BANK OF CHINA (HONG KONG) LTD v. LINK REGENT INVESTMENT LTD AND OTHERS

HCA4517/2003, HCA4518/2003

& HCA465/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4517 OF 2003

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(Heard Together)

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J U D G M E N T

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1. In each of the three actions, the 3^rd defendant appeals against the Order of the Master made on 28 April 2008 whereby he set aside the default judgment entered against the 3^rd defendant, extended the validity of the Writ and dispensed with service of the Writ on the 3^rd defendant and also made consequential directions for the further conduct of the three actions.  The 3^rd defendant seeks to set aside the Order save and except the setting aside of the default judgments.  Since the three appeals raise the same issues and arguments, they were heard together.

The parties

2. The 3^rd defendant is the wife of the 2^nd defendant in the three actions. 

3. The 1^st defendant in the three actions are family companies in which the 2^ndand 3^rd defendants were the former shareholders and/or secretary and/or directors.  Specifically, for All World International Limited and Regal Link Investment Limited (the respective 1^st defendant in HCA4517/2003 and HCA465/2004), the 2^nd and 3^rd defendants were the shareholders until 20 June 2000, when they transferred their shares to two BVI companies.  Additionally, they were at least until 2001 the directors of the two companies.  The 3^rd defendant was also the secretary of these two companies.  In the case of Link Regent Investment Limited (the 1^st defendant in HCA4518/2003), the 2^nd defendant was, at least until 2001, a director and the 3^rd defendant was the secretary.  99% of the shares in the company was held by the BVI company to which the 3^rd defendant had transferred her shares in the other two companies.  All the three companies had the same registered address. 

4. The three companies were the customers of the plaintiff’s predecessor-in-title, Kincheng Banking Corporation.

Background

5. The factual background to the three actions is similar.  Briefly stated, the 2^nd and 3^rd defendants had executed five Deeds of Guarantees dated 6 March, 13 March, 10 June and 30 July 1997 and 20 February 1998 to jointly and severally guarantee the repayment of borrowings advanced by Kincheng Banking Corporation to the 1^st defendants in the three actions.

6. Subsequently, the three companies defaulted in repayment.  In 2002 and 2003, three properties charged by the companies to the bank were sold and the sale proceeds were applied to reduce the indebtedness.

7. By three letters of demand dated 25 September and 18 November 2003, the plaintiff demanded the 3^rd defendant as guarantor to repay the outstanding debts of the three companies, pursuant to the terms of the Deeds of Guarantees.  These letters of demand were sent to the registered office of the three companies as appeared in their latest Annual Returns filed with the Companies Registry and also to an address given by the 3^rd defendant in the Deed of Guarantee dated 30 July 1997.

The three actions

8. No repayment was made by the 3^rd defendant.  The plaintiff therefore commenced these actions to recover the outstanding debts from the three companies and the 2^nd and 3^rd defendants.  The Writs in HCA4517/2003 and HCA4518/2003 were issued on 12 December 2003, and the Writ in HCA465/2004 was issued on 28 February 2008.  The claims against the 3^rd defendant are based on the Deeds of Guarantee.

9. The Writs were served on the 3^rd defendant at the two addresses, to which the letters of demand were sent.  The 3^rd defendant did not enter appearance to them.  Consequently, the plaintiff applied for and obtained default judgment against her in all three actions.  The default judgments in HCA4517/2003 and HCA4518/2003 were entered on 16 January 2004.  In HCA465/2004, the default judgment was entered on 20 October 2004.

The bankruptcy proceedings

10. On 7 March 2006, the plaintiff issued a statutory demand against the 3^rd defendant in respect of the judgment debts in the three actions.  Attempts by the plaintiff to serve the 3^rd defendant personally having proved unsuccessful, substituted service was effected on 7 August 2006.  Thereafter, a bankruptcy petition was presented on 15 March 2007 in HCB2837/2007.  It was served by substituted service with leave of the court.  The 3^rd defendant did not attend the hearing.  A bankruptcy order was made against her on 6 June 2007.

11. On 8 October 2007, the 3^rd defendant applied to annul the Bankruptcy Order.  By judgment handed down on 14 March 2008, Barma J granted the application, annulled the Bankruptcy Order and dismissed the Bankruptcy Petition.  Principally, Barma J accepted that the 3^rd defendant had since 22 June 2000 emigrated from Hong Kong and she was therefore not ordinarily resident in Hong Kong in the three years prior to the presentation of the Bankruptcy Petition.  Barma J, however, considered that the steps taken by the plaintiff to serve the statutory demand on the 3^rd defendant at the registered office of the three companies and the address given by the 3^rd defendant in the Deed of Guarantee dated 30 July 1997 were reasonable.  In relation to the default judgments against the 3^rd defendant in the three actions, Barma J was of the view that since she was not in Hong Kong at the time the Writs were served, they were entered irregularly and liable to be set aside as of right subject to the residual discretion recognised in Po Kwong Marble Factory Limited v. Wah Yee Decoration Company Limited [1996] 4 HKC 157, 161C-D.  

The plaintiff’s summonses

12. Subsequent to the judgment, the plaintiff’s then solicitors entered into correspondence with the 3^rd defendant’s solicitors, inviting them to consent to set aside the default judgments and consequential directions on the further conduct of the actions, to which there was no response.  Prior to that and before the hearing of the annulment application, the plaintiff’s solicitors had already enquired with the 3^rd defendant’s solicitors whether they had instructions to accept service of the Writs, to which there was no positive or direct reply.  The 3^rd defendant’s solicitors, however, made the point that the Writs in the three actions had expired.

13. On 8 April 2008, the plaintiff issued a summons in each of the three actions seeking orders for, inter alia, :

(1) the setting aside of the default judgment against the 3^rd defendant;

(2) the extension of the validity of the Writs;

(3) dispensing with the service of the Writ on the 3^rd defendant; and

(4) directions for pleadings, discovery and witness statements.

14. Prior to that on 25 March 2008, the plaintiff applied for and obtained interim mareva injunctions against the 3^rd defendant in respect of a sum of $1,680,674.63 and the contents of a safe deposit box, which were held and seized by the Official Receiver in the bankruptcy proceedings.  The 3^rd defendant was represented by counsel at the hearing of the plaintiff’s application.  The continuation of the injunctions was adjourned for argument.

15. After the plaintiff issued the summonses on 8 April 2008, the 3^rd defendant’s solicitors wrote on 17 April 2008 indicating agreement to set aside the default judgments, but objecting to the other orders sought in the summonses.

16. On 28 April 2008, the Master heard the plaintiff’s summonses.  He granted the applications and made the following orders :

(1) The default judgments entered against the 3^rd defendant are set aside.

(2) The validity of the Writs in the three actions are extended for 12 months from the date of the Order.

(3) Service of the Writs on the 3^rd defendant is dispensed with.

(4) Leave to the 3^rd defendant to file and serve a Defence within 21 days from the date of the Order.

(5) The plaintiff may file and serve a Reply within 21 days from the service of the Defence.

(6) The rest of the plaintiff’s summonses be adjourned sine die with liberty to restore.

(7) Costs reserved.

The appeal

17. On 6 May 2008, the 3^rd defendant filed Notices of Appeal against the Master’s Order, seeking to rescind the Master’s Order (save and except the setting aside of the default judgments) and have the plaintiff’s application to extend the validity of the Writs be dismissed as well as to set aside the rest of the Order.

18. Partly in support of the appeal and partly to contest the continuation of the mareva injunctions, the 3^rd defendant filed an affirmation in each of the actions on 24 June 2008.  The plaintiff filed the 2^nd affirmation of Lam Chiu Man on 11 August 2008 in reply thereto.  At the hearing of the appeal, I granted leave for these affirmations to be filed and used for the appeals.

Defence of the 3^rd defendant

19. It would appear from the affirmations of the 3^rd defendant that her principal defence to the plaintiff’s claim on the Deeds of Guarantee is that she executed them under the undue influence of her husband, the 2^nd defendant.  In addition, she also raises limitation and laches, complaining that the plaintiff delayed in taking action to recover the debts owed by the companies.

20. At the hearing of the appeal, Mr Chu who appears for the 3^rd defendant accepts that the plaintiff’s cause of action is not time-barred, having regard to the fact that the plaintiff’s letters of demand were made in 2003 and 2004 and the limitation period for deeds is 12 years.  He, however, argues that the interests that have accrued may be time-barred.

The grounds of appeal

21. The main thrust of the appeals as put in the 3^rd defendant’s

affirmations and her counsel’s written submission is that the Writs in the three actions should not be extended.  It is said that since the Writs were issued in 2003 and 2004, the court has no jurisdiction under Order 6, rule 8(2), Rules of the High Court to extend their validity for 12 months from the date of the Master’s Order.  Further and alternatively, it is said that the plaintiff had not shown good reasons for the exercise of the court’s discretion.

Order 6, rule 8(1) and (2), RHC

22. Order 6, rule 8(1) and (2), RHC provide :

“8.   Duration and renewal of writ (O. 6, r. 8)

(1)  For the purpose of service, a writ (other than a concurrent writ) is valid in the first instance for twelve months beginning with the date of its issue and a concurrent writ is valid in the first instance for the period of validity of the original writ which is unexpired at the date of issue of the concurrent writ.

(2)  Where a writ has not been served on a defendant, the Court may by order extend the validity of the writ from time to time for such period, not exceeding twelve months at any one time, beginning with the day next following that on which it would otherwise expire, as may be specified in the order, if an application for extension is made to the Court before that day or such later day (if any) as the Court may allow.”

23. Plainly, under Order 6, rule 8(2), the court can only extend the validity of a writ for a maximum period of 12 months, and the 12 months period begin from the day immediately following the expiration of the validity of the Writ.

24. The Writs in HCA4517/2003 and HCA4518/2003 were issued on 12 December 2003.  Under Order 6, rule 8(1), RHC, they would expire on 11 December 2004.  In the case of the Writ in HCA465/2004, it was issued on 28 February 2004 and would expire on 27 February 2005.  Further, under Order 6, rule 8(2), the Writs can only be extended for a maximum period of 12 months beginning from 11 December 2004 or 27 February 2005.

25. Mr Chu submits, and I agree, that there is no power under Order 6, rule 8(2) to extend the validity of the Writs in the three actions for 12 months from the date of the Master’s Order (i.e. 28 April 2008).  Miss Sit who appears for the plaintiff also accepts this.

Dispensing with the service of the Writs

26. However, that is not the end of the appeals.

27. The opening words of Order 6, rule 8(1) state : “For the purpose of service, a writ … is valid.”  Accordingly, the validity period and its extension as provided under rule 8(1) and (2) is for the purpose of and only relevant to the service of a writ.  A writ is not otherwise rendered invalid under Order 6, rule 8(1).

28. Paragraph 3 of the plaintiff’s summonses seeks a dispensation of the service of the Writs in the three actions on the 3^rd defendant.  By paragraph 3 of the Master’s Order, an order was made in terms.

29. Having regard to the fact that Order 6, rule 8 only governs the period within which a writ may be validly served, there is in fact no need for the plaintiff to seek an extension of the validity of the Writs when it is also seeking to dispense with service of them.  Likewise, the Master did not have to deal with the application to extend the validity of the Writs when he was minded to and did dispense with service of them on the 3^rd defendant.  Miss Sit accepts this is the case.

30. The critical issue in these appeals therefore turns on whether the court should dispense with the service of the Writs on the 3^rd defendant. If service is not dispensed with, the plaintiff will not be able to continue the actions against the 3^rd defendant.

Bank of China (Hong Kong) Limited v. Chen Jianren

31. Before going into the issue, it is necessary to briefly deal with the judgment in Bank of China (Hong Kong) Limited v. Chen Jianren, unreported, HCA2844/2001, 18 December 2007.  In that case, the plaintiff claimed against the defendant for payments under two deeds of guarantee.  The Writ was issued and served on the defendant in June 2001.  Unknown to the plaintiff, the defendant was not in Hong Kong at the time of service.  The defendant did not enter appearance to the Writ and default judgment was entered in August 2001.  In April 2006, the plaintiff issued a statutory demand against the defendant and in August 2006 presented a bankruptcy petition against him.  In November 2006, the defendant instructed solicitors to act for him in the action.  On 14 February 2007, the default judgment was set aside by consent.  Thereafter the defendant’s solicitors informed the plaintiff’s solicitors that they had no instructions to accept service of the Writ.  This prompted the plaintiff to apply by summons for the extension of the validity of the Writ and a dispensation from serving the Writ because the Writ already came into possession of the defendant’s solicitors.  The Master granted leave to extend the validity of the Writ and further deemed service to have been effected by reason of it being sent to the defendant’s solicitors in November 2006.

32. Deputy Judge Carlson dismissed the defendant’s appeal against the Master’s Order.  In so doing, he accepted that the Writ was not amenable to an extension under Order 6, rule 8 because it had expired some five years before the Master’s Order : see paras 12 and 13 of the Judgment.  However, he considered that the court had wide discretion under Order 2, rule 1 to cure the irregularity and there was further power under Order 3, rule 5 to extend time.

33. Miss Sit had in her written submission sought to pray in aid this decision.  In my view, although the facts in Chen Jianren’s case are very similar to those in the present case, there is one distinguishing feature in that the Master had deemed the sending of the Writ to the defendants’ solicitors in November 2006 as effective service of the Writ.  When the Writ was sent to the defendants’ solicitors in November 2006, the validity of the Writ had expired and not capable of being extended under Order 6, rule 8.  Accordingly, the service of the Writ, whether actual or deemed, was an irregularity : see Hong Kong Civil Procedure 2008, Vol. 1, para. 6/8/2, at p. 67.  This explains the Deputy Judge’s reference to Order 2, rule 1 and possibly Order 3, rule 5, RHC.  In the present case, the Master had simply dispensed with service, thus no irregularity or issue of extension of time arises.  Order 2, rule 1 and/or Order 3, rule 5, RHC is therefore not engaged.

Should service of the Writs be dispensed with?

34. I return to the core issue of this appeal, namely, whether the court should grant the order dispensing with service of the Writs on the 3^rd defendant.

35. In my view, as part of the court’s inherent jurisdiction to do justice to the parties and the case, the court can in a proper case dispense with service of the Writ on a party.  This is so even in a case like the present, where the time within which the Writ may be validly served has expired.  In this context, it is relevant to note that the Writ does not become null or void when the period for service has expired.

36. The question is whether it is right for the court to exercise the power.  In my view, this is a proper case to dispense with service of the Writs for a number of reasons.

37. First, as Barma J observed in his judgment, the plaintiff acted reasonably in effecting service on the 3^rd defendant at the address given in the latest Annual Returns filed by the companies and an address she gave in a Deed of Guarantee.  They are her usual or last known addresses in Hong Kong.  It is not disputed that the 3^rd defendant did not inform the plaintiff of her leaving Hong Kong.  Neither did she provide the plaintiff with updated address(es) at which she could be contacted.  Indeed, the 3^rd defendant acknowledged in her affirmation filed in support of her annulment application, that the plaintiff would not have known she had emigrated from Hong Kong.  It is therefore through no fault of the plaintiff that the Writs were not validly served on her back in 2003 and 2004.  It is also through no fault of the plaintiff that the default judgments only came to be set aside in April 2008.  If anything, the plaintiff had acted properly and proceeded timeously to set aside the judgments after Barma J’s judgment.  The 3^rd defendant, on the other hand, had taken no active step to deal with the judgments, despite chaser from the plaintiff’s then solicitors.

38. Second, the plaintiff’s claims against the 2^nd defendant are not time-barred.  Hence, if these actions cannot be proceeded with, the plaintiff can always issue fresh writs against the 3^rd defendant.

39. Third, there is no dispute that the 3^rd defendant comes to have notice of the Writs as a result of either the bankruptcy proceedings or in the course of these proceedings.  As Stone J observed in Transmerica Occidental Life Insurance Co. (Hong Kong Branch) v. King Sound Industry Co. Ltd & Another [2005] 1 HKLRD 125, 133 at paragraph 45 :

“The object of service of process upon a party is to bring the process to the notice of the party to be served, and such manifestly has occurred.”

40. Fourth, contrary to the 3^rd defendant’s contentions, there is no prejudice to her by reason of the dispensation of the service of the Writs or the continuation of the three actions against her.  The 3^rd defendant says that the Deeds of Guarantee were executed some ten years ago and a lot of her memory and recollection has now gone.  However, the failings of memory will be there whether these actions were to be continued or the plaintiff were to issue new writs against her.  Further, the plaintiff will probably face similar hardship in that it had to locate the relevant staff of the bank and the solicitors firm involved in the various Deeds of Guarantee and its witnesses also have to recall events that happened in 1997 and 1998.  

41. The 3^rd defendant also suggests that because of the plaintiff’s undue delay in taking enforcement action, she has suffered prejudice in that she might be able to repay or minimize the losses had the plaintiff contacted her earlier.  This alleged prejudice or laches is not relevant to whether service of the Writs should be dispensed with.  Dispensing with service of the Writs will not affect the 3^rd defendant’s right to take the defence of laches.  If the 3^rd defendant’s arguments on laches can be sustained, it will be upheld whether these actions were to be continued or in the new actions.  Further, as the chronology of events shows, the bank had at least in 2002 or 2003 taken steps to secure repayment of the debts of the companies and thereafter proceeded to issue the three actions. 

42. Another matter alluded to by the 3^rd defendant as amounting to prejudice is the interest accrued under the Deeds of Guarantee.  Again, this is not relevant to whether the service of the Writs should be dispensed with because the issue can be argued in the ordinary course of litigation.  If for whatever reasons, it is inequitable for interest to accrue for the whole period, the court can cure it by disallowing part of the interest or by adjusting the appropriate rate to be adopted for calculating interest.

43. Mr Chu in his reply submissions says that it is not known what sort of costs might have been incurred by the plaintiff in the three actions between 2003 and the setting aside of the default judgments.  I am unable to see how this may constitute prejudice to the 3^rd defendant or is relevant to whether the service of the Writs should be dispensed with.

44. On the contrary, it must be apparent that costs and time will be saved by dispensing with the service of the Writs and maintaining the three actions, instead of requiring the plaintiff to issue new writ(s) against the 3^rd defendant.  The plaintiff should not be put to the burden of additional costs and delay when it was through no fault of it that the service of the Writs in the first instance was ineffective and the subsequent default judgments had to be set aside.  Further, given the 3^rd defendant’s complaints of delay and laches, there is no good reason to further delay the litigations by requiring the plaintiff to bring fresh proceedings against her.

45. As transpired from Mr Chu’s submissions, the fundamental and probably real concern of the 3^rd defendant is the mareva injunctions now in place against her.  The objection to the dispensation of service of the Writs and to the continuation of the three actions is motivated by the desire to end the mareva injunctions granted in the three actions.  However, it is open to the plaintiff to apply for fresh mareva injunctions either before or after the issue of new writs.  The termination of the three actions against the 3^rd defendant does not mean that she definitely will not be subject to mareva injunctions.

46. Mr Chu has in his submissions criticized the plaintiff’s supporting affirmations for not stating any good reason in support of its summonses and for not asking for dispensation of service of the Writs.  On this last point, the 3^rd defendant cannot really complain given that this is expressly sought for in the plaintiff’s summons in the three actions.  As for the grounds for exercising the court’s discretion, the plaintiff’s affirmations have contained all the relevant facts. 

47. I also do not agree with Mr Chu’s submissions that since the Writs are not amenable to extensions under Order 6, rule 8(2), the court should not dispense with service of them.  Nor do I accept that an order dispensing with service is ancillary to or consequential upon the setting aside of a default judgment.

48. In my view, the Master’s Order dispensing with service of the Writs represents a proper exercise of the court’s inherent jurisdiction to do justice.

Conclusions

49. For the above reasons, the appeals of the 3^rd defendant are allowed to the limited extent that paragraph 2 of the Master’s Order, extending the validity of the Writs in the three actions, is set aside.  The rest of the appeals, including the appeals against the order dispensing with service of the Writs on the 3^rd defendant, is dismissed.

Costs

50. I turn finally to the costs of the appeals.  The focus of the 3^rd defendant’s appeals, hence the plaintiff’s response, was on the extension of the validity of the Writs.  That is misplaced and leads to no real consequence.  It was upon my invitation that submissions were made on the order dispensing with service of the Writs, which is pivotal to whether the plaintiff can continue to proceed against the 3^rd defendant in these actions.  On this important aspect, the 3^rd defendant has failed.  In the premises, the 3^rd defendant should bear the costs of the appeals.  To recognise the fact that the 3^rd defendant has been able to set aside the order extending the validity of the Writs, I will limit the 3^rd defendant’s costs liability to 75% of the plaintiff’s costs.  There is therefore an order that the 3^rd defendant pays the plaintiff 75% of the costs of the appeal, to be taxed if not agreed.