EARTH GROUP LTD v. GLOBALMAX GROUP LTD AND ANOTHER

DCCJ 2155/2019

[2022] HKDC 241

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2155 OF 2019

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BETWEEN

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DECISION

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1.  This is an appeal by the plaintiff against the Order of Master　Maurice Lam dated 13 September 2021.

Background

2.  This is a simple breach of contract case.

3.  The plaintiff’s case is that:

a. the plaintiff, a company carrying on business of trading of beauty products etc., has made several agreements for sale and purchase of various beauty machines, accessories and other products (the “Goods”) with the 1^st defendant, a company running a beauty centre, around July to November 2018.

b. The Goods were duly delivered but the 1^st defendant failed to pay the sums owned amounting to HK$1,139,462.

c. The 1^st defendant opened for business in late October 2018 but closed down in around January 2019.

d. The 2^nd defendant, the sole shareholder and director of the 1^st defendant, has removed the goods to an unknown place.

4.  A writ was issued on 2 May 2019 and default judgments were entered against the 1^st and 2^nd defendants on 31 July 2019 and 13 August 2019 respectively.

5.  The plaintiff sought an order to impose a charge on the beneficial interest of a property owned by the 2^nd defendant (“the Property”) :-

“All those 10 equal undivided 4,152^nd parts or shares of and in all those pieces or parcels of ground registered in the Land Registry as the remaining portion of Kowloon Inland Lot No. 3254 and Section A of Kowloon Inland Lot No. 2074 (Flat A3 on 27^th Floor of Block A, Yee On Court, No. 79H Waterloo Road, Kowloon)”

6.  A charging order absolute on the Property was granted on 12 October 2020 (“the Charging Order”).

7.  The defendants have applied to set aside the Default Judgment and the Charging Order. Master Maurice Lam has given the order that, inter alia, that :

a. the final judgment against the 1^st defendant be set aside on the condition that it pays a sum of HK$710,000 into Court;

b. the final judgment against the 2^nd defendant be set aside unconditionally; and

c. the Charging Order Absolute be discharged with no order as to costs.

8.  The plaintiff is appealing against this decision.

Legal Principles

9.  This will be dealt with by way of an actual rehearing of the application before the Master (paragraph 58/1/2 Hong Kong Civil procedure 2022 page 1212).

10.  Order 13, r. 9 provides that “…the Court may, on such terms as its thinks just, set aside or vary any judgment entered in pursuance of this Order”.

11.  However, in exercising such power, the court should distinguish between a judgment that was obtained regularly or irregularly (paragraph 13/9/2 Hong Kong Civil procedure 2022 page 314).

12.  If the former, it should be set aside as of right (paragraphs 13/9/3 and 13/9/4 Hong Kong Civil procedure 2022 page 314-315).

13.  If the latter, the court has discretionary and unconditional power to set aside having considered all relevant circumstances of the case including whether the defendant has “a real prospect of success”, why the default occurred, the defendant’s conduct after he had notice of the proceedings, explanation for any delay and aby prejudice to other parties etc. (paragraphs 13/9/12 to 13/9/14 Hong Kong Civil procedure 2022 page 317-318).

Is the judgment regular?

14.  The defendants argued that the service was irregular.

15.  There was an affirmation of service of the Writ of Summons and Statement of Claim on the 1^st defendant at its registered address in Fanling by registered post and also an affirmation of service on the 2^nd defendant of the same documents at her usual address (also at the address in Fanling, which the court accepts as “one of the usual addresses” of the 2^nd defendant, see paragraph 10/1/12 of Hong Kong Civil Procedure 2022) by registered post, both were served on 4 May 2019 (LYL-1, LYL-2, LYL-3, Hearing Bundle page 68-77).

16.  The plaintiff subsequently amended both the Writ and the Statement of Claim, and similarly re-served the amended documents to both the defendants in a similar way on 26 June 2019. These are also supported by affirmations of service (LYL-4, LYL-5, LYL-6, Hearing Bundle page 78-87)

17.  The defendants did not dispute receiving the registered posts sent on 4 May 2019 but the 2^nd defendant claimed that the posts only contained blank sheets of paper (paragraph 8 of the Affirmation of Lee Yan Lam, Hearing Bundle page 36).

18.  The 2^nd defendant (for herself and on behalf of the 1^st defendant) further claimed that she did not bother to collect the registered posts sent on 26 June 2019 because she thought these were “also pranks” despite admitting receiving the Notifications of Collection from the post office (paragraphs 9 and 10 of the Affirmation of Lee Yan Lam, Hearing Bundle page 36).

19.  I find this incredible: the defendants are alleging, in short, a conspiracy:

a. That the plaintiff, for a simple unpaid goods claim, would go to the extent of committing perjury in deliberately sending blank pieces of paper in order to obtain default judgment, knowing full well that the evidence of such (that is, those blank pieces of paper) would be in the hands of the defendants.

b. The defendants, of course, have not produced any contemporaneous evidence of receiving such blank pieces of paper.

c. Perhaps, even more incredible, the plaintiff apparently not only conspire to do this once, but twice when re-serving the Amended Writ etc.

20.  Further, even if the 2^nd defendant had received some blank sheets of paper around 4 May 2019, presumably with no identification of the sender (otherwise the 2^nd defendant would have stated that in evidence), why would she automatically assume that two registered posts sent almost 2 months later (around 26 June 2019) must be from the same sender playing the same prank on her (and therefore did not bother to pick them up)?

21.  This is simply not believable. I would imagine a scenario where a person was continuously harassed by “prank mails” repeatedly perhaps every day over several days that he might decide to ignore further posts. This is clearly not the case here.

22.  As such, I find that the defendants were actually evading service.

23.  In any case, the plaintiff confirmed that neither sets of registered posts were returned to the sender by the Post Office.

24.  The defendants’ Counsel, Mr. Lawrence L.K. Ngai, also submitted the 2^nd defendant’s arguments based on the weights on the posts shown on the receipts (as exhibited in the relevant affirmation of service) (paragraphs 13 to 18 of Affirmation of Lee Yan Lam, Hearing Bundle Page 37-38). Mr. Ngai suggested that these were too light to contain all the court documents.

25.  I think this would require some degree of expert evidence.

26.  The court cannot simply accept the calculation of paper weight from the 2^nd defendant’s own evidence, and, more importantly, there is no evidence as to the stringency of the weighing procedures in the post office or indeed, how the scales are calibrated, the degree of accuracy and how often the calibration is checked.

27.  Mr. Ngai also raised some objection on the content of the affirmations regarding the service of the Amended Writ etc. on the 1^st defendant. I agree with the plaintiff’s counsel, Mr. Jackson Poon, that these affirmations were adopted from standard court forms which were different for service on a person and service on a company. I see no grounds for such objection.

28.  Finally, Mr. Ngai, also argued that since the defendants’ solicitors has raised some defence to the claim in their reply (on 18 March 2019, Hearing Bundle page 313-315) to the plaintiff’s letter before action, there would be no reason why the defendants would try to evade service.

29.  As a purely personal observation, I have yet to read a solicitor’s reply to a letter before action that states to the effect: “Oh you are right! We will pay up!”

30.  The fact that some defence was raised by the solicitors would not necessarily mean that it was meritorious, or, more importantly, that the defendants actually believed that the defence was meritorious and well supported by evidence that they could produce. “Action speaks stronger than words” as they say, and their evasion of service afterwards was more telling.

31.  Therefore, there is no compelling evidence to show that the defendants have not received the writs and other court documents (Cheung Sai On v Cheung Sai Ho and Anor HCA 2218/2019).

32.  The court therefore finds that the default judgment was regular.

Consideration regarding all the circumstances

33.  Given that the court finds the default judgment regular, the court can still have the discretion to set it aside on whatever condition it finds just having consider all the circumstances.

34.  Mr. Ngai argued that the Charging Order was on the 2^nd defendant’s personal property, essentially having lifted the corporate veil but such was not pleaded in the statement of claim. He argued that the Charging Order should be discharged without condition.

35.  I disagree. This argument should go as far as raising a possible defence by the 2^nd defendant.

36.  In the Amended Statement of Claim, I note that the plaintiff did plead that the 2^nd defendant had removed all the Goods herself to “a known (unknown?) place, and without informing the plaintiff of the location of storage of the same”, thus suggesting that she now has the possession of them, and that she “by such conduct, is personally liable for the debt…” (Hearing Bundle page 14)

37.  Whether this was adequate pleading for “lifting of the corporate veil” or not would be a matter of legal argument. The court should not be involved in a mini-trial on such matters at this stage.

38.  Mr. Ngai also raised various defence for the 1^st defendant, namely a dispute on certain qualities of the Goods (but this was only raised after the defendants received the letter before action and some 4 months after delivery), that a deposit was already paid on one of the agreements, and that some of the agreements did not exist (in the sense that it neither purchased nor received those goods in question).

39.  However, on the whole, the 1^st defendant’s case is one on quantum: taken its case to the highest, it is not denying that the balance (after a deposit payment) of one of the agreements remains unpaid despite the goods concerning that agreement having been delivered.

40.  Overall, the courts finds that although the defendants may have, arguably, some merit in their defence to show “a real prospect of success”, given the circumstances of the case (including the 1^st defendant’s seemingly lack of defence on liability, the relationship between the 1^st and 2^nd defendant, the removal of the Goods by the 2^nd defendant and the court’s finding that the defendants have been, in reality, evading service), the court should impose terms in order to afford reasonable protection of the interest of the plaintiff.

41.  I agree with Mr. Poon that the Charging Order should not be discharged unconditionally because this will likely leave the plaintiff at risk of an empty judgment given that the 1^st defendant is unlikely to hold any assets of value and the whereabouts of the Goods is unconfirmed.

42.  I am also of the view that the amount of security must be just and proportionate to the apparent strength of the parties’ case at this stage. I note the fact that the defendants have tried to evade service despite their lawyers having previously raised some apparent defence on quantum (e.g. quality of the Goods and dispute on the existence of some agreements etc.).

Order

43.  The Order of Master Maurice Lam dated 13 September 2021 be set aside.

44.  The final judgment entered against the 1^st defendant and the 2^nd defendant on 31 July 2019 be set aside on the condition that the 1^st and 2^nd defendants jointly or severally paid a sum of HK$1,139,462 into court within 28 days of this order.

45.  On compliance with paragraph 44 above:

a. the Charging Order: Notice to Show cause dated 21 October 2020 and Charging Order Absolute dated 19 June 2020 and amended on 12 October 2020 be discharged;

b. The 1^st and 2^nd defendants do have leave to file and serve their Acknowledgements of Service within 7 days of the payment into court;

c. The 1^st and 2^nd defendants do have leave to file and serve their Defence and Counterclaim (if any) within 28 days thereafter; and

d. The plaintiff do have leave to file and serve its Reply and Defence to Counterclaim (if any) within 28 days thereafter.

46.  The costs of the hearing on 13 September 2021 and the costs of this appeal be to the plaintiff, with certificate for counsel for both hearings. The plaintiff shall lodge and serve a summary bill of costs within 28 days and the defendants shall lodge and serve a summary list of objections 28 days thereafter and the costs shall be assessed summarily on paper.