the conduct of the parties when an application to set aside a judgment was made. 

18. Yuen JA said at para. 15 :

“     However, what is also clear from Po Kwong is that in the exercise of its discretion, the court would consider other relevant matters, including conduct of the defendant after he learns of the proceedings.  Where, as in this case, the defendant delayed substantially before applying to court to set aside the judgment, the court was clearly justified in setting aside the judgment on terms.”

19. The defendant’s case is that he did not know of the judgments until January 2001.

20. There is no doubt that by January 2001 the defendant knew about the judgments.  The plaintiff sought to enforce the judgment in Action 15641 and obtained a garnishee order nisi against Standard Chartered Bank.  The defendant sent a representative, Ms Wong, to attend the hearing on 19 January 2001 before the Master to oppose the making of the garnishee order absolute.  The opposition was unsuccessful and the order was made absolute.  By that time the defendant must have known of the judgments entered against him.

21. On 30 January 2001 he wrote to the plaintiff’s solicitors where he reiterated oral requests for the court documents to be supplied to him.  He also made the point that he was prepared to file the summons to set aside the judgments.

22. In February 2001 all the court documents were collected by the defendant or by his representative. 

23. On 23 February 2001, the garnishee Standard Chartered Bank wrote to the plaintiff’s solicitors, with a copy to their client namely, the defendant, and enclosed a cashier’s order for the payment of $111,630.87 to the plaintiff this being the amount due to the defendant from the bank. Having received this sum, the balance payable under the judgment in Action 15641 was $334,818.27 apart from interest and costs.

24. Despite knowing of the judgments in January 2001 and having received the court documents in February 2001, the defendant did not take out his application to set aside the judgments until very much later on 1 August 2005.  On any view, this was a very substantial delay on his part.

25. The defendant seeks to explain the delay as follows.  At para. 14 of his 1^st affirmation he says :

“     I did not take further action in 2001.  This is so as I thought that the plaintiffs realized they obtained the judgments on a wrongful basis they would no longer seek to enforce them (which they did not for 4 years).  I have been through a lot in the last few years; owing in excess of HK$160,000,000 to the Bank of China as well as other companies.  Due to the Asian financial crisis, I had a hard time servicing my debt.  With great respect, that $100,000 odd deduction was a relatively speaking minuscule amount compared to the magnitute (sic) of the problems I had at the time.  There is now produced and shown to me copies of various legal documents which show that I was severely indebted at around that time at “LC-7”.  I understand that the exhibited legal documents are far from complete but this is the most I could locate up to the date of this affirmation.  As explained below, further ‘counter attacking’ was not on my mind as I simply had no time (nor the heart) for it as I was dealing with more important problems.  Also I realized that having been cheated it wouldn’t be so easy for me to prove that I had been cheated.”

And at para. 9 of his 2^nd affirmation he says :

“ I also fail to understand why, Mr Hao failed to take any action after I discovered about the default judgment in 2001.  The simple reason is that he knew it was wrongly obtained and hence ceased to do anything relating to it.  As such, I assumed that Mr Hao would no longer rely on that judgment which was improperly obtained and would content himself of having gained some monies from my bank account, which he shouldn’t have.  Since I had other more serious issues to deal with at the time I did not take steps to set aside the default judgment.  Had the plaintiff pursued enforcement I would have definitely have done so.  I thought that I would just write off in my mind the amount he had taken and had assumed he would not go further.  I would also wish to point out to this Honourable Court that the Plaintiff has not proceeded speedily even on the present application, it having been taken out in August of last year the Plaintiff has not even attempted to have it refixed on a timely manner, its evidence being filed in April 2006, some 8 months later.”

26. Mr Maurellet, for the defendant, made the bold submission that in reality the plaintiff has lured the defendant into a false sense of security.  He also submitted that the defendant was a layman and assumed that the plaintiff would no longer rely on the judgment after having obtained the amount paid by the garnishee and that his explanation for the delay was not implausible.

27. I am unable to accept Mr Maurellet’s submissions. The defendant’s explanation is unconvincing and wholly unsatisfactory.  The defendant knew full well that the plaintiff had obtained judgments against him in January 2001.  He even sent his representative to oppose the making of the charging order absolute.  He must have known that the plaintiff was enforcing the judgment and was not prepared to simply sit on the judgment.  Yet having received all the court documents by February 2001 he took no steps to set aside the judgment until some 4½ years later on 1 August 2005.  This is very substantial delay on his part.  He had by July 2005 been served personally with statutory demands and this was what prompted him to make the present applications on 1 August 2005.

28. It is also pertinent to observe that in or about early 2000 the plaintiff instructed its solicitors to commence bankruptcy proceedings against the defendant.  The evidence as contained in para. 15 of the affirmation of Peter Hao formerly known as Kok Pang Ho shows that in or about early 2000 after judgment had been obtained the plaintiff’s solicitors were instructed to commence bankruptcy proceedings against the defendant.  However, this was unsuccessful because the defendant tried to evade personal service of the statutory demands despite the fact that the plaintiff’s solicitors made several appointments with the defendant for this purpose.  Personal service could not at that time be effected and the plaintiff instructed its solicitors to effect substituted service by advertising the statutory demands in a newspaper.  The court was, however, not satisfied that the Bankruptcy Rules had been complied with and leave was not granted for the plaintiff to present the bankruptcy petition.  This evidence, which has not been denied by the defendant, does show that the defendant was being elusive and did try to evade personal service of the statutory demands.  That perhaps may explain why the statutory demands dated 22 June 2005 which were eventually served personally on the defendant in July 1995 provided six different addresses for service.

29. Although there is a dispute whether the defendant told Peter Hao that he had moved out of the Convention Plaza address to an address in the Mid-levels, it is clear from the documents filed with the Companies Registry that in September 1999 the address of the defendant was the Convention Plaza address.   The defendant was not living in Convention Plaza at the time of the Annual Return dated 21 June 1998 filed in respect of the company Best Wide Development Food Products Ltd.  The defendant’s case is that by 9 June 1998, the date of the letter from the purchaser’s solicitors Messrs. Fairbain, Catley, Low & King included in Exh. “LC-5” to the defendant’s first affirmation, he had already moved out of the Convention Plaza address.  There is no explanation given by the defendant as to why he signed the Annual Return on 22 July 1998 giving the Convention Plaza address as his address at the date of the return, 21 June 1998, when by that date he had already moved out of the Convention Plaza address.  By signing the Annual Return on 22 July 1998 the defendant confirmed that his address was the Convention Plaza address as at 21 June 1998.  

30. The documents filed with the Companies Registry in respect of the different companies also showed the defendant’s address in September 1999 as being the Convention Plaza address.  

31. It would have been reasonable for creditors to attempt to serve the defendant at the Convention Plaza address this being the address he himself acknowledged as being his at the time in the documents filed with the Companies Registry.  The defendant can hardly blame creditors for using that address as the address for service.  

32. I would also observe that the defendant’s evidence is that by the time of the service of the writs in September 1999 the defendant wasowing substantial sums to creditor banks. On his evidence, sometime in 1998 he was indebted in excess of $200 m (para. 31 of his first affirmation).  It seems that with different creditors after him he was content to let the company documents filed with the Companies Registry show that his address was the Convention Plaza address when it was in fact not so.  It seems to me that the defendant himself is to blame if creditors are led to believe that his address at that time was the Convention Plaza address.

33. In all the circumstances, I consider that it is only just that terms be imposed for setting aside the judgments. It seems to me that it is proper to impose the condition in Action 15641 that the defendant do pay the balance of the judgment in the sum of $333,818.27 into court within 28 days and in Action 15643 that the defendant do pay the sum of $370,000 into court within 28 days. 

34. For the above reasons, I made the order set out at para. 2 on 23 June 2006.