LEUNG CHUN WAH NICHOLAS v. CHIN SHIN DIAN AND OTHERS

DCCJ 3986/2025

[2026] HKDC 1816

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3986 OF 2025

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DECISION

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A.  INTRODUCTION

1.  By Summons issued on 28 April 2026 (“the Setting Aside Summons”), Mr Mok Kim Wan, the 2^nd named Defendant (“D2”) applies for an order that the Interlocutory Judgment on liability be entered against the Defendants in default of Defence on 2 April 2026 be set aside. D2 further seeks consequential leave to file and serve their Defence and Counterclaim.[1]

2.  The action concerns a domestic water seepage dispute between two vertically adjoining residential flats situated at Village Gardens Phase C, Kowloon. The Plaintiff is the registered owner of Flat B on the 1^st Floor of Block B13, No 28 Fa Po Street (“the Plaintiff’s Premises”). The Defendants are the joint registered owners of Flat B on the 2^nd Floor of the same block, located immediately above the Plaintiff’s Premises (“the Defendants’ Premises”).

3.  The Plaintiff claims that water has continuously seeped from the Defendants’ Premises into the Plaintiff’s Premises, causing damage to the ceilings, walls, and fixtures of his master bathroom, guest bathroom, and master bedroom. The Plaintiff sues the Defendants for, inter alia, breach of the Deed of Mutual Covenant (“DMC”), breach of section 34H of the Building Management Ordinance (Cap 344) (“BMO”), nuisance, and negligence, seeking injunctive relief as well as damages.

4.  Following the Defendants’ failure to file an Acknowledgement of Service, the Plaintiff obtained an Interlocutory Judgment on liability from this Court on 2 April 2026 (“the Default Judgment”). By the present application, D2 seeks to set aside the Default Judgment.

5.  At the hearing before me on 2 July 2026, the Plaintiff was represented by Mr Andrew Wong of Messrs Huen & Partners. D2 appeared in person on behalf of himself and the 1^st and 3^rd Defendants. For the avoidance of doubt, D2 confirmed that this application applies to all Defendants, a course to which Mr Wong for the Plaintiff raised no objection, as it is trite that the court’s discretion under the rules may be exercised even on the application of third parties. Following the conclusion of oral submissions, I reserved my decision.

6.  On 3 July 2026, Messrs Huen & Partners for the Plaintiff submitted a letter containing supplemental written submissions. On 8 July 2026, the Defendants filed a further affirmation, likewise without leave. Neither party took out an application in accordance with Order 32, rule 1 of the Rules of the District Court (Cap 336H) (“RDC”) for leave to adduce these post-hearing materials. I therefore disallow and exclude both post-hearing materials. I now hand down my decision.

B.  BACKGROUND AND PROCEDURAL HISTORY

7.  According to the Plaintiff’s Statement of Claim, water seepage affecting the Plaintiff’s Premises first occurred in or about June 2005. Following the Plaintiff's complaints, the Defendants carried out certain repair works within their unit, which temporarily abated the problem. However, the Plaintiff pleads that water seepage incidents recurred in November 2014, March 2015, January 2016, and January 2021. On those occasions, the Plaintiff incurred expenses in reinstating damaged ceiling plaster and wall tiles in his master and guest bathrooms (which were not claimed against the Defendants at the material time).

8.  In early November 2023, the Plaintiff reported a recurrence of water leakage originating from the ceiling of his master bathroom. Inspections conducted by the estate management office between late 2023 and early 2025 consistently recorded elevated Wood Moisture Equivalent Index (“WME”) levels, well exceeding the standard threshold indicative of water seepage across the ceilings of both the master bathroom and the master bedroom.

9.  In April 2025, the Plaintiff instructed Mr Jacob Tsang (“Mr Tsang”), building surveyor of Smart Joy Surveying Consultants Limited, to conduct an assessment. On 24 April 2025, Mr Tsang inspected the Plaintiff’s Premises and collected water droplets leaking from the false ceiling of the master bathroom. Field testing yielded a positive result for ammonia content, indicating the presence of foul water, while chloride testing returned a negative result. Mr Tsang issued an expert report dated 2 June 2025 concluding that a defective floor waterproofing system in the Defendants’ master bathroom was the primary source of the seepage. He further estimated the reasonable cost of reinstatement for the Plaintiff’s Premises to be HK$85,040.[2]

10.  Separately, the Joint Office of the Buildings Department and the Food and Environmental Hygiene Department (“the Joint Office”) conducted its investigations. Following colour water drainage tests in April 2024, the Joint Office instructed an independent consultant firm, IPS Consultants Limited (“IPS”), to carry out investigations. On 23 July 2024, IPS conducted testing inside the Defendants’ Premises, including colour water ponding tests over the floor slabs and shower compartments of both the master and guest bathrooms, alongside wall spraying tests.[3] By letters issued to the parties on 27 June 2024 and 27 September 2024[4], the Joint Office informed the Defendants that no colour dye appeared at the Plaintiff’s Premises and that testing did not confirm the Defendants’ Premises as the source of the seepage.

11.  On 17 July 2025, the Plaintiff commenced the present action seeking mandatory injunction compelling the Defendants to carry out remedial works, special damages for repair costs and short-term accommodation expenses, general damages and costs. On 25 September 2025, the Plaintiff effected service of the Writ of Summons by inserting a sealed copy enclosed in an envelope through the letterbox of the Defendants’ Premises pursuant to Order 10, rule 1(2)(b) of the RDC.

12.  The Defendants did not file an Acknowledgment of Service or serve a Defence within the prescribed period. On 14 October 2025, the Plaintiff served a Notice of Intention to Enter Judgment by ordinary post. On 27 October 2025, the Plaintiff took out Summons under RDC Order 19, rule 7 seeking the default judgment for damages and a mandatory injunction.

13.  The Plaintiff’s application for default judgment came before me on 5 January 2026. The Defendants were absent. In the judgment handed down on 2 April 2026 ([2026] HKDC 597), I granted interlocutory judgment on liability in favour of the Plaintiff with damages to be assessed, but refused the application for a mandatory injunction.

14.  On 28 April 2026, D2 filed the present Setting Aside Summons with supporting affirmation of even date, seeking to set aside the Default Judgment.

C.  APPLICABLE LEGAL PRINCIPLES

15.  The power of the Court to set aside a default judgment is trite. Both Order 13, rule 9 and Order 19, rule 9 of the RDC empower the Court to set aside or vary a default judgment on such terms as it thinks just. In exercising this power, the Court distinguishes between a judgment that has been obtained irregularly and one that has been entered regularly.

16.  Where a default judgment is entered irregularly, the defendant is entitled ex debito justitiae to have the judgment set aside as of right, without the Court inquiring into the merits of the proposed defence, although the Court retains a residual discretion to decline to set it aside or to impose terms when setting it aside: Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 at 162B-D; Brantner Transports Slovakia, SRO v Kyomura Electronics (HK) Limited [2025] HKCFI 2301 per H Au-Yeung J at §18(1).

17.  On the other hand, where a judgment in default has been regularly obtained in accordance with the rules, the power to set aside is discretionary: Young Bing Ching (deceased) v Chow Yung Fong & Anor. [2001] 2 HKLRD 394, per Recorder Ma SC (as he then was) at 398H-J, 402D-404H. The burden is on the defendant to show that he has a defence on the merits with a real prospect of success or that it carries some degree of conviction. If he fails to discharge that burden, there is no point in the action continuing, and the court will not set aside the judgment. The court is duty bound to take into account all relevant considerations in exercising its statutory discretion: Wan How Wan v Wan Hoi Wei, HCA 578/2006 (Unrep, 18 February 2011) per A. Cheung J (as he then was) at §9; Young Bing Ching (supra) at 402-404. Exceptionally, even if the defendant demonstrates a defence with a real prospect of success, the court might still exercise its discretion not to set aside the judgment: Chong Pui Cheong v Chong Pui Kwong [2022] HKCFI 3110, per Cheng J at §19.

18.  In order to demonstrate a real prospect of success, the defendant would need to show a defence that is not merely arguable justifying leave to defend under an application for summary judgment, but one with a real prospect of success. Bare assertions are not sufficient: Dawn Jade Ltd & Anor v Himanshu Girdhar Dua CACV 4/2014 (Unrep 13 January 2015) per Kwan JA (as she then was) at §24. This standard requires the Court to form some provisional views of the probable outcome of the action. Where the outcome depends on whose evidence is likely to be accepted, the appropriate test for determining whether the defendant has a real prospect of success is to ask whether the defence “could well be established” at trial or whether the defence witnesses could well be believed at trial: Southwest Securities (HK) Brokerage Limited v Liu Su Heng & Anor [2021] HKCFI 863 per DHCJ To at §10, applied in Chong Pui Cheong (supra) at §21.

19.  With regard to the power of the Court to impose terms when setting aside a regular default judgment, the principles established in L & M Specialist Construction Ltd v Wo Hing Construction Co Ltd [2000] 3 HKLRD 262 are instructive. As Ribeiro JA (as he then was) observed at 269D-I, where a defendant has demonstrated a reasonably arguable defence with a real prospect of success, leave to defend should generally be granted unconditionally. A payment into court as a condition for setting aside a regular default judgment is rare and requires “something specific in the defendant’s conduct or in the case which justifies the imposition of a condition”. Where the defendant had offered a global explanation against the plaintiff’s claim, which should go to trial, and the defence is not considered shadowy, judgment should be set aside unconditionally: Hong Kong Civil Procedure 2026 at §13/9/5.

D.  ANALYSIS AND FINDINGS

D1.  Regularity of the Default Judgment

20.  Before considering the merits of the Defendants’ proposed defence, it is necessary to determine whether the Default Judgment entered on 2 April 2026 was regularly or irregularly obtained.

21.  In the Default Judgment [2026] HKDC 597 at §§11-13, I have already considered the affidavit evidence regarding service of the proceedings, which confirms, inter alia, that (1) the Writ of Summons was served by insertion through the letter box pursuant to Order 10, rule 1(2)(b) RDC; (2) the Notice under Order 19, rule 8A RDC was served by ordinary post in accordance with Order 65, rule 5(1)(b) RDC; and (3) the Summons and Plaintiff’s affidavit were served by leaving them at the Defendants’ address. The evidence before the court establishes that service was properly effected.

22.  By contrast, the Defendants barely asserted that they did not receive any of these documents.

23.  Where service of these court documents has complied with the rules, a defendant who claims he has not received the writ must provide convincing evidence. The burden of proof is on the defendant to show that the proceedings were not brought to his notice: Hong Kong Civil Procedure 2026 at §10/1/23. Bare assertion that the Defendants’ did not receive them does not have the effect of rendering the Default Judgment irregular, see: China Citic Bank International Limited v China Will Enterprise Limited [2024] HKCFI 1859 per DHCJ Jonathan Wong at §§3.4-3.9. citing Chan Kam Wai and Chan Kam Cheung (in their personal capacities and as administrators of the estate of Lo Fung Kau, deceased) v Chan Kam Man [2023] HKCA 940 at §17.

24.  Having considered the above, I accept the Plaintiff’s submissions that the Default Judgment was obtained regularly.

25.  As the Default Judgment is regular, the Defendants must show a real prospect of success, meaning a defence that could well be established at trial.

D2.  Merits of the Proposed Defence

26.  Turning to the primary and dominant consideration, I must evaluate whether the Defendants have demonstrated a defence on the merits that has a real prospect of success, carrying a degree of conviction.

27.  The Plaintiff’s claim is founded on the assertion that water leaking into his master bathroom, guest bathroom, and master bedroom originates from defective floor waterproofing in the Defendants’ master bathroom, relying on Mr Tsang’s expert report dated 2 June 2025.

28.  However, the material placed before me demonstrates that the Defendants raise genuine triable issues of fact.

28.1  Contrary to Mr Tsang’s expert report, the report prepared by IPS could not confirm the Defendants’ Premises as the source of the water seepage.[5]

28.2  By letters dated 27 June 2024, 27 September 2024, and 30 April 2025[6], the Joint Office also confirmed that it could not identify the cause of the seepage or attribute it to the Defendants’ Premises. While Mr Wong highlighted that the WME readings on the Plaintiff’s ceiling increased after the ponding test, the indisputable fact remains that no colour dye traversed the floor slab. This directly casts doubt over the actual source of the water seepage into the Plaintiff’s Premises.

28.3  At paragraph 6.3 of Mr Tsang’s expert report[7], although he stated that the cause is minor, he acknowledged that “there may be leakage from the rusty common foul water drainage pipe within the common pipe duct”. Given the Common Pipe Duct’s proximity to the water seepage, the possibility of leakage originating from the building’s common parts ought to be sorted out.

29.  Further, I note the Defendants’ complaint that they could not engage expert to conduct independent physical inspection or tests at the Plaintiff's Premises to prepare a comprehensive report before the Hearing because the Plaintiff refused their request to enter the Plaintiff’s Premises to perform joint inspection. Such inability to conduct inspection further highlights the necessity of a trial where directions for joint inspection or appointment of single joint expert may be given.

30.  Having considered the available evidence, I am satisfied that the Defendants have shown meritorious defence and that their defence could well be established at trial: Southwest Securities (HK) Brokerage Limited (supra). In fact, at the Hearing, the Plaintiff has reasonably agreed to set aside the Default Judgment on terms (albeit subject to the condition that the Defendants shall pay costs of the Setting Aside Summons).

D3.  Other Considerations

31.  In explaining the reason for default, the Defendants claim to have not fully understood the legal process and mistakenly assumed that the Joint Office had explained the inconclusive results of the IPS Report to the Plaintiff, and that the Court, in considering the Plaintiff’s application for default judgment, would automatically take those findings into account. Upon receiving the Default Judgment in April 2026, the Defendants promptly sought legal advice and then filed the Setting Aside Summons within 28 days of the Default Judgment.

32.  Whilst misunderstanding the legal process is no excuse for default, D2’s prompt engagement in legal actions following the Judgment demonstrates that the Defendants are attempting to resolve this matter in good faith. I accept considerations of the Defendants’ conduct as triggering the exercise of discretion in favour of the Defendants to set aside the Default Judgment.

D4.  Setting Aside on Terms and Consequential Leave to Defend

33.  The remaining issue for determination on the Setting Aside Summons is whether the Default Judgment should be set aside unconditionally or on terms.

34.  While the general rule as enunciated in L & M Specialist Construction Ltd (supra) states that a regular default judgment should generally be set aside unconditionally where a defence carries a real prospect of success and is not shadowy, the Court retains a broad discretion under the rules to impose terms where circumstances justify doing so.

35.  Having weighed all the relevant circumstances, I am satisfied that this is a proper case to exercise my discretion to set aside the Default Judgment on the condition that the Defendants shall make payment into court as security. Here, the water seepage issue affecting the Plaintiff’s Premises has been dragging on for a substantial period since late 2023, causing ongoing distress and discomfort. The Plaintiff has incurred substantial expenses on the water seepage problem. It is equitable that the Plaintiff should be provided with a reasonable measure of security pending the final determination of liability and quantum at trial.

36.  During oral exchanges at the Hearing, the Defendants confirmed their ability to comply with a condition requiring payment of HK$100,000.00 into court. I am satisfied that such a condition will not operate oppressively or deprive the Defendants of their day in court: Hong Kong Civil Procedure 2026 at §13/9/15. The amount is set to encourage the Defendants’ proper future conduct of this litigation and to provide a measure of security for the Plaintiff. As this sum adequately secures the Plaintiff’s estimated reinstatement costs, together with a proportionate allowance for short-term accommodation expenses, and imposes no oppressive burden on the Defendants, I accordingly so order.

E.  CONCLUSION AND ORDERS

37.  Balancing all relevant factors, I conclude that the justice of the case is best served by setting aside the Default Judgment on terms and granting the Defendants leave to defend subject to payment of  HK$100,000.00 into court within 28 days.

38.  As to costs, the Court has wide discretion having regard to all the surrounding circumstances of the case, including the conduct of the parties and the substantive outcome of the application.

39.  I acknowledge the general principle, frequently pressed by plaintiffs in setting-aside applications, that where a defendant seeks the indulgence of the Court to set aside a regular default judgment, the plaintiff should be awarded the costs of the application in any event. However, this is not an inflexible rule. The exercise of judicial discretion requires a nuanced balancing of competing considerations:

39.1  Here, the Plaintiff obtained the Default Judgment as a direct consequence of the Defendants’ failure to file an Acknowledgment of Service or Defence in time. The Plaintiff was fully entitled to enter that judgment. Consequently, the Plaintiff must be awarded his costs of and occasioned by entering the Default Judgment.

39.2  On the other hand, as to the costs of the Setting Aside Summons, while the Defendants required the indulgence of the Court to set aside a regular judgment on terms, the Defendants have demonstrated triable defence on causation, supported by, inter alia, the findings of the Joint Office and IPS, which failed to attribute seepage to the Defendants’ Premises. However, notwithstanding these materials, the Setting Aside Summons was opposed rather than the parties agreeing to a sensible disposition at an earlier stage. In fact, such triable merit was acknowledged at the hearing where the Plaintiff reasonably agreed to set aside the Default Judgment on terms.

39.3  Further, I note the Defendants did not sit on their rights or cause any avoidable delay once the judgment was brought to their attention. Immediately upon being served with the Default Judgment in April 2026, the Defendants acted promptly by seeking legal advice and taking out the Setting Aside Summons within the same month.

40.  Having considered all relevant circumstances, I shall order the costs of and incidental to the Setting Aside Summons be costs in the cause. Had the Defendants been guilty of dilatory conduct after learning of the Default Judgment, a different costs order might have been warranted.

41.  I therefore make the following orders:

(1)  Upon the Defendants paying into Court the sum of HK$100,000.00 as security within 28 days from the date hereof, to be held to the credit of this action until further order of the Court:

(a)  The Interlocutory Judgment on liability entered against the Defendants on 2 April 2026 be set aside;

(b)  Leave be granted to the Defendants to file Acknowledgment of Service within 7 days from the date of the said payment into Court;

(c)  The Defendants do file and serve their Defence and Counterclaim (if any) within 28 days from the date of the said payment into Court; and

(d)  The Plaintiff shall file and serve his Reply (if so advised) within 28 days thereafter;

(e)  Within 28 days after the close of pleadings, the Plaintiff and the Defendants do respectively file and serve timetabling questionnaire on each other;

(2)  In the event that the Defendants fail to make the said payment into Court within the specified period, the Setting Aside Summons dated 28 April 2026 shall stand dismissed and the Interlocutory Judgment dated 2 April 2026 shall remain in full force and effect;

(3)  The costs order as set out at paragraphs 31.3 and 31.4 of the Judgment dated 2 April 2026 do stand;

(4)  The costs of and incidental to the Defendants’ Setting Aside Summons dated 28 April 2026 shall be costs in the cause;

(5)  Paragraphs (3) and (4) are order nisi. In the absence of application from the parties to vary costs order within 14 days, the costs order nisi shall become absolute; and

(6)  Liberty to apply.

42.  It remains for me to thank Mr Wong for his assistance rendered to the Court.