CCM EARTH LTD AND OTHERS v. ALFA GCM LTD

HCA 1210/2016

[2018] HKCFI 350

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1210 OF 2016

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REASONS FOR JUDGMENT

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1.  By a summons dated 20 June 2017 the defendant applied for an order, inter alia, that the interlocutory judgment entered on 20 September 2016 against it be set aside.

2.  The hearing of the defendant’s said summons to set aside the judgment came before Master Benny Lo on 12 December 2017. 

3.  By his order made on 12 December 2017 the master made an order that upon the defendant’s payment into court of the sum of HK$1,000,000 within 28 days from the date thereof, the interlocutory judgment entered on 20 September 2016 be set aside.  He further ordered that if the defendant defaulted in complying with the condition of payment into court of the said sum, the said interlocutory judgment do stand.  The master also made orders for costs in the plaintiffs’ favour.

4.  By a notice of appeal dated 21 December 2017 the defendant gave notice that it intended to appeal against the decision of the master.

5.  The hearing of the appeal came before me on 22 January 2018.

6.  Prior to the hearing of the appeal, the defendant issued a summons dated 5 January 2018 which was also returnable before me on 22 January 2018.  By the said summons the defendant applied for an order that:

(1)   the execution of the order of the master be stayed pending the hearing of the appeal;

(2)   leave be granted to the defendant to rely on the 3^rd affirmation of Chen Kong Ming (“Chen”) in support of the application for stay and also to adduce further evidence at the hearing of the appeal; and

(3)   the costs of the application be provided for.

7.  At the hearing before me I first dealt with the defendant’s said summons dated 5 January 2018.

8.  By para (1) of the said summons the defendant was seeking a stay of execution pending the hearing of the appeal.  There was no need to seek such a stay as I was hearing the appeal at the same time.  Mr Yeung, for the defendant, very properly informed me that the defendant was no longer pursing para (1) of the said summons.

9.  After hearing the submissions of counsel, I made an order dismissing the defendant’s said summons dated 5 January 2018.  I also made an order that the costs of the said summons be costs to the plaintiffs, such costs to be taxed on a party and party basis and to be paid forthwith by the defendant to the plaintiffs. 

10.  I proceeded to hear the appeal against the master’s decision.  After hearing the submissions of counsel, I dismissed the appeal.  I also made an order that the costs of the appeal be costs to the plaintiff, such costs to be taxed on a party and party basis and to be paid forthwith by the defendant to the plaintiffs.

11.  I indicated at the time that reasons in writing would be given.  This I now do.

12.  The plaintiffs obtained the default judgment on 20 September 2016.  There is no dispute that the default judgment that was entered was a regular judgment. 

13.  There is also no dispute that in order to set aside the default judgment it was necessary for the defendant to satisfy the court that it has a meritorious defence with a real prospect of success or carries some degree of conviction. 

14.  The master was satisfied that the defendant had discharged its burden of showing that there is a realistic prospect of successfully defending the action with a certain degree of conviction.  However, because of the defendant’s delay in applying for the judgment to be set aside and the defendant’s conduct, the master imposed a condition for setting aside the judgment.  The master ordered that the default judgment should be set aside upon the defendant making a payment into court of the sum of HK$1,000,000 within 28 days and that if the defendant failed to comply with the condition, the judgment do stand.

15.  The master handed down his reasons for decision on 19 January 2018. 

16.  The plaintiffs’ claims against the defendant is for damages for misrepresentation. 

17.  The 1^st, 2^nd and 3^rd plaintiffs are BVI companies.  They are engaged in capital investment.  The 4^th plaintiff is a business consultant.

18.  The defendant, formerly known as MEGA Global Capital Management Limited is a Hong Kong company.  It carries on the business of capital management.

19.  The underlying dispute between the parties is in relation to the plaintiffs’ purchase of shares in MpayMe Limited (“MPM”), a Hong Kong company.  The plaintiffs purchased a total of 9,541,000 shares in MPM representing approximately 32% of MPM for a total purchase price of US$16,099,817.41 (“the Investment Sum”).

20.  The plaintiffs’ case is that they purchased the said shares in MPM induced by and acting in reliance on the representations made by Chen, a director of the defendant, as pleaded at para 7(c) of the statement of claim namely:

“ (i) The Defendant would invest ¥30,000,000 into MPM as an investor;

(ii) The Defendant had other potential investors internationally, including Singaporean investors, who had reasonable interest in investing in MPM; and

(iii) The Defendant was promoting MPM on a voluntary basis without receipt of any financial gain such as fees or omissions;”

21.  The plaintiffs’ case is that the representations were false and misleading as pleaded at paras 11 to 14 of the statement of claim.  The plaintiffs claim that as a result they have suffered loss and damage.

22.  At para 16 of the statement of claim it is averred that but for the defendant’s representations the plaintiffs would not have paid the Investment Sum to receive the MPM shares but instead:

“ (a) The Plaintiffs would have paid the same Investment Sum in exchange for more shares than they actually received; or

(b) Alternatively, the Plaintiffs would have paid less than the Investment Sum but received the same number of shares in MPM.”

23.  The defendant denies that Chen ever made the representations (i) and (iii) and asserts that the representation (ii) was a true representation.  These are issues of fact.

24.  The defendant also denies that the plaintiffs were induced by the representations to purchase the said shares in MPM.  This is also an issue of fact.

25.  The defendant denies that the plaintiffs suffered loss and damage as alleged.

26.  In his detailed and well considered reasons for decision, the master considered the merits of the defence at paras 6 to 24 and came to the view that the defendant has shown a real prospect of success.  It is not necessary to set those paragraphs out here.  I do not think that the master’s reasons can be faulted.  Suffice it to say that I agree with the master that, for the reasons he gave, the defendant has established that he has a real prospect of success. 

27.  As disputes of fact have been raised, it is a matter for determination at trial as to whose version will be believed.  Where the outcome depends upon whose evidence is likely to be accepted so that it is not possible to form a provisional view at the interlocutory stage, the court will ask whether the defence could well be established at trial and, if the defendant’s version could well be believed at trial, it follows that the defence has a real prospect of success (Kwan J (as she then was) in El Vince Ltd v Wu Wen Sheng [2001] 3 HKLRD 445 at para 25).

28.  In view of the delay of the defendant in taking out the summons to set aside the judgment and the conduct of the defendant, the master imposed a condition that the defendant do pay into court the sum of HK$1,000,000 for setting aside the judgment (“the condition”).

29.  Mr Yeung, for the defendant, submitted that the master should not have imposed the condition on the defendant.

30.  The defendant’s case is that it was only in about October 2016 that the defendant became aware of the proceedings in this action when it was served with the default judgment (para 8 of Chen’s 1^st affirmation filed on 20 June 2017).  Despite this, it was only on 20 June 2017 that the defendant issued the summons to set aside the judgment.  There was a delay of about eight months. 

31.  Chen said that the defendant sought advice from the defendant’s present solicitors in January 2017.  It was only about three months later on 20 April 2017 that the solicitors filed a notice to act for the defendant in these proceedings.

32.  After the judgment was obtained by the plaintiffs they proceeded to seek directions for the assessment of damages by a master under Order 37, rule 1 of the Rules of the High Court.  Rather than seeking to set aside the judgment before it issued the summons to set aside, the defendant was actively engaged in the Order 37 proceedings including filing summonses on 23 May 2017 and 9 June 2017 for extensions of time to file the defendant’s list of documents. 

33.  The plaintiffs filed their list of documents on 18 May 2017.  On or about 16 June 2016 the plaintiffs’ solicitors supplied the defendant’s solicitors with the documents listed in Schedule 1 Part 1 of the plaintiffs’ list of documents.

34.  The master dealt with the explanation put forward by Chen for the defendant’s delay in taking out the summons to set aside and the defendant’s conduct in actively participating in the Order 37 proceedings.

35.  I would agree with what the master said at para 33 of his reasons that in the absence of any explanation, the delay and conduct would operate against the defendant.

36.  By its said summons dated 5 January 2018 the defendant sought to adduce further evidence by the 3^rd affirmation of Chen to further explain the delay and to place before the court financial statements of the defendant.

37.  Order 58, rule 1(5) of the RHC clearly provides that:

“ No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.”

38.  There is no dispute that the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 have to be satisfied before further evidence may be received at the hearing of the appeal (para 58/1/3 Hong Kong Civil Procedure 2018).

39.  The first condition that the defendant has to satisfy is that the evidence could not have been obtained with reasonable diligence for use at the hearing below before the master.

40.  There is no evidence that the further evidence sought to be relied on by the defendant could not have been obtained with reasonable diligence for use at the hearing before the master. 

41.  As regards the financial statements that the defendant seeks to adduce by the 3^rd affirmation of Chen, Chen says at para 20 that the defendant and its solicitors thought that the defendant had a strong case on the merits which would transcend the conduct of the defendant and that it was beyond their contemplation that detailed financial statements should have been placed before the master.  It seems to me that it was their choice not to place the financial statements before the master and it is now too late to seek to adduce that evidence by the summons dated 5 January 2018. 

42.  As I was not satisfied that the further evidence sought to be relied on could not have been obtained with reasonable diligence for use before the master, I dismissed the summons dated 5 January 2018.

43.  Mr Brown, for the plaintiff, submitted that as the defendant participated in the Order 37 assessment of damages process after being aware of the judgment, the defendant has elected not to apply to set aside the judgment.  It was also his submission that the plaintiffs have been prejudiced as the defendant has obtained the documents disclosed by the plaintiffs in its list of documents filed on 18 May 2017 in the assessment of damages process.  It was submitted that the master should have refused to set aside the judgment.

44.  I am not persuaded that there has been a binding election made by the defendant not to apply to set aside the judgment on the evidence.  I agree with the master’s reasons at para 36 of his reasons.

45.  I am also not persuaded that the plaintiffs have suffered any real prejudice by having to disclose its documents in their list of documents.  Mr Brown suggested that with the documents that the defendant has obtained from the plaintiffs in the assessment of damages process, the defendant could tailor a defence accordingly.  There is no merit in this. There is no evidential basis for suggesting that a defence could be tailored by making use of the documents that the defendant has obtained in the discovery process.  All that has occurred is that the defendant has obtained the plaintiffs’ documents earlier in time than they would otherwise have in the usual process of discovery in an action.  I am unable to see what real prejudice this has caused the plaintiffs.

46.  It must be remembered that the power to set aside a default judgment which has been entered regularly is discretionary and that such power is unconditional.  The purpose of the discretionary power is to avoid the injustice which may be caused if the judgment follows automatically on default (para 13/9/13 Hong Kong Civil Procedure 2018).

47.  Mr Brown also submitted that the master should have imposed on the defendant a condition of payment into court of the full amount of the commission that the defendant earned from MPM in the sum of US$997,559.61.   I disagree. 

48.  As the master said at para 43 of his reasons, the plaintiffs’ claim is for common law damages but not an account of profit.  The claim is for unliquidated damages to be assessed.  I would observe that, on the evidence of Chen in his 1^st affirmation at para 29, the plaintiffs in about June 2014 sold the shares in MPM that they had purchased from the defendant to a company in the United Kingdom thereby making substantial profits.  What loss and damage the plaintiffs suffered is a matter to be resolved at the assessment of damages.  I am not persuaded that the amount of the full commission that the defendant earned should have been ordered to be paid into court as a condition for setting aside the judgment.

49.  I am satisfied that the master correctly exercised his discretion in making the order that he made.   

50.  For those reasons I dismissed the appeal with the costs order that I made.