LI SAU YING v. HUI MING YEUNG AND ANOTHER

HCA3118/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3118 OF 2002

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REASONS  FOR  DECISION

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1. The defendant company is the registered owner of the matrimonial home.  The plaintiffs are the parents of the husband.  The wife is the intervener.  A divorce decree nisi was granted on 9 July 2002 in FCMC11723/2001 but the application for ancillary relief is continuing. 

2. On 14 August 2002 the plaintiffs brought this claim against the company for money lent, totalling $3.599 million.

3. Default judgment was obtained on 12 September 2002 and a charging order over the matrimonial home was made absolute on 15 November 2002.  

4. On 3 December 2003 the wife applied for leave to intervene in the proceedings and for an order that the charging order be set aside and that the action be adjourned and heard together with FCMC11723/2001.  That summons was opposed by the plaintiffs, see the 2^nd affirmation of the plaintiffs dated 9 January 2004.

5. Amongst the exhibits to that affirmation was Exhibit LH 11 which purported to be the defendant company’s receipt dated 26 March 2001 acknowledging receipt of loans, totalling $1.9 million which was allegedly made between 2 March 2001 and 23 March 2001.  The exhibit also included three pay-in slips purporting to show that the plaintiffs paid the defendant by three cheques, totalling $750,000.

6. The intervener sought discovery of documents relating to Exhibit LH 11.  It was only on 3 March that the plaintiffs’ solicitors wrote to the intervener’s solicitors refusing to produce the documents on the basis that the plaintiffs had applied ex parte on 1 March 2004 for the discharge of the charging order.  I understand that the charging order absolute was eventually discharged on 31 May 2004.  The reason for the discharge was an alleged tripartite agreement dated 11 November 2003 under which the husband had allegedly paid $510,000

7. On 11 May 2004 the intervener applied to amend the summons, and by the amendment the intervener sought an order that “The default judgment in favour of the 1^st and 2^nd plaintiffs dated the 12^th day of September 2002 be set aside.”

8. The substantive hearing of the intervener’s summons was heard on 7, 10 July and 7 August at the end of which the following orders were made by Master Au Yeung :

“	1.	The default judgment in favour of the 1st and 2nd Plaintiffs dated the12th day of September 2002 be set aside;
	2.	Leave be granted to the Intervener to be joined as a party to the High Court Action No.3118 of 2002 and remained in the title as Intervener;
	3.	The proceedings in the High Court Action No.3118 of 2002 be stayed until further order;
	4.	Parties in the High Court Action No.3118 of 2002 shall be bound by the result of the Matrimonial Causes No.11723 of 2001;
	5.	The costs of the Intervener’s application to set aside the default judgment be borne by the 1st and 2nd Plaintiffs on Party and Party basis;
	6.	The costs of the Intervener’s application to set aside the charging order absolute be borne by the 1st and 2nd Plaintiffs on Party and Party basis;
	7.	The costs of the Intervener’s application for discovery of documents be borne by the 1st and 2nd Plaintiffs on an indemnity basis;
	8.	Certificate for Counsel for each of the above three applications;
	9.	The Intervener’s own costs be taxed in accordance with the Legal Aid Regulations.”

9. The plaintiffs appealed on 20 August 2004.

10. The first question I have to decide is whether the judgment should be set aside.  Mr Chain who appeared on behalf of the plaintiffs submitted that it was unnecessary to have the judgment set aside because it was not binding on the intervener in any event.  Moreover, he relied on certain undertakings which were given by Ms Carol Fung, counsel then appearing for the plaintiffs, to the learned master, including that the plaintiffs would undertake not to enforce the judgment nor to wind up the company.

11. Deputy Judge S. Kwan (as she then was), in Chan Kin Yuen v. Chan Kin Yip,HCA17878/1999, made similar orders in circumstances which were not dissimilar.

12. In that case, the plaintiff and the defendant were brothers.  The intervener was the wife of the defendant.  The default judgment was for a declaration against the defendant that the defendant held a half share in the property in favour of the plaintiff.  That property had been used as the matrimonial home of the intervener and the defendant as well as a workshop, storage place and office area for the respective businesses of the plaintiff and the defendant.

13. Mr Chain submitted that that decision is distinguishable on two bases.  First, that was a judgment which affected the beneficial ownership of the half share interest in the property.  Secondly, in that case, the elder brother had not been joined in the application for ancillary relief in the matrimonial proceedings.

14. Here, however, on 24 October 2003 the defendant company was joined as the 2^nd respondent and the parents were joined as the 3^rd respondents, to the matrimonial proceedings. 

15. In my opinion, the master was right to set aside the default judgment.  Mr Chain accepted that prior to the undertaking given not to enforce the judgment, the default judgment could be enforced.  And, if so, that might prejudice the intervener at least indirectly.

16. I do not think that Chan Kin Yuen was really distinguishable.  It is true that there the judgment related to the beneficial interest in the property.  What is common to both cases is that the judgment might affect the ability of the husband to provide ancillary relief.  Nor do I think the fact that joinder has taken place here is critical.  Afterall the learned judge set aside the judgment there instead of just leaving it to the wife to apply for joinder in the matrimonial proceedings.

17. Lastly, most importantly, and as Mr Chain accepted, the setting aside of the judgment was not meaningless so far as the intervener was concerned.  So this is a case where the jurisdiction to set aside the default judgment was rightly exercised.

18. Mr Chain was candid in his submission that the real appeal is against the costs order made.  He made the point that having regard to the undertakings, the learned master should not have ordered costs against the plaintiffs.  But the undertakings were only offered on 7 July.  The arguments concluded on 10 July.  The parties were recalled for 4^th submissions on 7 August by the learned master.

19. Moreover, prior to the setting aside of the charging order, I do not think it can be disputed that the intervener was right to apply to have that set aside.  As for the setting aside of the judgment which was applied for by amendment on 11 May, I believe that it was an application which was properly made because the judgment unless set aside could be enforced, notwithstanding the alleged tripartite agreement.  Mr Chain has accepted that under the tripartite agreement, the plaintiffs remained able in the event of default to enforce the judgment against the company at least to the extent of $1,699,000.

20. Mr Chain also made the point that despite the joinder no action had been taken by the intervener to raise the issues regarding the genuineness of the loans and/or repayment of the $510,000.  So he said paragraph 4 of the order is meaningless.  But, the inaction is understandable, bearing in mind that subsequent to the joinder the wife learned of the charging order on the property.  Since then, much of her time and energy have been taken with these proceedings.

21. I think paragraph 4 of the order of the learned master was rightly made.  I believe it was implicit in the order, and clear from the intention of the parties, that the question about the genuineness of the loans, the subject of this claim, should be dealt with in the matrimonial proceedings.

22. Another reason advanced on behalf of Mr Chain against the intervention was that the intervener was on legal aid.  He made the point that if the claim relating to the genuineness of the loans were to be pursued in the matrimonial proceedings, in the event of the issue being decided against her, the Director of Legal Aid would be liable to pay her costs but not if she were to be joined as a defendant in these proceedings.  That may explain why the learned master, instead of ordering this action to be tried at the same time as the matrimonial proceedings as sought by the wife, ordered that this action be stayed but that the parties were to abide the outcome of the matrimonial proceedings.

23. In all the circumstances, I believe the learned master’s decision cannot be faulted, and that is why at the conclusion of the hearing, I dismissed the appeal with costs.