ZHENG LI FENG v. SUPER WORTH INTERNATIONAL LID AND ANOTHER

HCA 1043/2012

[2019] HKCFI 868

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1043 OF 2012

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D E C I S I O N

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I.   BACKGROUND

1.  The trial of this action was held on 10 and 11 April 2018.  On 6 April 2018 (i.e. just a few days before commencement of the trial), Messrs Charles Yeung Clement Lam Liu & Yip (“CYCLLY”), who were then on record solicitors acting for the 1^st and 2^nd Defendants (“the Defendants”) applied to cease to act for their clients.  At the end of the hearing of the application on 10 April 2018 (i.e. the first day of trial), I granted the application upon an undertaking given by CYCLLY.   On 9 July 2018, I ordered, amongst others, that judgment (“the Judgment”) be entered against the 1^st and 2^nd Defendants with reasons provided in my decision which was handed down on the same day (“the Decision”).

2.  In short, the Plaintiff’s claim is based on various agreements (including the First Agreement and the Supplemental Agreement) whereby the 1^st and 2^nd Defendants allegedly promised to buy back certain shares (“the Target Shares”) in a listed company (“the Company”) after the Plaintiff first purchased the same.  There has never been any dispute that the Plaintiff had purchased the Target Shares.  Under the Supplemental Agreement, the 1^st and 2^nd Defendants agreed to pay the Plaintiff the price for buying back such shares by 2 instalments i.e. HK$20,000,000 being the 1^st instalment and HK$40,000,000 being the 2^nd instalment, and also a sum of HK$5,000,000 as consideration for the Plaintiff’s agreement to extend the time for the buy-back.   All along, the defence of the 1^st and 2^nd Defendants was that the First Agreement was unenforceable for want of consideration and hence the Supplemental Agreement (which was based on the First Agreement) was similarly unenforceable.  This defence was rejected in the Decision.  Further, according to the pleadings, the 1^st and 2^nd Defendants did not deny that apart from the 1^st Instalment in the sum of HK$20,000,000, they did not make any payment for either the 2^nd Instalment (i.e. HK$40,000,000) or the consideration for the Plaintiff’s agreement to extend the time for the buy-back (i.e. HK$5,000,000).

3.  By a letter dated 16 July 2018, the 2^nd Defendant wrote to the Registrar of the High Court:-

(1)   stating that (a) she was sentenced to imprisonment as a result of a criminal trial in June 2016 and remained detained in Lo Wu Correctional Institution; (b) someone she knew came to know about the Decision and a copy of the same was delivered to her on 13 July 2018, as a result of which  she had knowledge of the outcome of this action; (c) her “recollection” of the matter was that the total amount of HK$60 million had been paid to the Plaintiff (apparently according to the Supplemental Agreement) but the Plaintiff failed to transfer the Target Shares to the 1^st Defendant; and

(2)   asking the court to let her know about the procedures regarding how to set aside the Judgment.

4.  On 19 July 2018, the Resource Centre for Unrepresented Litigants of the Judiciary replied to the 2^nd Defendant informing her of her right to apply to set aside the Judgment under Order 35 rule 2 of the Rules of the High Court, the time limit within which such application should be made, her right to apply for extension of time and the steps which need to be taken for the application (including filing a summons and an affirmation in support thereof), etc.

5.  On 2 August 2018, the 2^nd Defendant made an affidavit (“the Affidavit”).   In the Affidavit, apart from what she said in her letter dated 16 July 2018 to the Registrar of the High Court, the 2^nd Defendant added that (1) she has been a New Zealand citizen for approximately 30 years; (2) the notice of hearing of this action was not served on her; (3) the criminal case in which she was convicted and sentenced to imprisonment related to the Company (the shares of which formed the subject matter of the dispute in this action); (4) the outcome of the criminal case was within the realm of “public knowledge” such that the Plaintiff ought to have known about the same and hence the Plaintiff should not have proceeded with this action in her absence.

II.   THE APPLICATION TO SET ASIDE JUDGMENT

6.  On 22 August 2018, a summons and the Affidavit were filed with the Court for an application to set aside the Judgment.   Although the Affidavit was stated to be “AFFIDAVIT FOR 1^st and 2^nd Applicants”, I will only consider the position of the 2^nd Defendant for present purposes since no leave has been sought for the 1^st Defendant, a limited company, to act in person.  Hence, I will treat the application to set aside the Judgment is one made by the 2^nd Defendant only.  If the Court takes the view that the application should be granted, there is no reason why the Judgment against both the 1^st and 2^nd Defendants should not be set aside altogether.  Alternatively, if the Court takes the view that this application has no substance and should be dismissed, the materials now adduced by the 2^nd Defendant do not seem to suggest that the Judgment against the 1^st Defendant should be treated differently.

7.  Prior to the hearing of the application on 18 September 2018, the Court was informed that the 2^nd Defendant had applied for legal aid in respect of this action.  Upon hearing submissions from the parties at the hearing on 18 September 2018, the following direction was made:-

“The Court will reserve its decision until the expiry of the stay pending the 2^nd Defendant’s application for legal aid. It is hoped that the Director of Legal Aid (“DLA”) will make [a] decision on the 2^nd Defendant’s application for legal aid before the expiry of the stay period. If legal aid is not granted, the Court will proceed to inform parties of its decision on the 2^nd Defendant’s application to set aside the Judgment. Alternatively, if legal aid is granted, the Legal Aid Department (or solicitors assigned to represent the 2^nd Defendant) should inform the Court, within 28 days from the date of DLA’s decision, as to whether a further hearing is required.”

8.  On 2 October 2018, a Memorandum was issued on behalf of DLA refusing the 2^nd Defendant’s application for legal aid.  Hence, the Court now proceeds to give its decision on the 2^nd Defendant’s application to set aside the Judgment.

9.  Mr Anthony Cheung, counsel for the Plaintiff, has helpfully summarised the following principles which are relevant to the application:-

(1)   There is a public interest in there being an end to litigation in general.

(2)   In considering justice between the parties, the conduct of the person applying to set aside the judgment has to be considered.  Where a party with notice of proceedings has disregarded the opportunity of appearing at and participating in the trial, he or she will normally be bound by the decision.  Where a party has failed to comply with orders of the court, the court will be less ready to exercise its discretion in his or her favour.  Delay in making the application to set aside the judgment is also relevant, particularly if during the period of delay, the successful party has acted on the judgment or rights of third parties have been affected.

(3)   If an absent party seeks to set aside a judgment (which is entered after the facts have been investigated by the court), he or she is required to provide very strong reasons and the court is required to closely scrutinize the reasons provided.  In particular, it is incumbent on the applicant to demonstrate a real prospect of success.

10.  Having considered all the circumstances, I conclude that there are no valid grounds for the 2^nd Defendant to set aside the Judgment for the following reasons.

11.  The Defendants were all along represented by their then solicitors, CYCLLY, until, as mentioned above, only a few days before the trial commenced.  In support of their application to cease to act for the Defendants (which was filed on 6 April 2018), CYCLLY stated that they had difficulties in contacting their clients “during the past months”.  At the hearing of that application, it was admitted by CYCLLY that the application could have been made earlier; but they somehow harboured some hopes that the Defendants might eventually turn up. It is, nonetheless, rather inconceivable as to why no mention was made by CYCCLY at that time regarding the 2^nd Defendant’s criminal conviction and imprisonment.

12.  It was incumbent upon CYCLLY (when they were on record still acting for the Defendants) to inform their clients of the steps which had been taken and would be taken in these proceedings.  Meanwhile, during the course of doing so, the Defendants would be required to give all necessary instructions to their solicitors.   Since the 2^nd Defendant was jailed (and until CYCLLY took out the application to cease to act on 6 April 2018), CYCLLY attended on behalf of the Defendants two hearings before the Registrar and also the hearing of the Pre-trial Review before Lisa Wong J.  Had reasonable enquiries been made, it would have been known to CYCLLY that the 2^nd Defendant was imprisoned as a result of the conviction.   Assuming that CYCLLY did not know about the imprisonment, there was obviously a serious breakdown in communication between the Defendants and CYCLLY for a substantial period of time, during which CYCLLY still chose to continue to act for the Defendants.   Whether such a breakdown was attributable to the fault of CYCLLY or that of the 2^nd Defendant is a matter between them.  This is not something for the Court to determine in this context.   However, if CYCLLY had applied to cease to act for the Defendants earlier, the 2^nd Defendant might have been able to state her position well before the commencement of the trial, which would probably have an impact on what directions the Court would give before the trial.

13.  However, since CYCLLY continued to act for the Defendants until a few days before the trial commenced, it was only natural and reasonable for the Plaintiff to assume that the Defendants would have been informed of the proceedings by their solicitors on record.   There is no reason why the Plaintiff’s interest should be prejudiced by any miscommunication or misunderstanding between the Defendants and their then legal team.  In these circumstances, the Plaintiff had every legitimate reason to ask the Court to proceed to hear the trial in the absence of the Defendants and the Court so did.

14.  Moreover, as mentioned above, according to the Defendants’ pleadings, their defence has always been that (1) the First Agreement was not supported by any valid consideration and was therefore unenforceable; and (2) since the Supplemental Agreement was made on the basis of the First Agreement, the Supplemental Agreement was likewise unenforceable. The same line of defence was set out in the 2^nd Defendant’s witness statement which was filed on 19 April 2016 (i.e. less than 2 months before she was convicted and imprisoned).  The 2^nd Defendant now asserts (for the first time) that she had made payment for the whole of the buy-back price in the sum of HK$60 million in accordance with the Supplemental Agreement. This is wholly inconsistent with the Defendants’ pleaded case and also the 2^nd Defendant’s witness statement.    Neither is the 2^nd Defendant able to provide any concrete or credible proof in support of this new allegation which, I think, contains little substance and fails to show any reasonable prospect of success.

15.  Finally, the Judgment has been entered after trial in which each party’s pleaded case, oral testimony and documents have been considered and analysed.  The Plaintiff should be at liberty to enjoy the fruits of judgment or, if necessary, take steps to enforce the same.  Substantial prejudice would be caused to the Plaintiff if the Judgment were to be set aside at this stage such that the parties would have to conduct the trial all over again. 

III.   THE ORDER

16.  By reason of the above matters, I now order that (1) the 2^nd Defendant’s application (by summons filed on 22 August 2018) to set aside the Judgment be dismissed; and (2) costs of and occasioned by the 2^nd Defendant’s application be to the Plaintiff, to be taxed if not agreed.