WAN HOW WAN v. WAN HOI WEI

HCA 578/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 578 OF 2006

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REASONS FOR DECISION

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Facts

1.  On 31 January 2011, the Court dismissed the applicant’s application to intervene in this action and be joined as a 2^nd defendant, and to set aside the default judgment entered by this Court on 24 April 2007.  The Court also gave the costs of the application to the plaintiff, to be taxed if not agreed.  These are the Court’s reasons.

2.  In this action, the plaintiff sued the estate of her deceased father, Wan Tak Yee, on a “settlement agreement”.  The plaintiff’s pleaded case was that in 1943, she and her late husband jointly advanced a sum of $2,000 in Chinese currency to the deceased, who pledged with the plaintiff and her husband his share certificate and dividend receipt booklet in relation to the deceased’s shareholding in The Luk Hoi Tong Co Ltd (the company) as security for the advancement.  In 1946, the two sides reached a further agreement whereby in consideration of the plaintiff and her late husband foregoing the debt of $2,000 (in Chinese currency), the deceased agreed to transfer his entire shareholding in the company as well as his interest in a deposit account maintained with the company to the plaintiff.  The agreement reached was the so-called settlement agreement.  From 1950 until the year 2000, the plaintiff received dividends from the company on the strength of the dividend receipt booklet.

3.  In the action, she sued the deceased’s estate for a declaration that pursuant to the settlement agreement, the deceased, and after his death in 1946, his estate, had been holding the relevant shareholding in the company as a bare trustee for and on behalf of the plaintiff; and for specific performance of the settlement agreement.

4.  As no representation had ever been granted in respect of the deceased’s estate, upon the ex parte application of the plaintiff, Master de Souza ordered that Wan Hoi Wei, a full blood younger brother of the plaintiff and the only surviving son of the deceased, be appointed to represent the estate in the present action.

5.  As Wan Hoi Wei did not give any notice of intention to defend on behalf of the estate, the plaintiff applied for judgment pursuant to O 13, r 6 and O 19, r 7, the Rules of the High Court (Cap 4A).

6.  At the first hearing of the application for default judgment, this Court directed that notice of the proceedings be given to the applicant who resided and still resides in the States.  The applicant is a grandson of the deceased.  His father was one of the two children whom the deceased’s first wife bore him.  The plaintiff, Wan Hoi Wei and another sibling were the children of the deceased and his second wife, whom the deceased married after the death of his first wife.  As was pleaded in the statement of claim (paras 13 to 16), the applicant had, in an earlier action (HCA 4501/2001), unsuccessfully sued the plaintiff for an account of the shares in the company and the relevant dividends in his capacity as a beneficiary of the estate of the deceased.  In the 2001 action, the applicant also relied on a copy will (allegedly) made by the deceased by which the deceased apparently bequeathed two shares in the company in favour of the applicant’s mother (one Madam Chu). The will was apparently made in 1943.  The will also referred to the loss of the dividend receipt booklet by the deceased.  The original of the will cannot be located, and judging from the copy will relied on by the applicant, the will was apparently not signed or otherwise executed by the deceased as such.

7.  On 24 April 2007, the Court entered default judgment against the estate of the deceased, after the applicant had been duly notified of and served with the papers in the action.  The Court granted the declaration sought but did not make any order regarding specific performance. There is no doubt that the applicant was fully aware of this development but took no steps to set aside the default judgment, whether before or after the refusal of his legal aid application on 25 June 2007.  That remained the case until 9 November 2010, when the applicant belatedly took out a summons to intervene in the action and be joined as the 2^nd defendant, and to set aside the default judgment.

Intervention

8.  Despite some arguments to the contrary, it was plain that the applicant had shown sufficient interest in the estate of the deceased to intervene and be joined as a party, in order to apply to set aside the default judgment.  In any event, the Court could always appoint the applicant to represent the estate of the deceased in the present action in replacement of Wan Hoi Wei, in which event the applicant would also have the necessary capacity to apply to set aside the default judgment.

Setting aside default judgment

9.  The court’s jurisdiction under O 13, r 9 to set aside a default judgment is unfettered.  It is a statutory discretion, the exercise of which has been the subject of a substantial body of case law, which has laid down guidelines for the exercise of the discretion.  See, for instance, Evans v Bartlam [1937] AC 473; Alpine Bulk Transport Co Inc v Saudi Eagle Shipping Co Inc [1986] 2 Lloyd’s Rep 221; Premier Fashion Wears Ltd v Chow Cheuk Man [1994] 1 HKLR 377.  However, guidelines are what they are, that is, guidelines.  To borrow from language used in another branch of the law, guidelines constitute “guidance and not tramlines” (R v Wakefield Metropolitan District Council, ex p Pearl Assurance Plc [1997] EWHC (Admin) 228, para 9, per Jowitt J).  The court’s discretion cannot be fettered by guidelines; rather, the court is duty bound to take into account all relevant considerations in exercising its statutory discretion.  Young Bing Ching (deceased) v Chow Yung Fong [2001] 2 HKLRD 394, 402-404, a decision of Mr Recorder Ma SC (as the Chief Justice then was).

10.  Nonetheless, there can be no denial that where, as in the present case, a regular default judgment has been obtained, the merits of the proposed defence is a primary consideration for the court, in the sense that unless the defendant can demonstrate that he has a defence on the merits which has a real prospect of success or carries with it some degree of conviction, the court would almost invariably exercise its discretion against setting aside the default judgment.  For in such a case, there is simply no point to re-open the matter as this would only meaninglessly postpone the inevitable.  However, it does not follow that where such a defence can be demonstrated, the court must necessarily set aside the default judgment.  As mentioned, all other relevant considerations need be borne in mind.  In Young Bing Ching (supra), the Court took into account, apart from the strength of the proposed defence, that there had been a very substantial delay in making the application to set aside, the unsatisfactory explanation given for allowing the judgment or the delay, the possibility of third party interests being prejudiced if the judgment was to be set aside, and the prejudice to the plaintiff if the judgment was to be set aside in terms of evidence (the plaintiff having passed away since the obtaining of the default judgment).  At the end of the day, the Court refused to set aside the default judgment.

11.  Needless to say, each case turns on its own facts. 

Present case – meritorious defence

12.  In the present case, the Court was prepared to proceed on the basis that the applicant had shown a defence on the merits which had a real prospect of success or carried with it some degree of conviction.

13.  In short, the main thrust of the proposed defence was that the deceased had actually passed away in 1943, and could not have made the alleged settlement agreement with the plaintiff in 1946.  This was supported by a family record as well as a conveyance made in 1943, both of which suggested that the deceased had died in 1943. 

14.  In relation to the conveyance, it was apparently a conveyance made by the deceased’s second wife as his widow to sell certain land after the death of the deceased.  The conveyance was apparently made in 1943. 

15.  Moreover, the contents of the will, apparently made in 1943, were inconsistent with the plaintiff’s case to this extent, that is, the will stated that the dividend receipt booklet had been misplaced or lost by the deceased.  Depending on when exactly the 1943 pledge of the share certificate and dividend receipt booklet was said to have taken place, what was stated in the copy will could well be inconsistent with the plaintiff’s case.

16.  However, for the plaintiff’s case, it could be said that all these were secondary evidence.  The plaintiff herself has first-hand knowledge of the 1943 pledge and advancement of money as well as the 1946 settlement agreement.  Moreover, the fact remained that between 1950 and the year 2000, she had received dividends from the company on the strength of the dividend receipt booklet without any apparent difficulty. 

17.  Furthermore, neither the copy will nor the conveyance made in 1943 appeared to have been signed or otherwise executed by their (apparent) makers.  Nor was the identity or the source of information of the maker of the relevant entry in the family record known.

18.  As I have said, the Court was nonetheless prepared to proceed on the basis that the applicant had shown a defence which had a real prospect of success or carried with it some degree of conviction.

19.  However, that was only one consideration, albeit an important one, that the Court had to take into account.

Other considerations

20.  The Court had to take into account all other relevant considerations as well.  Amongst them, the Court found the following considerations of particular significance.  First, the delay involved in the present case was very substantial.  The applicant was aware of the application for default judgment at all material times.  Judgment was entered in April 2007, but the application to set it aside was only taken out in November 2010.  The delay was very lengthy. 

21.  The explanation for the delay was far from satisfactory.  According to the applicant’s wife’s affirmation (paras 16-22), one reason for the inaction was “economic which [was] compounded by the geographic factor”.  By that, the applicant meant that his siblings lived in different parts of the world and he resided in the States.  He had commenced the 2001 action, which, however, had ended in total failure (costs awarded against him have remained outstanding).  His share of interest in the subject shareholding was limited and the shares were worth “more sentimentally” to him than in money terms.  During the last few years, what he did was to keep writing to the company appealing to the management not to recognize the title of the plaintiff to the shares.  In addition, he filed caveats to stop the plaintiff from obtaining a grant of letters of administration of the deceased’s estate.  The applicant pointed out that unlike lawyers in the States, lawyers here charged their legal fees differently.  The applicant explained that it was only after a change of lawyers that he decided to confront the judgment directly by making the application for joinder and for setting aside the judgment.

22.  I did not find the explanation satisfactory at all.  If anything, it evidenced a conscious and informed decision on the part of the applicant not to apply to set aside the default judgment.  He only changed his mind very recently after a change of lawyers.

23.  In my view, the public policy of finality in litigation was engaged.  See HKSAR v Hung Chan Wa (2006) 9 HKCFAR 614; Chan Chi Wai v Commissioner of Police CACV 129/2010 (16 December 2010). Finality in litigation, as a legal policy, is a relevant consideration to take into account, even in the case of a default judgment.  This is particularly so where the default judgment, which was entered with the prior knowledge of the person now seeking to set it aside, has been allowed to stand after its entry for a substantial period of time as a result of an informed and deliberate decision of that person.

24.  The plaintiff has, in reliance on the default judgment, taken steps towards obtaining the shares from the company.  This has resulted in further litigation which has reached the Court of Appeal: Wan How Wan v The Luk Hoi Tong Co Ltd CACV418/2007 (6 June 2008). For reasons that the Court need not go into, the plaintiff’s claim against the company failed.  But that did not detract from the fact that in reliance on the default judgment, the plaintiff had altered his position, and incurred costs.

25.  Furthermore, the Court bore in mind the undisputed fact that the plaintiff is now 96 years old.  If the judgment were to be set aside, the plaintiff might or might not live to see the trial of her action.  Moreover, her physical or mental health by that time might or might not allow her to give evidence which she might have been able to give had the action been defended timeously and diligently from day one.  It was plain that the plaintiff’s claim turned very much on the facts and on the plaintiff’s own recollection of events that happened or allegedly happened more than half a century ago. Her evidence would be quite crucial to the success of her claim.  Given her advanced age, the reopening of the dispute now would work, quite unfairly, to her detriment.

26.  Mr Albert Yau, appearing for the applicant, argued that the plaintiff did not come to court with clean hands in the first place.  He complained that the plaintiff ought to have asked the court to appoint his client to represent the estate of the deceased in defence of the present action, instead of asking the court to appoint her own full blood brother to do so.  He refrained from suggesting, quite rightly so in my view given the lack of concrete evidential foundation, collusion between the plaintiff and Wan Hoi Wei in allowing the entry of default judgment against the estate of the deceased. 

27.  In my view, no such implication could be drawn against Wan Hoi Wei from the mere fact that he was a full blood brother of the plaintiff, which was all that Mr Yau relied on in support of his submission.  Even on the face of the copy will relied on by the applicant, her mother was only a legatee for two shares in the company out of many that were registered in the name of the deceased.  Wan Hoi Wei, on the other hand, as the only surviving son (and, leaving aside the plaintiff herself, the only surviving child) of the deceased, would have a much larger interest in the estate in terms of its beneficial interest in the shares (if any).  It was perfectly proper for the Master, when granting the order of representation sought for, to proceed on the basis that Wan Hoi Wei would properly protect the interest of the estate of the deceased and defend the action (if there was any good ground to do so). 

28.  In any event, all this lost much of its significance after the Court directed the plaintiff to give notice of the proceedings to the applicant.  The default judgment was not entered against the estate until after that was done. 

29.  Nonetheless, the Court bore the point made by Mr Yau in mind and gave it its due weight in considering how its discretion should be exercised. 

30.  Mr Yau asked the Court to take into account the fact that in the past, both sides had proceeded at a leisurely pace, and the delay involved in applying to set aside the default judgment should be viewed against that background. 

31.  The Court has certainly borne the general background in mind.  However, it was plain that at least as from the commencement of the 2006 action, the plaintiff had proceeded with the matter seriously and unhesitantly.  Furthermore, the whole complexion of the matter changed after the grant of default judgment against the estate.  The applicant was fully aware of the entry of judgment, but, as mentioned, made a conscious and informed decision not to apply to set it aside until very recently.

32.  There is, in my view, a world of difference between a party who has simply been dilatory in applying to set aside a default judgment and someone who has decided with his eyes wide open not to apply to set aside the default judgment but to let it stand.

33.  The applicant offered to pay the outstanding costs awarded against him in the 2001 action.  With respect, that was something he was obliged under the costs order to do in any event.

Conclusion

34.  The Court took into account all relevant considerations, including those highlighted above, and reached the conclusion that its discretion should be exercised against setting aside the default judgment.

35.  For these reasons, the application was dismissed with costs.