LU SHAOPING v. WU LIANMO AND OTHERS

HCA 589/2019

[2020] HKCFI 944

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 589 OF 2019

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DECISION ON COSTS

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1.  The 2^nd Defendant’s Summons dated 6 September 2019 to set aside the default judgment obtained by the Plaintiff on 22 August 2019 was heard before this Court on 23 January 2020. There is no dispute that the default judgment was obtained regularly (“the Regular Default Judgment”).

2.  During the hearing, after full submissions, I indicated to the parties that except for the issue of limitation defence, I was not minded to set aside the Regular Default Judgment.  However, in all fairness to the 2^nd Defendant and to achieve justice, I allowed the 2^nd Defendant to put in further evidence to make good her limitation defence.

3.  On 24 February 2020, the 2^nd Defendant filed her draft 2^nd Affirmation which was exhibited in the 4^th Affidavit of Yau Paul.  The said affidavit was served on the Plaintiff on 26 February 2020.  Thereafter, the parties, by consent, agreed that the Regular Default Judgment be set aside.

4.  The only outstanding issue is costs.  The parties have since, following the directions of this Court, filed detailed written submissions.

Relevant Legal Principles

5.  Generally, the costs of setting aside a regular judgment should be awarded to the plaintiff.  In Ko Sin Yau v Chan Chuen & Another [2007] 1 HKLRD 324, Cheung JA at §21 said:

“21. Generally speaking if an irregular judgment is set aside then the plaintiff should be ordered to bear the costs of the setting aside of the default judgment because the judgment was not properly obtained in the first place. However, where a judgment was set aside not because of it being irregular but because of a meritorious defence the general rule is that the defendant should bear the costs of the application to set aside the default judgment. As an alternative the costs of the application can be in the cause of the action.”

6.  The Court can exercise its discretion to depart from the general rule but it must do so with good reason.

7.  Where the plaintiff continues to resist a setting‑aside application when the basis of the defendant’s defence has been revealed, the costs for resisting the setting-aside application should follow the event.  (See Harbour Hero Enterprises Ltd v Chau Nung Tai [2019] 3 HKLRD 174 (CA) which applied Chung J’s judgment in Welson International Limited v Jebson Investments Limited, unreported, HCA 2620/2008, 29 June 2010 at §16)

8.  The burden of proving the existence of a meritorious defence in a setting‑aside application rests with the applicant.  An applicant has to adduce sufficient evidence and particulars to prove that there is a meritorious defence.

Analysis

9.  The crucial issue here is when did the 2^nd Defendant first demonstrated to the Court that she has a meritorious limitation defence. There is no dispute that the 2^nd Defendant has not disclosed her limitation defence in any draft pleadings or affirmations before the substantive hearing.  It was first mentioned in Ms Tang’s Skeleton Submissions dated 20 January 2020.

10.  Ms Tang’s first submission is that the issue of limitation ought to have been obvious to the Plaintiff from the outset when the present action was commenced.  She referred this Court to the Plaintiff’s own pleadings and the final judgment obtained by the Plaintiff.  Ms Tang submitted that the Plaintiff’s own case was all along based on a claim accruing from 1 March 2013 (or 15 March 2014), which, either way, would have been time‑barred when the writ was issued on 4 April 2019.

11.  To be fair, it is not entirely that straightforward.  Certainly, it does not appear to be that obvious to the 2^nd Defendant as none of her supporting affirmations mentioned the limitation issue.  When Ms Tang relied on it for the first time in her Skeleton Submissions dated 20 January 2020, the Plaintiff responded by submitting that the debt was dispersed on 4 April 2011 and thus was only due on 4 April 2013.  Mr Smith SC submitted that this Court could exercise its discretion to rectify a mistake and amend the final judgment.  Indeed, if there is no substance in the limitation defence but a mere mistake in the final judgment, it is unlikely that the Court will set aside the entire judgment.

12.  Clause 1.2 of the Loan Agreement reads as follows:

“Loan period: From 1 March 2011 to 1 March 2013; total of 24 months. The loan start date under this contract should be the date of disbursement of the loan by Party A; if the loan start date and the date of disbursement are not the same, the date of disbursement shall prevail: that is, once the loaned money leave Party A’s account, then the loan period shall be extended accordingly.” (Emphasis added.)

13.  It is correct that both the Plaintiff and the 2^nd Defendant proceeded on the basis that the sum of money was disbursed in April 2011 after the execution of the Supplemental Agreement on 31 March 2011.  That is why at the substantive hearing, the sole evidential basis for the limitation defence was the fact that the disbursement of the funds took place so soon after the signing of the Supplemental Agreement on 31 March 2011 that the Court should infer that this event occurred no later than 4 April 2011.

14.  Mr Smith SC, at the substantial hearing, submitted that the calendar for the year 2011 shows that the 31 March fell on a Thursday, the 1 April was a Friday and the 4 April was a Monday.  Had the sum of money been disbursed on any date in April other than the 1, 2 and 3 April 2011 (bearing in mind that the 2 and 3 April 2011 were Saturday and Sunday respectively), there would not be any time bar operating in favour of the 2^nd Defendant.

15.  I am of the view that the burden rests on the 2^nd Defendant to make good its limitation defence.  Ms Tang also fairly agreed.  It was against such background that I allowed the 2^nd Defendant to adduce evidence as to the precise date of payment was made so that she can demonstrate that the payment was indeed made within the narrow window that was available for making a bank transfer between 31 March and 4 April 2011.  Had the 2^nd Defendant adduced sufficient evidence to substantiate her limitation defence, the hearing on 23 January 2020 might not be necessary.

16.  Ms Tang submitted that once the 2^nd Defendant has raised the issue of limitation in her skeleton submissions dated 20 January 2020, she need not do any more.  I do not agree.  Whilst it is true that the burden is initially on a defendant to plead limitation but thereafter it is for the claimant to show when time began to run, in an application for setting‑side a regular judgment, the limitation plea must contain particulars as to how it operates.  It is not enough for a defendant to simply allege that there is a limitation issue without demonstrating to the Court how the limitation defence operates and hence there is a meritorious defence.

17.  It is precisely for the above reason that I allowed the 2^nd Defendant to put in further evidence to substantiate her limitation defence.  It is trite that in an application to set aside a regular judgment, the defendant would have to show a real prospect of success and that will involve a judicial assessment of whether the evidence put forward by the applicant on disputed factual matters has a realistic prospect of being accepted.  (See Habour Hero Enterprises Ltd v Chau Nung Tai [2019] 3 HKLRD 174 at §10 per Kwan VP)

18.  In Shun Pong Limited v Chan Koo Kai Felix and All Other Occupier(s) in Actual Occupation of Apartment B, 3^rd Floor, Yuk Sing Building, Nos.1‑9 Yuk Sau Street, Hong Kong (if any), unreported HCA 255/2017, 29 November 2018, Deputy High Court Judge Marlene Ng (as she then was) at §48‑49 said:

“48. If a default judgment is regular, the defendant must show a meritorious defence with a real prospect of success or which carries some degree of conviction. Bare assertions are not sufficient for this purpose. Unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success. This requires the court to form some provisional view of the probable outcome of the action. Where the outcome depends on whose evidence is likely to be accepted, the appropriate test for determining whether the defendant has a real prospect of success is to ask whether the defence ‘could well be established’ at trial or whether the defence witnesses could well be believed at trial.

49. It is not correct to adopt the approach that if the defendant can show he has an arguable defence, a default judgment against him ought to be set aside unless there is incontrovertible evidence before the court to negate it. The court is also entitled on assessment of the affirmation evidence to come to a view that the defence put forward is inherently unbelievable and the defendant therefore has failed to discharge the burden of putting forward a defence with a real prospect of success.” (Emphasis added.)

19.  Purely based on the evidence and submissions available to this Court at the substantive hearing, this Court would have dismissed the Summons.  I have informed the parties that the only issue that troubled this Court is the limitation defence.  It appeared to this Court that the 2^nd Defendant was in a position to put in more evidence to demonstrate the merits of this defence.  Indeed, if she should have put in evidence prior to the substantive hearing to substantiate her limitation defence.

20.  Secondly, Mr Smith SC reminded this Court that, in exercising its discretion to award costs, a substantial amount of time and evidence were spent on dealing with the other defences put forward by the 2^nd Defendant and a fairly limited time was spent on the limitation issue.

Exercise of Discretion

21.  For all the reasons stated above, I am of the view that a proper costs order should be:

(1)  Costs incurred up to 26 February 2020, including the substantive hearing of the Summons on 23 January 2020, be paid by the 2^nd Defendant to the Plaintiff;

(2)  Costs incurred after 26 February 2020 (if any) be paid by the Plaintiff to the 2^nd Defendant.

22.  I do not consider that this is an appropriate case to order costs to be in the cause of the action as the parties have spent substantive legal resources to argue on whether the Regular Default Judgment should be set aside.  It is a self‑contained application and there are no special circumstances and good reasons as to why costs should not be determined according to the general principles.  The four factors relied on by Ms Tang, namely, the final judgment was obtained regularly, the statutory demands were previously set aside (bearing in mind the test of setting aside a statutory demand is different from that of setting aside a regular judgment), the trial of the claims against 1^st Defendant would go ahead and there are unresolved issues with the Plaintiff’s case, are insufficient to depart from the general rule when a regular judgment is set aside.

23.  As far as certificate for counsel is concerned, the Plaintiff asks for a certificate for two counsel.  Ms Tang submitted that only one certificate for junior counsel should be awarded.  I am of the view that this is not a case which merits a certificate for two counsel.  The 2^nd Defendant was ably represented by one counsel.

24.  However, I agree that the substantive disputes involved are complex.  Both parties put in very comprehensive submissions dealings with complicated issues of sham and various issues of factual dispute.  It is not unreasonable for the Plaintiff to engage senior counsel to resist the application.

25.  Accordingly, I will award a certificate for one counsel to cover the fees of Mr Smith SC.  For the avoidance of doubt, this is not to say that this Court finds the contribution of Mr Tang insignificant.  On the contrary, this Court finds Mr Tang to be very helpful.

26.  As for the costs incurred in relation to these submissions on costs, costs should follow the event.

Disposition

27.  Accordingly, I make the following orders:

(1)  Costs of and incidental to the Summons dated 10 September 2019 incurred before 26 February 2020, including the substantive hearing on 23 January 2020 be paid by the 2^nd Defendant to the Plaintiff forthwith, to be taxed if not agreed, on a party to party basis, with a certificate for one counsel (senior counsel).

(2)  Costs of and incidental to the Summons dated 10 September 2019 incurred after 26 February 2020 be paid by the Plaintiff to 2^nd Defendant (if any) forthwith, to be taxed if not agreed, on a party to party basis, with a certificate for one counsel.

(3)  Costs incurred in relation to the submissions on costs to be paid by the 2^nd Defendant to the Plaintiff forthwith to be taxed if not agreed, on a party to party basis, with a certificate for one counsel (senior counsel).

28.  Finally, it remains for this Court to thank Mr Smith SC, Mr Tang for the Plaintiff and Ms Tang for the 2^nd Defendant for their able assistance to this Court.