EASTGATE ADVISORS LTD v. ZHU LIANG (also known as Vincent Julia Chu) AND ANOTHER

HCA 1844/2014

[2019] HKCFI 2740

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1844 OF 2014

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REASONS FOR DECISION

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Introduction

1.  The dispute between the parties arose from an indemnity arrangement. Very briefly stated:

(1)     The plaintiff claims that it is entitled to an indemnity from the 1^st defendant and the 2^nd defendant.  It is said that the indemnity arose by reason of a written declaration of trust whereunder the plaintiff held certain shares in a BVI company for and on behalf of the 1^st and 2^nd defendants.

(2)     The plaintiff incurred costs in defending a claim in conspiracy brought by a claimant against the 1^st and 2^nd defendants and itself.  That claim failed against the plaintiff.

(3)     But although the plaintiff obtained a costs order against the claimant, the claimant was not able to pay those costs.  In fact the claimant has been declared bankrupt.

(4)     As a result, the plaintiff claims to be entitled to a sum of US$1,024,360 by way of indemnity against the 1^st and the 2^nd defendants. This sum appears to consist of his own time costs and other expenses.

2.  At first, the plaintiff sought to enforce its claim against the 1^st defendant in Shanghai.  That was however unsuccessful.  Its claim was dismissed by the Shanghai First Intermediate People’s Court on 4 December 2012, on the ground that the claim “shall be subject to the jurisdiction of courts in Hong Kong in consideration of the convenience for litigation”.

3.  The present action was commenced in Hong Kong on 19 September 2014.

4.  By order of Master R Yu on 7 December 2014, the plaintiff obtained leave to serve the writ on the 1^st and 2^nd defendants in the Mainland.

5.  The first attempt (“the 1^st Attempt”) to effect service on the 1^st defendant was made on 2 March 2015.  The attempt was made to serve on an address in a development referred to as “Vizcaya” (“the Vizcaya Address”).  It was however unsuccessful:

(1)     According to the letter of the Shanghai High People’s Court to the Hong Kong High Court dated 11 March 2015, the 1^st defendant refused to sign a receipt of the concurrent writ (“拒絕簽收”).

(2)     The 1^st defendant however denies that she had refused to accept service.  Her evidence is that she did not personally receive any service of the concurrent writ in any form.

6.  On 31 August 2015, Master J Wong extended the validity of the concurrent writ for 12 months from 19 September 2015.

7.  On 14 October 2015, the second attempt (“the 2^nd Attempt”) was made to serve the concurrent writ on the 1^st defendant, again on the Vizcaya Address:

(1)     According to the letter of the Shanghai High People’s Court to the Hong Kong High Court dated 16 October 2015, the 1^st defendant refused to accept service.

(2)     The attachment to this letter (a service receipt) further stated that the 1^st defendant refused to accept service on the basis that there was already a judgment in the Mainland (“受送達人拒收，理由是該案在內地法院已有判決”).

(3)     The 1^st defendant however denies that she had personally refused to accept service.  She claims that by that time she had moved out of the Vizcaya Address.  Her evidence is that between 15 June 2015 and 14 June 2017, she and her son Austen had moved out of the Vizcaya Address and resided at a rented apartment (“the Rented Apartment”).

8.  On 4 January 2016, the High Court of Hong Kong wrote to the plaintiff’s solicitors, enclosing a number of documents essentially informing them that the attempts to serve the concurrent writ on the 1^st defendant had thitherto been unsuccessful, and that the Shanghai High People’s Court had been requested to effect service by “drop process” (留置送達) under Article 86 (“Article 86”) of the Civil Procedure Law of the PRC.

9.  On 23 August 2016, Master Ho extended the validity of the concurrent writ for another 12 months from 19 September 2016.

10.  On 23 March 2017, the plaintiff’s then solicitors wrote to the Registrar of the Hong Kong High Court, informing him that the validity of the concurrent writ had been extended, and requesting service under Article 86.

11.  The third attempt (“the 3^rd Attempt”) to serve the concurrent writ on the 1^st defendant was made on 5 May 2017, by way of “drop process” in accordance with Article 86.  It would appear that the attempt was to serve the concurrent writ again on the Vizcaya Address:

(1)     According to the letter of the Shanghai High People’s Court to the Hong Kong High Court dated 16 May 2017, this attempted service was successful.

(2)     The attachment to this letter (a service receipt) further stated that the attempted service was witnessed by two members of the residential committee (居委會).  It was also recorded that 1^st defendant and people who lived with her (居員) were not present at the time of the attempted service; and the concurrent writ was served by way of “drop process”.

(3     The 1^st defendant however denies the effectiveness of this attempted service.  Her evidence is that she was in Vancouver, not Shanghai, on 5 May 2017.  Copies of the relevant pages of her passport seem to bear out her case. It would appear that she only flew back to Shanghai on 7 May 2017.

(4)     But there is no dispute as to the factual accuracy of the matters stated in the service receipt.

12.  There is a letter (“the Tenant’s Letter”) to the Hong Kong High Court dated 15 May 2017 from someone who claims to be the tenant of the Vizcaya Address.  This letter states that an unknown person had recently placed a writ addressed to the 1^st defendant at the door of the Vizcaya Address.  It further states that the 1^st defendant was living overseas, the writer of the letter could not reach her and would be unable to pass the writ to her, and the writ was purportedly returned to the Hong Kong High Court.

13.  The 1^st defendant’s evidence is that she and her son moved back to the Vizcaya Address on 14 June 2017.

14.  On 25 August 2017, default judgment (“the 1^st Default Judgment”) was entered against the 1^st defendant.

15.  Attempts were made in March 2018 to serve the 1^st Default Judgment on the 1^st Defendant in Shanghai.  The 1^st defendant’s evidence is she only acquired notice of the 1^st Default Judgment shortly after 23 May 2018.  23 May 2018 was the date of her son’s graduation in Shanghai.  She returned to Vancouver shortly after that, and discovered that her bank accounts were frozen because of a Mareva injunction obtained on the strength of the 1^st Default Judgment.

16.  The plaintiff, however, has filed a report by I-OnAsia Limited (service agents engaged by the plaintiff) which suggested that it was the 1^st Defendant herself who refused to accept service of the 1^st Default Judgment during an attempt to serve the same on her on 19 March 2018.

17.  The application to set aside the 1^st Default Judgment came before Master Vincent Lung on 23 April 2019, who acceded to the application and set aside the 1^st Default Judgment. The Master ordered costs against the 1^st defendant in favour of the plaintiff. He did so on the basis that the 1^st Default Judgment was regularly entered.

18.  The Master further gave leave to the 1^st defendant to file and serve her Defence and Counterclaim within 28 days of 23 April 2019, ie 21 May 2019.

19.  The Master’s order of 23 April 2019 is referred to hereinbelow as “the Master’s Order”.

20.  The plaintiff filed a Notice of Appeal against the Master’s Order on 26 April 2019.

21.  The 1^st defendant did not file her Defence and Counterclaim by 21 May 2019.  There was therefore a default in the filing of a Defence.  The plaintiff obtained, on an ex parte application, a default judgment (“the 2^nd Default Judgment”) on 25 June 2019 on that basis.

22.  On 27 June 2019, the plaintiff’s then solicitors wrote to the 1^st defendant’s then solicitors to the effect that given that the 2^nd Default Judgment, the plaintiff would withdraw its appeal against the Master’s Order.

23.  On 2 July 2019, the 1^st defendant took out a summons to set aside the 2^nd Default Judgment.  The call over hearing of this summons came before Registrar Kwang on 5 July 2019.  The Registrar indicated that the plaintiff should decide whether to maintain its appeal against the Master’s Order, or to uphold the 2^nd Default Judgment.  He adjourned the call over hearing to 23 August 2019.

24.  On 9 July 2019, the plaintiff’s then solicitors confirmed its intention to withdraw its appeal against the Master’s Order by way of a trainee solicitor’s affidavit and a letter of the same date.

25.  On 12 July 2019, Master Kot ordered that the plaintiff’s appeal against the Master’s Order be withdrawn.

26.  On 23 July 2019, the 1^st defendant filed a summons seeking leave to appeal against the Master’s Order out of time, and that the Master’s Order “be affirmed by an alternative ground that the service of Writ herein on the 1^st Defendant was irregular and/or ineffective”.  This summons is the subject matter of this Decision.

27.  I must say that the 1^st defendant’s formulation of the relief sought, quoted above, is somewhat curious, because by the time the 1^st defendant filed this summons, there was no longer any appeal against the Master’s Order by the plaintiff.  Accordingly, the 1^st defendant is essentially seeking an affirmation of the Master’s substantive order on a different ground when there is no extant appeal against it.

28.  I agree with Ms Tong (counsel for the plaintiff) that in reality, this is an attempt to appeal only as to costs.  But I also agree with her that given the nature of the 1^st defendant’s arguments against the Master’s Order (ie an upfront challenge on the basis that the Master has fundamentally erred in holding that the 1^st Default Judgment was regular), the fact that the appeal is one in costs only does not matter very much.  I would still have to deal with the 1^st defendant’s arguments on the merits.

29.  I dismissed the 1^st defendant’s application for leave to appeal out of time at the hearing on 30 October 2019, with costs to the plaintiff, summarily assessed at HK$210,000 to be paid forthwith.  I give my reasons for the dismissal below.

Principles governing whether there should be leave to appeal out of time

30.  There is no dispute that in considering whether to extend time to appeal, the court has to consider the following factors. (1) the length of the delay; (2) the reasons for the delay, in terms of firstly why the original time-limit was not complied with and, secondly, why the application for extension of time could not have been made earlier; (3) the chances of the appeal succeeding if leave is given; and (4) the prejudice to the other party if the application is granted.  See Hong Kong Civil Procedure 2020 §58/1/9.

Principles governing when the Hong Kong court should hold that service was invalid in the face of an official certificate under Order 11, rule 5(5)

31.  Where such a certificate has been issued, Order 11, rule 5(5) provides that the certificate “shall be evidence of the facts so stated”. Miss Tong invites me to read this sub-rule to mean that the certificate shall be evidence that such service is valid under foreign law, as contents of foreign law can be said to be “facts” from the perspective of the Hong Kong court.

32.  She relies on Hong Kong Housing Authority v Hsin Yieh Architects & Associates Ltd & Others (No 2) [2006] 4 HKLRD 107 §§75 and 76, where Reyes J said that:

“ 75.   Mr Pao [counsel for the plaintiff in that case] counters that I cannot go behind the certificates given by the Central Authority. By O.11 r.5(5)(b), those certificates constitute evidence that as far as the German Court is concerned service has been effected pursuant to the Hague Convention.

76.   Here, I agree with Mr Pao.Given the certificates, I am entitled to assume that proper service has been made under the Hague Convention.  There is no compelling evidence from AXA [the entity to be served in that case] which prompts a different conclusion.”

33.  I confess I have some hesitation in accepting Miss Tong’s invitation to read “the facts so stated” in the way she suggests, despite the fact that her submissions do have apparent support from the Hong Kong Housing Authority case.

34.  The reason for my hesitation is that it seems well arguable to me that the phrase “the facts so stated” is chosen in contradistinction to the “validity of the service in all respects”.  It seems to me to be the better view that the “the facts so stated” refers only to factual matters properly so called, but not validity of the service under foreign law.

35.  Further, I am not sure whether the acceptance of this invitation would assist the plaintiff’s position substantially, given that it would only mean that the certificate would at most be “evidence” of the validity of the service; it would not even create a presumption of validity.

36.  However, I do not think it is necessary for me to express a concluded view on whether Miss Tong is right in this respect.  That is because, for the reasons explained below, I think there is another (and a preferable) route to reach the conclusion that the 1^st defendant should be required to adduce compelling evidence, in the face of a certificate under Order 11, rule 5(5), that the certified foreign service was invalid.

37.  I accept Miss Tong’s submission that it is the 1^st defendant’s burden to demonstrate, in the face of a certificate under Order 11, rule 5(5), that the foreign service was in fact invalid under foreign law.  Mr Hui (for the 1^st defendant) also accepted that the burden lies on the 1^st defendant to demonstrate that.

38.  Miss Tong submitted, on the strength of the passages in the Hong Kong Housing Authority case quoted above, that the 1^st defendant would need to adduce compelling evidence to challenge the validity of the service certified.

39.  Mr Hui disputed this proposition, on the ground that there is no warrant to impose a heightened standard, and the 1^st defendant should be required only to satisfy the court, on the balance of probabilities, that the service certified by the Shanghai High Court was invalid.

40.  I am on the view that, on true analysis, requiring compelling evidence does not depart from the usual civil standard of proof.  It is trite that even in considering whether the usual civil standard, ie on the balance of probabilities, is met, the court can, and should, take account of the inherent unlikelihood of the fact sought to be proved.

41.  One example, in the context of local service, is that once a writ is sent to the usual or last known address, then the defendant would have to adduce “convincing evidence” or “compelling evidence” to show that it has not been forwarded to the defendant.  See Bank of China (Hong Kong) Ltd v Cheung King Fung [2007] 1 HKLRD 462 (CA) §§32 – 34 (Tang JA (as he then was)), citing Forward v West Sussex County Council & Others [1995] 1 WLR 1469.

42.  That, in my view, is only a reflection of the common sense proposition that the more inherently unlikely the event, the more cogent the proof would have to be.

43.  Another example of the operation of a similar proposition is where there is an allegation of criminal (or similarly serious) conduct.  In such a situation, the civil standard of balance of probabilities remains applicable, but it would “be applied flexibly, factoring in the inherently greater improbability of serious misconduct as compared with lesser forms of misconduct, and therefore requiring the person bearing the burden of proving the allegation to prove it with evidence of a commensurate cogency” ‌—Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387, §182 (Ribeiro PJ).

44.  It seems to me to be perfectly sensible to say that it is inherently unlikely that a foreign authority vested with the function to issue a certificate under Order 11, rule 5(5) would have misunderstood its own laws.  Accordingly,I should think that “compelling evidence” is necessary to demonstrate that that is the case.  As Tang JA said in Bank of China (Hong Kong) Ltd v Cheung King Fung §34, “how much evidence is required must depend on the circumstances of the particular case.”

Issues which require determination

45.  Mr Hui made clear during the hearing that he has the following two arguments on the merits of the proposed appeal, and if I were against him on both of them, the application for leave to appeal out of time would fall to be dismissed:

(1)     First, Mr Hui invites me to conclude that the 1^st defendant’s PRC law expert (Mr Yang Youmin) is right in his view that the 3^rd Attempt did not validly effect service, essentially because there was no refusal by the 1^st defendant or any of her cohabiting adult family members on the same occasion, as they were not even in Shanghai.

(2)     Secondly, the 1^st defendant’s evidence is that she was never present at the 1^st or 2^nd Attempts (and indeed also not the 3^rd Attempt).  Hence she had never refused service, and even on the view of Mr Xu Xinjian (the plaintiff’s PRC law expert) as to the requirements of PRC law of service, there was no refusal ever by the 1^st defendant.

My conclusions

46.  There can be no doubt that it is for the 1^st defendant to satisfy me on the materials that either of these points is made out.  For the reasons explained above, I think the 1^st defendant will have to satisfy me on “compelling evidence” as to the first point.

47.  I do not think the 1^st defendant has adduced “compelling evidence” on the first point.  In any case, even if I am wrong that “compelling evidence” is required, in my judgment the 1^st defendant has come nowhere near demonstrating that Mr Yang’s view on the requirements of valid service under PRC law is right.

48.  Article 85 of the PRC Civil Procedure Law (中華人民共和國民事訴訟法) provides that:

「送達訴訟文書，應當直接送交受送達人。受送達人是公民的，本人不在交他的同住成年家屬簽收……」

49.  Article 86 of the same legislation provides that:

「受送達人或者他的同住成年家屬拒絕接受訴訟文書的，送達人可以邀請有關基層組織或者所在單位的代表到場，說明情況，在送達回証上記明拒收事由和日期，由送達人、見證人簽名或者蓋章，把訴訟文書留在受送達人的住所；也可以把訴訟文書留在受送達人的住所，並採用拍照、錄像等方式記錄送達過程，即視為送達。」

50.  Mr Yang’s short point is that neither the 1^st defendant nor any co-habiting adult family member of the 1^st defendant was present during the 3^rd Attempt, hence there was no refusal of service by them on that occasion.  Accordingly the pre-requisite of service by “drop process” under Article 86 is not satisfied.  He further says that the basic principle of service under the PRC Civil Procedure Law is that of “direct service”, ie the documents must be served directly to the person, and it appears to be his view that this supports his contention that the 1^st defendant or one of her co-habiting adult family members must be present during the 3^rd Attempt.

51.  Mr Xu, on the other hand, is of the view that there is no such requirement, and the PRC Court (whose agent effected the service) was at liberty to reach their own conclusion as to whether there had been a refusal by the recipient, and hence “drop process” under Article 86 could be effected.

52.  I am not at all persuaded that Mr Yang is correct:

(1)     There is nothing in the wording of the legislation which supports his conclusion.  Whilst a “refusal” by the person to be served (or by any co-habiting adult family member) is required to trigger Article 86, there is nothing to say that the refusal has to take place on the same occasion as the “drop process” service.

(2)     It is not at all clear to me why such a requirement should be required.  The important point is that there is a refusal.  There is no reason why the refusal has to take place on the same occasion as the “drop process”.

(3     The whole procedure of “drop process” is plainly designed to deal with situations where the person to be served is not cooperating. The additional requirement of getting witnesses from the “基層組織或者所在單位” is likely to mean that time will have to be taken to arrange for such witnesses after the refusal.  The “drop process”, therefore, is highly likely to take place on a separate occasion from the refusal or service.  To require the person to be served to refuse again when the witnesses are lined up would only provide scope for further evasion.

53.  Accordingly, I am against the 1^st defendant on Mr Hui’s first point.  I would only add that if Mr Yang is right, then the Shanghai High Court would have got its own rules of service wholly wrong, as it must have been plain that neither the 1^st defendant nor any of her cohabiting adult children was present during the 3^rd Attempt, and there was no relevant refusal of service on that occasion.

54.  On his second point, I agree with Miss Tong that the 1^st defendant has not come anywhere close to demonstrating that she was not present during the 1^st or 2^nd Attempts.

55.  As noted above, the documents of the Shanghai High Court clearly show that it was the service agent’s belief that the 1^st defendant was present during both attempts.  There is no suggestion that the service agent would deliberately state false information, or that the service agent had no basis in holding that belief.

56.  Further, as regards the 1^st Attempt, the 1^st defendant offers nothing more than a bare denial.  Even on her own case, she was residing in Vizcaya Address at that time.

57.  As regards the 2^nd Attempt, although the 1^st defendant says that she was living in different rented accommodation at that time, that does not mean it is impossible for her to be present at the Vizcaya Address (which was still her property).  Further, the service receipt stated that the person who refused service stated that there was already a judgment in the PRC Court in respect of the case.  It is unlikely that anyone other than the 1^st defendant would have that knowledge.

58.  For the above reasons, I would reject Mr Hui’s second point. 

59.  Accordingly, I dismissed the 1^st defendant’s application for leave to appeal out of time and made the order described in paragraph 29 above.