WEI BINGQING v. XIE DIANGRONG

HCA 2654/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2654 OF 2003

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REASONS FOR DECISION

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Introduction

1. At the end of the hearing, the following orders were made:-

(a) there be an order in terms of para. 1 and 2 of the plaintiff's summons dated 21 February 2005 (“the amendment application”);

(b) the plaintiff's appeal against the master's orders be dismissed;

(c) the plaintiff's amended summons dated 25 April 2005 (“the Ord. 14 application”) be dismissed;

(d) the defendant's appeal be allowed and the master’s order dated 31 March 2005 (“the stay of executive order”) be set aside.

I indicated that reasons for the decision would be handed down later.  They are as follows.

2. The plaintiff appealed against the master’s orders dated 24 and 26 November 2004 whereby the default judgment entered on 1 September 2004 was set aside and unconditional leave to defend was given (“the setting aside orders”).  The master also ordered the plaintiff to deposit into court US$2,025,000 which the plaintiff obtained from the bank pursuant to the default judgment before it was set aside (“the payment-in order”).

3. The amendment application sought in short leave to amend the statement of claim.

4. The Ord. 14 application sought summary judgment in the sum of US$2.3 million to be entered against the defendant.

5. The stay of execution order “stayed” the master’s orders dated 24 and 26 November 2004 which set aside the default judgment as well as the payment-in order.

Nature of this Action

6. The plaintiff commenced this action on 18 July 2003.  According to the statement of claim, he and the defendant used to be friends and he reposed a lot of trust in the defendant.  Since about the mid-1990’s they operated a successful real estate business in Cambodia.  From about 2000 onwards, the plaintiff’s funds were deposited into the defendant’s bank account in Hong Kong.  The funds, which amounted to more than US$6.5 million, were in effect held on trust for him.  The defendant has wrongfully withdrawn about US$4.67 million and HKHK$568,000.  The relief sought in this action is for the payment of some:-

(1) US$2 million said to be the credit balance of the bank account;

(2) US$1.3 million and HK$284,000 being the shortfall of the defendant’s withdrawal and the plaintiff’s share of the funds in the bank account.

7. No defence has yet been filed or served by the defendant.  But the affirmations filed by her so far contain materials which indicate that her defence will be along the following lines.

8. First, the funds which the plaintiff claimed to be his were in fact funds belonging to companies which operated the businesses owned by the parties.  Hence, the plaintiff has no locus standi to make the claim.

9. Second, out of the funds in the bank account, about US$1.7 million belonged solely to the defendant, leaving a balance of about US$4.8 million which belonged to the said companies.

10. Third, various withdrawals which totalled about US$2.5 million and HK$292,000 were made at the plaintiff’s request for the purpose of the plaintiff’s capital contribution to a business project in Beijing and the purchase of a real property in Hong Kong.

11. Fourth, the defendant should be entitled to reimbursement of US$480,000.

12. Fifth, the defendant should be entitled to a set-off of about US$2.8 million for cross-debts between her and the plaintiff.

13. Sixth, the plaintiff has wrongfully refused to continue with the Beijing business project and the defendant should be entitled to claim damages arising from her loss of profit as a result.

14. Finally, the credit balance of about US$2 million in the bank account in fact belonged to the said companies and not the plaintiff.

The Affirmations Filed and Exhibits Produced

15. In total, 4 bundles were compiled for the purpose of the appeals and applications referred to in para. 1 to 5 above.  The first bundle consisted of 2 parts: (a) the court documents, such as pleadings, summonses and orders; (b) the parties’ affirmations.  The second bundle contained parts of the exhibited documents whereas the third bundle contained the remainder of those documents.  The fourth bundle contained additional materials: (1) additional court documents; (2) additional affirmations; (3) additional exhibits.

16. There were altogether 27 affirmations in the hearing bundles (including the additional affirmations).  The exhibited documents took up almost 1,000 pages of the bundles.  Some were the plaintiff’s exhibits while others were the defendant’s.

17. In brief, the affirmations and exhibits filed by the respective parties support (to various extents) the parties’ respective case (which has been summarised above).

Merits of the Parties' Respective Case

18. Most, if not all, of the defendant’s accounts given in the affirmations regarding the merits of her defence could not be described as either inherently implausible or so materially contradicted by the undisputed (or indisputable) evidence as to be incredible.  Further, some of the exhibited documents appeared to support the plaintiff’s case whereas others appeared to support the defendant’s.  None of the documents could enable the dispute to be conclusively determined at a hearing of this kind (as regards both the setting aside default judgment aspect and the Ord. 14 aspect).

19. By reason of the above matters, I find that the lines of defence referred to above:-

(a) have a reasonable prospect of success in relation to the setting aside orders;

(b) ought to be tried in relation to the Ord. 14 application (this aspect will be further dealt with below).

Was the Default Judgment Regularly Obtained?

20. The defendant contended service of process had not been properly effected and therefore the default judgment was irregularly obtained.  This was denied by the plaintiff.

21. The defendant's case regarding service of process is, first, that the plaintiff’s alleged service is not credible and, secondly, in any event, she was not within the jurisdiction when service was allegedly effected.

22. The affidavit of the plaintiff’s solicitors dated 8 August 2003 deposed that:-

“I did on … 18^th day of July 2003 serve on the … Defendant … with a sealed copy of Writ … by leaving the same with a covering letter dated the 18^th day of July 2003 addressed to the Defendant … ” (para. 1 thereof).

23. The 2^nd affidavit of the plaintiff’s solicitors dated 22 August 2003 (that is, about 13 days later) deposed:-

“I make this Affidavit in reply to the requisition … raised by [the High Court Registry] … I hereby clarify and confirm that paragraph 1 in my 1^st Affidavit should completely be replaced … ” (para. 3 thereof).

In effect, the deponent deposed that the writ herein was served by inserting it through the letter box at the last known address of the defendant, and not by leaving it there.

24. Query was raised by the High Court Registry because the mode of service deposed to did not conform to those prescribed by Ord. 10 r. 1:-

“A writ must be served personally … ” (Ord. 10 r. 1(1);

“A writ for service on a defendant within the jurisdiction may, instead of being served personally on him, be served-

(a) by sending a copy of the writ by registered post to the defendant at his usual or last known address, or

(b) if there is a letter box for that address, by inserting through the letter box …” (Ord. 10 r. 1(2)(a) and (b)).

25. The mode of service deposed to in the affidavit of 8 August 2003 obviously cannot satisfy the requirements of Ord. 10 r. 1.

26. The deponent explained in his 2^nd affidavit why he could remember the mistake regarding the mode of service:-

“Because I had the habit of marking in a copy of the covering letter the time and mode of service … , I could therefore … confirm [the correct mode of service] by retrieving the said copy of covering letter in which it was clearly marked by me on the spot that [the writ herein was] inserted in the letterbox at 4:35p.m.” (para. 3 thereof).

The copy covering letter (which was dated 18 July 2003) exhibited to his affidavit bears the Chinese characters in hand-writing:-

“4:35 放進信箱”

which mean “4:35 put into letter box” in English.  Hence, if his account was true, the hand-written characters would have appeared in the copy letter (the original having been served with the writ) since then.

27. The defendant did not accept the authenticity of the copy letter and claimed that the version given by the plaintiff’s solicitors in the 2^nd affidavit is untrue.  The claim was said to be based on the following.

28. First, a copy letter, supposedly the same as the one exhibited to the 2^nd affidavit, was exhibited to the first affidavit.  Apparent differences in the contents of the two included:-

(1)   a number “016773” chopped at the top of both copies (which appears to be the solicitors’ internal reference number) are different in appearance and the location of the chop;

(2)   the hand-written part of the title of the 2 letters “Re: HCA No. 2654 of 2003” is different;

Further, both copies have typed-in on the right the words “BY LEAVING” indicating the letter's author intended to have it left at the address, rather than have it inserted through the letter box.  This is contrasted to another letter dated 25 August 2003 from the plaintiff’s solicitors which has typed-in the words “BY INSERTING INTO THE LETTER BOX”.

29. The defendant's case regarding the copy letters respectively exhibited to the two affidavits was that the one exhibited to the 1^st affidavit must have been the genuine copy.

30. In addition, the defendant has deposed that she was not within the jurisdiction at the time of the alleged service of process.  She submitted that, irrespective of the true mode of service, legally the service was bad for that reason: see, for example, Chu Kam Lun v. Yap Lisa Susanto [1999] 3 HKC 378, 382; Desirable International Fashions Ltd. v. Chiang Shi Chau [1997] 3 HKC 170, 174.

31. There were other issues of fact raised in the parties’ affirmations, such as:-

(a)   whether the address served by the plaintiff’s solicitors was the defendant’s residence, alternatively, her correspondence address;

(b)   whether the defendant knew of this action even though she was not within the jurisdiction;

(c)   whether the defendant was in fact within the jurisdiction even though her immigration records indicated otherwise;

(d)   whether the plaintiff, and/or his agent conducting this action for him, knew of the defendant’s address in Beijing.

32. Plaintiff’s counsel in fact proposed to fix a hearing for all relevant deponents to attend and be cross-examined regarding the above matters.  In particular, he sought an order for the defendant to attend and be cross-examined in relation to whether she was within the jurisdiction at the time.

33. Whether or not to so order is ultimately an exercise of the court’s discretionary powers. 

34. It is stated in Hong Kong Civil Procedure 2006, para. 13/9/5:-

“Where a defendant deposes that he has not received the writ through the post the Court has little option but to believe this save when there is sufficient material to cast doubt upon the defendant's credibility to enable the court to disbelieve him”.

From the fact that similar commentaries have been referred to in the authorities (including those referred to below), this commentary must have also appeared in the previous editions of that textbook.

35. In Ambridge Investments Ltd. v. Lexcon Investment Ltd. and Another HCA 9743/2000 (4 October 2001), the court said:-

“Mr Lam for the 1st defendant refers me to paragraph 13/9/3 of Hong Kong Civil Procedure 2001 to the following effect :

‘Where a defendant deposes that he has not received the writ through the post the Court has little option but to believe this save when there is sufficient material to cast doubt upon the defendant's credibility to enable the court to disbelieve him. As to circumstances when this is permissible see para.14/4/9. Unless this happens judgment must be set aside without regard to the merits and the Plaintiff, having elected to serve by post, must pay the costs.’.

This passage is identical to paragraph 13/9/4 of the Supreme Court Practice. No authority is cited. The propositions stated would appear to run contrary to those stated at paragraph 65/5/4 of Hong Kong Civil Procedure 2001 and more importantly, the case of A/S Cathrineholm v. Norequipment [1972] 2 Q.B.314. It can scarcely ever be appropriate for a plaintiff to apply to cross-examine a defendant on his application to set aside a default judgment on the ground that he has not received the writ through the post yet that is the practical implication if the proposition stated at paragraph 13/9/3 be right” (para. 17 and 18).

Hong Kong Civil Procedure 2001, para. 65/5/4 stated:-

“Proof that the letter has been properly address, prepaid and posted to the proper address of the person to be served and not returned by the post office affords prima facie evidence that it has been duly delivered … ”.

36. In the court of appeal’s decision in Bank of China (Hong Kong ) Ltd. v. Cheung King Fung, Francis and Another, CACV 66/2005 (22 July 2005), the court said (in relation to a similar commentary in Hong Kong Civil Procedure):-

“We do not read this as suggesting that the court must accept a defendant’s assertion no matter how improbable” (para. 33).

The court of appeal then went on to observe that in an application to set aside default judgment, the burden is on the applicant to prove that the judgment was irregular: Bank of China (Hong Kong) Ltd., para. 34.

37. In view of the above observations, whether the defendant (being the applicant in an application to set aside default judgment) has discharged the burden of proof is a matter of evidence, and, as the court of appeal pointed out in the Bank of China (Hong Kong) Ltd. case:-

“… how much evidence is required must depend on the circumstances of the particular case” (para. 34).

Since the issue should not be regarded as a point of law (but a factual one), the discretion of whether to order cross-examination should depend on the circumstances of each case.

38. Having considered the whole circumstance of this action, I concluded that this was not a case where my discretion should be exercised to require the cross-examination of the deponents.  Further, having examined the whole of the evidence before me, I am satisfied that the default judgment was irregular.  I will not set out all the circumstances which have been considered except the two summarised below.

39. First, the defendant’s assertion that she was not within the jurisdiction was supported by the immigration records.  There is no proper basis to doubt the accuracy of those records.

40. Secondly, I agree with the defendant that the plaintiff’s case regarding service of process lacks credibility.  The deponent alleged that he marked the copy letter at the time when he effected service.  In that case, how a different copy letter could be exhibited in his 1^st affidavit remains unexplained by the solicitors satisfactorily.  The apparent intention of the letter’s author to leave the letter at the defendant’s address (hence the use of the words “BY LEAVING”) also casts doubt on credibility.  The fact that the mode of service was changed in the 2^nd affidavit because of the court’s query makes it even more likely that the new version of events deposed to therein was motivated by a realisation of the need to comply with Ord. 10 r. 1(2)(b).

The Plaintiff's Appeal and the Ord. 14 Application

41. The plaintiff submitted that, even if the default judgment was irregular, it was still incumbent on the defendant to show that she had a meritorious defence before the judgment would be set aside.  In the context of this application, I disagree with that submission.

42. It is trite law that, in the case of an irregular judgment, the defendant can at least confidently expect that the judgment will be set aside without considering the merits of his defence: Hong Kong Civil Procedure 2006, para. 13/9/4 and Po Kwong Marble Factory Ltd. v. Wah Yee Decoration Ltd. [1996] 4 HKC 157.

43. Here, I have found that the plaintiff’s case regarding service of process lacks credibility.  Consequently, I cannot be satisfied that the writ had been properly served.  For this reason, I do not consider it appropriate to require the defendant to show a meritorious defence before default judgment should be set aside.

44. However, even if the defendant had to show a meritorious defence, by virtue of the conclusion reached under the heading “Merits of the Parties' Respective Case”, I find that the defendant has a meritorious defence.  In so concluding, I have already taken into account the matters set out below.

45. The amendment application was to the following effect.  The plaintiff contended that, out of the total amount deposited into the defendant’s bank account (US$6,532,146.99), the lines of defence raised by the defendant still left a sum of US$1,146,057.38 unaccounted for.

46. Further, the plaintiff should be entitled to half of the sum realised from the Beijing project, being his share in that project.  The sum he should be entitled to for that reason was US$987,338.15.

47. Finally, the plaintiff should be entitled to half of the principal in the property in Hong Kong, being also his share in that property.  The sum he should be entitled to for that reason was US$184,686.18.

48. The total of the above 3 sums was US$2,316,081.71.  Because the plaintiff has already recovered US$2,025,000 by reason of the default judgment, summary judgment should be entered for the sum of US$291,081.71, being the difference between the above two sums.  That in effect was the basis of the Ord. 14 application.

49. Again there is no need to go into the details of the matter except to state the following.  In relation to the sum of US$2,292,114.76 (which included the US$1,146,057.38 claimed by the plaintiff), the defendant relied on the accounting documents prepared by the finance manager of one of the businesses operated by the parties.  It cannot be determined in the Ord. 14 application whether those documents were accurate or not.  Further, there was a triable issue regarding the defendant’s allegation she had suffered loss which is recoverable against the plaintiff.

The Defendant's Appeal

50. The stay of execution order stated:-

“execution of [the setting aside orders and the payment-in order] be stayed until after the disposal of the [Ord. 14 application] to be heard on 19 May 2005”.

It is unclear if the master's intention was to stay execution until the disposal of the Ord. 14 application or until 19 May 2005.  I assumed for the purpose of the appeal he intended the former and not the latter.

51. The payment-in order was quite clearly intended to “hold the ring”.  In other words, while the matter is pending trial, the sum can be kept in a safe place so that it will be available to the party who prevails after trial.

52. By the time when the application for stay of execution came to be heard by the master (who was different from the master who made the setting aside orders and the payment-in order), the master also has before him the setting aside orders and the payment-in order.

53. Although the master was not legally bound by those orders when he decided the stay of execution application, the earlier orders, being orders made by a court at the same level as he and orders made after full contest, deserved at least due respect.  Further, those orders ought to be taken into consideration.  In the absence of some compelling reason, he should have deferred from upsetting those orders which have the effect of “holding the ring” between the parties; the type of orders which have the least risk of injustice.

54. The mere fact that the plaintiff has appealed against the earlier orders made by another master and has taken out the Ord. 14 application should not amount to compelling reasons to enable him to effectively overturn the setting aside orders and the payment-in order.  To grant the stay of execution order would risk rendering those orders nugatory whereas to refuse to do so should not carry that risk.

55. By the time when the above appeals and applications came before me, the stay of execution order was “spent” in the sense that the plaintiff already succeeded in obtaining the sum from the bank account.  However, since the defendant’s appeal has a costs impact, there was a need to consider it.

56. For the above reasons, and for the reasons put forth by the defendant, I find that the stay of execution order should be set aside.

Other Matters

57. The defendant appeared to be quite upset about the plaintiff’s change of case regarding service of process.  I leave it to the defendant to decide if the matter needs to be transferred to the professional body in view of my findings at para. ?? above.

Costs Orders

58. A number of costs orders have also been at the end of the hearing on 2 August 2005.  In short, I regarded those costs to be the appropriate in view of the matters set out above.