ALAN CHUNG WAH TANG AND KAN LAP KEE (JOINT AND SEVERAL LIQUIDATORS OF WAN HIN AND CO LTD (in Liquidation)) v. CHUNG CHUN KEUNG AND OTHERS

HCA 64/2020

[2021] HKCFI 369

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 64 OF 2020

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J U D G M E N T

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A. Introduction

1.  These proceedings concern a piece of land situated at Section E of Inland Lot No 2802, 222 Hennessy Road, Wanchai, Hong Kong (“Property”), which was owned by Wan Hin & Company Limited (“Company”) from 1968 until 8 December 1997.  The Company was a subsidiary of a listed company then called Tak Wing Investment (Holdings) Ltd (“TWIH”).  The 1^st defendant (“Dr Chung”) is a former director of the Company, and formerly a director and the Chairman and CEO of TWIH.

2.  By a sale and purchase agreement dated 8 December 1997 (“1^st Sale”) the Property was transferred from the Company to the 3^rd defendant (“Vicfont”).  By a further sale and purchase agreement dated 30 June 2000 (“2^nd Sale”), the Property was transferred from Vicfont to the 2^nd defendant (“Joint Group”).  On 16 May 2002, a mortgage (“Mortgage”) over the Property was created in favour of Dr Chung.

3.  The Company, a company incorporated in Hong Kong, was wound up by order of the Court made on 21 January 1998.  Alan Chung Wah Tang (“Mr Tang”) and Kan Lap Kee are the current joint and several liquidators (“Liquidators”) of the Company.  The Liquidators were appointed to that role in May 2013 (some 15 years after the original winding up order).

4.  On 30 July 2020, I granted default judgment (“Default Judgment”) in favour of the Liquidators against all of Dr Chung, Joint Group and Vicfont.  The terms of the Default Judgment included that there be:

(1)  a declaration that Dr Chung is in breach of fiduciary duties owed to WH;

(2)  an order that the 1^st Sale be rescinded;

(3)  an order that the 2^nd Sale be rescinded;

(4)  an declaration that the Mortgage is null and void;

(5)  an order that the costs of the action be payable by the defendants jointly and severally, summarily assessed at $360,000.

5.  By summons dated 19 October 2020, Dr Chung and Joint Group seek an order setting aside the Default Judgment, and for leave to them to defend the action.  By order dated 11 November 2020, I stayed execution on the Default Judgment pending the determination of that application.  The substantive argument was fixed for hearing on 10 February 2021.

6.  At the hearing, the Liquidators were represented by Mr John Scott SC, leading Mr George Chu of Counsel, and Dr Chung and Joint Group were represented by Mr José Maurellet SC, leading Mr Alexander Tang and Mr Kevin Lau of Counsel.

7.  Vicfont has taken no part in the proceedings. But, I can deal separately with the consequences that may flow for Vicfont from determining the present application.

B.  The Default Judgment

8.  These proceedings were commenced with the leave of Master Au-Yeung dated 9 May 2017 (“Au Yeung Order”), made in HCCW 614/1997 (the winding up proceedings relating to the Company).  The Master ordered that:

1.  the Liquidators be at liberty to commence legal proceedings generally against directors and officers of the Company under Sections 275 and/or 276 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) and/or under section 60 of the Conveyancing and Property Ordinance (Cap 219) or otherwise; and in particular against [Dr Chung], a former director of the Company (and all known corporate vehicles controlled and/or owned by him and in particular [Vicfont] and [Joint Group]) in connection with the disposal and transfer of [the Property], which was owned by the Company;

2.  the Liquidators be at liberty to appoint solicitors and counsel as may be necessary in Hong Kong to assist the Liquidators in the above legal proceedings with costs of such solicitors and counsel to be payable out of the assets of the Company; and

3.  Costs of this application be paid out of the assets of the Company.

9.  This Action was commenced by writ dated 14 January 2020, amended 15 January 2020.  The explanation for the near three-year delay between the Au Yeung Order and the commencement of these proceedings can be seen below.

10.  Despite service of the amended writ on the defendants, no acknowledgement of service was filed.  Originally an application was issued seeking judgment in default of acknowledgement of service.  However, a Statement of Claim was subsequently filed.  The original application was withdrawn, and a fresh application was issued seeking judgment in default of Defence.

11.  When I granted the Default Judgment, I did so on the basis of the 1^st and 2^nd affirmations of Mr Tang, and the submissions of Mr Chu (as Mr Scott was not previously involved).

12.  From my recollection, Mr Chu properly drew my attention to the principles governing the grant of default judgment where the relief claimed includes declaratory relief.

13.  Those principles include that it is the general or normal practice of the court not to make a declaration of right in default of defence.  But the court’s power to grant judgment under RHC Order 19 rule 7 is discretionary.  The principle that a declaration will not be granted when giving judgment in default of defence is a rule of practice and not of law, and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled.  Where declaratory relief is the only and substantial relief sought by the plaintiff, it may be necessary to make a declaration to do justice to the plaintiff.

14.  I might add that it is also settled that where declaratory relief is sought, the court expects the maximum assistance to be provided in order for the relief to be granted.  However straightforward the application may seem, the court should not be expected to deal with the matter on a ‘do-it-yourself’ basis and ‘rubber-stamp’ the uncontested application without further ado.

15.  One of the exhibits to Mr Tang’s 1^st affirmation was his own 4^th affirmation dated 12 April 2017 filed in HCCW 614/1997.  That affirmation was the evidence filed in support of the application leading to the Au Yeung Order, and it set out what Mr Tang called the suspicious transactions relating to the transfers of the Property. Broadly the allegation is that Dr Chung, in breach of fiduciary duties owed to the Company and its creditors, sought to “ring fence” the Property from the hands of liquidators or creditors shortly before the winding up of the Company.

16.  Materially for present purposes, in seeking the Default Judgment, Mr Tang deposed that:

14.  … In this regard, pursuant to the Au Yeung Order and within the HCCW 614/1997 proceedings, the Liquidators issued a summons on 1 June 2017 to pursue the 1^st Defendant and 2^nd Defendant hearing under Sections 275 and 276 of Cap 32 (“Misfeasance Proceedings”).  That set of proceedings remains un-disposed of.  For the avoidance of doubt, these proceedings and the Misfeasance Proceedings are concurrent alternate proceedings of the Liquidators to seek to, into alia, recover the Property.

…

17.  …  The Amended Writ was apparently served properly and regularly to all of the 3 Defendants in these proceedings by registered post.  It appears to me that there has not been any response from any one of the 3 Defendants; and they are in default of filing any Acknowledgement of Service.

18.  On the other hand, the last letter I received from the solicitors, Messrs Ernest Li & Co, acting for the 1^st and 2^nd Defendants in the Misfeasance Proceedings was dated 3 October 2019.

19.  In the circumstances, I am advised by my legal advisers and verily believe that there is no viable defence that could be advanced and the Defendants are in default in filing any Acknowledge [sic] of Service in any event.  Therefore I humbly crave leave that judgment be entered against all of the Defendants accordingly.

17.  Those passages left the impression that:

(1)  though the Misfeasance Proceedings had been begun by summons in HCCW 614/1997, which had not been dealt with, nothing substantive had happened in the Misfeasance Proceedings;

(2)  not only had the defendants failed to acknowledge service in this action, nothing had been heard from their solicitors in the Misfeasance Proceedings since early October 2019;

(3)  notwithstanding the silence of the defendants, there was anyway no viable defence that could be advanced by the defendants.

18.  The impression left was misleading.

19.  With the benefit of the evidence since filed in this application to set aside the Default Judgment, it is now clear that:

(1)  there is a substantial overlap in the factual matters traversed in the Misfeasance Proceedings with the factual matters raised by this action;

(2)  in fact, substantial evidence had been filed both by the Liquidators and by Dr Chung (and Joint Group) in the Misfeasance Proceedings;

(3)  the Liquidators filed their evidence with the summons commencing the Misfeasance Proceedings, and the respondents filed substantive affirmations in opposition in December 2017, followed by the Liquidators’ response in May 2018;

(4)  that evidence was clearly the result of significant work on both sides, and involved investigations with third parties conducted by the Liquidators;

(5)  in Dr Chung’s (and Joint Group’s) evidence, there had plainly been the advancing of defences he/they wished to put forward;

(6)  indeed, when seeking the Au Yeung Order, Mr Tang had himself alluded to possible defences which might be raised to actions as might be commenced by the Liquidators (including a limitation defence);

(7)  the Misfeasance Proceedings were being managed by Harris J;

(8)  the Misfeasance Proceedings first came before Harris J on 19 July 2017;

(9)  the Misfeasance Proceedings last came before Harris J on 4 October 2019;

(10)  as stated, in advance of that hearing, Mr Tang had filed his 8^th affirmation, responding to the evidence filed by Dr Chung, but stating that it was “inevitable” that the Liquidators would need to seek relief from the Court for further update affirmations to be filed, and of course for further responses (if any) thereto to be filed by the respondents;

(11)  at the hearing on 4 October 2019, Harris J ordered that there should be a further Case Management Conference to be fixed for 30 minutes before a companies judge;

(12)  effectively, therefore, the ball was in the Liquidators’ court;

(13)  no explanation was offered by the Liquidators for the change in tack, and the commencement of this action;

(14)  nor has explanation been given as to why no notice of this action was given to the solicitors acting for Dr Chung and Joint Group in the Misfeasance Proceedings, either of the writ or later of the statement of claim.

20.  It is regrettable that these matters were not drawn to my attention at the time of the application for the Default Judgment. In my view, they should have been, not least where the deponent was an officer of the court.

21.  I take Mr Scott’s point that neither Joint Group nor Vicfont are parties to the Misfeasance Proceedings, and it might therefore be said that there are different parties and causes of action now pursued, and that there is nothing in the Au Yeung Order requiring the causes of action to be included in the same proceedings. Nevertheless, such is the extent of the factual overlap, including the commonality that Dr Chung is the main defendant or respondent to the claims which focus on the same events, that those differences do not change my analysis.

22.  Whilst it may be strictly correct that there is no clear obligation on an applicant for default judgment to comply with the requirement of full and frank disclosure as is applicable on, say, an application for a Mareva injunction, I would express my full agreement with the comments made by DHCJ William Wong SC in Sky Joy Investment Ltd v Zheng Dunmu (unreported, HCA 395/2016, 16 August 2017), when he said that given the nature of an application for default judgment, akin to an ex parte application, the applicant ought to make full and frank disclosure of matters which militate against the grant of declaratory relief, so that the court could properly assess the merits of granting such relief without having the benefit of full submissions from both sides.

23.  It is no answer for Mr Tang to have responded to the criticism by pointing to the bare references to the Misfeasance Proceedings, when the omission of relevant material in context left the impression that Dr Chung and Joint Group were unresponsive to allegations made against them, and could not advance defences, when in fact they were responsive to very similar allegations and had advanced defences.

24.  I have to say that, had the full picture been painted at the application for Default Judgment, I would almost certainly have chosen to exercise my discretion not to have granted declaratory relief, and I would almost certainly have refused the application for judgment in default in full.

25.  The consequences of those matters will be dealt with below.

C.  Principles Applicable on Applications to Set Aside

26.  The principles applicable on applications to set aside judgments entered in default are well-established.  They can be stated shortly, and without reference to authority.

27.  On such applications, the Hong Kong Courts distinguish between a judgment that was obtained irregularly and one that was obtained regularly.

28.  If the judgment has been entered irregularly, the irregular judgment will ordinarily be set aside in the interests of justice, and without regard to the merits of the proposed defence.

29.  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.

30.  The court has the power, on such terms as it thinks just, to set aside or vary any judgment entered in default.

D.  Explanation for the Default

31.  Dr Chung accepts that he must have seen the amended writ, though he now cannot specifically recall doing so.  He places significant reliance on his age – he will be 85 years old this year – and some difficulties in recollection.

32.  Dr Chung says that he delegated the day-to-day conduct of litigation to his assistant, Norman Chan.  Unfortunately, during 2020, Norman Chan was suffering from serious health problems, which caused hospitalisation and also caused him to resign twice from employment (once in January 2020, and again in August 2020).

33.  A record of WhatsApp communications between Dr Chung and Norman Chan has been produced.  Dr Chung says that it identifies the miscommunication between them, where Dr Chung apparently misunderstood that Norman Chan would attend to instructing lawyers for the default judgment hearing, when Norman Chan was in fact meaning that he was too ill to do so.

34.  When it was realised that lawyers were not instructed, two assistants were sent to the hearing to object to the application for default judgment, but without it being understood that they would not have rights of audience.

35.  The Liquidators say the WhatsApp exchanges actually identify a different picture, namely that there was a deliberate decision by Dr Chung not to participate in the proceedings.

36.  Having reviewed the exchanges, I accept there was some degree of miscommunication between Dr Chung and Norman Chan.  On the other hand, it is also clear that Norman Chan was pushing Dr Chung to give instructions to lawyers, or to ask another member of staff to do so. Unfortunately, despite Norman Chan’s efforts or his hope that things were arranged for the court hearing, Dr Chung failed to take appropriate steps.

37.  But, because some representatives were sent to the hearing, I do not think it can be said that Dr Chung was wholly ignoring the proceedings, and the application.  The engagement was late, and insufficient, but not wholly absent.  I also take into account that there may have been some confusion in relation to the overlap with the existing Miscellaneous Proceedings, even though Dr Chung had been clearly informed that this action was “new”.

38.  Overall, there is some explanation for the default.  But it is not the best of explanations, bearing in mind that the default included not just the failure properly to attend the hearing on 30 July 2020, but also the prior failures of any response to the writ (no acknowledgement of service) or to the Statement of Claim (no Defence).  I shall take these matters into my overall consideration below.

E.  Regular or Irregular Judgment

39.  In my view, the Default Judgment was a regular judgment.

40.  Mr Maurellet has submitted that there are various reasons why the Default Judgment should be considered irregular.  First, he said there was a failure to join a necessary party, namely TWIH.  Secondly, he said the Liquidators had no locus to bring the claims under section 60 of the Conveyancing and Property Ordinance Cap 219 (“CPO”), as they were not persons “prejudiced”.  Thirdly, he said this action is an abuse of process, because of the previous proceedings involving the same subject matter.  But, none of those points – even if all are arguable – seem to me to identify that the Default Judgment is irregular.

41.  As Mr Scott submitted, the test for irregularity is concerned with process.  Here, the proceedings were properly served on and notified to Dr Chung and Joint Group.  There was simply the failure by them to file any acknowledgement of service or any Defence to the Statement of Claim.

42.  As a result, the major consideration must be of the merits.

F.  The Merits

43.  The matters giving rise to the complaint made in this action go back to the period between 1996 and 2002.

44.  Part of the contest between the parties arises from the different way in which each side paints the material transactions. The Liquidators rely on internal documents discovered by them exercising that capacity after their appointment in 2013.  Dr Chung and Joint Group rely primarily on Dr Chung’s recollection as well as some documents, and the fact that he no longer has access to a number of the contemporaneous documents.  He does not accept that the documents relied upon by the Liquidators are the full documents, or necessarily paint the full picture.

45.  As stated in introduction, the key events are as follows.  In October 1996, a debenture (“Debenture”) was granted by the Company over the Property, amongst other things, to its then parent company TWIH, to secure loans advanced by TWIH. Subsequently, in December 1997, the 1^st Sale took place as a mortgagee sale by TWIH, by which the Property was transferred from the Company to Vicfont.  In June 2000, the 2^nd Sale took place, by which Vicfont transferred the Property to Joint Group.  In May 2002, the Mortgage was made by Joint Group in favour of Dr Chung.

46.  But, in order to consider the merits, it is necessary to give some further factual context.

47.  Dr Chung used to control the Company, through its parent TWIH, a company then and still listed (now under a new name) on the Stock Exchange of Hong Kong.  The Company was engaged in the construction business, and was on the Approved Contract for Public Works List 1 of the Hong Kong Government. The company relied heavily on TWIH to provide it with sufficient funding to meet the minimum working capital required by the Government.  The Property was one of the Company’s assets.

48.  In 1994, the Company entered into a Redevelopment Agreement with Po Leung Kuk (“PLK”) to redevelop the Property. The redevelopment never took place, apparently because of the financial difficulties faced by the Company from early 1996.  In March 1996, the Company decided on, but then cancelled, a sale of the Property to Vicfont at the price of HK$60 million. By July 1996, the Company was looking for ways to exit the redevelopment with PLK.  In September 1996, TWIH sought advice from Stephenson, Harwood & Lo (“SHL”) as to how to improve its position as a creditor of the Company by obtaining security.

49.  The advice given by SHL in July and September 1996 is relied on by the Liquidators.  As they read it, the advice demonstrates that Dr Chung knew that the creation of the Debenture was a doubtful way to give preference to TWIH.  But, it seems to me that the advice can fairly be read as simply identifying the potential pitfalls or weaknesses of the security proposed to be created by the Debenture.

50.  In any event, it seems that by the time the Debenture was executed on 24 October 1996, the Company owed TWIH at least HK$134 million.  By 30 November 1997, the debt had apparently increased to over HK$261 million.  As Mr Maurellet submitted, the Liquidators have not alleged that the Company did not in fact owe TWIH significant sums of money, and they have not sought to set aside the Debenture (nor make TWIH a party).  Hence, he submitted that the starting point of any analysis must be that the Company properly had its assets (including the Property) charged to secure the debts owed to TWIH.

51.  As the financial condition of the Company continued to deteriorate, by September 1997 TWIH sought advice from SHL as to enforcement of the Debenture.  Despite having some initial reservations (fearing potential termination of the Company’s Government contracts), by December 1997 TWIH chose to enforce the Debenture.  In that month, again pursuant to legal advice from SHL, TWIH as mortgagee sold the Property to Vicfont (ie. the 1^st Sale).  There is a professional valuation report valuing the property at that time at HK$42 million.  So, Mr Maurellet submitted, this was a proper sale by TWIH as mortgagee to reduce debts owed to it by the Company.

52.  Further, the Assignment dated 9 December 1997 reflected TWIH duly crediting HK$50 million to the Company, to reduce the debts then owed from HK$261 million to HK$211 million.  That point is said to meet the criticism made by the Liquidators that no money seems to have changed hands.

53.  Mr Maurellet submitted that if the Debenture and the 1^st Sale are valid, then the Company’s interest in the Property had been overreached.  What happened subsequent to the 1^st Sale is of no concern to the Company, or the Liquidators. Nevertheless, if necessary, he said it can also be seen what happened to the Property after Vicfont became its owner.  In October 1998, the Property was mortgaged for a loan of at least HK$2 million.  Against the threat of enforcement action by the lender, which sought a court order for possession, in July 1999 Vicfont entered into a sale and purchase agreement with Bailey Development Ltd (“Bailey”) at the price of HK$14.5 million.  There is an independent valuation as at 31 January 1999 of HK$17.5 million.  The sale did not go through, due to title problems.  Bailey took out proceedings to sue for the return of the deposit and costs.  Vicfont tried to find a new buyer in February 2000, being Best Scheme Ltd (“Best Scheme”), at the consideration of HK$5.45 million (together with some element of profit sharing).  However, by March 2000, Bailey had obtained a charging order over the Property, and in April 2000 the Best Scheme sale fell through. Against those encumbrances and failures to sell, on 30 June 2000 Vicfont sold the property – notably, without title warranty – to Joint Group (ie. the 2^nd Sale), at the consideration of HK$7 million.

54.  The Liquidators see it differently.  On their behalf, Mr Scott submitted that Dr Chung procured a foreclosure sale by TWIH (acting on Dr Chung’s signature) to Vicfont, another subsidiary of TWIH, and premised on the newly created Debenture, which had been created in the face of doubts expressed by SHL.  Later, when Dr Chung lost control of TWIH in 2000 – having earlier, in 1999, resigned as director, Chairman and CEO when a ‘white knight’ emerged – Dr Chung arranged the 2^nd Sale by which the Property was transferred from Vicfont (which remained a subsidiary of TWIH) to the newly formed nominal company Joint Group, which had only two dollars in paid-up capital.  Dr Chung then entered into the Mortgage, no doubt in order to create the false impression that there were other shareholders interested in Joint Group.  However, in fact, Dr Chung has throughout been the only ultimate beneficial owner of Joint Group (though this was revealed only in 2020).

55.  Mr Scott submitted that the obvious inference is that the 1^st Sale was a transaction to defraud creditors of the Company, engaging section 60 of the CPO.  The 1^st Sale took place on 8 December 1997 – at a time when the Company and TWIH were hopelessly insolvent – shortly before the winding up order came on 21 January 1998.  Hence, Mr Scott said the 1^st Sale falls within Rules 2 and 3 of the principle in Freeman v Pope, as adopted by the Hong Kong Court of Final Appeal in Tradepower (Holdings) Ltd (in liq) v Trade power (Hong Kong) Ltd (2009) 12 HKCFAR 417 at §§85-88.  There, the Court was dealing with the meaning of “intent to defraud creditors” under section 60 of the CPO, and at §88 Ribeiro PJ stated:

Where it is objectively shown that a disposition of property unsupported by consideration is made by a disponor when insolvent (or who thereby renders himself insolvent) with the result that his creditors (including his future creditors) are clearly subjected at least to a significant risk of being unable to recover their debts in full, such facts ought in virtually every case to be sufficient to justify the inference of an intent to defraud creditors on the disponor’s part.  In cases falling outside the rule, that is, in cases where the disposition is made for valuable consideration, or where the disponor is not insolvent or where the disposition does not deplete the fund potentially available to the creditors, and actual intent to defraud creditors must be shown as an inference properly to be drawn on the available evidence before s.60 is engaged.

56.  The phrase “intent to defraud creditors” in section 60 of the CPO is a shorter version of phrase used in the original Statute of Elizabeth (13 Eliz Cap 5).  However, Mr Scott relies on what was said by Godfrey JA in Skink Ltd v Comtowell Ltd [1994] 2 HKC 286, at 291E-F:

This contraction does not, in my judgment, make any difference.  If you find that the plaintiff has proved an intent on the part of the defendant to delay, hinder or defraud his creditors, the plaintiff will succeed; but, in each case you must look at the whole of the circumstances surrounding the execution of the deed and then ask yourself the question whether the deed was in fact (it is a question of fact) executed with the necessary intent.

57.  The Skink case also explains that the plaintiff does not need to prove deceit, as dishonest intention will suffice. But, it can also be noted that the Skink case was dealing with an application for summary judgment, and it was further pointed out that the court would rarely be able, on such an application, to come to the conclusion that the necessary intent has been sufficiently established if the defendant has denied any such intent and has offered an innocent and credible explanation for his conduct (“credible” not meaning an explanation that is bound to be believed, only one that is capable of being believed).  Though, as I have pointed out, the merits threshold is higher on an application to set aside default judgment than to avoid summary judgment, the case seems to me to emphasise the fact sensitivity of the question of intent, the factual finding (if made) almost certainly to be one involving and requiring the drawing of an inference.

58.  Whether or not the Liquidators need to seek to set aside the Debenture in order to pursue the current claims, it seems to me that the materials identify that there is a real prospect of success in showing the Debenture was valid.  The argument about whether it involved “new” monies does not seem to me to be one capable of what is in effect summary resolution; there is at least reasonable evidence that additional financing was provided to the Company after the Debenture, which might lead to the conclusion that the Debenture was not intended to prejudice other creditors.  There is also some force in Mr Maurellet’s submission that the distinction between “new” and “old” monies may be irrelevant to a claim that the Debenture is a transaction to defraud creditors as a whole, rather than simply preferring one creditor over another: see Re Sarfax Ltd [1979] Ch 592 at 602F, 605F.

59.  Looking at the 1^st Sale, despite the wide variation in the said-to-be independent property valuations over time, the 1^st Sale was at a figure in excess of the only valuation currently put forward in evidence.  The Liquidators have sought to cast doubt on the valuation (as well as the other valuations), but have not put forward any contradictory valuation evidence.  Further, I have already pointed to the fact that the recital to the Assignment provides some answer as to the criticism that there was no cash consideration for the 1^st Sale.  I also accept that there is something in the argument that section 60 of the CPO is not relevant to a mortgagee sale, as the 1^st Sale was effected by TWIH and not the Company (being the entity going into insolvency and winding up).

60.  I further accept that there is a real prospect of raising a valid defence of limitation against the Liquidators’ claims in this action.  As I have pointed out above, when seeking court permission to commence proceedings such as the present action, Mr Tang himself specifically recognised the possibility of a limitation defence being raised.  It is common ground that this is an action upon a specialty, falling within section 4 of the Limitation Ordinance Cap 347 (“LO”) (and, on the relevant chronology, it does not matter whether the claims are subject to a 6-year or 12-year limitation period).  I do not think Mr Scott’s reliance on the Peconic line of cases or section 26 of the LO are sufficiently strong as to remove the real prospects of success on the limitation point.  For example, the concealment point is obviously fact sensitive, and there are materials showing some public announcements which may be relevant.

61.  Seeing real prospects of success in these various points, particularly when taken together, makes it unnecessary to deal with the points argued in relation to the 2^nd Sale or the Mortgage.

G.  Result

62.  Therefore, I set aside the Default Judgment as against Dr Chung and Joint Group.

63.  Further, I shall set aside the Default Judgment as against Vicfont, even though it has not been party to this application.  I have the power to do so by virtue of RHC Order 13 rule 9 / Order 19 rule 9 and Order 1B rule 2(1).  I choose to do so for two reasons. First, as I have already indicated, I almost certainly would not have granted judgment in default against any of the defendants had I been told of the steps already taken in, and the materials produced for, the Misfeasance Proceedings. Secondly, the logic of setting aside judgment against Vicfont seems obvious when it is borne in mind that Vicfont was the intermediate owner of the Property, between the ownership by the Company and Joint Group, and that the motive or intention behind the Debenture leading to the 1^st Sale will necessarily be explored in this action.  Though not forming part of my reasons, I would also mention the doubts arising from the chronology of the restoration of Vicfont to the Register and the service/notice of the action on Vicfont.

64.  Therefore, I set aside the entirety of the Default Judgment, including the costs order and assessment.

65.  But, at least in the new context of having set aside the Default Judgment, I agree with Mr Scott that this case ought not to be prolonged.  It also makes case management good sense for the same Judge to deal with this action and the Misfeasance Proceedings together.  I, therefore, direct (1) the defendants are to file a Defence by 5 March 2021; (2) the timetable for any subsequent pleading will follow the RHC, unless otherwise ordered; (3) this action and the Misfeasance Proceedings shall be heard together; and (4) the parties are in the meantime forthwith to fix the adjourned Case Management Conference in the Misfeasance Proceedings and a Case Management Conference in this action, to be heard together by a companies judge, with 30 minutes reserved.

66.  I further agree that the circumstances of the case, and the chronology of the underlying factual matters as well as the procedural histories, identify that there should be the grant of some interim measure of protection.  It was common ground between Mr Scott and Mr Maurellet that, if I think some interim protection to be appropriate, an order along the lines of a Mareva injunction might be considered.  In the exercise of my discretion, I order that pending further order of the Court Dr Chung and Joint Group are restrained from selling, disposing of, further encumbering, or otherwise dealing with the Property to reduce its value.  I make that order as a condition of setting aside the Default Judgment, albeit without prejudice to any future consideration by the Judge who manages this action and the Misfeasance Proceedings as to the continuation or variation of the order as seems just in whatever are the then prevailing circumstances.

H.  Costs

67.  On an application to set aside a regular judgment, where the defendant has been at fault, the usual practice is for the plaintiff to be awarded his costs in any event.  However, Note 13/9/16 in the Hong Kong Civil Procedure 2021 points out that such practice is not appropriate on setting aside a regular judgment where neither party has been at fault.

68.  In this case, it might be said that both sides have been at fault.  More particularly, despite the fact that the success in setting aside the Default Judgment might be regarded as something of an ‘indulgence’, I think my strong dissatisfaction at the way in which the application for judgment in default was presented (see section B above) is appropriately reflected in depriving the Liquidators of their costs.

69.  In the circumstances, the parties shall bear their own costs, and I make no order as to the costs of the application.