EASY FORTUNE PROPERTY LTD v. LAI MOON WING AND ANOTHER

DCCJ 5098/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5098 OF 2006

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DCMP 1277/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 1277 OF 2007

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DECISION

1.  Easy Fortune (the Plaintiff) is a licensed moneylender.  In August 2006, Easy Fortune entered into a written agreement with Lai Moon Wing (the 1^st Defendant) and Tse (the 2^nd Defendant) whereby Easy Fortune extended a HK$300,000 loan to Moon Wing which was guaranteed by Tse.  Moon Wing and Tse defaulted in repayment and Easy Fortune commenced proceedings against them in October 2006.  Hence action DCCJ 5089/2006.

2.  Default judgment was obtained against both defendants.  A charging order was obtained against Moon Wing’s property in Sheung Shui, New Territories.  Easy Fortune followed by commencing proceedings to obtain possession of that property in May 2007.  Hence action DCMP 1277/2007.

3.  Lai Chan Wing is the younger brother of Moon Wing.  Upon Chan Wing’s application under section 59M of the Mental Health Ordinance, Cap.136 (MHO), the Guardianship Board ordered in February 2007 that Lai be received into guardianship for 1 year and that Chan Wing be appointed as Moon Wing’s guardian.

4.  Application was then made by Chan Wing for him to be appointed as the guardian ad litem of Moon Wing in DCMP 1277/2007 pursuant to O.80 of the Rules of the District Court.  The Master granted the order.  Chan Wing, as guardian ad litem of Moon Wing, then filed an application to dismiss the possession proceedings.

5.  The possession proceedings could not be disturbed if the judgment and the charging order remain intact.  Therefore another summons was taken out for Chan Wing to be appointed as guardian ad litem of Moon Wing in DCCJ 5089/2006 too and for setting aside the judgment and the charging order.

THE O.80 APPLICATION

6.  To begin with, the fact that the Master acceded to the O.80 application in DCMP 1277/2007 would not fetter my discretion in the present application in DCCJ 5098/2006.  It should also be noted that that was an ex parte application without the benefit of arguments which were advanced by parties here.

7.  According to the summons in DCCJ 5098/2006, the application was taken out pursuant to O.80, r.3.  R.3(3) provides that a person authorised under Part II of the MHO to conduct legal proceedings in the name of a mentally incapacitated person  or on his behalf shall be entitled to be next friend or guardian ad litem.  The court was informed that Chan Wing has made application under Part II of the MHO in the High Court but Chan Wing had no such authorisation, at least not yet.

8.  When the present application was last heard by the Master in August 2007, the solicitors for Chan Wing, in their written submissions, conceded that the application was not appropriate and the correct course would be to await the determination of their application to the High Court under Part II of the MHO including, if necessary, the appointment of an interim receiver.  They would withdraw the O.80 application.  This would have been sensible: see Re Madam L, HCMP 2042/2004, 20 October 2004, Lam J, at paras.1; 8; 21-22.

9.  However, without the appointment, whether under Part II of the MHO or O.80, question arose as to what authority and instruction the solicitors had to take out the application to set aside the judgment and charging order in DCCJ 5098/2006 for Moon Wing.  A week prior to this hearing, the court was informed that upon counsel advice, the O.80 application would be proceeded with.

10.  Mr Yip for Chan Wing submitted that O.80 operates separately from Part II of the MHO, relying on Ho Po Chun v Tung Chee Wah & Ors [2006] 3 HKLRD 553.  I agree and so did Mr Wong for Easy Fortune.  But in my view, Chan Wing should have stuck to the course which he has started under Part II of the MHO and, if necessary, expedited such proceedings.  The court there has power also to assess if any interim measure such as authorising him, whether as an interim receiver, to have the conduct of this case (including setting aside the judgment), pending the inquiry.  In Re Madam L (above), the court directed the guardian as interim receiver to issue a protective writ on behalf of the allegedly mentally incapacitated person pending the inquiry as to that person’s capacity.

11.  Even if I am to consider the O.80 application, Mr Wong submitted that I would have to consider whether this would clearly be for the benefit of Moon Wing: see Ho Po Chun at 566 (para.46), per Yuen JA.  He submitted that the answer should be in the negative in view of no defence in this action.

12.  Lai was hospitalised from late September 2006 to late November 2007.  He was discharged to an elderly care centre in Tai Po.  According to the approved doctor’s medical report for the guardianship application under the MHO dated January 2007, Lai was suffering from disorder or disability of mind which did not amount to mental handicap.  The diagnosis was Korsakov’s psychosis.  The possibility of recovery and prognosis was said to be poor.  The mental disability was said to limit Lai’s capacity to make decision on treatment, personal care and accommodation and to manage finance.  The evidence therefore suggests that Moon Wing had no apprehension of the commencement of this action and the entering of judgment.

13.  A judgment in default entered against a defendant without the plaintiff being aware that he is a mental patient, and without a guardian ad litem having first been appointed to act for such patient, is irregular and may be set aside under O.2 or such irregularity may be waived: see Hong Kong Civil Procedure 2008 at 13/9/9; John v John & Goff [1965] 2 All ER 222 (citing Balloqui v Balloqui [1963] 3 All ER 989).

14.  Mr Wong for Easy Fortune submitted that the judgment in the present case was regular, in the absence of Easy Fortune’s knowledge about Moon Wing’s mental capacity at the time of entering judgment.  He relied on Fok Chun Hung v Lo Yuk Shi [1995] 2 HKC 648.  In Fok Chun Hung, the writ was returned undelivered after default judgment was entered in the absence of knowledge of the plaintiff.  Indeed Godfrey JA considered that the judgment was not irregularly obtained.  Refraining from making actual comment, Yuen JA has subsequently expressed reservation about Godfrey JA’s such dictum: see Liu Chong Hing Bank Ltd v Union World (HK) Ltd & Ors, CACV 285/2003, 9 December 2003, at para.16.  I propose to say no more than that.  Yet to begin with, whether the judgment was regularly or irregularly obtained did not seem to matter to Godfrey JA because his Lordship found that the judgment had to be set aside for the fact that the proceedings had not been brought to the defendant’s notice: see 651H-652E.  In my view, the ground for setting aside the judgment is the irregularity, rather than (necessarily) that the plaintiff obtained the judgment knowing about the irregularity.

15.  Mr Wong for Easy Fortune submitted that the irregularity may be waived.  But the circumstances giving rise to such waiver did not exist in the present case: see, for instance, John v John (above) at 225F-G (where all parties asked the court to direct that the decree, though tainted by similar irregularity as that suggested in the present case, to stand).

16.  Mr Wong also referred to the court’s discretion under O.80, r.16(3).  R.16(2) sets out how certain documents (including those which are required to be served personally) should be served on a person under disability.  Notwithstanding that, r.16(3) gives the court the discretion to order that a document which has been, or is to be, served on the person under disability or on a person other than a person mentioned in r.16(2) shall be deemed to be duly served on the person under disability.  However, I am not sure that I should do so, now knowing that Moon Wing was at all material times outside the address served.  Further I do not read r.16(3) to give the court discretion to dispense with the appointment of a next friend or guardian ad item of a mentally incapacitated person for the conduct of the proceedings (under O.80, r.6).  The court in John v John (above) apparently read r.16(3) the same way: see 223F-G.

17.  It has been settled practice in exercising discretion to set aside an irregular judgment as of right without entering into the merits of the defence: see Po Kwong Marble Factory v Wah Yee Decoration Co Ltd [1996] 4 HKC 157.  Yet I have to consider more than this for the purpose of this application.  The reason is that the appointment being sought would be for the purpose of Moon Wing being able to defend the action instead of merely for setting aside the default judgement.  Merits of Moon Wing’s case, assuming that the judgment is set aside, would be relevant in that sense.  In Ho Po Chun, the court considered the merits of the claim and opted for striking out the plaintiff’s claim: see 570 (para.63), per Lam J.  In Re Madam L (at para.23), Lam J emphasized the relevance of the merits of the proposed litigation to be commenced by the allegedly mentally incapacitated person before deciding whether to appoint the interim receiver to issue the protective writ.

18.  In this case, I share the scepticism which Mr Wong for Easy Fortune has about the possible defence of Moon Wing.  The signing of the loan agreement, the receipt and the cashing of the cheque by Moon Wing on 25 August 2006 are well evidenced by the contemporaneous documents.  Chan Wing raised a few queries but all, in my view, lack conviction.

19.  First, Chan Wing attempted to cast doubt on whether Moon Wing had the mental capacity to enter into, and therefore be bound by, the loan agreement.  However, the medical receipts show that Moon Wing was hospitalised from late September 2006.  There was no description of diagnosis.  The approved doctor’s report in January 2007 for the guardianship application recorded that the date of first consultation was 29 December 2006.  His last examination was conducted on 19 January 2007.  The doctor suggested that Moon Wing has mental disorder for 4 months, it is unknown whether he was counting from the date of his report, the last examination or the first consultation.  The development of any mental incapacity in Moon Wing after that date would not have affected enforceability of the loan.  As to the circumstances surrounding the entering into of the agreement, Tse apparently would have been in the best position to tell.  Yet he has neither entered appearance in these proceedings nor spoken in support of Chan Wing’s query.  There is basically nothing to suggest that Moon Wing was mentally incapacitated from entering into the agreement, receiving and cashing the cheque on the material day, 25 August 2006.

20.  The other query raised by Chan Wing was even less helpful.  He questioned where the money has gone.  The cheque was drawn in favour of Moon Wing who acknowledged receipt of the same.  It was not a bearer cheque.  It is more than likely that Moon Wing arranged the cashing of the cheque.  In any event I fail to see the relevance of who obtained the money insofar as Easy Fortune’s right as the lender is concerned.

21.  In the circumstances, considering the judgment as a regular one, I would have no doubt in refusing to set it aside in the absence of any meritorious defence being demonstrated.  Even if the judgment is to be set aside for irregularity, it would be appropriate to consider imposing the condition of payment into court of the amount claimed in view of Moon Wing’s failure to condescend to showing any defence on the merits of Easy Fortune’s claim: see Liu Chong Hing Bank Ltd (above) at para.13, per Rogers VP; Hong Kong Civil Procedure 2008 at 13/9/10.  Even if the judgment is set aside because of the irregularity, nothing prevents Easy Fortune to take out fresh summary application for judgment to enforce the loan agreement or alternatively for restitution of the money.  In any event, there is nothing before me which would come close to the threshold of a valid and meritorious defence.

22.  In the circumstances, and bearing in mind the costs implication on Moon Wing, I am not convinced that acceding to Chan Wing’s application would be to Moon Wing’s benefit.

23.  Mr Yip for Chan Wing asked me in court to stay the proceedings pending the outcome of his application under Part II of the MHO, if I was not with him on the O.80 application.  I do not see how the above considerations work differently in his favour when I have to consider both parties’ interest in an application for stay.

CONCLUSION

24.  I refuse the applications in DCCJ 5098/2006.  It follows that the summons in DCMP 1227/2007 should be dismissed too.  I see no reason why costs should not follow the event in respect of both summonses in any event.  However, I am of the view that Chan Wing instead of Moon Wing should in the circumstances of this case bear such costs burden.  Such costs shall be taxed, if not agreed, with certificate for counsel.