EDWARD WONG & CO LTD v. TWIN EXPRESS LTD AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an appeal against the decision of Mr. Registrar Betts on the 3rd of November 1995 whereby he ordered that the default judgment entered against the 2nd and 3rd Defendants on the 22nd of March 1995, and the charging order dated the 20th of April 1995, be set aside.

2. There is a helpful chronology of events provided by Mr. Jason Pow on behalf of the Plaintiffs, the salient details of which I will set out. It is however important to note that the 2nd and 3rd Defendants are the sole shareholders and directors of the 1st Defendant company, facts which they deposed to in an affirmation of the 2nd Defendant who, as the 1st Defendant in an action brought by another creditor, was seeking to set aside service of the writ and judgment obtained against them by Hui Siu Mei (1995 No. A1055). This affirmation is exhibited to an affirmation on behalf of the Defendants in the current action with which I am dealing, sworn by the solicitor to the 2nd and 3rd Defendants who happens also to be the solicitor instructed by the 1st Defendant company. The contents of the affirmation by the Defendants in that other action are, I consider, very important.

3. The writ was served on all three Defendants on the 22nd of March by posting through the letter box, on the company by registered post at his registered office, and on the two individuals by posting through their letter box at their last known residential address. On the 10th of March default judgment was entered against the 1st Defendant. Three days later the ex parte Mareva injunction against the 1st and 2nd Defendants was continued. At that time a Mr. Lai Hok Lim Alex, represented the 1st Defendant (though no notice to act on behalf of the 1st Defendant was filed until 12th of April 1995).

4. On the 16th and 22nd of March charging orders were made against property owned by the 1st Defendant and on the latter date default judgment was entered against the 2nd and 3rd Defendants.

5. On the 12th of April the 1st Defendant applied by summons to set aside the default judgment. That application was dismissed on the 19th of April and on the 20th of April the charging order against property owned by the 2nd Defendant became absolute. On the 27th of July (by originating summons No. 1562 of 1995) the Plaintiff obtained an order for possession and sale in respect of one of the properties, Fook Shing Mansion, against the 2nd Defendant.

6. There is then a hiatus until the 11th of September when, under O. 12 r. 8, the 2nd and 3rd Defendants sought to set aside service of the writ on them, the default judgment, and the charging order absolute. Their solicitors, not surprisingly, are the solicitors who acted and continued to act for the 1st Defendant, 'their' company; they were the same firm of solicitors who acted for them in the action brought against them alone (not their company) by Hui Siu Mei (1995 No. A1055).

7. The 2nd Defendant also issued a summons under O. 45 r. 11 and O. 12 r. 8 to set aside service of the originating summons (1995 No. 1562) and the order for possession and sale of Fook Shing Mansion.

8. Nearly 6 weeks elapsed and then the 2nd and 3rd Defendants issued a summons under O. 3 r. 5 and O. 12 r. 6 seeking leave to file a notice of intention to defend out of time. In any event the steps taken were outside the time limited for service of the Defence. These then were the matters which came before the Learned Registrar. He had 3 summonses to deal with.

9. The Learned Registrar did not set aside service of the writ or of the originating summons; only the consequential default judgment, charging order absolute and order for possession and sale. That position is therefore significantly different from the position with which Patrick Chan J. had to deal in Hui Siu Mei's action against these two Defendants. There is no cross-appeal against the Learned Registrar's decision not to set aside the service of those two proceedings. However since this is a hearing de novo I should consider all the matters which were before the Learned Registrar on which he made decisions.

10. It is clear from the judgment in the Hui Siu Mei action, that the Learned Judge was not aware of the nature of this action with the company as the 1st Defendant, represented in the proceedings as early as 13th March 1995. The Defendants must have been aware of the proceedings in order to be able to give instructions on behalf of the company as sole shareholders and directors. They had gone to Canada as a consequence of the collapse of their business. The overwhelming inference is that they were trying to avoid their creditors, each being liable under a guarantee. The Plaintiff had been approached by the 2nd Defendant in order to obtain time for payment. He had deceived his staff as to his intentions and also as to the future of the company.

11. Before Patrick Chan J., the Defendants contended that their residential address was Flat A3, 17th Floor, No. 4 Greenfield Terrace, 26 Ho Man Tin Hill Road, Kowloon. This is not the address which features in their affirmation in this case. The Defendants purport to say that they have not permanently left Hong Kong and do not intend to settle elsewhere. They are therefore temporarily abroad. They must therefore be taken to have arranged for themselves to be informed of post and any developments which affect them. The writs sent to two of their addresses have not been returned to the Plaintiff's solicitors. This fortifies me in my view and decision that they were giving instructions to Mr. Lai for the company's interests to be represented. As Patrick Chan J. said in his judgment - p. 7K - "There are a whole lot of questions which can be asked of him [2nd Defendant]." Although the Learned Judge was reluctant to make the finding that the Defendants were outside the jurisidiction at the time of service of the writ, and stated that there was "an absence of direct evidence that he [2nd Defendant] had actual knowledge of the proceedings at a much earlier date", there is no such absence in the action which I am considering.

12. In considering the position generally, I have had regard to Mummery J.'s decision in T.S.B. Private Bank International S.A. v. Chabra and another [1992] 2 A.E.R. p. 245. There is much similarity in the position of that defendant and the Defendants in this action; writ sent by post, defendant(s) claiming to be out of the jurisdiction, and failing to disclose an address where he/they lived, Mareva injunction in force in respect of the defendant(s)' assets, no evidence in affidavits/affirmations as to any defence or assets within the jurisdiction.

13. Mummery J. considered Barclay's Bank of Swaziland Ltd. v. Hawn [1989] 2 A.E.R. in deciding the question of valid service under Ord. 10 r.1.(2), and the defendant's application under Ord. 12 r. 8. The defendant's application was out of time, as was the Defendants' application in this action. He asked for the Court to extend time. It refused to do so. The Defendants in this action took out a similar application for an extension of time on which the Learned Registrar made no order having failed to give notice of intention to defend the proceedings at the appropriate time. I would not be prepared to extend time to these Defendants. In any event, these Defendants failed to comply with Ord. 12 r. 8 in that no notice was issued before the application.

14. The Defendants have not, in any affirmation, stated when they received the writ. But it is clear that, from paragraph 3 of the hopelessly inadequate affirmation of the 2nd Defendant sworn on the 17th September 1995 that they had the writ and statement of claim before July 1995; the affirmation sworn by him in the Hui Siu Mei action on the 27th July in paragraph 9 and 10 refers to this causing his solicitors "to search the Supreme Court Registry to see if any other action was issued against him, his wife or various companies" after he had left Hong Kong and became aware of the issue of proceedings by another company against two of his companies. In any event, I am satisfied that they knew of these proceedings probably by 12th March and certainly by 12 April at the latest: Both Defendants have deliberately avoided producing any material which suggests they are trying to do other than evade all issues which affect their liability.

15. I decline to exercise any discretion in the Defendants' favour for the same reasons indicated by Mummery J. Although these Defendants have not specifically affirmed that the reason for not giving their current residential address is to avoid being pursued by the Plaintiff, I have no doubt that, on all the evidence, that is in fact the reason.

16. In ay event, as Mummery J. opined, it is a "pointless exercise to set aside service of the writ when it is clear that this is a case in which the Court would give leave to serve out of the jurisdiction and make an order for substituted service."

17. The application under Ord. 12 r. 8 is well out of time as is the application under Order 12 rule 6 and for the reasons already indicated and those which followed, I decline to extend the time for making such an application. The Defendants have submitted to the jurisdiction under Ord. 12 r. 8(7).

18. Mr. Benjamin Chain, on behalf of the Defendants has relied upon the decision in Mercedes-Benz A.G. v. Leiduck & Anor (Keith J. at first instance followed by the Hong Kong Court of Appeal 1995 1 HKC p. 448 and then by the Privy Council 1995 3 WLR p. 718.) It is important to note that in that case the Defendant complied with the rules and leave had been given to him to give notice of intention to defend, when he promptly did, so as to dispute the jurisdiction of the court to entertain the Plaintiff's claim against him, on which he succeeded. The service of the writ upon him out of the jurisdiction was not permissible under the various sub-sub-sections. The action by the Plaintiff against the Defendant had no connection with Hong Kong at all. Therefore in any event any question of delay by that Defendant was of little consequence. It was not a situation to be equated with the Defendants in the action which I am considering. The Defendants have not in any event "cleared the decks".

19. Mr. Chain also argued that there is a lacuna in the rules. I do not consider that there is. Order 12 rule 8(1) is in my view clear as to what the Defendants have to do and this is the situation whether or not judgment has been obtained. If he complies with the rules, or if he is given leave out of time, then he can proceed to ask for service to be set aside. Order 12 rule 6 sets out the position were judgment has been obtained.

20. As I have already set out the Defendants embarked on an application under Order 12 rule 8 without the prerequisite to it i.e. an application under Order 12 rule 6. That was then belatedly made on the 23rd October 1995 nearly six weeks later. No leave has been given and I have already stated I decline to give it.

21. The Defendants (2nd & 3rd) left Hong Kong together on the 26th of January 1995. Affirmations had been made which referred to late January and early February, which suggest that they had no clear idea of when it was. As Patrick Chan J. pointed out in his judgment, such vagueness is strange given the date in the passports and the immigration records.

22. The affirmations of the 2nd Defendant in these and other proceedings give as the deponent's address the Fook Shing Mansion in Hong Kong. That is wholly misleading. They have lived outside Hong Kong. essentially in Canada for just a year now, and I am told for the foreseeable future, although with an intention to return to Hong Kong. They ought to have disclosed their actual residence at the time of the making of the affirmation in this case i.e. 14th September 1995; they had failed to do so in the affirmation of the 27th of July in the other action to which I had referred. Why did they not do so? I am told by Mr. Chain their counsel, that they did not have a permanent address in Canada and since they intended to return to Hong Kong sometime, it was appropriate for them to use the Fook Shing Mansion address. I regret I cannot accept that explanation as valid. However temporary or transient their address, however itinerant their life style, the address to be given is the one of which they resided at the time of the affirmation. In my view their failure is a clear indication of a reluctance to divulge their whereabouts and was motivated by desire to avoid being pursued in the proceedings against them. Perhaps it was also influenced by the original attempt to have service of the writ set aside. In any event the address given is not, on the evidence before me, their residential address, because there is a sitting tenant at that address who had hoped to avoid being forced to give vacant possession. Furthermore there were addresses at which they had been known to reside and at which the writ had been served in this action and the other. They had of course, as the 2nd Defendant made clear in his affirmation in the Hui Siu Mei action, left Hong Kong 'due to the collapse of our business'. That did not feature in their affirmation in this action. It is clear from the affirmation evidence that the Plaintiff in this action was pressing the 2nd Defendant for payment. Mr. Chu Yuk Chiu (B64) set out a visit by the 2nd Defendant to his office on or about the 17th of February 1995, asking for more time to make payment, saying in view of the pressure from his wife (? ex-wife) who had frozen his assets, he could make no payment at the time. Within a little over a week, the Defendants had left Hong Kong. It is clear he was stalling the Plaintiffs who were unable to contact him; thereafter he hid from them and other creditors, his planned departure, and did not disclose what other creditors were pursuing him. I have no doubt he was seeking to evade liabilities which he was acknowledging.

23. When the solicitor Mr. Lai, started to act for the 1st Defendant company, it must have been on the instructions of the 2nd and or the 3rd Defendants. From who else could he obtain such instructions? The two Defendants had affirmed on the 27th of July 1995 that they were sole directors and shareholders even though an affirmation purporting to come from a Madame Lau Lai Kum, who does not identify her relationship with the 2nd and 3rd Defendants, gives as her address the Fook Shing Mansion flat used in their affirmation, and describes herself as a director of the 1st Defendant company, having the conduct of the business of that company. From the judgment of Patrick Chan J. in Hui Siu Mei case I have derived the existence of a notice at the Company Registry dated the 18th of February 1995 signed by the 2nd Defendant, appointing Madame Lau Lai Kum a director. Whatever her position may or may not be, and the whole of the circumstances give rise to considerable suspicion, the Defendants do not contend that they did not continue to act as the directors, nor had they answered the contention that they must have been giving instructions on behalf of the company.

24. In fact it is clear from paragraph 10 (B84) of the affirmation in the Hui Siu Mei case, that they were instructing solicitors to search the Supreme Court Registry to ascertain what other actions were issued against them and their various companies. If that is so, this action must have come to light. On the 15th of May 1995 the 2nd Defendant had Mr. Lai acting for him in the Hui Siu Mei proceedings, issuing an application to set aside the default judgment. The Defendants did not take any step in this action until the 11th of September 1995, nearly 4 months after their action in those proceedings. In any event, quite apart from a consideration of these matters, I am satisfied that they had knowledge of these proceedings at the latest on the 12th of April 1995 when Mr. Lai on their instructions filed notice to act on behalf of the company, but probably earlier on the 13th of March 1995 when Mr. Lai represented the 1st Defendant company on the hearing of the Plaintiff's application to continue the ex parte Mareva injunction against the 1st and 2nd Defendants' assets.

25. That then is the background against which the timeliness or otherwise, of the 2nd and 3rd Defendants' application of the 11th of September is to be seen.

26. The affirmations filed by or on behalf of the 2nd and 3rd Defendants are sketchy in the extreme. They are mainly concerned with the dates of the Defendant's departure from Hong Kong. I have already dealt with the aspect which calls most obviously for comment but it is also interesting to note the contrast with the detail and matters dealt with by the 2nd Defendant in his affidavit in the Hui Siu Mei action. There is absolute silence in his affirmation in this action as to the merits and his contact with the Plaintiffs. There has been no attempt to deal with the matters raised in the affirmation of Chu Yuk Chiu, the Plaintiff's senior manager. The Defendants have not raised any question of merit let alone argued it. I cannot in any event see any defence.

27. This is a claim for payment of the balance of money due for goods supplied in November and December 1994. The post-dated cheques handed over in payment were dishonoured, (save one which had not been presented). The date of the first cheque was the 24th of January 1995. Two days later the 2nd Defendant left Hong Kong, his business having collapsed. According to Mr. Chu there had been a meeting on the 17th of January 1995 to which I have already referred. The 2nd Defendant asked for time for payment. No complaints were made about the goods. No indication was given of any move to Canada. In view of what the Defendant company's staff were told by the 2nd Defendant of the company's proposed 'renovation', neither did they.

28. Both Defendants are liable to the Plaintiffs in respect of the company's indebtedness by virtue of a continuing guarantee. There can be no defence. None is put forward. The conduct of the Defendants' clearly disentitles them to the exercise of any discretion in their favour.

29. This appeal is allowed and the decision of the master restored, with costs of this appeal and of the hearing before Mr. Registrar Betts to the Plaintiffs.