PEAK PERFORMANCE HEAD OFFICE SERVICES LTD AND ANOTHER v. CHEUNG PUI YEE DENISE

HCA 741/2021

[2022] HKCFI 2829

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 741 OF 2021

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BETWEEN

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DECISION

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A. INTRODUCTION

1.  This is an appeal against the decision of a Master dated 11 February 2022, by which she dismissed the application by the defendant for an order setting aside the final judgment entered on 28 July 2021 (“Judgment”) against her for the sum of USD775,021.15 in default of a notice of intention to defend.

2.  Before me, apart from appealing against the decision of the Master, there is also an application by the defendant, by Summons dated 11 May 2022, to adduce additional evidence on appeal, namely the 7^th affirmation of the defendant, as well as an affirmation of Tang Siu Ning (“Tang”), and the exhibits thereto.

3.  The following issues are before me:

(1) Whether the Writ of Summons in this action was properly served on the defendant. That is, is the Judgment entered on default regular or irregular?

(2) Whether leave to adduce the additional evidence ought to be granted.

(3) Whether the Judgment ought to be set aside.

B. THE PLAINTIFFS’ PLEADED CASE

4.  The plaintiffs claim that they are the victims of a fraudulent investment scheme (“the Scheme”). It is not alleged that the defendant was associated with the Scheme.

5.  The plaintiffs claim that they were induced to make transfers of money to a bank account of Smart Jobs Limited (“Smart Jobs”) under the Scheme. The 1^st plaintiff transferred €1,025,000 on 13 January 2016. The 2^nd plaintiff transferred €1,050,000 on 24 November 2015.

6.  According to the plaintiffs:

(1) On 17 February 2016, Smart Jobs transferred USD1,500,000 to a bank account of ADF Consultancy Services Limited (“ADF”).

(2) On the same day, ADF transferred USD800,000 to an account of the defendant at HSBC.

(3) On 19 February 2016, the defendant purchased a banker’s draft for USD800,000 from HSBC using the money she received two days earlier, and deposited the draft into an account of hers with ICBC.

(4) Out of the said sum of USD800,000, USD775,021.15 belonged to them.

(5) They had no dealings with the defendant at all and there was no basis for the defendant to receive the said sum.

7.  The plaintiffs claim the sum of USD775,021.25 against the defendant in tracing and unjust enrichment.

C. THE DEFENDANT’S CASE

8.  The defendant’s case, according to her evidence before the Master, is as follows:

(1) She was a director of Money Concepts (Asia) Limited (“Money Concepts”) until she resigned on 30 June 2020. She no longer worked there after the resignation.

(2) She had never heard of the plaintiffs or Smart Jobs before.

(3) She entered into a Short Term Loan Agreement dated 2 September 2015 with Hong Kong & Macau Ban Quan Import and Export Trading Company Limited (“HKMBQ”) to extend a loan facility of USD1,691,700 (“Loan Agreement”). She says that she entered into the Loan Agreement “as part of my duties at one of the companies under the Money Concepts Group”.

(4) The Loan Agreement stated that the loan obtained by HKMBQ “shall be used for ADF Group bridging financial needs”.

(5) The receipt of USD800,000 on 17 February 2016 by her was as part repayment of the loan made under the Loan Agreement.

(6) According to the ADF Group, in a letter dated 9 September 2020, sent to the defendant after she raised queries with it upon receiving a letter from those acting for the plaintiffs (“HFW”), after securing the Loan Agreement, ADF Group was able to obtain another loan facility from Smart Jobs for the amount of USD1,500,000, in order to repay the borrowing under the Loan Agreement.

(7) The USD800,000 thus came from Smart Jobs. But the defendant did not know where the sum came from at the time. She had no knowledge of or involvement in anything about Smart Jobs.

(8) In her email reply to HFW on 11 September 2020, the defendant said:

“Finally, I have only mention we have a loan agreement with ADF company. They had just returned the money and that was company money. I had already transferred back to company too. I have no money that what you called ‘stolen money’ in my account even you put in The Court of Final Appeal”.

D. SERVICE OF THE WRIT

9.  The only purported service of the Writ of Summons on the defendant relied on by the plaintiffs was the sending by registered post of the same on 13 May 2021 to the registered office of Money Concepts at Neich Tower in Wanchai (“Neich Tower Address”). The Neich Tower Address was at the time also the registered office of Tak Yi Investment Limited (“Tak Yi”), a company of which the defendant was at the time and is the director and sole shareholder. The defendant claims that she had ceased working at the Neich Tower Address since she resigned on 30 June 2020.

10.  The plaintiffs say that the Neich Tower Address was at the time the address of the defendant last known to them. This is fairly accepted by Ms Sabrina Ho,[1] counsel for the defendant, before me. The Writ of Summons not having been returned to the plaintiffs through the post, and indeed the Track and Trace page of the Hong Kong Post says that the envelope containing it was successfully delivered at 11:19 am on 17 May 2021, the plaintiffs submit that the Writ of Summons came to the defendant’s knowledge by 20 May 2021.

11.  Ms Ho submits that the fact that the Writ of Summons was sent by registered post to the Neich Tower Address, being the defendant’s address last known to the plaintiffs, only gives rise to a rebuttable presumption of proper service. She submits that as a matter of fact the defendant had no knowledge of the Writ of Summons, as evidenced by the return of the envelopes containing the Writ of Summons to HFW, as well as what HFW was told during a telephone conversation with someone from the Neich Tower Address (see below). The presumption is, she submits, rebutted.

12.  Apart from the purported service by registered post as stated above, the evidence regarding service of the Writ of Summons is as follows:

(1) In email correspondence regarding the plaintiffs’ claim with HFW after the date on which she claims to have resigned from Money Concepts, the defendant gave the Neich Tower Address as her address. That happened in emails sent by her on 29 July 2020 and 26 August 2020.

(2) After the Writ of Summons was issued on 12 May 2021, apart from the service by registered post to the Neich Tower Address I refer to above, a staff of HFW also delivered an envelope containing the Writ of Summons at the Neich Tower Address on that date. The receptionist told the staff that the defendant did work there but was not in the office at that moment, and took the envelope. The Writ of Summons was also sent by email to the defendant on 18 May 2021 with no reply or any “bounce-back” message. (I note that the plaintiffs do not rely on these as proper service.)

(3) According to the Annual Return of Money Concepts dated 11 December 2020, the defendant was a shareholder thereof.

(4) On 25 May 2021, a man identifying himself as Patrick Lau and describing himself as “Relationship Officer” called the direct line of a lawyer at HFW and gave the firm’s reference number of the case. As the reference number was not written on the envelopes delivered by hand or sent by registered post, but only on the covering letter inside, the plaintiffs suggest that the envelopes (or at least one of them) must have been opened by someone and the contents examined.

(5) During the telephone call, Patrick Lau told the HFW lawyer that “we received a registered mail from you to Cheung Pui Yee Denise”, and that no such person worked at the Neich Tower Address. He had no idea when did she stop working there, but that she might have left “sometime in January”.

(6) The two envelopes containing the Writ of Summons were then left at the reception desk of HFW by an unidentified man on 26 May 2021, with the words「沒此人」(“no such person”) written on each.

(7) On 1 June 2021, an unknown person left a letter dated 9 September 2020 at the reception desk of HFW. The letter was signed by the defendant, gives her address as the Neich Tower Address, and states on its face that it was sent by email to a partner of HFW, but HFW has no record of receiving it. The defendant did not reply to an email sent by the partner on 4 June 2021 enquiring her of the letter.

(8) On 24 June 2021, the Writ of Summons was also sent by registered post to the defendant at her residential address in Hung Hom, which is an address which the defendant accepts to be her residence. However, delivery thereof is stated at the Track and Trace page of the Hong Kong Post as “Delivery incomplete (unclaimed by addressee – returning to sender)”.

(9) Apart from what the receptionist was supposed to have said to the HFW staff on 12 May 2021 ((2) above), the aforesaid is not denied by the defendant, and there is no basis for me not to accept them as true.

13.  According to the defendant, on or around 25 August 2021, an employee of Money Concepts (Hong Kong) Limited (“Money Concepts HK”), which provided company secretarial services at the Neich Tower Address (to inter alios Money Concepts and Tak Yi), notified her that a letter for Tak Yi had arrived at the Neich Tower Address. She says that a receptionist had opened the letter and discovered a copy of the Judgment inside, and notified her immediately. She was also informed that “a very similar letter addressed to me personally” was also delivered at the Neich Tower Address.

14.  The defendant claims that she never received the envelopes delivered at the Neich Tower Address by hand and by registered post in May 2021, and they were returned because she no longer worked there.

15.  I do not accept the defendant’s case that service of the Writ of Summons on her in May 2021 by registered post was improper or invalid, or that the Judgment is irregular, for the following reasons.

16.  It is plain to me, as accepted by Ms Ho, that as at May 2021, the Neich Tower Address was an address of the defendant last known to the plaintiffs. The last known address of a defendant is simply an address known to a plaintiff, being a location where the defendant may be reached or contact or communication in written form could be established.[2] Notwithstanding her alleged resignation from Money Concepts on 30 June 2020, which I shall assume did happen, it is clear that she did not sever all connections or ties with the Neich Tower Address, which in my judgment remained, as at May 2021, a place at or through which contact and communication with her could be established:

(1) Her wholly-owned company, Tak Yi, still used the Neich Tower Address as its registered office, and the services of Money Concepts HK offered at that address. According to the Annual Return of Tak Yi as at 18 January 2021 produced by the defendant, the address of the company secretary of Tak Yi, being a Ms Lau, was the Neich Tower Address.

(2) The defendant apparently remained a shareholder of Money Concepts despite her resignation.

(3) She continued to use the Neich Tower Address as her address after her resignation in correspondence with HFW. Her explanation that she put the Neich Tower Address down as “I had in fact entered into the Loan Agreement as part of my duties at one of the Money Concepts group of companies” simply does not make sense.

(4) Most importantly, from her very own evidence, staff at the Neich Tower Address would open letters sent to her and/or Tak Yi and notified her of the same. She was, in August 2021, known to and contactable by the staff at the Neich Tower Address, and the staff did in fact contact her when mail for her or Tak Yi was received there. That happened when the Judgment was sent there. That is, some sort of arrangement must have existed in August 2021, more than a year after the defendant claims she ceased working there, at the Neich Tower Address regarding correspondence sent to the defendant there. After all, Money Concepts HK was a company secretarial service provider and it is only natural that it would receive and forward correspondence sent to the Neich Tower Address for its clients and their directors/shareholders. It seems to me quite improbable that staff there would open the letter sent to Tak Yi, as well as the letter sent to the defendant (as the staff was able to say that the two letters were similar), containing the Judgment in August 2021 and informed her accordingly, whilst just returning the envelopes in May 2021 (after someone had clearly opened at least one of them and thus knowing that it or they contained an important court document) without notifying or taking instructions from her. There is no suggestion that any arrangement for dealing with letters sent to Tak Yi or the defendant at the Neich Tower Address only came into being after the envelopes were delivered in May 2021.

(5) Indeed, if in May 2021 the defendant was somehow, as seems to be her case, not known or contactable at the Neich Tower Address (“no such person”), notwithstanding what the receptionist was supposed to have said on 12 May 2021 (which as the defendant is disputing that I shall not take into account), it is most improbable that the envelopes would be taken when served by hand or by registered post at all, or be opened at all. Why would someone open an envelope addressed to another person unless with the express authority of the addressee, only for someone then to take the trouble of calling, and then physically returning the envelopes to, HFW? That happened in May 2021, as well as August 2021.

(6) In so far as the writing of the words “no such person” in Chinese on the envelopes and the return thereof, and the call from Patrick Lau, were attempts to create the impression that the defendant was not known or contactable at the Neich Tower Address in May 2021, in light of the evidence, such an impression is patently untrue.

(7) The irresistible inference is that the defendant did receive and was aware of the Writ of Summons sometime in May 2021, after the same was delivered by registered post at the Neich Tower Address, an address at which she remained known and through which she was contactable. In so far as Patrick Lau and the defendant purport to suggest otherwise, I reject the same as being inconsistent with the evidence I relay and I accept (and which is not seriously disputed). The subsequent return of the envelopes by hand cannot change the fact that service had been properly effected. I so find.

17.  The Judgment is regularly entered.

18.  The Judgment being regular, it should only be set aside if the defendant has shown that her defence has a “real prospect of success”. As stated by Coleman J in Alan Chung Wah Tang and Kan Lap Kee (Joint and Several Liquidators of Wan Hin and Company Limited (in liquidation)) v Chung Chun Keung:[3]

“If, however, the judgment is a regular judgment, the power to set it aside is discretionary, and such power is unconditional. The purpose of the discretionary power is to avoid the injustice which may be caused if judgment follows automatically on default. The major consideration is whether the defendant has shown a sufficiently meritorious defence on the merits, being one that has a real prospect of success. This means the defendant must adduce evidence in support of his case, which is potentially credible and carries some degree of conviction. The merits threshold by a defendant seeking to set aside a default judgment is higher than that faced by a defendant opposing an application for summary judgment under Order 14”.

19.  This raises the question of whether leave to adduce additional evidence ought to be granted, to which I now turn.

E. ADDITIONAL EVIDENCE ON APPEAL

20.  In an appeal from a Master to a Judge in Chambers, no further evidence may be received except on “special grounds”.[4] It is common ground that this brings in the three requirements under Ladd v Marshall:[5]

(1) The evidence would probably have an important influence on the result of the case, though it need not be decisive.

(2) The evidence must be such as is presumably to be believed, i.e. it has to be apparently credible but need not be incontrovertible.

(3) The evidence could not have been obtained with reasonable diligence for use at the hearing below.

21.  The additional evidence consists of the 7^th affirmation of the defendant, and an affirmation of Tang, and the exhibits thereto. Tang is a director of Money Concepts (Asia) Holdings Limited (“MCAH”), a company in the same group as Money Concepts, but he only joined MCAH in January 2018, after the alleged making and repayment of the loan under the Loan Agreement. Thus, even if I admit his affirmation, I will not take into account anything Tang says regarding the Loan Agreement in the body of his affirmation, but would simply consider the documents from MCAH which he produces.

22.  By the additional evidence, the defendant seeks to adduce further support of her case that her receipt of the USD800,000 was part of a bona fide loan transaction which had nothing to do with the Scheme, already made on affirmation below. Before the Master, the documentary evidence regarding the Loan Agreement and the fund flows produced by the defendant consists of copies of the following:

(1) The Loan Agreement.

(2) The defendant’s HSBC bank account statement showing a deposit of USD1,554,700 and USD137,000 on 2 September 2015, and the withdrawal of USD1,691,700 on the same date.

(3) The document at [8(6)] above.

(4) A letter dated 2 November 2021 from Smart Jobs to Catherine Kum (“Kum”), the chief executive officer of the ADF Group, confirming receipts of loan repayments.

(5) Evidence of payments of USD400,000 and USD493,000 from ADF to MCAH, said to be repayments of the loan under the Loan Agreement, on top of the USD800,000 paid to the defendant.

23.  In my judgment, the defendant has not shown that the additional evidence could not have been adduced at the hearing below even with the exercise of reasonable diligence. My reasons are as follows:

(1) The additional evidence can be divided into four categories.

(2) The first category is the further narrative of the transaction by the defendant in the body of her 7^th affirmation. These are matters which the defendant knew all along and there is no reason why she should not or could not have stated them earlier.

(3) The second category is the records from the defendant’s own bank accounts. She says that since the records go back to 2015 and 2016, the banks needed time to retrieve them, and she was only able to obtain them in around late March 2022, after the hearing before the Master. However, while the defendant says she attended the counters of the banks to request the documents, she did not say when she did so. Since she took out the Summons to set aside the Judgment on 2 September 2021, if she was exercising reasonable diligence she ought to have made the request soon after that date, if not earlier, and I simply cannot accept that it took the banks more than six months to reply. The hearing date of 11 February 2022 before the Master must have been known for some time, and there is no evidence of any steps taken by the defendant to chase the banks, with formal letters from her solicitors if necessary, in an attempt to get the bank documents before the hearing. Indeed, before the Master, a bank document in 2015 was produced by the defendant ([22(2)] above).

(4) The third and fourth categories, namely documents from ADF and MCAH respectively, can be dealt with together. The defendant says that when she approached them in September 2021 for documents, they initially had strong hesitation in providing the same to her given the fact that the documents contain confidential financial and business information. It was only in around April 2022 that they agreed to help her. Ms Ho is at pains to point out that both ADF and MCAH were not under the control of the defendant, and so she cannot be blamed for not getting the documents from them earlier. While I acknowledge that, the point remains that there is a lack of evidence as to the efforts made by the defendant to persuade them to assist before the hearing by the Master. Ms Natalie So, counsel for the plaintiffs, submits that the defendant ought to have commenced gathering evidence, and thus asked ADF and MCAH for the documents she is now seeking to adduce, in September 2020, when HFW wrote to her. I have some doubt if her duty to exercise reasonable diligence extends that far, before a writ was even issued. So the time for the defendant to start to gather evidence in support of her case with reasonable diligence might well have started in May 2021, when, as I found, she had notice of the Writ of Summons. But even if I take September 2021 as the “starting date”, as the defendant herself says, I do not think that she has shown that she exercised reasonable diligence. The change of stance by ADF and MCAH, rather coincidentally to be around the same time in April 2022, which Ms Ho surmises may be prompted by the Master’s order dismissing the application to set aside the Judgment, in fact suggests that their apparent initial hesitation was not particularly strong, irremovable or difficult to overcome, and it is quite possible that with greater effort, the defendant might well have been able to change their minds before the hearing before the Master. She might or might not be able to do so but the burden is on her to show that she had exercised all reasonable diligence to try to do so, which I do not think she has so shown. I further note that back in 2020, even before the Writ was issued and the Judgment entered, ADF was already quite helpful to the defendant. Kum wrote a letter dated 9 September 2020 giving information regarding Smart Jobs and evidence of ADF’s repayments to Smart Jobs. While, as Ms Ho submits, the help was in relation to proof of payments to Smart Jobs rather than offering internal documents, this letter does suggest the attitude of ADF, which does not sit well with the suggestion of hesitation.

(5) Reference is also made to the fact that Kum’s father passed away in late 2021 and she had to deal with the funeral arrangements. While this might have delayed matters, given the time frame involved I do not see how that assists the defendant: there is no evidence of any efforts she made to persuade Kum before the latter’s father passed away.

24.  In light of the above, I am of the view that the application to adduce additional evidence on appeal must be dismissed. There is no need for me to address the other two conditions under Ladd v Marshall and I will not do so. I order that the Summons of 11 May 2022 be dismissed with costs to the plaintiffs, to be taxed if not agreed.

F. SETTING ASIDE OF THE JUDGMENT

25.  I repeat [18] above.

26.  In considering the merits of the defendant’s proposed defence, I note the following:

(1) The question is whether the defendant’s case that she received the USD800,000 from ADF as a partial repayment of a genuine, bona fide loan she made earlier is supported by evidence which is potentially credible and has a degree of conviction.

(2) In my judgment, it is so supported by the evidence before the Master ([22] above).

(3) Neither the defendant nor ADF nor HKMBQ is said to be associated or involved in any way with the Scheme.

(4) The authenticity of the Loan Agreement, and other documents produced before the Master, is not challenged as such.

(5) The defendant’s case that the transaction was a loan made between her on behalf of MCAH and ADF (through HKMBQ), supported by the evidence, was consistently made when she was first confronted by HFW on behalf of the plaintiffs (see [8(8)] above). She also made the point about returning the money to her company in the email of 11 September 2020 ([8(8)] above), laying the foundation for a change of position defence.

(6) In light of the above, the Loan Agreement and evidence of the fund flows must constitute potentially credible evidence (with a degree of conviction) in support of the defendant’s case that she made a bona fide loan to ADF via HKMBQ, which was a legitimate commercial transaction which did take place, and that she received the USD800,000 by way of partial repayment. The defendant has a real prospect of success in her defence of being a bona fide purchaser for value without notice. I need not deal with the change of position defence.

(7) I have not overlooked the submissions, made by Ms So for the plaintiffs with her usual ability, on the various features of the defendant’s case and the evidence which raise questions. However, as pointed out by Ms Ho, we are not at a trial where I have to make definitive findings on the defendant’s case, and the defendant’s case need not be perfect. She may or may not have good answers to those questions but that must be a matter for trial, and I do not think that those questions are sufficient to overcome my view that, in the circumstances as I outlined above, the defendant’s case is supported by evidence which is potentially credible and carries some degree of conviction.

27.  I am therefore of the view that the overall justice of the case requires the exercise of my discretion to set aside the Judgment. The appeal from the Master is allowed. I do not think it is appropriate for me to say more about the submissions of Ms So on the defendant’s case as they would have to be canvassed in detail later.

28.  I also make the following orders:

(1) The defendant to file and serve a Defence and Counterclaim (if any) within 28 days from the date of this Decision.

(2) The Charging Order and the Garnishee Order made absolute by the Order of the Master dated 11 February 2022 be set aside.

29.  As for costs, since the Judgment was entered regularly, I make an order nisi that the costs of the appeal be paid by the defendant to the plaintiffs, to be taxed if not agreed. The costs order made by the Master shall remain.

30.  I thank counsel for their assistance.