LIU CHONG HING BANK LTD v. UNION WORLD (HK) LTD AND OTHERS

HCMP 6173/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6173 OF 2001

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J U D G M E N T

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1. This is an appeal by the Appellant Chiang King Wai (whom I shall refer to as the 6th Defendant) against an order of Master Lung dated 3 July 2003 in which he dismissed the 6th Defendant's summons filed on 3 May 2003 for leave to set aside his order of 27 May 2002.

2. The order of Master Lung dated 27 May 2002 which the 6th Defendant sought to set aside was an order in a mortgagee action taken out by the Plaintiff, Liu Chong Hing Bank Limited, (the Respondent to this appeal whom I shall refer to as the Plaintiff) by originating summons under O. 88 the Rules of the High Court. The Bank's claim against the 6th Defendant was under a continuing guarantee of the liabilities to the Bank under facilities granted to the 4th Defendant. The facilities were also secured by the mortgage of 3 properties owned by the 1st Defendant, the 2nd Defendant and the 3rd Defendant. The continuing guarantee was purportedly signed by the 6th Defendant and dated 16 February 1996.

3. By his order of 27 May 2002, Master Lung gave judgment against all the Defendants, including the 6th Defendant, in the sum of HK$2,370,266.37 and interest and costs.

4. Underneath what appears to be the 6th Defendant signature on the continuing guarantee of 16 February 1996, his address was given as Flat A3, 24th Floor, Hong Keung Building, 32-34 Hong Keung Street, Sun Po Kong, Kowloon ("Hong Keung Building"). The 6th Defendant was the majority shareholder of both the 3rd and the 4th Defendants and in the most up to date annual returns of those companies prior to the issue of proceedings, the same address was given against his name.

5. It was to that address that letters of demand dated 18 October 2001 was sent to the 6th Defendant prior to the issuing of the originating summons on 23 November 2001. In compliance with O. 10 r. (1)(2)(b), the originating summons itself was served in so far as the 6th Defendant was concerned by insertion in a sealed envelope into the letter box of that address. The solicitors' clerk who affected service deposed that this was the last known address for service of the 6th Defendant and that in the opinion of the Plaintiff, the sealed copy of the originating summons would have come to the knowledge of the 6th Defendant within 7 days thereafter.

6. Affirmations in support of the originating summons and notices of hearing was sent to the 6th Defendant in sealed envelope by ordinary post at the same address.

7. In common with the other Defendants, the 6th Defendant failed to attend court on 27 May 2002 and judgment was given against him.

8. The Plaintiff's accountant Szeto Wai Han has affirmed that on or about 27 November 2002 with a view to enforcing the judgment against the 6th Defendant the Plaintiff discovered that the 6th Defendant was one of the registered owners of Flat 1, 13th Floor, Dragon View House, Nos. 6-16 Hoi Tai Street and Nos. 7-9 Hoi Kwong Street ("Dragon View House"). A solicitors' letter dated 28 November 2002 was sent to the 6th Defendant by recorded delivery at that address. The letter referred to the order of Master Lung and demanded that the 6th Defendant pay the sum due. No reply was received to that letter.

9. On or above 11 March 2003, the Plaintiff received a note in Chinese by fax purportedly from the 6th Defendant complaining about the conduct of the debt collecting agency seeking to recover the debt. The same note asked the Plaintiff to send the 6th Defendant a copy of the guarantee documents.

10. On 9 April 2003, the Plaintiff served a "charging order notice to show cause" dated 4 April 2003 in respect to the 6th Defendant's interest in Dragon View House by ordinary post to the 6th Defendant at Dragon View House.

11. It was only following the service of that document that solicitors filed a notice to act on behalf of the 6th Defendant on 29 April 2003 and took out the summons to set aside the judgment of 27 May 2002 and discharge the charging order nisi.

12. The affirmations filed by the 6th Defendant seek to set aside the order of Master Lung of 27 May 2002 but makes no reference to what, if any, defence the 6th Defendant may have to the Plaintiff's claim.

13. Essentially, the 6th Defendant claims that he had no knowledge of any legal proceedings prior to receipt of the "charging order: notice to show cause" in about Mid April 2003.

14. He claims that he had never resided at the Hong Keung Building address, which had been owned by the 5th Defendant up until 7 March 2000. He claims that he had been an employee of the 5th Defendant up until April 1996. The 5th Defendant had simply asked him to act as a nominee director and shareholder in some companies set up by him for property investment and had given him the necessary papers to sign. The 5th Defendant had never told him nor had he noticed that his correspondence address had been stated in the guarantee or in the company documents to be Hong Keung Building. He had no idea of the affairs of the company and the 5th Defendant had never drawn his attention to letters or documents addressed to him or the companies concerned.

15. He claimed that he had all along resided at the Dragon View House address and that the Plaintiff was aware of that fact since he had held a security account with the Plaintiff using that address since July 1997.

16. While he accepted that he had received the Plaintiff solicitors' letter of 28 November 2002 he claimed that he did not fully understand the contents. He had telephoned the Plaintiff's solicitors and had been told that it related to a letter of guarantee given by him in favour of the Plaintiff.

17. In so far as the fax of 11 March 2003 to the Plaintiff purporting to be from him to the Plaintiff complaining of the conduct of the debt collecting agency is concerned, he claimed that the letter was sent by the 5th Defendant after he had reported the conduct of the debt collectors to the 5th Defendant. He said that he had asked the 5th Defendant why the debt collectors had approached him and the 5th Defendant had simply promised to do something to solve the problem.

18. Even taking the affirmations of the 6th Defendant at their face value, there is little that can be said in favour of the 6th Defendant's conduct in relation to this matter.

19. He signed company documents which he had been told would make him a nominee director and shareholder and yet paid no attention to the address which was given as his correspondence address. Similarly, he had not noticed that an incorrect address, the Hong Keung Building address, was given as his address just below his signature on the guarantee signed by him. On receiving the letter of 28 November 2002 from the Plaintiff's solicitors and being told that it related to a guarantee signed by him to the Plaintiff, he had apparently made no further enquiry about the matter. When he approached by debt collecting agency, he had (rather surprising in view of the solicitors' letter of 28 November 2002) asked the 5th Defendant why the debt collectors had approached him. He does not say whether the 5th Defendant answered this question directly but simply said that the 5th Defendant had promised to do something to solve the problem.

20. Bearing in mind his admitted conduct one can have little sympathy for the position the 6th Defendant now finds himself in.

21. The ultimate question for this court is whether the 6th Defendant is entitled to have the judgment set aside "ex debito justitiae" (as of right) without disclosing what, if any, his defence is to these proceedings.

22. The parties are in essential agreement as to what the position would be if these proceedings had been begun by writ and judgment had been entered under O. 13 in default of notice of intention to defend. Under Hong Kong Law, in contrast to the English position, an irregular judgment should be set aside without regard to the merits of the proposed defence (Po Kwong Marble Factory v Wah Yee Decoration Co. Ltd [1996] 4 HKC 157).

23. It is also accepted that in order for a default judgment to be regular, there does not merely need to be service in accordance with the rules (e.g. as the Plaintiff alleges in this case in accordance with O. 10 r. 1(2)(b) by insertion of the originating process through the letter box in a sealed envelope at the Defendant's last known address) but the proceedings must also be brought to the notice of a Defendant so as to give him an opportunity to defend the proceedings (see e.g. Deputy Judge Carlye Chu, as she then was, in Kwan Kam Wah v Chan Wai Ming [2000] 2 HKC 378 at 384, 385 and Deputy Judge Jeremy Poon in Cosec Nominee v Lau Hon Ming Alan [2001] 3 HKC 290 at 296).

24. If these proceedings had been begun by writ and judgment had been entered under O. 13, I would in my view have been bound at this stage to find, taking the 6th Defendant's affirmation at its face value, that the judgment was irregular. Although I would have been satisfied that the Hong Keung Building address was the 6th Defendant's "last known address" in so far as the Plaintiffs were concerned so as to satisfy O. 10 r. 1(2)(b) (despite the fact that the Plaintiffs might have been able upon enquiry to discover the Dragon View Building address), I could not to be satisfied that the proceedings were brought to the attention of the 6th Defendant within sufficient time for him to enter a defence. While there are undoubtedly circumstances that might give rise to suspicion I cannot say that there is sufficient material to cast such doubt on the 6th Defendant's assertion that he did not know of the proceedings before judgment was entered to enable me to disbelieve him.

25. Is the position different because these proceedings were by way of the originating summons under O. 88? Perhaps surprisingly counsel have been unable to find any authority on this point. The originating summons procedure does not have the equivalent of the procedure in O. 13 (judgment in default of notice of intention to defend). Furthermore, O. 28 r. 4 requires the court in each case to consider affidavit evidence filed by the Plaintiff in order to determine whether the liability of the Defendant is established. I am not persuaded, however, that these factors are sufficient to distinguish the proceedings commenced by originating summons from those commenced by writ. Even though the court may have considered the affidavit evidence filed by the Plaintiff, the Defendant still has been afforded no opportunity to respond if he is unaware of the proceedings. The Defendant's affidavit in reply may cast the matter in a wholly different light. I am satisfied for the purpose of these proceedings, that the principles regarding the setting aside of judgment where there has been judgment under O. 28 r. 4 are the same as if the proceedings had been begun by writ and judgment had been entered under O. 13.

26. I have already stated that I would be bound on the evidence now before me to set the judgment aside as being irregular.

27. However, as in the case of an irregular judgment obtained in proceedings begun by writ, the court always has a residual discretion having regard to the conduct to the Defendant to impose terms upon the setting aside of the judgment which accords with the justice of the case (see Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd).

28. The irresponsible conduct of the 6th Defendant in this case upon which I have already commented leaves me in no doubt that I should impose on the 6th Defendant as a condition of giving him the order he seeks, a condition that he pay into court the balance alleged by the Plaintiff to be outstanding, namely $1,766,520.44 plus interest thereon up until the date of payment in and the sum of $32,500 assessed by Master Lung in respect of the Plaintiff's costs.

29. I therefore make the following order:

(1) Conditional upon the 6th Defendant paying into court on or before 4 p.m. on 30 September 2003:

(i) $1,766,520.44;

(ii) a sum representing interest on the sum of $286,024.14 at $87 per day from 7 May 2002 to the date of payment in;

(iii) a sum representing interest on $2,084,242.23 at $519.63 per day from 7 May 2002 until the date of payment in; and

(iv) the sum of $32,500 assessed by Master Lung in respect to the Plaintiff's costs;

or giving the Plaintiff security for such sums:

(a) the order of Master Lung on 27 May 2002 as amended in so far as it relates to the 6th Defendant and any execution thereon be set aside;

(b) the charging order: Notice to Show Cause dated 4 April 2003 be discharged; and

(c) the 6th Defendant shall have leave to defend these proceedings by giving notice of intention to defend within 7 days of the said payment in.

The 6th Defendant do have liberty to apply in relation to his ability to meet the conditions.

30. I make the following order nisi as to costs that unless either party applies to be heard on the question of costs within 14 days the costs of the 6th Defendant's summons of 3 May 2003 and this appeal be costs in the cause.

31. I would observe that should the 6th Defendant decide to apply for variation of the conditions I have set upon the setting aside of the judgment of Master Lung of 27 May 2002 on the ground that such conditions would preclude him from defending the Plaintiff's action, I would expect the 6th Defendant not only to make a full and frank affirmation of his assets but also state the nature of his defence.