ULTRA SOURCE TRADING HONG KONG LTD v. HIGHSHARP TRADING LTD AND ANOTHER

HCA 1177/2025

[2025] HKCFI 4790

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1177 OF 2025

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BETWEEN

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JUDGMENT

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Introduction and Background Facts

1.  By Summons filed on 4 August 2025 (“the Summons”), the Plaintiff (“P”) applies for judgment against the 1^st Defendant (“D1”) and the 2^nd Defendant (“D2”) (collectively, “Ds”) in default of defence pursuant to O.19, r.7 of the Rules of the High Court, Cap. 4A (“RHC”).

2.  The present action was commenced by a Writ of Summons issued against D1 and D2 on 20 June 2025 (“Writ”). In the Statement of Claim (“SOC”), filed on 27 June 2025, essentially, it is pleaded that:

(1) P, D1 and D2 are all companies incorporated in Hong Kong;

(2) On 21 February 2025, P petitioned for the winding-up of Kudos and Softfar Singapore Pte. Ltd. (“Kudos”) based on a debt of USD 26,022,069.35 (along with late payment interests) (“Singapore Proceedings”);

(3) On 17 March 2025, P, Kudos, D1 and D2 entered into a settlement agreement (“the Settlement Agreement”) with the following material terms:

(a) Confirmation the sum of USD 26,834,534.94 due and owing to P as of 13 March 2025 (Article 1);

(b) Kudos should pay to P’s designated account by way of 4 instalments in the manner provided therein and upon settlement of the 4 instalments, P shall apply to the High Court of Singapore to withdraw the winding-up application (Article 2);

(c) D1 and D2 shall provide a joint and several guarantee to ensure Kudos’ due performance of its obligations under Article 2. In particular, it was agreed: (i) D1 agrees to immediately set-off, waive and/or release USD 9,922,080 which is in the accounts payable by P to D1 (“the AP”). In the event that Kudos fulfils the 2^nd instalment payment, D1 further agrees to set-off, waive and release the AP upon Kudo’s default of the 3^rd and/or 4^th instalment; (ii) D1 further confirms that it waives any and all claims against P arising out of or related to the AP and P’s inventory (“the Inventory”), and P shall have no further liability to D1 in respect of the Inventory and have the right to dispose of the same without reference or notice to D1 or return the inventory to D1 upon full settlement of the total outstanding amount by Kudos in accordance with the Settlement Agreement; (iii) D1 and D2 agrees to fully indemnify P arising from Kudos’ failure to fulfill its obligations under the Settlement Agreement (Article 3); and

(d) If Kudos fails to fulfill its debt repayment in accordance with the timeline and amounts specified in the Settlement Agreement, Kudos, D1 and D2 shall pay P as default penalty calculated at 0.1% of the outstanding amount per day of delay and will be capped at 10% of the outstanding amount proportionally and shared equally and P shall have the right to immediately declare all outstanding debts as immediately due and payable and demand immediate repayment of the total outstanding principal, late payment interest and default penalties from D1 and/or D2;

(4) In breach of Article 2 of the Settlement Agreement, Kudos failed to pay the 1^st and 2^nd instalments as prescribed;

(5) As a result, P did not withdraw the Singapore Proceedings and as a result, Kudos was wound up on 16 May 2025;

(6) To date, save for payment of USD 1 and USD 1.2M on 24 and 25 March 2025 respectively and the set-off of the AP, no repayment was made by Kudos, D1 and/or D2;

(7) P claims: (a) D1 and D2 are jointly and severally liable for the sum of USD 16,082,695.44 as at the date of the SOC (as particularized in the Schedule to SOC); (b) indemnity for all claims, damages, losses, costs and expenses (including legal fees) arising from Kudos’ failure to fulfill its obligations under the Settlement Agreement and any enforcement of rights against D1 and D2; and (c) interest; and

(8) The following declarations are also sought: (a) against D1: (i) that P is/was entitled to the immediate set-off, waiver and/or release of AP on 25 March 2025 and the same has been duly set-off, waived and/or released on 25 March 2025; and (ii) that D1 has waived any and all claims, known or unknown, against P arising out of or related to the AP and the Inventory, and that P shall has no further liability to D1 in respect of the Inventory and shall has the unencumbered right to dispose of the Inventory at its discretion without reference or notice to D1; and (b) as against D1 and D2: (i) D1 and D2 are jointly and severally liable for the debt of USD 26,022,069.35, taking into account such repayments and/or set-off, and along with any such late payment interest and default penalty at the date of SOC; and (ii) D1 and D2 do jointly and severally indemnify P against all claims, damages, losses, costs and expenses (including legal fees) arising from Kudos’ failure to fulfill its obligations under the Settlement Agreement and any enforcement of its rights against D1 and D2.

Service of process and non-appearance of Ds

3.  According to the affirmations of service filed on behalf of P, on 20 June 2025, P served the Writ on D1 and D2 by leaving the Writ at their respective registered office. I am satisfied that that it amounts to proper service on D1 and D2 under s.827 of the Companies Ordinance, Cap. 622.

4.  D1 and D2 had failed to file any acknowledgement of service.

5.  I am also satisfied from the affirmations of service that the SOC was properly served on D1 and D2. P is entitled to proceed as if D1 and D2 had given notice of intention to defend under O. 13, r.6(1) of RHC. No defence has been filed by Ds within the stipulated time under O.18, r.2(1) of RHC or at all.

6.  Furthermore, given that I am satisfied from the affirmations of service that the Summons was properly served on D1 and D2, I am of the view that it is expedient to proceed with the hearing of the Summons under O.32, r.5 of RHC notwithstanding the absence of Ds at today’s hearing.

7.  Mr Yu, counsel, appeared for P.

Applicable principles

8.  The applicable principles for default judgment under O.19, r.7 of RHC are well-settled. The power to grant judgment under O.19, r.7 is discretionary. The court is required to scrutinize whether the matters pleaded in the Statement of Claim entitle the plaintiff to the judgment sought. The court’s decision is made on the basis of pleaded facts, rather than on evidence. This is because where no defence is filed, the court will assume that the Statement of Claim has been impliedly admitted. See Hong Kong Civil Procedure 2025, Vol.1, §§19/2/1, 19/7/11 and 19/7/14.

9.  Moreover, the principle that a declaration will not be granted when giving judgment in default of defence is a rule of practice and not of law, and will give way to the paramount duty of the court to do fullest justice to the plaintiff to which he is entitled. However, the declaratory reliefs to be granted should not be in terms wider than what the plaintiffs are entitled to and what is necessary to do justice to them: see ibid, §§19/7/14 and 19/7/20.

10.  Even on what might appear to be a straightforward application, the Court does not act as a “rubber-stamp” merely because of the uncontested nature of the application. In each case, it is necessary to consider whether the declaratory relief is properly made out on the pleading, and whether it is appropriate in the overall exercise of discretion for such relief to be granted without a trial: see Cheung Sai Lon v Cheung Sai Ha & Anor [2020] HKCFI 2551 at §32 per Coleman J.

Analysis and Disposition

11.  Having considered the submissions of Mr Yu and scrutinized the SOC, I am satisfied that based on the matters pleaded in the SOC, which is to be taken as impliedly admitted by Ds in default of defence, Kudos, D1 and D2 have defaulted in and breached their obligations under the Settlement Agreement and P is entitled to the relief sought.

12.  I am satisfied that the declarations sought should be granted: (1) to provide clarity and certainty: (a) between P, Kudos, D1 and D2 in respect of the AP and the sums due and owing by D1 and D2 after the set-off; and (b) between P and potential purchasers in respect of the Inventory; (2) to avoid unnecessary disputes between parties; and (3) to facilitate P’s disposal of the Inventory.

13.  I will make an order in terms of the draft order as amended by me.

14.  I am also satisfied that costs of this action, including the Summons, to be summarily assessed should paid by Ds on an indemnity basis as provided for in the Settlement Agreement.

15.  Adopting a broadbrush approach, having considered P’s Statement of Costs, I have summarily assessed P’s costs at HK$450,000. P’s costs shall be paid forthwith.