BANK OF CHINA (HONG KONG) LTD. v. LEE LIN HEUNG

DCCJ14579/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14579 of 2000

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REASONS FOR DECISION

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INTRODUCTION

1. This is an application by the Defendant to set aside the default judgment entered on 11th November 2000 as amended on 27th December 2000 and an order that the payment-in of HK$ 250,000 by the Defendant as ordered by Court be released to the Defendant. The Plaintiff concedes the application and agrees to pay the Defendant's costs of this application to be taxed on a party-and -party basis and to be paid in any event, but the Defendant insists that costs occasioned by the default judgment and of this application be borne by the Plaintiff to be taxed on full indemnity basis and to be paid forthwith.

2. The Plaintiff carries on business as a commercial bank which had granted banking facilities to a borrower, Natural Cosmetics Center which was a partnership run by Kung Po Chuk Elaine and Steven Lee, on the strength of two Deeds of Guarantee signed by the Defendant in 1989 as a guarantor. As at 30th July 2000, the Borrower was indebted to the Plaintiff for a sum slightly over 9 million. The Plaintiff claims against the Defendant for her liability under the Deeds of Guarantee for a sum of HK$ 200,000 and obtained a default judgment against the Defendant.

THE ISSUE

3. Whether the Court should grant the costs on a full indemnity basis ?

CHRONOLOGY OF EVENTS

4. The Plaintiff served the writ on the Defendant on the following 4 addresses, namely;

(a) - Unit 15, 20/F, South Wing, Tuen Mun Parklane Square, Tuen Mun

( Address A );

(b) - Unit 20, 26/F, South Wing, Tuen Mun Parkland Square, Tuen Mun

( Address B);

(C) -12/F, Kwong Luen Tai factory Building, 54 Tsun Yip Street, NT

( Address C);

(d) - Flat A, 8/F, Tower 4, Richland Garden, 138 Wu Chi Rd., Tuen Mun

(Address D).

14/10/00 Service of writ at Addresses A & B by registered post inserting of writ through the letterbox of Address D

16/10/00 Service of writ at Address C by registered post

18/10/00 Affirmation by Plaintiff solicitors' clerk that no return of writ served

20/10/00 Registered post to Address C returned undelivered to Plaintiff solicitor

4/11/00 Registered post to Address A returned undelivered to Plaintiff solicitor

6/11/00 Registered post to Address B returned undelivered to Plaintiff solicitor

11/11/00 Default judgment entered against Defendant

27/12/00 Default judgment amended

16/1/01 to There followed a series of correspondence between

3/5/01 Plaintiff and Defendant solicitors arguing over the maters concerning the default judgment and neither parties refused to take initiative to set aside the judgment

24/8/01 Plaintiff solicitor informing Defendant solicitor by letter that a statutory demand was placed in newspaper

28/9/01 A bankruptcy petition was presented by Plaintiff against Defendant

22/10/01 Plaintiff solicitors wrote to Defendant solicitors informing Defendant about the bankruptcy proceedings

23/10/01 Summons taken out by Defendant to set aside the default judgment

7/11/01 Plaintiff concedes Defendant's application except on costs

PRINCIPLE OF AWARDING COSTS ON INDEMNITY BASIS

5. The Court of Appeal in Choy Yee Chun v. Bond Star Development Ltd. (1997) HKLRD 1327 reviewed the cases and summarised the law as follows. A taxation of the successful party's costs on an indemnity basis could properly be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner. .....................................the circumstances in which an indemnity award might properly be made were not restricted to circumstances such as those described.

6. In M & R Marking Systems, Inc. v. Tse Mee Shuen Wilson and Ors. HCA 1598/2001, the Defendant took out a first summons seeking to set aside a default judgment but failed, he then took out a second summons for the same purpose by setting out particulars of irregularity for the first time and it was unsuccessful again. He appealed against the decision of the Master to the High Court, Hon. Chu J dismissing the appeal in which the Plaintiff asked for costs of the second summons and the appeal to be taxed on an indemnity basis, but Her Hon. Chu J only refused the costs of the second summons to be so taxed on the grounds that although she found it to be an abuse of process, she could not conclude on the evidence available that it was a deliberate abuse of the court process.

THE PLAINTIFF'S CASE

7. In the affirmation filed by the clerk of the Plaintiff's solicitors on 18th October 2000 in support of the application for a default judgment, it was clearly stated that the letters containing the writ sent out to the 4 addresses had not been returned undelivered. But the evidence suggested that for those sent by registered post were returned to them respectively on 20th October, 4th & 6th November 2000, and that was before the date of entering default judgment, when asked by the Court why they did not file another affidavit to inform the Court of the latest development before proceeding with the application, the Plaintiff's solicitor, Mr. Lui , explained that they were relying at that time on the fact that there was no returned mail from Address D for which the writ was served by insertion through the letterbox.

8. In the affirmation filed on 19th November 2001 by a bank officer, Mr. Ng, on behalf of the Plaintiff, he stated that" Address C was provided by the Defendant in the Deeds of Guarantee, and Ms Kung, one of the Borrowers, being the beneficial owner of properties at Addresses B & D and Mr. Lee , the other Borrower, being the beneficial owner of property at Address A , had made a legal charge to the Plaintiff of the properties as security for banking facilities granted to them. The Plaintiff believed that Defendant was somehow associated with Ms Kung and Mr. Lee and any documents sent to the addresses of the mortgaged properties would have reached the Defendant. "

9. Mr. Lui of the Plaintiff solicitors further explained in Court that they acted on the instructions of his clients and the basis on which they regarded Addresses A, B & D as the Defendant's last known or usual address was that one of the Borrowers, Mr. Lee, who had the same surname as the Defendant.

CONCLUSION

10. It is difficult to see how these addresses A, B & D, by no stretch of the imagination, could be regarded as the Defendant's last known or usual address, especially Address D whose beneficial owner was Ms Kung, the only nexus with the Defendant was that the Defendant was the guarantor for Ms Kung and nothing more. When the clerk of the Plaintiff solicitors in his affirmation saying that the above 3 addresses were the last known or usual address of the Defendant was totally baseless, and plus the fact that no further affirmation about the return of the registered post, I come to the conclusion that the Plaintiff was actually misleading the court and was acting in bad faith for they had not disclosed the full fact to the Court at the time of application for default judgment. When a default judgment was obtained under such circumstances, in my judgment, it amounted to an abuse of court process.

11. Having obtained such a judgment, the subsequent conduct of Plaintiff's solicitors was far from being honest, and indeed oppressive. When engaging in argument with the Defendant's solicitors over the validity of the default judgment, the Plaintiff's solicitors denied having received the returned mail of any of the registered post and also sought to rely upon service of writ in pursuant of contract ( Deed of Guarantee ) under O.10 r.3 RDC . Only in the present hearing, did the plaintiff's solicitors inform the Court that they would abandon its reliance on O.10 r.3 and admitted for the first time that they indeed had received the returned mail of the registered post undelivered. The matter dragged on for months without any results. The Plaintiff's solicitors then petitioned to the Court against the Defendant for bankruptcy. As a result, the Defendant was ordered by Court to make payment-in of a sum of HK$ 250,000 with which she complied. On the whole of the evidence available to the Court, I conclude that the default judgment proceedings were not only a deliberate abuse of court process, but also prosecuted in an oppressive manner. I, therefore , find it an appropriate case to award costs against the plaintiff on an indemnity basis.

12. As the Plaintiff concedes paragraphs 1 and 3 of the Summons, I shall make an order in terms as per paragraphs 1 and 3 of the Summons and that the Plaintiff do pay the Defendant costs of and occasioned by this application on a full indemnity basis forthwith, to be taxed if not agreed.