SERES PROPERTIES B.V. v. LEE HOCK PUN AND ANOTHER

HCA 1287/2022

[2025] HKCFI 5750

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1287 OF 2022

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D E C I S I O N

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Introduction

1.  Default judgment was entered against D1 on account of his failure to file a Notice of Intention to Defend on 26 April 2023 (“the Default Judgment”) in the amount of €3,628,157.97 (“the Judgment Sum”). By summons dated 22 January 2025 (“the Set Aside Summons”), D1 applies to set aside the Default Judgment on the basis of its alleged irregularity.

2.  By another summons of the same date (“the Discharge Summons”), D1 applies for discharge of the ex parte Mareva cum proprietary injunction granted by Andrew Chan J on 6 January 2025 and continued by the order of DHCJ Grace Chow dated 10 January 2025 (“the Injunction Order”).

3.  On the other hand, P applies for an order that the Amended Charging Order nisi dated 13 March 2025 (“the CO nisi”) be made absolute.

4.  Lastly, by summons dated 9 January 2025 (“the Relief Summons”), D1 makes an application for relief from sanction from the unless order dated 24 October 2024 made by this court (“the Unless Order”). The Unless Order was made upon D1’s application by his summons dated 9 October 2024 for an extension of time to comply with paragraph 1 of the consent order dated 11 July 2024 (“the Consent Order”), which, among other matters, provided that the Default Judgment should be set aside on the condition that D1 do within 90 days thereof pay into court the amount of €2,650,000 (“the Security”). The Unless Order provided that unless D1 do pay into court the Security on or before 28 November 2024, D1 be debarred from doing so.

5.  D1 has never complied with the Unless Order by paying the Security.

6.  There is another application made by D1 for leave to adduce his further affirmation which seeks to update his financial condition. P does not oppose this application provided that the Ruling of the Mainland court dated 26 January 2025 could be adduced. This court allow both documents to be adduced.

7.  This is the substantive hearing of all the foregoing contested applications. Mr Payne appears for P and Mr Hui appears for D1. D2 is not involved and does not appear.

8.  Mr Hui stresses that the Default Judgment is irregular and it must be liable to be set aside as of right. The focus of Mr Payne’s argument is on the binding effect of the Consent Order and the abusiveness of D1’s Set Aside Summons. I should resolve the issue of regularity of the Default Judgment in the first place.

9.  Before doing so, it is necessary to give a brief account of the background facts for the understanding of the disputes between the parties. The following is my summary of the narratives of Mr Payne and Mr Hui in their skeleton submissions.

10.  On around 30 April 2020, P and XLHP Group Limited (“XLHP”) entered into a loan agreement whereby a loan in the principal amount of €2,800,000 (as a minimum) or €3,500,000 (as a maximum) would be advanced to XLHP (“the Loan Agreement”).

11.  The sole shareholder of XLHP is VCL Holding Limited (“VCL”). VCL is beneficially owned and controlled by Ds and it was incorporated in the British Virgin Islands in September 2016. D2 is its sole director.

12.  Pursuant to the Loan Agreement, P caused a total amount of €3,586,717.30 to be transferred to XLHP from August to September 2020.

13.  Ds allegedly agreed to be the guarantors to the Loan Agreement under a 2-page document entitled “Additional Protocol” dated 1 October 2020 (“the Guarantee”). Ds now dispute the authenticity of the Guarantee and, alternatively, they challenge its enforceability on account of its purported lack of consideration.

14.  XLHP defaulted payment under the Loan Agreement and on 3 October 2022, P issued a statutory demand on XLHP. D1 was notified of the statutory demand by P’s email dated 7 October 2022.

15.  XLHP did not comply with the statutory demand and eventually P issued a creditors winding up petition against XLHP. The petition was not contested and a winding up order was made against XLHP on 29 March 2023.

16.  Subsequently, the liquidators of XLHP found out that XLHP had transferred approximately €2.6 million to the personal account of D1 and €125,000 to the personal account of D2. Both Ds have been unresponsive to the enquiries of the liquidators.

17.  On 3 October 2022, P issued the writ in this action (“the Writ”) to enforce the Guarantee against Ds. The Writ was purportedly served on D1 by placing the same in the letter box of D1’s address at Fortress Hill (“the Fortress Hill Address”) on the same day.

18.  D1 did not respond to the Writ at all and the Default Judgment was entered against D1 on the basis that P abandoned its claim for contractual interest in the Writ.

19.  On 18 March 2024, P commenced legal proceedings against Ds in the Shanghai Changning District People’s Court (“The Mainland Court”) to enforce the Guarantee whilst the Default Judgment could not be enforced in the Mainland.

20.  The Mainland Court imposed a travel ban on Ds and they could not leave the Mainland unless they provided the like amount of the Judgment Sum to the Mainland Court as security.

21.  By summons dated 22 May 2024 (“the Previous Set Aside Summons”), D1 applied to set aside the Default Judgment primarily on the ground that the Default Judgment was irregular. By summons dated 28 May 2024 (“the ASI Summons”), D1 applied for an anti-suit injunction to restrain P from continuing the legal proceedings in the Mainland against him.

22.  P and D1 signed a consent summons dated 10 July 2024 (“the Consent Summons”) to dispose of the Previous Setting Aside Summons and the ASI Summons. The Consent Order was made in terms of the Consent Summons. By the Consent Order, leave was granted to D1 to withdraw the Previous Setting Aside Summons and the ASI Summons.

23.  On 29 November 2024, upon D1’s non-compliance with the Unless Order, P proceeded to enforce the Default Summons by way of an ex parte application for a charging order over the shares of We Doctor (“the We Doctor Shares”) in an account with I Win Securities Limited (“I Win Securities”). The We Doctor Shares were disclosed by D1 in his affirmations to be his properties. The CO nisi was granted.

24.  P served the CO nisi on I Win Securities but was informed on 3 January 2025 that D1 had already transferred the We Doctor Shares to D2.

25.  A few days later, P applied for and was granted the Injunction Order on 6 January 2025.

26.  Shortly afterwards, D1 took out the Relief Summons and then the Set Aside Summons and the Discharge Summons.

Regularity of the Default Judgment

27.  The evidence of D1 is that due to the outbreak of COVID-19, he was able to travel to Hong Kong only once in 2021 and was not within the jurisdiction in the entire year of 2022. He and D2 have all along been residing in Shanghai with their children to the knowledge of P. D1 claims that he only received the Writ from his cousin who is the registered owner of the flat at the Fortress Hill Address on 14 June 2023. His cousin allowed him to use the Fortress Hill Address as his correspondence address in Hong Kong.

28.  P has adduced no contrary evidence in this regard. Mr Hasancebi who is the ultimate sole owner of P in his Affidavit frankly accepted that he had no knowledge of D1’s whereabouts when the Writ was served on him as D1 had avoided all contacts with him for over 1 year. He merely gathered from his previous discussion with D1 that he had maintained residences in both Shanghai and Hong Kong.

29.  On this evidence, Mr Payne fairly did not argue that D1 was within the jurisdiction when the Writ was served on him by the use of the Fortress Hill Address.

30.  O.10 r. 1(2) provides that a writ for service on a defendant within the jurisdiction may, instead of being served personally on him, be served (a) by sending a copy of the writ by registered post to the defendant at his usual or last known address or (b) if there is a letter box for that address, by inserting through the letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant.

31.  Apparently, P relied on O.10 r.1(2)(b). It is not in dispute that the Fortress Hill Address was the usual or last known address of D1 in Hong Kong as evidenced by some records filed with the Companies Registry and D1’s correspondences. The problem is that P did not satisfy the requirement that D1 must be within the jurisdiction at the time of the service of the Writ: Deng Minghui v Chau Shuk Ling [2007] 1 HKLRD 905, per Cheung JA at §11.

32.  In the circumstances, I come to the conclusion that the Default Judgment is irregular and is liable to be set aside.

Residual discretion

33.  Mr Hui refers to Hong Kong Civil Procedure 2025 Vol.1 §13/9/5 where the learned editors state that where a defendant was not physically within the jurisdiction at the time the writ was served, the defendant should be entitled, as of right, to have default judgment set aside citing Deng Minghui, supra.

34.  Mr Payne, on the other hand, refers to Luen Tat Watch Band Manufacturer Limited v Li Shu Chung [2020] HKCFI 984 in which Keith Yeung J at §29 cited the following citation of the observation made by the Court of Appeal in Russell Peter Brown & Ors. v Edward Eugene Lehman [2017] 4 HKC 6 (at §28):

“Where a default judgment is irregular, it is usually said that it will be set aside ex debito justitiae. Mr Barlow [for the defendant] submits that this means that it must be set aside. However, it was established in Po Kwong Marble Factory Ltd v Wah Tee Decoration Co Ltd [1996] 4 HKC 157 that the court retains a residual discretion to decline to set aside an irregular default judgment, or to impose terms when setting it aside, where the circumstances of the case call for such a course to be taken.”

35.  Keith Yeung J at §28 referred to the following observation of Bokhary JA in Po Kwong Marble Factory Ltd made when setting aside the default judgment with terms imposed (at p.162E),

“Ex debito justitiae’ or as of right means without going into the actual merits of the defence. It does not mean shutting one’s eyes the circumstances surrounding the question of service and why things went wrong in that regard. The court statutory jurisdiction is unfettered.”

36.  Mr Payne, however, does not point to any particular facts which this court should consider in the exercise of the residual discretion and does not suggest any terms to be imposed in the event that the Default Judgment is to be set aside.

37.  Mr Payne relies heavily on the binding effect of the Consent Order and submits that it is an abuse of process for D1 to make the present application after the withdrawal of the Previous Set Aside Summons.

38.  Mr Payne refers to Leung Yee & Anor. v Ng Yiu Ming & Anor. [2001] 1 HKLRD 309 where Woo JA explained the binding nature of a consent order.

39.  I believe that it is well established that a consent order is an enforceable contractual agreement between the parties and it cannot be lightly set aside. In CML v LMH [2010] HKLRD 818, Cheung JA at §§4‑5 had this to say about a consent order,

“A “consent order”, which is made pursuant to an agreement between the parties, is an agreement or a contract binding on the parties…A party to a “consent order” must establish the existence of exceptional circumstances which justify rescission of the underlying agreement. Exceptional circumstances include: the applicant erroneously consented to the agreement, he was misled by the misrepresentation of the other party into giving his consent to the agreement, or the court considers it grossly inequitable to require the parties to abide by the agreement.”

40.  I have studied the terms of the Consent Order. It provided D1 with a fast route by which the Default Judgment could be set aside without substantive argument of the Previous Set Aside Summons. By paying a lesser amount as the Security into court within the prescribed period of time, the Default Judgment would be set aside and D1 should accordingly withdraw the Previous Set Aside Summons.

41.  The Consent Summons was signed by the parties legally represented. The Consent Order did not show any acceptance on the part of D1 that the Default Judgment was not irregular. It was not made on such a basis. It did not preclude D1 from challenging the integrity of the Default Judgment for want of proper service of the Writ. Nor did it address the consequences of D1’s failure to pay the Security into court within the prescribed time. In my view, on a plain reading of the Consent Order, it merely gave D1 an option as to how to set aside the Default Judgment other than pursuing his Previous Set Aside Summons.

42.  The Unless Order set a final deadline for D1 to pay the Security and did not change the nature of the Consent Order.

43.  Thus, even if D1 fails to comply with the Consent Order (and the Unless Order), as a matter of contract, I see no reason why D1 should be debarred from taking out the Set Aside Summons.

Abuse of process

44.  If there is evidence of an abuse of process, this court should not exercise the discretion to set aside the Default Judgment.

45.  Given the undisputed irregularity of the Default Judgment, it was perfectly understandable why D1 took out the Previous Set Aside Summons with a view to setting aside the Default Judgment. I note that D1 did not in his affirmation explain why he agreed to the terms of the Consent Order and agreed to pay the Security for the Default Judgment to be set aside in the first place. He just explained that he had made a genuine effort to raise fund to pay the Security. In my view, there is nothing to suggest that D1 did not genuinely intend to comply with the payment term of the Consent Order and he only deceived P into signing the Consent Summons.

46.  On the other hand, P did not adduce evidence to show any prejudice or loss caused to it by reason of D1’s non-payment of the Security and hence non-compliance of the Consent Order.

47.  D1 claims that he is not financially capable of paying the Security despite making efforts. There is no contrary evidence. The upshot is that D1 could not rely on the fast and more certain track in the Consent Order to set aside the Default Judgment. There being no restriction that D1 could not seek to set aside the Default Judgment by way of a genuine challenge to its validity, D1 has taken out the Set Aside Summons and asks for its determination. I am unable to find any abuse of process.

48.  Mr Payne relies on M & R Marking Systems, Inc v Tse Mee Shuen Wilson & Ors. (unreported, HCA1598/2001, 20.12.2001) to support his submission that the Set Aside Summons being a second interlocutory application for the same relief is an abuse of process.

49.  I do not think M & R Marking Systems, Inc can assist P on the facts of the present case. There, Chu J (as she then was) (at §22) referred to Wong Kam Hung t/a Continental Knitting Factory v Triangle Motors Ltd [1998] 2 HKLRD 330 in which Cheung J (as he then was) explained that where a summons is dismissed whether on procedural grounds or on merits, a dissatisfied party should appeal against that decision and not to issue a fresh summons on the same subject matter (at p.336A-F).

50.  In the present case, the Previous Set Aside Summons was not dismissed but was withdrawn by D1 with leave only. No adjudication of the same was ever made. I reject the submission of Mr Payne and I do not agree that it was an abuse of process for D1 to issue the Set Aside Summons.

51.  There is no evidence that P had conducted any investigation to ascertain whether D1 was in Hong Kong before service of the Writ. Mr Hasancebi accepted that he knew that D1 had his residences in both Hong Kong and Shanghai. P should have taken a prudent step to make sure that D1 was in his Hong Kong residence and not in Shanghai. There is no allegation that D1 did anything to mislead P that he was within jurisdiction at the time of the service of the Writ.

52.  I should make it clear that despite counsel’s submissions, I refuse to examine the merits of the parties’ respective cases. I also do not find it necessary to consider all other grounds put forth by Mr Hui to set aside the Default Judgment.

53.  In conclusion, I see no grounds that would tilt my residual discretion towards upholding the irregular Default Judgment or setting it aside on terms. The Default Judgment should be set aside ex debito justitiae.

54.  In light of this conclusion, the Relief Summons serves no meaningful purposes. On his evidence, there is no real chance that D1 could pay the Security even more time is given. Mr Hui does not argue that it should be granted anyway.

55.  For the Discharge Summons, Mr Hui indicates at the hearing that in the event that the Default Judgment is set aside, D1 would agree to the continuation of the Injunction Order. The Discharge Summons falls to be dismissed.

56.  For the CO nisi, with the setting aside of the Default Judgment, it is clearly untenable and must be set aside. The application of P to make it absolute must be dismissed.

Dispositions and orders

57.  For the reasons given above, the Set Aside Summons should be granted and I set aside the Default Judgment. Both the Relief Summons and the Discharge Summons should be dismissed. The CO nisi application should be dismissed as well.

58.  If D1 had performed the agreement embodied in the Consent Order, he would not have found it necessary to take out the Set Aside Summons. On the other hand, the opposition mounted by P to the Set Aside Summons is unmeritorious even though P’s frustration is perfectly understandable.

59.  I believe that the fairest costs order to be made on the Set Aside Summons should be costs in the cause. I so order on a nisi basis.

60.  For each of the Relief Summons and the Discharge Summons, I make a costs order nisi that D1 do pay costs of P, to be taxed if not agreed.

61.  For the application relating to the CO nisi, costs should be to D1, to be taxed if not agreed.

62.  Lastly, I thank Mr Payne and Mr Hui for their able assistance in this matter.