E-2 CAPITAL (HOLDINGS) LTD v. TO KIN KEUNG

HCA 338/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 338 OF 2006

____________________

____________________

_______________

J U D G M E N T

_______________

1. This is the Defendant’s application to set aside the judgment entered on 12 April 2006 against him in default of filing any acknowledgement of service.  The grounds for the application are the usual ones:

(a) The service of writ is irregular; and

(b) The Defendant has real prospect in defending the Plaintiff’s claim.

Facts of the Case

2. The facts of the case are relatively straightforward.  The Defendant’s brother was sent by China Flourmills Holdings Limited (“China Flourmills”), a wholly owned subsidiary of the Plaintiff, to China to look after a flour manufacturing company in China which China Flourmills owned 60% of its issued shares.  The other 40% was owned by a Chinese partner.

3. It was alleged that on 23 July 2002 without the knowledge and consent of the Plaintiff and China Flourmills the Defendant’s brother sold all the 60% shareholding to a 3^rd party.  It was also alleged that the brother misappropriated the money of China Flourmills.  The matter was reported to the Public Security Bureau.

4. After several months’ investigation the Public Security Bureau located the brother and detained him for investigation.  On hearing this, the Defendant tried to obtain release of his brother and approached the Plaintiff.  On 25 February 2004 the Defendant signed a Chinese Document and gave Flat No. 7, 25^th Floor, Block H, Amoy Gardens Phase IIA, 77 Ngau Tau Kok Road, Kowloon (“Amoy Gardens flat”) as his residential address.  In the Chinese Document, he undertook to pay 2 million renminbei as loss suffered by the Plaintiff’s group and assisted it to recover their interest.  He gave two cheques as securities dated 31 August 2004 and 30 December 2005 for $300,000 and $1,700,000 respectively.

5. The 1^st cheque was not presented while the 2^nd cheque was dishonoured on 5 January 2006.  The Plaintiff commenced action against the Defendant for the dishonoured cheque.  The Defendant did not acknowledge service of the writ and judgment was entered on 12 April 2006.

Service of the Writ

6. On 17 February 2006, the writ was sent by registered post to the Amoy Gardens Flat.  On expiry of the statutory period for filing acknowledgement, the Plaintiff applied for judgment.  Before judgment was entered, the envelope containing the writ was returned to the Plaintiff’s solicitor marked “unclaimed”.  The Plaintiff withdrew the judgment application.

7. On 16 March 2006, the Plaintiff inserted the writ through the letter box of the Amoy Gardens flat.  The Defendant denied he had knowledge of it.  The Defendant’s main contentions are:

(a) He was misled by the Plaintiff;

(b) He was not in Hong Kong at the time when the service took place on the 2^nd occasion; and

(c) It was not the address last known to the Plaintiff.

8. It is not disputed that the Defendant was aware that the letter had been sent to him at the Amoy Gardens flat on the 2^nd occasion but he did not know its contents.  According to his affirmation, in April 2006 his sister told him that the tenant occupying the Amoy Gardens flat had informed her of “probably a letter from a solicitors’ firm and it was addressed to me (i.e. the Defendant)”.  He called Kenny Wong Kin Fai, the Finance Controller of the Plaintiff.  It was alleged that the latter misled him and said it was just part of the Plaintiff’s accounting procedure.

9. The Defendant also argued that on the date of service i.e. 16 March 2006 he was not in Hong Kong.  He produced the Immigration Department record to establish this.  Ms. Tsui for the Defendant seems to suggest the legal proposition that the defendant must be in Hong Kong when the writ is inserted into the letter box if the Plaintiff adopts that mode of service; otherwise, the service must be treated as irregular.  I do not subscribe to this proposition.  As pointed out by Mr. Ng, counsel for the Plaintiff, knowledge of the existence of the writ is an important factor; he quoted Lord Brightman’s speech in Barclays Bank of Swaziland v Hahu [1989] 1 WLR 506 at 519H.

10.  During the relevant period, the Defendant on and off left Hong Kong for short periods: he departed on 15 March 2006 and arrived on 17 March 2006; then, he departed on 21 March 2006 and arrived on 25 March 2006; then he departed again on 20 March 2006 and arrived on 1 April 2006; then he further departed on 2 April 2006 and arrived on 6 April 2006.  He was a frequent traveller for short trips away from Hong Kong.  If Ms. Tsui’s legal proposition is to be upheld, the service by inserting in the letter box depends on luck whether a defendant is in Hong Kong when the process takes place.  It is my view the whole crux of the matter is whether he had notice or knowledge of the service.

11. The Defendant claimed that he was not aware of the letter (at least, without knowing its content) until some time in April 2006.  He claimed that the Amoy Gardens flat was not the address last known to the Plaintiff.  He alleged that in 2004 when he first met the Plaintiff’s financial controller Mr. Kenny Wong, he gave Mr. Wong his card.  Mr. Wong denied he ever received such card.

12. The Defendant never tried to explain why he gave an address i.e. the Amoy Gardens flat as his place of residence in the Chinese Document.  Obviously, he did not live there: it was a place owned by his mother and sister.

13. He said that in the 1^st and 2^nd Affirmations filed herein he did not give his own residential address because he spent one-fourth to one third of time outside Hong Kong.  This is hardly an explanation.  The solicitor should have advised him of the requirements of Order 41 rule 1(4): the residence and the occupation.  He gave neither in the 1^st and 2^nd Affirmation.

14. In the affirmation the Defendant admitted that in January 2006 he called Mr. Kenny Wong when the cheque was dishonoured.  He asked Mr. Kenny Wong not to send any document to the Amoy Gardens flat as it was leased out and Mr. Wong had his name card.  In another part of his 1^st Affirmation he stated that in January 2006 the Plaintiff kept threatening to detain his brother again.  He should have realized that the Plaintiff was adding pressure on him.  According to the Defendant’s explanation in April 2006, he was asked to buy up the interest of the joint venture.  Wouldn’t he find it strange that another letter was sent to the Amoy’s Garden flat and it was from a solicitor?  It is difficult for me to believe that on the 2^nd occasion he would be contented with an explanation that the lawyer’s letter was a matter of accounting procedure.  It was the 2^nd time the accounting procedure being used as an excuse and he believed that!

Merits

15. The Defendant claimed that he signed the Chinese Document dated 25 May 2004 under duress.  Ms. Tsui refers me to a passage in Chitty on Contract at §7-020 which states: “It would be up to the party who made the threat to show that it had not influenced the victim in any way.”

16. In the present case, I find no one has imposed any threat on the Defendant.  He himself approached the Plaintiff and voluntarily signed the Document.  It is not the Defendant’s case that the Plaintiff threatened that unless the Defendant signed the document, his brother would not be released.  Further, I found nothing irregular that the Public Security Bureau detained the Defendant’s brother for investigation.

Fulfillment of the Obligation

17. Ms. Tsui submits that even if the Chinese Document were enforceable, the Defendant had fulfilled his obligation thereunder.  The Chinese Document as amended appears as follows:

本人陶建強HKID:XXXXXXX(X)住址，XXXXXXXXXX，為金匯集團，撤消對陶建東經濟控告一事，願意無條件承擔港元貳佰萬圓款項之責任。雙方協定若本人及陶建東可協助公司追討並取回其在內地合資企業外方的所應得款項或權益指西安合資企業外方股權轉讓追討款項或追回外方股份事項（款項約肆佰萬圓）則金匯集團可免去上述陶建強願意承擔的款項責任。

(簽名)

陶建強 HKID:XXXXXXX(X)

二零零四年五月二十五日

抵押支票：渣打銀行

號碼：642353
            642354

見証人：張仲威

18. It has been argued that the obligation was fulfilled when the transaction i.e. transfer of shares in the joint venture company had been set aside and China Flourmills had regained its interest in the company.

19. Evidence shows that judgment was obtained on 13 October 2003 in China, half a year before the Chinese Document was entered into.  It does not make sense that the Document is construed to simply mean that the obligation is to secure that the shares be revested in China Flourmills.  It must mean something more to regain control, operation and management of the joint venture business.

20. Since the Chinese Document, the Defendant had been assisting the Plaintiff’s group to regain control.  He did so, Ms. Tsui submits, not because it was part of his obligation but because the new promise given by the Plaintiff in May 2004 that if he was successful in helping the Plaintiff’s group to regain control, the Plaintiff would not only bear all the travelling and out of pocket expenses, but in addition, it would give him 10% in the joint venture company.

21. I agree with Mr. Ng’s submission that such agreement was unlikely to happen.  On 25 May 2004, the Chinese Document was signed and several days later the new promise was given.  It also puzzles me why such agreement was not evidenced in writing as the 10% interest in the joint venture company is not a small amount.  Further, some time later, the Defendant required Mr. Wong Tim Lok of the Plaintiff to sign another letter to obtain the release of his brother.  Why didn’t he ask Mr. Wong to put the new promise in writing as he must have realized that the Plaintiff was not easy to deal with?

22. The Defendant also argued that it was due to the Plaintiff’s change of mind that the Plaintiff did not regain control.  The letter that the Defendant relies on as evidence is the letter from Kenny Wong to him dated 22 December 2005 (TKK-11).  I find in the letter that different persons had different interpretations of Liu’s death and different approaches had been suggested.  The Defendant considered that they were facing “the worse time”.  We are not informed what happened next: whether the Defendant went to Xian.  I do not know what had been lost by adopting a more optimistic approach.

23. According to the Defendant’s own letter dated 18 May 2006, up to that time the situation was still not clear.  In the 2^nd paragraph he referred to the Plaintiff’s proposal to enter into possession and said that he had reported to the authority.  It is a clear indication that the Plaintiff had not obtained control and that it was not due to the Plaintiff’s change of mind but at most the Plaintiff had not adopted the Defendant’s suggestion for a short period of 4 months.

24. From May 2004 to January 2006, it was more than 18 months, the Defendant had failed to fulfill his obligation.  The Chinese Document did not specify any time limit.  When the Chinese Document was signed, the parties must have considered and contemplated the date of the second cheque was a reasonable time.  He must have realized that the presentation was a pressure added to him.  I could not believe that he would accept the presentation of cheque was an accounting procedure.

25. In my judgment, I cannot say that the Defendant has a real prospect of success but I am in hesitant to dismiss the defence outright.  Although I cannot safely conclude that the Defendant had knowledge of the service of the proceeding at the material time, I have real doubt what the Defendant told us in the different affirmations is true.

26. I consider it appropriate to grant conditional leave to set aside the judgment.  Accordingly, I make the following orders:

(a) Upon the Defendant paying into court a sum of $1,700,000 within 28 days hereof, the judgment entered on 26 April 2006 be set aside and the Defendant has leave to file and serve defence within 21 days thereafter; and

(b) If the Defendant fails to pay the said sum as aforesaid, the judgment will not be set aside and the Defendant does not have the right to file and serve his defence.

27. I also make an order nisi for costs:

(a) Costs be to the Plaintiff with certificate for counsel, if not agreed, to be assessed by me with the following directions:

(i) The Plaintiff shall at least 21 days before hearing of the assessment file and serve a statement of costs in the form as contained in the Law Society Circular No. 06-2;

(ii) The Defendant shall within 14 days thereafter file and serve a list of objections;

and    (iii)     A date be fixed for hearing of the assessment with an estimated length of 30 minutes;

and    (b)     This order nisi shall become absolute 14 days after the date of this judgment unless a written application has been made to vary this order within the said 14 days.