LAM KIN FONG AND OTHERS v. CHEUNG WAI TING AND OTHERS

HCA 1457/2021

[2022] HKCFI 1741

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1457 OF 2021

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D E C I S I O N

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Introduction

1.  Before me this morning is the 1^st to 8^th plaintiffs’ application for default judgment under Order 19, rule 7 of the Rules of the High Court. 

2.  The primary reliefs sought by the plaintiffs are declarations against the eight defendants.  As a further or alternative remedy, the plaintiffs ask for two mandatory injunctions. 

Procedural history

3.  The writ, endorsed with the statement of claim, was issued on 24 September 2021.

4.  Steps were taken in October 2021 to serve the writ on the eight defendants. 

5.  For each of the 1^st, 2^nd, 3^rd and 4^th defendants, the writ was served by insertion into letterbox.  For each of the 5^th, 6^th and 8^th defendants, the writ was served by registered post.  For the 7^th defendant, personal service was effected. 

6.  Save for the 5^th defendant, none of the defendants have to date acknowledged the service of the proceedings.  The 5^th defendant lodged an acknowledgment of service on 22 November 2021.  He indicated there that he did not intend to contest the action. 

7.  In other words, none of the defendants gave notice of intention to defend within the prescribed time under the rules. 

8.  As declaratory and/or injunctive reliefs are sought, Order 13, rule 6 applies. 

9.  None of the defendants have to date served a defence in the action. 

10.  By summons dated 12 April 2022, the plaintiffs took out the present application, seeking to enter judgment in default of defence pursuant to Order 19, rule 7. 

11.  According to the above timeline, the defence was due to be served some time in about December 2021.  I am therefore satisfied that the plaintiffs have complied with the procedural aspect of the rule, namely that the application was taken out after the time for serving the defence had expired in respect of each defendant. 

12.  Having reviewed the affidavit of service, I am satisfied that reasonable steps have been taken by the plaintiffs to serve the summons on each of the defendants at their last known addresses.  Save for the 5^th defendant who attended today’s hearing, none of them turned up today.  I directed that the hearing do proceed in their absence. 

13.  The key question at today’s hearing is whether I should exercise my discretion to grant the declarations and/or injunctions now without requiring the plaintiffs to prove their case at trial.  It is my clear view that I should not do so.

The plaintiffs’ pleaded case

14.  The plaintiffs’ pleaded case is as follows.

15.  The plaintiffs seek to assert their rights as purchasers of certain land-shares (田份) in Ha Wan Wui (下灣會).  It is an unincorporated Chinese customary body or association in the nature of a “Wui”. 

16.  The defendants are the vendors of the land-shares purchased by the plaintiffs.  The 1^st and 2^nd defendants are also the managers of Ha Wan Wui registered under section 15 of the New Territories Ordinance, Cap 97. 

17.  Pursuant to seven Agreements for Sale and Purchase of Land-Shares in Ha Wan Wui on 18 and 21 December 2013, the plaintiffs contracted to acquire the defendants’ respective land-shares in the Wui.  The plaintiffs and the defendants are the respective purchasers and vendors of the land-shares stated in the agreements.  It is unnecessary to spell out here the identity of the purchaser(s) and vendor(s) in each of the agreements.  

18.  It is pleaded that members of Ha Wan Wui are owners of the land-shares in the Wui.  These land-shares are freely transferable, whether as between members of Ha Wan Wui or as between members and non-members. 

19.  Members of the Wui and the proportion of their land-shares are stated in the Wui’s List of Members which has been kept throughout the history of the Wui.  The List of Members has to be updated following each transfer of the members’ land-shares.  The proportion of each member’s land-shares is expressed in terms of weights of rice crops, namely, 擔 (dan), 斗 (dou) and 升 (sheng); there being one “dan” equals to 10 “dou” and one “dou” equals to 10 “sheng”.  The members are entitled to enjoy and receive all income and benefits derived from the land holding of the Wui in proportion to their respective land-shares.

20.  Ha Wan Wui is the registered owner of Lots 39RP, 58RP, 69RP, 72, 79B, 80, 81 and 753RP described in the Block Government Lease of Demarcation District 99. 

21.  The lots are held by and under the name of the current managers of Ha Wan Wui on trust for and on behalf of its members.  The members are the beneficial owners of the lots and are entitled to all income deriving or arising from them and to use and occupy them.  Distribution of income to members is in accordance with the quantum of their land-shares in the Wui as stated in the List of Members. 

22.  Members are also entitled to attend and vote in members’ meetings. 

23.  It was a term of the agreements that the defendants should assist the plaintiffs to be registered as members of Ha Wan Wui and as owners of their respective land-shares, and the defendants should sign all relevant documents for that purpose.

24.  On 20 December 2013, the balance of the purchase price under each of the agreements was paid. 

25.  Other steps were also undertaken pursuant to the terms of the agreements in December 2013 and December 2018, including the execution and delivery of trust deeds by the defendants in respect of their respective land-shares. 

26.  Despite the sale, there has been no update of the Wui’s List of Members or any official recognition by the defendants of the plaintiffs’ status as members. 

27.  On 21 February 2019, the plaintiffs’ solicitors requested the 2^nd defendant as manager to update the List of Members and to convene a members’ meeting to report on the progress of the Wui’s application to the government for approval to sell the Wui’s properties and to elect new managers for Ha Wan Wui.  To that, there has been no reply from the 2^nd defendant or anyone else amongst the defendants. 

28.  In the circumstances, the plaintiffs contend that, since receiving the consideration for the sale of their land-shares, the defendants have failed to comply with their respective contractual obligations to assist the plaintiffs to be registered as owners of those land-shares and the plaintiffs are unable to effectively exercise their rights in relation to the interests they had acquired. 

29.  The plaintiffs therefore seek the following reliefs:

(1)  First, for declarations that the plaintiffs are lawful members of Ha Wan Wui and respective holders of the land-shares they acquired from the respective defendants.  Ancillary to such declarations is a mandatory order requiring the 1^st and 2^nd defendants as managers to cause Ha Wan Wui’s List of Members to be updated to register the plaintiffs as members of the Wui and as owners of their respective land-shares. 

(2)  Second, a declaration that the plaintiffs are entitled to convene a meeting of members and, ancillary to such declaration, a mandatory order for such a meeting to be convened for the purpose of appointing new managers for Ha Wan Wui and reaching a consensus on the sale or disposal of the Wui’s properties. 

Legal principles

30.  The principles governing an application for default judgment under Order 19, rule 7 are well-known. 

31.  First, the plaintiff needs to satisfy the procedural requirement as prescribed in the rules: see para 11 above. 

32.  Secondly, as a matter of principle, default judgment will only be given on a plaintiff’s claim provided that the pleaded facts give rise to the relief sought.  This is because the basis for default judgments is that the facts as contained in the statement of claim were true and admitted by the defendant.  The court’s task is therefore to look to the pleaded facts alone and no other evidence will be admitted: see, eg, Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480 at paras 26-27; Hong Kong Civil Procedure 2022 at 19/7/11. 

33.  The next question is whether the court should exercise its discretion to grant the declaratory relief now or should require the plaintiff to prove its case at trial. 

34.  Order 19, rule 7(1) provides that “on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim”. 

35.  Notwithstanding the use of the word “shall” in the rule, it is well-established that the court retains the right to refuse the plaintiff judgment even when upon his pleadings he appears entitled to it.  The rule is not mandatory in its effect and leaves the court with a discretion to do what in the circumstances of the case is just: Wallersteiner v Moir [1974] 1 WLR 991 at 1022A, 1030A-B; Lam Shing Shou v Lam Hon Man HCA 361/2001, 15 January 2002, at para 11. 

36.  Where the plaintiff seeks a declaration in default of defence, the general practice is that the court ought not to make the declaration in such a situation.

37.  The reason is that a declaration by the court is a judicial act and ought not to be made on admissions of the parties or on consent or in default of pleadings but only if the court is satisfied by evidence. 

38.  In the absence of a judgment reached after hearing evidence, a declaration could be based only on unproved allegations and the court ought not to declare as fact that which might not have proved to be such, had the facts been investigated: Wallersteiner v Moir at 1029A-C; Patten v Burke Publishing Co Ltd [1991] 1 WLR 541 at 544A; and, Top One International (China) Property Group Company Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at para 83. 

39.  Judges are warned against the dangers of making a judicial declaration prior to trial. 

40.  This has been contrasted with the making of a money judgment or property judgment in default of pleading.  In the latter situation, where a defendant fails to plead, it is ordinarily in the interests of justice that the plaintiff should be able without more ado to obtain judgment for the money or property for which he is suing.  The defendant may later apply to set it aside if he can show a bona fide defence.

41.  A different consideration applies to declarations. In Wallersteiner v Moir, Scarman LJ said, at 1030E-F:

“But, when what is sought is a declaration, there is the risk of irremediable injustice: the court has spoken and words cannot be recalled, even though later they be negatived; “nescit vox missa reverti,” Horace, Ars Poetica, line 390.  The power of the court to give declaratory relief upon a default of pleading, of course, exists, but, for the reason crystallised by Horace in those four words of his, should be exercised only in cases in which to deny it would be to impose injustice upon the claimant.” (underline added)

42.  In Patten, Millett J spoke of another consideration applicable to declaratory judgment in that it might appear to affect third parties even though they are not bound by the declaration.  He said, at 544C-D:

“the rule of practice is also justified by the fact that declarations in [the Chancery] Division usually are declarations of legal right which may appear to affect third parties who are not bound by the declaration.”

43.  When being asked to make a declaration in default of pleading, the task of the court is hence:

“it is, I believe, the duty of the court to exercise caution before committing itself to sweeping declarations: to look specifically at each claim, and to refrain from making declarations, unless justice to the claimant can only be met by so doing. Generally speaking, the court should leave until after trial the decision whether or not to grant declaratory relief, and if so, in what terms: see Williams v. Powell [1894] W.N. 141.” (underline added)

44.  The above passage from Wallersteiner, at 1030C-D, was made in the context of an application for a declaration concerning fraudulent acts.  However, it applies equally to other declarations sought. 

45.  The above rule, as explained in Wallersteiner and Patten, is often said to be a rule of practice and not a rule of law.  This rule is not an inflexible one.  It should not be followed when the plaintiff has a genuine need for the declaratory relief and justice would not be done if the relief were denied: Lai Wai Kuen v Wong Shau Kwong HCA 3424/2003, 12 November 2004, at para 6; Hong Kong Civil Procedure 2022 at 19/7/20. 

46.  Ultimately, the court’s paramount duty is to do justice in the circumstances of the case.  Where the plaintiff can demonstrate that he has a genuine need for the declaration immediately instead of having to go through a trial, to deny the declaration to him would, in Scarman LJ’s words, be to impose injustice on him. 

47.  In such a case, it is justifiable for the court to depart from the general practice of requiring the plaintiff to prove his case at trial. 

48.  In addition to the above, I think it is important to recognise two matters in this type of application. 

49.  First, a declaration is a discretionary remedy. It is for the plaintiff to satisfy the court that it should make a declaration.  In Patten, Millett J remarked that even after trial it is not the normal practice of the court to make a declaration that the defendant had been guilty of fraud or negligence.  Justice can be done to the plaintiff by awarding him damages.  The judgment will contain the findings of fraud or negligence on the basis of which damages have been awarded and that should be sufficient for the plaintiff’s purpose: see 543H-544A. 

50.  Hence, in an application for declaratory judgment in default of defence, in my view, it is for the plaintiff to demonstrate that the declaration sought is a relief that may be granted after trial, as a matter of the discretion of the court. 

51.  Secondly, in addition, in this kind of application, the burden is squarely on the plaintiff to demonstrate a genuine need for the declaration now instead of after trial.  The important point here is timing.  The plaintiff must satisfy the court why he needs the relief straightaway, but not later. 

52.  It will be recalled that as a starting point the court should pronounce a declaration only after hearing evidence at the trial. But if it can be shown that justice to the plaintiff can only be met from making an immediate declaration, the court should strive to do the fullest justice to the plaintiff to which he is entitled: Patten at 544G-H.  It is however for the plaintiff to make good his case for a speedy relief. 

53.  Each case must be decided by reference to its own circumstances. 

54.  For instance, it was generally accepted that injustice might be done to a defendant if without the benefit of trial the court should declare him fraudulent.  It was said that a defendant whose reputation is at stake should not be condemned to lose it without a trial: Wallersteiner at 1022C, 1030C. 

55.  However, in recent years, in Hong Kong, declarations to the effect that a defendant had acted fraudulently and had misappropriated assets of the plaintiff whose assets are held on constructive trust are not uncommonly made in cases of email or cyber fraud which are prevalent in recent years.  See, eg, Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd HCMP 1846/2015, 25 January 2016, in which Recorder Lisa Wong, SC said that a declaration that the misappropriated funds were held on trust was necessary at the default judgment stage to earmark them as the plaintiff’s property and put the same out of reach of other creditors of the defendant. 

56.  To sum up, there is simply no hard and fast rule as to how the court should exercise its discretion in any given case. 

Discussion

57.  As noted at the outset, I am satisfied that the plaintiffs’ present application has come within the rules in that it was taken out after the prescribed time. 

58.  However, I am not satisfied that the plaintiffs have demonstrated that the circumstances are such that the court should grant the declaratory and/or injunctive reliefs now rather than after trial.

59.  For that reason, I would therefore dismiss the application for default judgment. 

60.  For the purposes of this discussion, I shall proceed on the assumption that based on the impliedly admitted facts pleaded in the statement of claim, the plaintiffs would be entitled to the reliefs sought.  I adopt this approach as I do not wish to comment unnecessarily on the merits of the substantive claim, which will proceed to trial in light of my ruling.  I do so also because my main difficulty with the application is that, contrary to the plaintiffs’ submissions, it is a case which clearly ought to be investigated and tested at trial before any declaration should be made by the court.  And I would want to focus on this aspect of the case. 

61.  I highlight the following five matters which I consider are the material considerations which weigh against exercising my discretion to grant the declarations now. 

62.  First, the declarations sought are first to the effect that each plaintiff is a lawful member of Ha Wan Wui holding the number of land-shares acquired from the relevant defendant under the applicable agreement.  While the land-share may not itself be a direct interest in any particular piece of land owned by the Wui, the ownership of the land-share confers rights on the owner to receive income and benefits derived from the real properties held by the Wui.  Furthermore, as pleaded, these land-shares are transferable. 

63.  Hence, we are dealing with what is in substance a case concerning interests and benefits in land. 

64.  It is true that any declaration made in this action would only bind the parties to this action.  In practice, however, it would likely affect third parties.  It is certainly not far-fetched to contemplate that after the making of the declarations, the land-shares may be further transferred to other parties.  Not only that, the Wui, with the newly installed members, may resolve to sell its lands to other parties.  In fact, one of the declarations sought is that the plaintiffs are entitled to convene a meeting of members for the purpose of “reaching a consensus on the sale or disposal of [Ha Wan Wui’s] landed properties”. 

65.  If any of the above happens, the plaintiffs, or the Wui, will likely deal with the third parties on the strength of the court declarations which are now being sought in relation to the ownership of the land-shares. 

66.  In other words, it can reasonably be expected that the declarations, if granted, will have far-reaching implications affecting persons not being parties to the action.  This reinforces the need to have the plaintiffs’ case tested and investigated at a trial so that the court will decide if the plaintiffs can indeed make good their case by evidence before a judicial pronouncement on their entitlements is made. 

67.  The second matter which is of significance in the present application is that a declaration is sought which, if granted, would have the effect of compelling the managers of the Wui to convene a members’ meeting.  The two managers are named the 1^st and 2^nd defendants in this action.  The convening of a meeting of the Wui would affect other existing members.  Again, in light of that, I consider that it is a declaration which can and should only be properly granted after a full trial as the declaration will have effect which goes beyond the immediate parties to the present action. 

68.  Thirdly, the claim concerns the ownership of land-shares in a Wui and the members’ entitlements arising out of real properties in the New Territories held by the Wui on behalf of its members. 

69.  There will likely be legal issues arising out of the claim.  For instance, is there any formality required for changing the membership of the Wui and the convening of a Wui’s meeting?  Such issues are not necessarily straightforward ones.  They should best be determined by reference to facts which are found after trial instead of unproved facts.  This again reinforces the need to have a proper trial in the present case. 

70.  Fourthly, the plaintiffs have not put forward any argument or reason to justify why they need the declaratory reliefs now, instead of after trial. 

71.  In his written submissions, Mr Derek J Y Chan, counsel for the plaintiffs, submits in two short paragraphs that the court should grant the declaratory reliefs:

“17. Ps submit that given Ds were legally represented in respect of the sale of their land-shares in HWW and yet has chosen to ignore Ps’ demands since 21 February 2019, P has no realistic prospect of exercising their rights in HWW without declaratory and injunctive relief granted by the Court.

18. Further, Ds’ solicitors have never denied Ps’ entitlement to the land-shares and there is no realistic prospect of any factual disputes which ought to be investigated at trial.  Moreover, there is no allegation of fraud or dishonesty which may cause the Court to be reluctant to grant judgment in default without receiving evidence.”

72.  These submissions fall far short of showing a genuine need that ought to be met now, but not later. 

73.  Fifthly, the timeline, as disclosed by the statement of claim, does not show that the plaintiffs are in any urgent need for the relief.  The agreements were signed in 2013.  Some steps were then taken in 2018.  The plaintiffs’ solicitor then made the request to update the List of Members in February 2019.  There was no reply.  But it was not until September 2021 that the plaintiffs commenced these proceedings.  And the present application was taken out about six months later. 

74.  This is not a criticism of how the plaintiffs have conducted this litigation.  I highlight this as it seems to show that there is no apparent urgency felt by the plaintiffs in seeking the reliefs at the earliest opportunity. 

75.  In sum, this is a case concerning the rights and entitlements of members of the Wui and, consequently, the land rights of the Wui.  In my view, it is a clear case where the facts ought to be investigated and the evidence scrutinised before the court should make any declarations which will likely have far-reaching implications, not only for the immediate parties to the action but also potentially other parties. 

76.  The plaintiffs are pointedly silent on why they should be granted the reliefs in a summary way rather than by proving their case at trial.  The burden to show that injustice will be done to them if the declarations are not granted is not discharged.  The just course to take here is to follow the general rule of practice for the court to hear evidence before deciding what relief to grant, if any. 

The 5^th defendant’s position

77.  At today’s hearing, the 5^th defendant has stated his position as follows. 

78.  He accepts that he had entered into the agreement concerning him as pleaded, he had performed his side of the contract and in principle he has no objection to the orders sought by the plaintiffs.  In the circumstances, he would urge the plaintiffs to pursue the managers of the Wui instead. 

79.  I have set out the 5^th defendant’s position here for the record.  And I would urge the parties to try to work together to see how best to sort out the claim as between the relevant plaintiffs and the 5^th defendant in an expeditious manner. 

80.  I should just add that the 5^th defendant’s position has no bearing on my decision made today.  Declarations are not made as a matter of course even if the parties consent.

Order

81.  For the above reasons, I dismiss the plaintiffs’ application for default judgment.

[Submissions on costs]

82.  I make no order as to costs of the application.

83.  I refuse to accede to the plaintiffs’ proposal that costs be in the cause.  In my view, it is an application that ought not to have been taken out in the first place as the need for a trial is plain and clear.