CHEUNG MAN YUEN v. CHAU WAN KAI JONAS

CAMP 254/2019

[2019] HKCA 1389

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 254 OF 2019

(ON AN INTENDED APPEAL FROM DCCJ NO 3353 OF 2018)

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J U D G M E N T

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Hon Chu JA giving the Judgment of the Court:

1.  This is the defendant’s application for leave to appeal against the order of H H Judge Leong (“the Judge”) given on 21 June 2019 dismissing his appeal against Master Simon Ho’s refusal to set aside a default judgment entered against him in the District Court.  The defendant also applied for a stay of execution of the Judge’s judgment.

2.  Having considered the documents filed by the parties and their respective submissions, we consider it is appropriate to determine the application without a hearing on the basis of written submissions only pursuant to Order 59 rule 2A(5)(a) of the Rules of the High Court, Cap. 4A. 

3.  The background leading to these applications can be briefly stated. 

DCCJ 3353/2018

4.  On 31 July 2018, the plaintiff commenced an action in the District Court (DCCJ 3353/2018) to claim against the defendant vacant possession of a property known as Flat C, 18th Floor, Block 2 (Wah Yee Court), Wah Yuen Chuen, No. 8 Wah King Hill Road, Kwai Chung, New Territories (“the Property”), rent in arrears and mesne profit.  The defendant filed a Notice of Intention to Defend but did not file any defence.  On 12 October 2018, the plaintiff entered default judgment against the defendant.

5.  On 30 January 2019, the defendant applied by summons to set aside the default judgment.  On 26 April 2019, Master Simon Ho refused the application.  At a hearing on 21 June 2019, the Judge dismissed the defendant’s appeal against the Master’s decision.  The Judge handed down the Reasons for Decision on 25 July 2019.  By a decision dated 2 October 2019, the Judge refused the defendant’s application for leave to appeal to the Court of Appeal and the application for a stay of execution of the writ of possession dated 7 January 2019. 

6.  By summons filed on 11 October 2019, the defendant renewed his application for leave to appeal in this Court. On 4 December 2019, he further issued a summons to apply for stay of execution of the writ of possession until after the determination of his application for leave to appeal.    

The undisputed background

7.  The background facts of the case are not controversial, and can be gleaned from the documents, including the land search of the Property, documents filed at the Land Registry, solicitors’ correspondence and cheques issued by the defendant in favour of the plaintiff.

8.  Put briefly, the defendant was previously the owner of the Property.  In 2016, the defendant defaulted in repaying two loans he borrowed from New Finance Limited (“NFL”).  NFL commenced proceedings in the District Court (DCCJ 1692/2016) and obtained a money judgment against the defendant.  Based on the judgment debt, NFL obtained a charging order absolute over the Property, and on 2 February 2017 obtained an order for the sale of the Property in DCMP 3091/2016.  

9.  In the two sets of proceedings brought by NFL against the defendant (DCCJ 1692/2016 and DCMP 3091/2016), Pauline Wong and Co (“PWC”) was the solicitor acting for NFL.  The plaintiff is employed by PWC as a clerk, and was involved in the conduct of DCCJ 1692/2016 and DCMP 3091/2016.

10.  By an assignment dated 4 August 2017, the defendant sold the Property to the plaintiff at the price of HK$ 4.3 million.  The plaintiff and the defendant were separately represented in the transaction; the plaintiff was represented by Liu, Chan & Lam (“LCL”), and the defendant was represented by Gallant.  Of the purchase price, $430,000 was paid by way of deposit on 28 June 2017 ($120,000) and 30 June 2017 ($310,000)[1]. At completion which took place on 4 August 2017, LCL sent to Gallant a letter of the same date enclosing 12 cheques representing the balance of the purchase price of $3.87 million.  Out of this sum, after discharging the indebtedness to NFL and Yes Choice Universal Investment Co Ltd (“Yes Choice”), the creditor in another charging order absolute, paying a premium to the HKSAR government and defraying the costs and expenses incidental to the sale, the net sum paid to the defendant was $281.12.

11.  The defendant has remained in occupation of the Property.

The dispute

12.  The plaintiff’s claim against the defendant was based on a Chinese tenancy agreement dated 4 August 2017 (“Tenancy Agreement”).  It is the plaintiff’s case that the Tenancy Agreement was signed on 14 August 2017 but backdated to commence from 4 August 2017.  Under the Tenancy Agreement, the plaintiff agreed to lease back the Property to the defendant at a monthly rent of HK$17,000 commencing from 4 August 2017 and ending on 18 February 2019, with a rent-free period between 4 and 18 August 2017.  Clause 2 of the Tenancy Agreement required the defendant to pay a deposit of $68,000 to secure his performance under the agreement. 

13.  It is also the plaintiff’s case that she and the defendant also signed a Chinese agreement dated 14 August 2017.  Under this agreement, the defendant was given the right to buy back the Property at a price of not less than HK$ 5.16 million, which was to be exercised by 4 February 2019 and on the condition, inter alia, there was no breach of the Tenancy Agreement by the defendant.

14.  According to the plaintiff, on 18 August 2017, the defendant issued a cheque in the amount of $68,000 as payment of the deposit required under the Tenancy Agreement.  The cheque was, however, dishonoured.  Subsequently between 24 October and 29 December 2017, the defendant paid to the plaintiff seven sums totalling $48,000.[2] It is the plaintiff’s case that the defendant failed to pay the balance of the deposit as well as the rent accrued under the Tenancy Agreement.

15.  On 13 February 2018, the plaintiff and the defendant signed a Chinese termination agreement (“Termination Agreement”), under which the defendant agreed to terminate the Tenancy Agreement on 17 March 2018 and to deliver to the plaintiff vacant possession of the Property.  The Termination Agreement also provided that the agreement would not take effect if on or before 28 February 2018, the defendant paid to the plaintiff not less than $85,000 of the amount owing from him.   

16.  It is the plaintiff’s case that the defendant had not made any payment by 28 February 2018, and further did not deliver up vacant possession of the Property.  In the premises, the plaintiff commenced DCCJ 3353/2018 to recover possession of the Property and the rent and mesne profit owing from the defendant.

17.  The defendant’s case in respect of the sale of the Property is that the plaintiff conspired with an agent of NFL to obtain the Property at an undervalue by practising fraud and harassment on him.  He also complained that in purchasing the Property, the plaintiff acted under conflict of interest.  The defendant further claimed that the plaintiff did not complete the formal sale and purchase agreement dated 22 June 2017 and the assignment dated 4 August 2017. 

18.  With regard to the purchase price, the defendant claimed that he was all along unclear about the exact amount he owed to the financial institutes, and at the completion of the sale, the plaintiff failed to give him a list of his indebtedness despite his requests.  He also alleged that $430,000 of the purchase price was missing and this amount was owing from the plaintiff to him.

19.  So far as the Tenancy Agreement and the Termination Agreement are concerned, the defendant denied having signed them.  He claimed he was asked by the plaintiff to sign on pieces of blank paper and because he trusted the plaintiff he simply did as told.  He also said he had never seen the two documents.

The Judge’s decision

20.  The Judge considered the defendant’s case to be unconvincing and incredible.  On the defendant’s assertion that he had no idea of the exact amount he owed to the financial institutes, and the basis on which the balance of the purchase price was split, the Judge pointed out that the defendant was legally represented in the sale of the Property throughout and could have through his solicitors found out the amount of his indebtedness. Alternatively, he could have refused to sign the Assignment or reported to the relevant authorities if he had doubts over the loans he owed, or had suspicion of fraud or criminal activities.  The Judge also observed that if the defendant suspected improper handling of the purchase price, his recourse was against his lawyers and not the plaintiff. 

21.  On the allegation that $430,000 of the purchase price was missing and was due from the plaintiff, the Judge referred to two letters dated 3 July and 4 August 2017 from LCL to Gallant regarding the payment of the deposit and how the balance of the purchase price was to be split into cheques for payment to various parties. The Judge also observed that the defendant had given no particulars to justify the allegation that $430,000 was missing.

22.  With regard to the defendant’s challenge on the authenticity of the Tenancy Agreement and Termination Agreement and his claim that he was asked by the plaintiff to sign on blank papers, the Judge found this to be highly improbable.  It was pointed out that if the defendant’s claim was true, and in order that the defendant’s signatures would fit into the layout of the documents, the plaintiff would have to ask the defendant to initial on the corners of the some of the blank papers while signing his full signatures in the middle of other blank papers.  The Judge also considered it was inherently improbable that the defendant would have complied with such a request from the plaintiff in the first place.  The Judge further regarded it illogical that the defendant could remain in occupation of the Property for two years after the assignment and issue a cheque for $68,000 to the plaintiff, if the parties did not enter into the Tenancy Agreement.

23.  The Judge concluded that the defence had no real prospect of success, and dismissed the appeal.

24.  In the application for leave to appeal made to the Judge, the defendant put forward two proposed grounds of appeal, namely (1) the Judge did not read the defendant’s documents and submissions properly, and (ii) the Judge only accepted and relied on the documents provided by the plaintiff’s solicitors and did not accept the documents and submissions of the defendant.   

25.  The Judge rejected the two proposed grounds of appeal as being not reasonably arguable.  On the first ground, the Judge considered it was a bare assertion with no particulars as to which evidence or argument that he had not properly read.  On the second ground, the Judge was of the view that it merely reflected the defendant’s disagreement with the decision, and displayed a lack of understanding of the adversarial legal system in that the court’s rejection of a party’s evidence or submission per se could not be a ground of appeal.

Relevant legal principles

26.  Under section 63A of the District Court Ordinance, Cap 336, leave to appeal shall not be granted unless the Court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interest of justice that the appeal should be heard.  The defendant bears the burden of satisfying this Court that his appeal has a reasonable prospect of success which means an appeal with prospects that are more than fanciful but which do not need to be shown to be probable: SMSE v KL [2009] 4 HKLRD 125 at §17.

27.  In respect of an application to set aside a default judgment that was entered regularly, it is incumbent upon the defendant to show that he has a real prospect of success, and that his case and the evidence adduced in support of it is potentially credible and carries some degree of conviction: Hong Kong Civil Procedure 2019, Vol 1 at §§ 13/9/13 to 14. In the present case, there is no suggestion that the default judgment was irregular.[3]   

Intended grounds of appeal

28.  The defendant advanced two grounds of appeal in his summons and the enclosed draft grounds of appeal (“Proposed Grounds of Appeal”):

(1)  The Judge overlooked and failed to investigate the fact that the plaintiff, being an employee of a solicitors’ firm, conspired with the agent of the finance company to induce the defendant to sell the Property at a price below the market price.

(2)  As the defendant was not legally represented, the Judge just relied on the document bundle of the plaintiff’s lawyer.

29.  In the written statement in support of the application (“Written Statement”), the defendant raised an additional query as to the propriety of the Judge hearing the application for leave to appeal. 

30.  On 6 November 2019, the defendant lodged a document entitled grounds of appeal (“Supplemental Proposed Grounds of Appeal”) without leave of the court.  In it, the defendant raised a number of complaints against Master Simon Ho’s decision, which is of no relevance in this application.  This is because the appeal to the Judge was a rehearing, and in the present application, our focus is on the Judge’s decision and reasons.  As to the Judge’s decision, other than repeating the grounds already contained in the draft grounds of appeal and the written statement, the Supplemental Proposed Grounds of Appeal contained the following additional grounds:

(1)  The plaintiff told the defendant not to pay the first repayment instalment to Yes Choice so that PWC could on behalf of Yes Choice commenced proceedings to put a lien on the Property. The plaintiff further told the defendant it was not necessary to attend the hearing of summonses taken out by PWC as they were mere formalities.

(2)  The Judge refused the defendant’s request to summons Pauline Wong to testify in court.

(3)  The repayments to NFL and Yes Choice as well as the costs and expenses of LCL were all paid for and dealt with by the plaintiff.  Gallant was merely a messenger in the transaction.  Only a sum of $281 odd was paid to the defendant.  Despite repeated demands, the plaintiff did not provide a breakdown of the amount paid.

(4)  The Judge failed to consider that the plaintiff only registered the Tenancy Agreement on 18 September 2018, which was shortly before the commencement of the proceedings below.

(5)  The Judge was wrong to put the responsibility of checking the amounts at completion on Gallant, and to exonerate the plaintiff and LCL from their liabilities.     

Our decision 

31.  Ground (1) of the Proposed Grounds of Appeal –

31.1  The Judge was clearly aware of the defendant’s case and complaints associated with the plaintiff’s status as an employee of PWC.  The Judge had dealt with the defence and the complaints in §§10 to 20 of the Reasons for Decision.  There is no proper basis for this Court to interfere with the Judge’s conclusion that the defendant’s allegations are incredible and inherently improbable.

31.2  We would further point out that in applying to set aside the default judgment, the burden is on the defendant to provide particulars and cogent evidence to support his defence that the plaintiff conspired with the agent of NFL (and/or Yes Choice) to purchase the Property at an undervalue.  The defendant has, however, failed to do so.  There is, for instance, no objective evidence to support the defendant’s claim that the purchase price of $4.3 million consideration was 30% less than the market price, having regard to the circumstances under which the Property was to be sold.  On the complaint of conflict of interest, we note that it is the plaintiff’s evidence that she had informed and obtained consent from NFL to her purchase of the Property.[4]  

31.3  This ground is therefore unarguable.

32.  Ground (2) of the Proposed Grounds of Appeal –

32.1  There is no substance in this ground.  It is not uncommon for a party who is legally represented to compile a hearing bundle to assist the court where the other party is not legally represented.  The defendant has not pointed to any errors in the hearing bundle compiled by the plaintiff’s solicitors for the hearing before the Judge.  Nor is it the defendant’s case the hearing bundle had omitted documents filed for the application or appeal or had included documents that were not filed in the court.   

33.  Written statement –

33.1  In respect of the query raised in the written statement and repeated in the Supplemental Proposed Grounds of Appeal, namely, the propriety of the Judge hearing the application for leave to appeal, this can be disposed of shortly. Under Order 58 rule 2(5) of the Rules of the District Court, Cap. 336H, an application for leave to appeal shall be made to the judge against whose order or decision the appeal is sought.  It is entirely proper for the application for leave to appeal to be heard by the Judge.

34.  Supplemental Proposed Grounds of Appeal –

34.1  This set of proposed grounds of appeal was filed without leave of this Court.  It raised a number of grounds that were not canvassed in the application for leave to appeal before the Judge.  Practice Direction 4.1 on Civil Appeals to the Court of Appeal at §11 requires an applicant to explain why the grounds were not argued in the Court below and why they should now be entertained by the Court.  The applicant has offered no explanation at all when putting forward these new grounds of appeal. For this reason alone, we would be justified in disregarding the new grounds contained in the Supplemental Proposed Grounds of Appeal.

34.2  That aside, none of the additional proposed grounds of appeal has merit. 

34.3  First, the defendant’s dealings with Yes Choice has no relevance to the intended appeal, which turns on the Tenancy Agreement and, to a lesser extent, the Termination Agreement. 

34.4  Second, the Judge (as well as the Master) was correct as a matter of procedure not to accede to the defendant’s request to call oral evidence from Pauline Wong.  The Judge was not conducting a trial of the action, but was only hearing afresh the defendant’s application to set aside the default judgment.  If the defendant had wished to adduce evidence from Ms Wong, the proper course was for him to ask her to make an affidavit and file it in court.

34.5  Third, the defendant had a copy of the letter dated 4 August 2017 from LCL to Gallant, which set out how the balance of the purchase price ($3.87 million) was split into 12 cheques and paid to his creditors (NFL and Yes Choice), the government, two firm of solicitors and himself.  The defendant’s reiteration that he was not given a breakdown of the sums is both untenable and irrelevant as a defence to the plaintiff’s claim.

34.6  Fourth, it is wrong for the defendant to suggest that Gallant was only a messenger in the sale transaction.  On the contrary, Gallant was the defendant’s legal representative in the sale of the Property to the plaintiff.  The Judge did not err in his comment that if the defendant considered there was irregularities in the sale, his recourse would be against Gallant.

34.7  Fifth, the fact that the Tenancy Agreement was registered late and close to the commencement of the proceedings below does not serve to advance the defendant’s case.  Still less would it afford the defendant a defence to the plaintiff’s claim.  The Judge had found the defendant’s case that he did not sign the Tenancy Agreement and he only signed several blank papers to be inherently improbable.  We had looked at the copy of the Tenancy Agreement exhibited to the plaintiff’s affirmation.  The Tenancy Agreement is not a pro forma document; the parties’ signatures appear at the right bottom of the first three pages, and at the space for signature on the last page.  The defendant’s signature fits nicely into the space for the tenant’s signature on the last page.  We agree with the Judge’s view that the defendant’s allegation that he did not sign on the Tenancy Agreement, but had only signed on blank papers provided by the plaintiff was untenable.

35.  For the reasons stated above, the defendant’s intended appeal has no prospect of success. There is also no other reason justifying a hearing of the appeal.  The application for leave to appeal should be refused.

36.  It follows from our refusal to give leave to appeal that the application to stay the execution of the Writ of Possession dated 7 January 2019 should also be dismissed.

37.  We see no reason to depart from the usual order of costs follow event, and would order the defendant to pay the plaintiff the costs of both applications.  We have considered the statement of costs for summary assessment lodged by the plaintiff.  Taking a broad brush approach, we would summarily assess the plaintiff’s costs of the two applications at HK$ 13,000.   

Disposition

38.  Accordingly, we order that:

(1)  The defendant’s summons dated 11 October 2019 is dismissed.

(2)  The defendant’s summons dated 4 December 2019 is dismissed.

(3)  The defendant pays the plaintiff the costs of the two summonses, summarily assessed at $13,000.

39.  As the defendant’s applications are wholly unmeritorious, we further make an order pursuant to Order 59 rule 2A (8) of the Rules of the High Court, Cap 4A, that no party may under rule 2A(7) request the determination of this Court to be reconsidered at an oral hearing inter partes.