CHINA MONEY ASIA LTD v. YIP WAI

HCA 131/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 131 OF 2014

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REASONS FOR DECISION

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THE APPLICATION

1.  This is the defendant’s application to set aside the default judgment entered into on 18 June 2014 (“Judgment”).  At the hearing, I dismissed the application with costs to the plaintiff.  I now give the reasons.

BACKGROUND

2.  The plaintiff’s claims in this action are for 3 months’ outstanding rent (16 November 2013 to 15 February 2014) and mesne profit under a tenancy agreement (“Tenancy Agreement”) whereby the plaintiff leased a premises (“the Premises”) to the defendant for a term of one year from 16 February 2013 to 15 February 2014.

3.  Pursuant to the Judgment, the defendant shall pay to the plaintiff:

(1) the sum of HK$288,000 (being 3 months’ rents); and

(2) arrears of rent and/or mesne profits at HK$96,000 per month from 16 February 2014 to the date when vacant possession of the Premises is delivered to the plaintiff by the defendant.

4.  As the matter has developed, after the Judgment, the defendant has paid 2 months’ rent and the plaintiff has recovered vacant possession of the Premises on 21 November 2014.  As it now stands, on the plaintiff’s case, the defendant still owes the plaintiff under the Judgment:-

(1) one month’s rent in the sum of HK$96,000 (“Outstanding Rent”); and

(2) mesne profit in the sum of HK$288,000 (“Outstanding Mesne Profit”).

5.  The plaintiff opposed to this application on two fronts:-

(1) this is the defendant’s third attempt to challenge the validity of the Judgment and is an abuse of process; and

(2) the defendant failed to show a meritorious defence.

PROCEDURAL HISTORY

6.  The Judgment was entered into on 18 June 2014. About six months later, on 16 December 2014, the plaintiff issued a statutory demand on the ground of the defendant’s failure to pay the judgment debt.

7.  The defendant applied on 30 December 2014 to set aside the statutory demand (“1^st Application”).  On 19 January 2015, the defendant proceeded to make an application to set aside the Judgment (“2^nd Application”) on the ground that the service was irregular[1].

8.  These two applications made by the defendant were either dismissed or withdrawn by consent.  The 2^nd Application was withdrawn by consent on 10 February 2015.  On 4 March 2015, upon consent of both parties, the 1^st Application was dismissed with leave to the plaintiff to present a bankruptcy petition against the defendant.

9.  The petition for bankruptcy against the defendant was presented on 2 April 2015.  As required in the bankruptcy proceedings, the defendant has made a partial payment to the plaintiff in the sum of HK$192,000 (equivalent to 2 months’ rents) with interest[2].

10.  On 4 November 2015, the hearing of the bankruptcy petition was adjourned because of the defendant’s present application to set aside the Judgment.

11.  The defendant took out the present application on 2 November 2015 by Summons (“the Summons”).  It is required under Order 2 rule 2(2) of the Rules of High Court that the grounds of objection must be stated in the summons for an application to set aside a step taken in any proceedings for irregularity (See also: Hong Kong Civil Procedure 2018 §13/9/20).  The defendant has not stated in the Summons any grounds of objection, thus the defendant should not be taken as or be allowed to challenge the Judgment on any ground of irregularity. 

12.  In any event, the defendant’s counsel fairly conceded that the Judgment is regular.

WHETHER THERE IS AN ABUSE OF PROCESS

13.  The essence of the doctrine commonly called Henderson v Henderson abuse or res judicata in the wider sense is that generally a party ought not to be permitted to raise in subsequent proceedings or matters which that party could and should have raised in earlier proceedings.  The court has to balance all competing interests.

14.  In Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72 at §83, Ma CJ has held that:-

(1) The doctrine was found on an abuse of process. “It ought only to be applied where the facts are such as to amount to an abuse, otherwise, there is a danger of a party being shut out from bringing forward a genuine subject of litigation.”[3]

(2) It is essential when striking out a claim on this basis that an abuse is found to exist.

(3) The abuse can be found in seeking to raise in subsequent proceedings, claims or issues which could and should have raised in earlier proceedings, and the other party being “vexed” by the subsequent set of proceedings even though the principle of res judicata or issue estoppel does not technically arise (See also: Johnson v Gore Wood & Co [2002] 2 AC 1)

(4) The abuse can also take the form of the administration of justice being brought into disrepute (See also: Chiang Lily v Secretary for Justice [2009] 6 HKC 234)

(5) When exercising the procedural powers, the court shall also bear in mind the underlying objectives “to ensure that the resources of the court are distributed fairly”.

(6) The court is concerned with balancing interests, and shall take into account those of the litigants before it, as well as the other interests involved in the administration of justice.

(7) The court is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel. On the contrary, the court is required to assess a number of factors and balance competing interests. The assessment of different factors and balancing competing interests can be said to be an exercise of a discretion.

15.  This doctrine is applicable to interlocutory applications, including cases where the previous application did not involve an adjudication on the merits, and cases where the previous order was made on technical grounds without consideration of the merits. (M & R Marking Systems, Inc v Tse Mee Shuen Wilson also known as Wilson Tse, HCA 1598 of 2001, 20 December 2001)

16.  In Laemthong International Lines Co Ltd v Artis [2005] 1 Lloyd’s Rep 100 at 105, the English court, in dealing with a second application for a freezing injunction, has said:-

“If… [a party] issues a second application to a judge, the judge would have to take a threshold decision, namely whether the character of the second application made it appropriate that he should entertain it. That would be a discretionary exercise. Normally a factor of great, if not determinative, weight would be whether on that second application new evidence or other matters were to be brought to the court’s attention which had not been before the court on the first application and which were substantially material to the exercise of the court’s discretion in favour of the claimant.”

17.  An application would not be dismissed solely because it is a second bite at the cherry without taking heed of the overriding objective of dealing with the cases justly. In weighing a party’s right to litigate and the other party’s interest in not being “vexed” by the subsequent litigation, the court would also take into account the availability of remedy by suitable costs order and interest which may properly and proportionately compensate the other party.

18.  In Woodhouse v Consignia plc [2002] 1 WLR 2558 at 2575, Brooke LJ has referred to examples where the objective to adjudicate the cases justly is important to tip the balance:-

“… suppose that an application for summary judgment in a substantial multi-track case under CPR r 24 is dismissed, and the unsuccessful party then makes a second application based on the material that was available at the time of the first application, but which through incompetence was not deployed at that time. The new material makes the case for summary judgment unanswerable on the merits. In so extreme a case, it could not be right to dismiss the second application solely because it was a second bite at the cherry. In those circumstances, the overriding objective of dealing with the cases justly, having regard to the various factors mentioned in CPR r 1.1(2), would surely demand that the second application should succeed …”

19.  Adopting the above legal principles, I have taken into account and balanced the following competing interests:-

(1) The present application is not the first attempt to set aside the Judgment.  The defendant has previously taken out applications to set aside the Judgment and the statutory demand.

(2) There was no evidence filed on the substantive merits of the claim in the prior applications, neither were these prior applications argued, let alone determination on the merits.

(3) These prior applications were either withdrawn or dismissed by consent of the parties at a relatively early stage.

(4) It is trite that a withdrawal of a summons would not per se prevent a party from making the same application again.

(5) The defendant has put forward further evidence in the present application.  Such further evidence was or ought to be available at the previous applications but was not raised at that time.

(6) There is apparently a suggestion by the defendant that he could not proceed with the previous applications due to the lack of financial resources.  However, the evidence in support of this contention is scanty.  I do not give much weight on it.

(7) The matter before the court concerns monetary award.  Any prejudice against the plaintiff can be adequately compensated by costs.

(8) The underlying objectives set out in Order 1A rule 1 of the Rules of High Court including fairness between the parties and fair distribution of the court’s resources.

20.  I came to the view that the defendant should be given an opportunity to have his case heard and tried by the court.  The application should not be dismissed on the ground of abuse.  I proceeded to consider the merits of the defendant’s application.

LEGAL PRINCIPLES ON SETTING ASIDE REGULAR DEFAULT JUDGMENT

21.  The legal principles on setting aside a regular default judgment are well established.

22.  To set aside a regular default judgment, the defendant has to demonstrate that he has a defence on the merits which has a real prospect of success or carries with it some degree of conviction. It is not sufficient to merely show an arguable defence. (Young Bing Ching (deceased) v Chow Yung Fong [2001] 2 HKLRD 394 at 398G-399A; Hong Kong Civil Procedure 2018 §13/9/4)

23.  As Bokhary JA (as he then was) has said in Premier Fashion Wears Ltd v Chow Cheuk Man [1994] 1 HKLR 377:-

“no court would wish to reopen a matter without merit since that would only pointlessly postpone the inevitable”

24.  The court is not to embark on a mini-trial on the affirmations.  The court of appeal has held in Maryo Development Ltd v Tsang Yau May, unreported, CACV 101/2015, 11 January 2016, at §§13-14 that:-

“13. … the correct approach can be more helpfully summarised as requiring the court to form a provisional view as to whether or not the defendant has a realistic prospect of successfully defending the action. Determining this will involve assessing whether or not the defendant’s evidence on disputed factual matters has a realistic prospect of being accepted and, if it has, that the defendant has a realistic prospect of establishing a defence in law. The assessment has to be carried out mindful of the interlocutory nature of the application and with a sense of proportionality.

14.   Whether or not the defendant has a realistic prospect of successfully defending the claim is the primary consideration, but as Bokhary JA (as he then was) explains in his judgment in Premier Fashion other factors such as the reason judgment was allowed to be entered, and any delay in making the application to set aside, are to be taken into account. …”

25.  There is no rigid rule that the applicant must satisfy the court that there is a reasonable explanation why judgment was allowed to go by default (Evans v Bartlam [1937] AC 473, at 480).  The court shall weigh all relevant factors against the dominant factor of the merits in order to see where the justice of the case lies when exercising its discretion.

MERITS OF THE DEFENCE

26.  The defence put forward are as follows:-

(1) the Outstanding Rent has been settled by a cheque in the sum equal to one month’s rent which was delivered to the plaintiff in June 2013 (“June Cheque”).

(2) the plaintiff is not entitled to the Outstanding Mesne Profit because vacant possession of the Premises has already been delivered to the plaintiff in February 2014.

THE JUNE CHEQUE

27.  The defendant deposed to in his third affirmation that in around June 2013, he has given the June Cheque to the agent representing the plaintiff[4].

28.  The plaintiff accepted that Mr Li Chi San, the agent, has delivered a cheque to the plaintiff’s solicitors on behalf of the defendant, but the delivery was after the plaintiff’s previous action against the defendant for outstanding rent in July 2013 (“Previous Action”), and that the cheque was for the outstanding rent incurred before November 2013[5].

29.  The defendant produced in his 4^th Affirmation[6] bank statements with records of rental payments as follows:-

Bank Statement Date	Amount paid	Withdrawal date
28 February 2013	1 month’s rent and deposit equivalent to 2 months’ rents	28 February 2013
28 March 2013	1 month’s rent	26 March 2013
30 April 2013	1 month’s rent	17 April 2013
31 May 2013	1 month’s rent	21 May 2013
31 August 2013	1 month’s rent	16 August 2013
30 November 2013	2 months’ rent	1 November 2013

30.  One can immediately discern from the above that evidence for the payment of rents for June, July, September and October 2013 are missing.

31.  The plaintiff said that the November payment was for the rents in respect of September and October 2013.  As to June and July 2013 rents, since the defendant has been in default of payment, the Previous Action was commenced for recovery.  The June Cheque was for settlement or part-settlement of the amounts claimed in the Previous Action.

32.  The defendant did not dispute that the plaintiff has taken out the Previous Action but he said that the June Cheque was not for settlement of the claims in the Previous Action, but was to cover part of the November 2013 to February 2014 rents.

33.  It is inconceivable that the defendant would give a cheque in June 2013 for the payment of rents due after November 2013. There is no documentary evidence to support this contention.  This is contrary to the pattern of rental payment deposed to in the defendant’s 4^th Affirmation.  There is no reason for the defendant to make an advance rental payment.  I do not accept that there is any real prospect of success in the June Cheque defence.

34.  As a fallback position, Counsel for the defendant argued that the defendant should be entitled to set off the Outstanding Rent from the deposit (“the Deposit”) held by the plaintiff under the Tenancy Agreement.

35.  Under Clause 9.02 of the Tenancy Agreement, the Deposit shall only be refunded after the settlement of the last outstanding claim by the plaintiff as landlord against the defendant as the tenant for any arrears of rent, rates and other charges and for any breach of the Tenancy Agreement.  It was the parties’ agreement that the plaintiff is entitled to hold on to the Deposit until the defendant has finally settled the outstanding claims.  This fallback argument does not assist the defendant.

36.  I am satisfied that there is no meritorious defence on the claim for Outstanding Rent.

DELIVERY OF VACANT POSSESSION TO THE PLAINTIFF

37.  To defend the claims for the Outstanding Mesne Profit, the defendant said that he has delivered vacant possession of the Premises to the plaintiff in February 2014 by returning the key of the Premises to the plaintiff through the estate agent.  The defendant further said that the Premises was practically unsuitable for business after the demolition of certain fixtures in about December 2013, and his family has moved to another residence in October 2013[7].

38.  The defendant cited Oastler v Henderson (1877) 2 QBD 575 at 578 and Gray v Bonpas 11 C.B. (N.S.) 518 and contended that the return of the key coupled with the moving out and abandonment of the Premises are sufficient acts of delivery of possession to the plaintiff.

39.  The plaintiff denied that vacant possession has been delivered in February 2014.  The plaintiff said that it has not received the key as contended by the defendant.  To the contrary, the estate agent has taken the key from the defendant in May 2014 for the inspection by the Food and Environmental Hygiene Department (“FEHD”) in relation to the mosquito problem found in the Premises.  Mr Li returned the key to the defendant in July 2014[8]. The plaintiff contended that the defendant has retained the key to the Premises after February 2014.

40.  The defendant did not deny that he or his wife has handled the mosquito problems and attended to the inspection by officers of FEHD in May 2014.  He suggested that he has done so as a favour for the plaintiff.

41.  There is evidence showing the defendant’s involvement in dealing with the inspection by FEHD and the mosquito problems in May 2014.  This evidence does not sit well with the defendant’s contention that he has already surrendered the lease and delivered the vacant possession in February 2014.

42.  In any event, I accept the plaintiff’s contention that the state of the Premises returned by the defendant could not be considered as having delivered the vacant possession.

43.  The plaintiff referred to Cumberland Consolidated Holdings Ltd v Ireland [1946] 1 KB 264, Toho Ltd v Ng Sik Yu [2004] 4 HKC 424 and Strong Beauty Ltd v Gain Legend Industries Ltd [2008] 1 HKLRD 570 and contended that the defendant’s failure to remove his own goods and chattels in the Premises constituted an impediment that interfered with the plaintiff’s enjoyment of the right of possession, and therefore vacant possession was not given.

44.  The defendant rebutted by referring to Clause 12 of the Tenancy Agreement, the relevant parts are as follow:-

“12.2儘管與任何本租約之其他條款不乎合，租客承諾於租約期滿及/或其決定放棄租約時及/或無論任何原因下租約終止時，將其於物業現在經營生意的全部牌照（包括但不限於酒牌、食肆牌、露天茶座牌等等）（“有關牌照”）及現有之全部生財工具無償轉讓與業主。若有任何牌照不能直接轉讓給業主，則租客承諾會放棄該牌照並盡力協助業主進行該牌照申請之事宜。

12.3儘管與任何本租約之其他條款不乎合，如果租客於一年内放棄經營，業主同意租客可將生意連全部有關牌照頂讓與新租客，唯新租客需與業主簽定新租約。新租約租金在任何情況下不得少於現時租金及新租約條款（包括但不限於租金，年期，續租權，免租期等）需經業主同意（以合理原則及市場價格原則爲依歸）。同時並新租客需承諾新租約期滿時及/或其退租時及/或無論任何原因下租約終止時將從租客得來之全部牌照及當時之全部生財工具無償轉讓給業主，若有任何牌照不能直接轉讓給業主，則新租客承諾會放棄牌照並盡力協助業主進行該牌照申請之事宜。”

45.  In gist, under Clauses 12.2 and 12.3, upon the termination of the Tenancy Agreement, the defendant shall transfer all his tools of trade to the plaintiff free of charge.  The defendant said that the goods and chattels left at the Premises are tools of trade that he shall leave in the Premises pursuant to Clause 12.2.

46.  The inventory list drawn up by the bailiff on 21 November 2014 when the plaintiff recovered possession sets out the chattels found in the Premises.  The list shown that there remained in the Premises a number of obsolete and broken chattels.  Many of these could not be considered as tools of trade required to be transferred to the plaintiff under Clause 12.2.  The defendant could not be said to have delivered vacant possession of the Premises in the circumstances.

47.  I do not consider that there is a real prospect of success in establishing the defence that vacant possession has been delivered in February 2014.

48.  The defendant’s application to set aside the Judgment was therefore dismissed.