SUM CHI CHUNG v. TSANG KWOK HUNG

HCA 1985/2020

[2022] HKCFI 166

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1985 OF 2020

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DECISION

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Introduction

1.  Before me this morning are two summonses taken out by the plaintiff:

(1)  An Order 14 summons filed on 19 November 2021 seeking a declaration that the defendant, as registered owner, holds the land at Lot No 1910 in Demarcation District No 281, Shatin, New Territories and the three-storey house built on it (“the Property”) on trust for the plaintiff. The plaintiff also seeks an order that the defendant do assign the Property to the plaintiff subject to payment of premium to the District Lands Office, Shatin.  I shall refer to this summons as “the Order 14 summons”.

(2)  A summons filed pursuant to Order 20, rule 8 on 20 December 2021 seeking leave to amend the Order 14 summons.  The proposed amendment is to the effect that the same reliefs are sought on the alternative basis that no defence has been filed by the defendant and judgment should be entered under Order 19, rule 7.  I shall refer to this as “the amendment summons”.

2.  The defendant is not present today.  Having reviewed the affidavits of service in relation to the two summonses, I am satisfied that they have been served on the defendant.  We have therefore proceeded with the hearing in his absence.

3.  Notice of today’s hearing has also been given to Today is Finance Limited. 

4.  The company is a money lender.  It extended a loan to the defendant in November 2019.  The defendant defaulted on the loan in August 2020.  The company commenced an action in the District Court under DCCJ 4915/2020 to recover the outstanding amount in the following month.  On 1 December 2020, judgment was entered against the defendant in default of notice of intention to defend.  The judgment was for about $2,700,000 together with interest and costs.  On 25 January 2021, a charging order nisi was made against the Property.  The hearing for the charging order took place on 22 November 2021 before a District Court master.  The plaintiff objected to the charging order being made absolute on the basis that the Property is beneficially owned by him. Master adjourned the charging order hearing to 25 March this year pending the outcome of the present action. 

5.  In the course of applying for the charging order in the District Court action, Today is Finance Limited found out about the present action from the land search records.  It therefore took out a summons on 17 February 2021 in this action to join as the 2^nd defendant to oppose the plaintiff’s claim.  I shall therefore refer to the company as “the intended 2^nd defendant”.  The substantive hearing is scheduled to take place on 23 February this year before a master. 

The claim

6.  As disclosed by the statement of claim, the plaintiff’s case is, in gist, as follows.

7.  The defendant was an indigenous villager and was entitled to build a three-storey village house on the Property.

8.  Under an Agreement for Development dated 23 September 2014, the defendant and two individuals agreed that the rights and benefits of building such a village house belonged to the two individuals.  They agreed to pay $1,000,000 to the defendant for building the house. 

9.  Under a Chinese Agreement dated 6 November 2014, the plaintiff and the two individuals agreed that the latter would sell to the plaintiff and a Lee Yuk Wan the rights and benefits of the Property at the price of $3,200,000. 

10.  The sums due under the above agreements were paid.  The plaintiff also incurred costs of about $1,440,000 for constructing the house.  He has moved to live in there since 2019.

11.  In this action, the plaintiff seeks the declaration that the defendant holds the Property on trust for him and asks for an assignment subject to the payment of premium. 

Procedural history

12.  The procedural history in this action is important in the disposal of the two summonses. 

13.  On 25 November 2020, the writ was issued.  No statement of claim was endorsed on it.  I am informed this morning that it was served on the defendant on the same day by registered post.  The due date for the acknowledgment of service therefore fell on 15 December 2020.  No acknowledgment was lodged within this period. 

14.  The next thing which happened was the joinder application of the intended 2^nd defendant taken out on 17 February 2021, as mentioned above.  It appears from the court records that it was adjourned sine die at the return date hearing in late March.

15.  There was then a hiatus of activity of about seven months.  (In the meantime, the plaintiff was taking steps in the District Court action to oppose the charging order.)

16.  On 8 November 2021, the defendant lodged the acknowledgment of service with the Registry stating that he does not intend to contest the proceedings. 

17.  On 19 November 2021, the plaintiff did two things.  He filed his statement of claim.  He also took out the Order 14 summons.  Both were served on the defendant by ordinary post sent on the same day.

18.  On 20 December 2021, the plaintiff took out the amendment summons.  On that same day, there was a hearing before a master granting directions for the joinder application and adjourning it for argument to 23 February 2022. 

19.  In light of the joinder application, the plaintiff today only asks for an order in terms of the amendment summons and for the amended Order 14 summons to be adjourned for argument on a date after 23 February 2022. 

The Order 14 summons

20.  In order for a plaintiff to employ the Order 14 machinery, he needs to satisfy three preliminary requirements.  One of them is that the defendant must have given notice of intention to defend.  This is a preliminary necessity to applying for summary judgment.  The defendant must have acknowledged the service of the writ and must have stated in the acknowledgment that he intends to contest the proceedings: Hong Kong Civil Procedure 2022 at 14/1/3 and 14/1/4. 

21.  This is made clear in the Rules.

22.  Order 14, r 1(1) provides:

“Where in an action to which this rule applies a statement of claim has been served on a defendant and that defendant has given notice of intention to defend the action, the plaintiff may, on the ground that that defendant has no defence to a claim included in the writ, or to a particular part of such a claim, or has no defence to such a claim or part except as to the amount of any damages claimed, apply to the Court for judgment against that defendant.” (underline added)

23.  Order 1, rule 4 defines the “notice of intention to defend” as follows:

“an acknowledgment of service containing a statement to the effect that the person by whom or on whose behalf it is signed intends to contest the proceedings to which the acknowledgment relates”

24.  Here, it is plain that the acknowledgment of service lodged by the defendant on 8 November 2021 is not a “notice of intention to defend” as the defendant has specifically indicated that he does not intend to contest. 

25.  Hence, one of the preliminary requirements in Order 14, rule 1(1) is not met.  The application does not come within the rule.  Mr Zhu Yue Lin, counsel for the plaintiff, concedes in the course of his oral submissions that for these reasons, the Order 14 application is misconceived. 

26.  Where a defendant does not intend to contest, the Order 14 machinery is not suitable for the plaintiff to invoke in order to enter judgment.  It has been explained that in the absence of such an intention, there is no need for the court to assess whether the defendant has shown that there is an issue to be tried or whether there is a credible or believable defence.  The proper machinery for the plaintiff to invoke is to seek judgment in default of an intention to defend or in default of defence, depending on the nature of the relief sought: see The Incorporated Owners of Nos 3-3E Wang Fung Terrace v Law Chi Wing DCCJ 230/2006, 28 March 2006, paras 58 to 60, per Her Honour Judge Marlene Ng (as she then was); Hong Kong Civil Procedure 2022 at 14/1/4. 

27.  For these reasons, the Order 14 application fails and it should be dismissed.

28.  I therefore now turn to the plaintiff’s alternative application which pursues the relief under the default judgment regime. 

The amendment summons

29.  Under the amendment summons, the plaintiff seeks to amend the Order 14 summons by adding the alternative basis of default judgment under Order 19, rule 7.

30.  I am of the view that if the proposed amendment is allowed, the application for default judgment has no prospect of success as it suffers from a fundamental procedural flaw and (potentially) a problem on the merits.  Hence I decline to grant leave to amend as it would be futile to do so. 

31.  I reproduce below the rules relevant in the present context.

32.  Order 13, rule 6(1) provides:

“Where a writ is indorsed with a claim of a description not mentioned in rules 1 to 4, [eg declaratory relief] then, if any defendant fails to give notice of intention to defend, the plaintiff may, after the prescribed time and, if that defendant has not acknowledged service, upon filing an affidavit proving due service of the writ on him and, where the statement of claim was not indorsed on or served with the writ, upon serving a statement of claim on him, proceed with the action as if that defendant had given notice of intention to defend.” (underline added)

33.  Order 13, rule 6A provides:

“In the foregoing rules of this Order the prescribed time (訂明的時限) in relation to a writ issued against a defendant means the time limited for the defendant to acknowledge service of the writ or, if within that time the defendant has returned to the Registry an acknowledgment of service containing a statement to the effect that he does not intend to contest the proceedings, the date on which the acknowledgment was received at the Registry.” (underline added)

34.  Order 19, rule 7(1) provides:

“Where the plaintiff makes against a defendant or defendants a claim of a description not mentioned in rules 2 to 5 [eg declaratory relief], then, if the defendant or all the defendants (where there is more than one) fails or fail to serve a defence on the plaintiff, the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, apply to the Court for judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim.” (underline added)

35.  The plaintiff is now seeking declaratory relief. Hence the procedure in Order 13, rule 6 applies.  I have underlined the provisions governing the relevant timeframe in the extracts above.  In this case, the prescribed time would be 15 December 2020.  (Even though the defendant has returned the acknowledgment to the Registry, it was not done within the time limit for doing so.  Hence, the first part of the definition of “the prescribed time”, as underlined above, applies here.)

36.  The statement of claim was sent to the defendant by ordinary post on 19 November 2021 and is therefore deemed served on 22 November 2021.  The deadline for the defendant to serve his defence therefore fell on 20 December 2021: see Order 18, rule 2(1) and applying the deeming provision in para 2(b) of Practice Direction 19.2.

37.  While the amendment summons was taken out on 20 December 2021, if the proposed amendments are allowed, they will take effect not from the date when leave is granted, but from the original date of issue of the Order 14 summons, ie 19 November 2021.  In other words, the amendments date back to 19 November 2021: Hong Kong Civil Procedure 2022 at 20/8/2. 

38.  The problem here is that on that date, the statement of claim had not even been served and the defence not yet fallen due.

39.  Under Order 19, rule 7, a defendant may only apply after the deadline.  That requirement is not satisfied here because of the date of the Order 14 summons, if and when amended. 

40.  Due to the fundamental procedural flaw, the plaintiff’s proposed application for default judgment therefore does not come within Order 19, rule 7 and must therefore fail. 

41.  In the circumstances, no leave to amend should be granted.

42.  I should add that if I am wrong on the above, there is nothing before me to justify why the court should exercise its discretion to grant the declaratory relief now without a trial.  (I will not address the prior issue whether the pleaded facts would give rise to the relief sought in this decision.) 

43.  The general practice is that in the absence of a judgment reached after hearing evidence, a declaration could be based only on unproved allegations and the court ought not to declare as fact that which might not have proved to be such, had the facts been investigated: Wallersteiner v Moir [1974] 1 WLR 991 per Buckley LJ at 1029; Patten v Burke Publishing Co Ltd [1991] 1 WLR 541 per Millett J (as he then was) at 544A; and Top One International (China) Property Group Company Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at para 83 per Fok J (as he then was).

44.  However, it is also well established that this is only a rule of practice and not a rule of law.  This rule of practice should not be followed when the plaintiff has a genuine need for the declaratory relief and justice would not be done if the relief were denied: Hong Kong Civil Procedure 2022 at 19/7/20. 

45.  Here, the burden is squarely on the plaintiff to demonstrate a genuine need for the declaration now instead of after trial.

46.  Mr Zhu highlights that in the present case, the defendant has expressly indicated that he would not contest the claim.  He refers me to the decision of Deputy High Court Judge Cooney SC in Kan Kiu Chor v Fung Shu Fun HCA 1902/2015, 6 April 2016 at para 14.  That is a similar case where the defendant also gave the same indication.  And the court took that as a relevant consideration for granting the declaratory relief. 

47.  In my view, the present case is a case when the plaintiff seeks to assert his alleged beneficial interest over the Property.  The title of the Property is at stake.  The financial interest of the intended 2^nd defendant will be affected.  It would appear to me that the plaintiff should prove his case at trial so that his evidence can be tested at the trial and only then can the interest of all the parties, including the intended 2^nd defendant (in the form of the charging order) be properly adjudicated upon. 

48.  To sum up, even if the plaintiff is allowed to proceed with the default judgment application, as a matter of discretion, the court is unlikely to grant the declaratory relief without a trial.  Hence, no leave to amend should be granted to enable the plaintiff to pursue the application. 

Orders

49.  For the above reasons, I dismiss both the Order 14 summons and the amendment summons.

50.  I make no order as to costs.