PATRICK HUNG HING YU v. HO YIN MAN AND OTHERS

HCA 92/2007

[2018] HKCFI 1015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 92 OF 2007

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JUDGMENT

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Introduction

1.  By a summons dated 12 July 2017 (“D1’s Summons”), Ho Yin Man (“D1”) seeks a number of orders:

(a)   The judgment entered on 29 October 2015 in favour of Huang Kai Chiun Dorothy, the executrix of the estate of Hung Hing Yu Patrick (“P”) be set aside:

(i)   unconditionally on the ground of irregular service;

(ii)   unconditionally on the ground of meritorious defence;

(iii)   unconditionally on the ground of misrepresentation and inducement;

(b)   A declaration that the affirmation made by D1 on 8 June 2007 be of no effect;

(c)   Paragraphs 2, 4 17, 20 and part of paragraph 16 of P’s affirmationdated 7 October 2015 be struck out on grounds of embarrassment and being scandalous;

(d)   The 8 June 2007 affirmation of D1 be expunged from the court files;

(e)   A declaration that the writ was not duly served on D1[1];

(f)   Leave to D1 to withdraw the acknowledgment of service filed on 21 June 2007 (“the AS”).

2.  The following evidence has been filed in respect of the Summons:

(a)   In support for D1: 1^st affirmation dated 17 August 2017 (“Ho 1”);

(b)   In answer for P: 4^th affirmation of Huang Kai Chiun Dorothy dated 13 September 2017 (“Huang 4”);

(c)   In reply for D1: 2^nd affirmation of D1 dated 25 October 2017 (“Ho 2”).

General nature of the action

3.  Between late 1992 and early 1999, four plots of land at Leung Fai Terrace and Caine Road were redeveloped into a new building Scenic Rise (“the Redevelopment”).  The developer, Fook Tai Investment Co Ltd (“the Developer”; D3 in this action) agreed to pay a consultancy fee in respect of certain preparatory work done for the Redevelopment, which fee was to take the form of 5000 square feet of the new building (subject to certain conditions).  The conditions being satisfied, it was arranged that the consultancy fee would be paid by the Developer to Stereo Ltd (“Stereo”; D2 in this action), which is a company at all material times 95% owned by D1, of which D1 was the principal director.

4.  In 1994, D3 paid or allotted the consultancy fee in the form of (i) money representing 3,583 odd square feet of the new building (which has been used for the benefit of D1 and/or D4), and (ii) Flats 36A and 36 B of the new building. (Flat 36B was later swapped with the Hung family for 36D).

5.  An issue has arisen as to who is beneficially entitled to the remaining consultancy fee consisting of Flats 36A and 36D (“the Properties”).  

6.  One of the original four plots was owned by four brothers in the Hung family.  The son/nephew of these Hung brothers, Patrick Hung (the original “P”), claims an entitlement to a part of the consultancy fee in this action. Patrick Hung died in February 2012 (“the Deceased”).  After his death, the Deceased’s executrix, has pursued this action as P.

7.  However, others have also laid claim to the Properties since 1999. 

8.  The Properties remain registered in the name of D3.

9.  It is necessary to look back many years to identify the context of this action concerning the Properties.

Background

10.  On D1’s evidence, in 1985, D1 started Heltech Company Ltd (“Heltech”), distributing Fuji Hunt photochemicals as the sole agent in the mainland, Hong Kong, Macau and Taiwan, and this business was profitable.  D1 thereafter engaged in other photography related businesses.  From around1990, D1 started buying properties through Yam Sam Leung, D4 in this action (“Yam”). Yam was a person who assisted D1 with property development projects, on the basis that D1 provided the funding and Yam did the “leg work”, according to D1’s evidence.

11.  As stated above, the Redevelopment took place between 1992 and 1999.

12.  In 1999, Yam commenced proceedings (HCA 3890/1999) in respect of the Properties (inter alia) (“Yam’s Action”). Yam’s Action was brought against Stereo (D2 in this action), Heltech (D1’s company), and the Developer (D3 in this action).

13.  On 5 July 2005, Stereo obtained the Court’s sanction for a scheme of arrangement.

14.  On 2 September 2005, D1’s creditors approved D1’s proposal for an individual voluntary arrangement (“IVA”).

15.  On 15 March 2006, the parties to Yam’s Action consented to a settlement which was drawn up as a schedule to a Tomlin order, sanctioned by the Court.

16.  It seems that two further actions HCA 666/2006 and 667/2006 were commenced in 2006 by Wealthy Channel Ltd (D5 in this action i.e. P’s Action) and Access Luck Ltd, also claiming interests in the Properties.  I have not however seen these proceedings.   

17.  On 16 January 2007, P’s action against D1 to D4 was commenced by writ (“the Writ”; “P’s Action”):

(a)   In the Writ, D1’s address is stated as Room 8, 23/F, Block A, Healthy Garden, 550 King’s Road, North Point, Hong Kong.

(b)   The endorsement seeks:

(i)   a declaration that P is entitled to one-third of the consultancy fee given by the Developer to Stereo, stating that D1 and Stereo hold the one-third entitlement on trust for P;

(ii)   seeking an order that the settlement agreement entered by Stereo, the Developer and Yam, annexed to a Tomlin order in Yam’s Action, not be enforced or performed until conclusion of P’s action.

(c)   The Writ was issued by Patrick Hung (the original “P”); “the Deceased”) in person.

18.  On 10 April 2007, P’s statement of claim was filed.[2]

19.  On 3 May 2007, D1 took out a summons in Yam’s Action (“the 3 May 2007 application”): 

(a)   The summons was written in Chinese by hand by D1, and signed by D1.  It gave D1’s address as Flat H, 23/F, Everwin Building, 406 – 408 King’s Road, North Point, Hong Kong (“the Everwin Address”).

(b)   The summons sought nullification of D1’s signature on the settlement agreement (as recorded in the Tomlin order dated 15 March 2006) and for him to be added as the fourth defendant in Yam’s Action.

(c)   The summons was supported by an affirmation of D1, which affirmation was in Chinese, and gave the Everwin Address as D1’s address.  In gist, D1 sought nullification of the settlement agreement in Yam’s Action concerning the Properties.

20.  On 5 May 2007, D1 filed a memorial to register his affirmation dated 4 May 2007 in the Land Registry in respect of the Properties (inter alia) (“the 5 May 2007 Memorial”; “the 4 May 2007 Affirmation”): 

   (a)   The memorial was in English and signed by D1.

   (b)   The affirmation was made by D1:

   (i)   It was in Chinese, save that the property addresses were written in English.

   (ii)   It was typed, save that the action number and parties (of Yam’s Action) were written by hand.

   (iii)   It gave D1’s address as the Everwin Address.

   (iv)   It states that in March 2006, D1 signed the settlement agreement concerning the Properties (inter alia) under the direction of a Michael Chan (apparently one of the employees of the administrators of Stereo’s scheme of arrangement); that the contents had not been explained to D1, and that D1 had applied to the Court to withdraw his signature.

21.  On 28 May 2007, D1 made a second affirmation in Yam’s Action, in Chinese (“D1’s 28 May 2007 affirmation”):

   (a)   D1 stated his address to be Room 8, 21/F, Block A, Healthy Garden, 560 King’s Road, Hong Kong (“the Healthy Garden Address”).

   (b)   D1 stated that he was, through his agent Stereo, the trustee of the Properties (inter alia) on behalf of himself, Yam, Lai Ho of Wealthy Channel Ltd (D5 in P’s Action), To Chi Wing of Access Luck Ltd, and the Deceased.

   (c)   D1 stated that:

   (i)   Yam’s Action was not tried or concluded and that a settlement agreement signed in March 2006 had not been executed; that it contained an error and needed to be corrected before Yam and the creditors of Stereo could receive their entitlements;

   (ii)   Lai Ho of Wealthy Channel Ltd had started action HCA 666/2006 to claim his share;

   (iii)   To Chi Wing of Access Luck had started action HCA 667/2006 to claim his share; and

   (iv)   The Deceased had started action HCA 92/2007 to claim his share, and that D1 was the first defendant in that (this) action.

   (d)   D1 stated that before signing the settlement agreementin Yam’s Action, D1 had told Lai Ho, To Chi Wing and the Deceased that he would return their entitlements to them after the conclusion of Yam’s Action;

   (e)   D1 suggested that Stereo, managed by Yam and a scheme administrator, were conspiring to obtain the Properties without compensating Lai Ho and To Chi Wing.

   (f)   D1 stated that, in order to exercise his duties as trustee and protect the beneficial interests in the properties including the Properties, D1 needed to join the 4 cases mentioned, and he hereby applied to become a defendant in Yam’s Action.

22.  On 8 June 2007, D1 made an affirmation in this Action (“D1’s 8 June 2007 Affirmation”):

   (a)   It was in Chinese and was typed.

   (b)   It gave the Everwin Address as D1’s address.

   (c)   It stated that D1 was the 1^st defendant in this action, and the shareholder and principal director of Stereo, D2.

   (d)   It gave a detailed account of his previous relationship with the Deceased and with Yam, and how the Redevelopment came about. 

   (e)   It stated that the Deceased and D1 agreed that the Deceased would have one-third of the consultancy fee, and Yam would have the remaining two-thirds, after deduction of expenses.

   (f)   It gave details of the discovery of Yam’s unauthorized sale of properties including the Properties, and how the Deceased had been angered by D1’s failure to monitor Yam’s action and the consequential negative impact on the relationship with the Deceased. 

   (g)   It detailed discovery of other areas of betrayal of D1 by Yam.

   (h)   It then gave great detail about the debt problems of Stereo, leadingto the scheme of arrangement and D1’s IVA, and the involvement of a third party Ronald Chan Hoi Lam in the reorganization of Stereo and D1’s affairs (paragraphs 22 to 28).

   (i)   At paragraph (30) it stated:

“ [the Deceased] kept chasing me including Stereo and [Yam] for his 1,700 square feet. Before [the Deceased] instituted this action, I including Stereo and [Yam] had never refused or denied the fact that Stereo had received the 1,700 square feet [on the Deceased’s] behalf. I cannot deny the request raised by [the Deceased].”

   (j)   Paragraphs (29), (31) – (32), (34) stated that between the end of 2003 and the first half of 2007, D1 had repeatedly told all concerned including the IVA and scheme administrators of the Deceased’s interest[3], but they had told him not to divulge the truth. 

   (k)   Para (35) reiterated that by reason of the agreement between the Deceased and D1, D1 had instructed Stereo to represent the Deceased and D1 and Yam to collect the consultancy fee; that such agreement did not involve the Developer (D3), and it was due to D3’s refusal to transfer the properties to Yam that Yam’s Action had been commenced.

23.  I was told during the hearing that Stereo (D2) had been struck off, although I have not seen evidence of this.

24.  The Developer (D3) filed a defence in P’s Action on 24 April 2007 [4].

25.  Yam (D4) filed a defence in P’s Action on 22 May 2007 [5].

26.  On 21 June 2007, D1’s AS was filed.  It states that there is no intention to contest the proceedings.  It gives the Everwin Address as D1’s address for service.  It is signed by D1.

27.  On 11 July 2007, the IVA nominees petitioned for D1’s bankruptcy on the basis of a default in the IVA.  The petition stated that D1 was of two addresses:

   (a)   It stated that D1 had resided at the Everwin Address within 3 years immediately preceding the petition. 

   (b)   It also stated that D1 had lately been residing at the Healthy Garden Address.

28.  On 12 November 2007, a bankruptcy order was made in respect of D1.  The bankruptcy order recorded that the last known addresses for D1 were the Everwin Address and the Healthy Garden Address.

29.  On 12 November 2011, D1 was discharged from bankruptcy.

Events in 2014 onwards

30.  According to the 3^rd affirmation of Hau Wai Yu (“Hau 3”) of P’s solicitors:

   (a)   the RASOC dated 27 June 2014 was served on D1 on 27 June 2014 by posting it to him by ordinary post to the Everwin Address stated on the AS, being the usual or last known address of D1.

   (b)   a notice of intention to enter judgment dated 18 May 2015 was served on D1 on 18 May 2015 by posting it to him by ordinary post to the Everwin Address stated on the AS, being the usual or last known address of D1.

31.  On 4 August 2015, the Official Receiver and trustee in bankruptcywas released in respect of the estate in bankruptcy of D1 pursuant to section 94 of the Bankruptcy Ordinance (Cap 6).  Section 94 provides for release of the trustee:

“ [w]hen the trustee has realized all the property of the bankrupt or so much thereof as can, in his opinion, be realized without needlessly protracting the trusteeship, and distributed a final dividend, if any, or has ceased to act by reason of a voluntary arrangement having been approved, or has resigned or has been removed from his office”.

32.  I have not been made aware of the reasons for release of the trustee.  It is possible that assets of D1 realised after 4 August 2015 wouldgo to D1 rather than the estate in bankruptcy, but I did not receive submissions on that.

33.  On 7 October 2015, P issued an inter partes summons effectivelyseeking judgment against D1, by seeking a declaration that the Properties wereheld on trust for P (“the Judgment Summons”).  The Judgment Summons was issued pursuant to:

   (a)   Order 13, rule 6 (where a plaintiff gives evidence of due service of the writ but the defendant fails to acknowledge service, and the plaintiff seeks to continue the action as if the defendant had given notice of intention to defend);

   (b)   Order 19, rule 7 (judgment in default of defence, where the claim against the relevant defendant is severable from the claims against other defendants); and

   (c)   Order 27, rule 3 (judgment on admissions).

34.  The Judgment Summons was supported by the 2^nd affirmation of P dated 7 October 2015 (“Huang 2”).

35.  On 8 October 2015, the Judgment Summons and Huang 2, along with Hau 3 in respect of service, were served on D1 by posting them to him by ordinary post to the Everwin Address stated on the AS, being the usual or last known address of D1.  Hau’s 4^th affirmation dated 12 October 2015 (“Hau 4”) gives evidence of such service.

36.  Ho 2 states that D1 never received such documents; and that D1 was not in the jurisdiction on certain dates around the stated date of service.  For reasons addressed below, this does not in my opinion matter.

37.  In P’s skeleton submissions to the Court for the purposes of the Judgment Summons, P stated that it would rely only on Order 19, rule 7 and Order 27, rule 3, and addressed the satisfaction of the requirements under those rules.

38.  At the hearing on 29 October 2015, D1 did not attend.  In his absence, DHCJ Seagroatt made an order and gave judgment, granting P the declaration sought (“the D1 Judgment”).[6]

39.  D1 claims, in Ho 1, that he did not receive the Judgment Summons and related documents through service by P, but that sometime after 5 August 2015, D5 contacted him about P’s action, and D1 then instructed his current lawyers on 30 October 2015 to seek advice, and that on 3 November 2015 he found about the D1 Judgment.

40.  On 26 January 2016, P’s solicitors wrote to the Court, copied to D3 to D5, stating that they had been informed by solicitors to D1 that D1 would apply to set aside the D1 Judgment.

41.  A year later, on 20 January 2017, Registrar K W Lung heard an application by P pursuant to RHC Order 38 for certain affirmations, including affirmations of D1 dated 28 May 2007 and 8 June 2007, to be adduced as hearsay evidence.  As recorded in the learned Registrar’s judgment, the application only concerned D4 and D5, but D1 was present in person and (as may be seen from para 28 of the judgment) D1 informed the Court that he was not aware of the D1 Judgment and he would apply to set it aside.

42.  Some 6 months later, on 12 July 2017:

   (a)   The 4^th CMC in the action was held before Registrar K W Lung;

   (b)   D1 issued D1’s Summons to set aside the D1 Judgment inter alia;

   (c)   Registrar K W Lung gave directions on D1’s Summons including the filing of evidence by D1 to support the Summons.

43.  On 17 July 2017, D1 filed Ho 1 in support of D1’s Summons.  Ho 1 claims that:

   (a)   D1 had not seen the Writ before 30 October 2015 and the address for D1 stated therein was his sister’s address prior to 2007 [7]; and he was surprised to learn on 3 November 2015 that P had entered D1 Judgment on 29 October 2015.  (Accordingly, D1 admits that he was aware of the D1 Judgment within 5 days.)

   (b)   The delay in making the application to set it aside (1 year 8 months) arose due to the need to raise funds from friends, the need to obtain documents in respect of matters which happened long ago, and the need to be careful in light of the “risk of self-incrimination”.

   (c)   D1 had not seen the RASOC before 30 November 2015.

   (d)   Significantly, he gives a new version of events relating to the consultancy fee for the Redevelopment:

   (i)   He claims that he is entitled to the Properties, subject to D5’s entitlement to Flat 36D if it pays the full purchase price.

   (ii)   He claims the Deceased never asked for a share of the consultancy fee, D1 never agreed to share it with him, and the Deceased did no part of the preparatory work for the Redevelopment.

   (iii)   D1 only acknowledges various agreements to share the consultancy fee with Yam.

   (iv)   He claims that in 2006, but after 15 March 2006, the Deceased arranged to meet D1 to discuss the Deceased’s allegation of an entitlement to the Properties; that Bill Chan (D1’s PA and a mutual friend of D1 and the Deceased) asked D1 to help the Deceased with his claim, but D1 wanted to check the position with Yam first; that D1 could not contact Yam but then agreed to help the Deceased and was told that an affidavit would be made for this purpose; that the Deceased said that D1 would not be involved in the claim but just be a witness; that Bill Chan said he would keep the affirmation until it was needed to be used as D1 lived on the mainland; that D1 was not told that he would be sued.

   (e)   As to the 8 June 2007 Affirmation, Ho 1 says that Bill Chan (his PA) told him that he had a document in Chinese for him to affirm at the High Court for the purposes of being a witness for the Deceased against Yam.  D1 says that he did not read the affirmation in detail but noticed that he was a defendant and queried it, and was told that the Deceased wanted to ensure that D1 would be a witness against Yam for the Deceased’s benefit and that the Deceased had no particular claim against D1, as opposed to Yam.  D1 claims that he trusted Bill Chan and the Deceased and confirmed with them that he would not be affected by the proceedings and that they accompanied him to the High Court to affirm.  He states: “I then handed the affirmation to Bill on the condition that until I received confirmation from Yam in relation to[the Deceased’s] entitlement as alleged.”  (I note: on such an apparentlyimportant point for D1, the sentence and evidence are incomplete.  This is notable particularly given D1’s statement that delay was at least partially caused by the concern about the risk of self-incrimination.  No attempt was made to address or correct this incomplete evidence at the hearing).

   (f)   As to the AS, D1 says that he filed this in accordance with Bill Chan’s instructions in the belief that D1 was not the target of the Deceased’s action; he was not represented or properly advised and he did not understand the legal consequences of signing and filing the AS, and was unaware that he would be liable under P’s claim.

   (g)   Notably, Ho 1 mentions no other 2007 documents made by him other than the 8 June 2007 Affirmation and the AS.

44.  On 13 September 2017, P filed Huang 4 in answer to D1’ Summons.  In particular:

   (a)   Huang explains the use of the Healthy Gardens Address and the Everwin Address as D1’s last known address by reference to the bankruptcy papers; and the provision by D1 of the Everwin Address on the AS (in particular) and other documents filed in Court in 2007.

   (b)   Huang refers to the 28 May 2007 affirmation as showing D1’s awareness of this Action against him.

   (c)   Huang points out D1’s delay in acting with respect to the D1 Judgment.

   (d)   Huang refers to inconsistencies in D1’s version of events, to be taken into account when considering the merits of D1s’ defence.

45.  On 24 October 2017, D1 filed Ho 2 in reply, and to correct or clarify matters in Ho 1.  Of particular interest is D1’s explanation of his involvement with other documents filed in Court in 2007.  The following is a combination of what is said in Ho 1 and Ho 2:

   (a)   As to the Ho 1 explanation for the 8 June 2007 Affirmation, this is addressed at para 43(e) above.

   (b)   As to the Ho 1 explanation for the AS, this is addressed at para 43(f) above.

   (c)   By Ho 2, D1 stated that he was not present in Hong Kong on 21 June 2007 so he could not have physically filed the AS himself.  There is no question however that the AS was signed by him and filed with his authority.

   (d)   By Ho 2 para 26, D1 exhibits the memorials, affirmations and summons of 3 to 5 May 2007.  He claims that he prepared the summons himself, whilst Bill Chan prepared the other documents, and D1 swore the affirmations.  He states “The matters stated in those affirmations are correct.” (In other words, he reaffirms his May 2007 claims that he had not understood the content or consequences of the settlement of the Yam Action, but had signed the settlement under the direction of Michael Chan, an employee of the scheme administrators of Stereo).

   (e)   As to the 28 May 2007 Affirmation, D1 claims it was not prepared by him, but he had completed the first page and inserted the addresses provided by Bill Chan and the Deceased, and he had also inserted the written words at pages 1 and 6 at the request of the Commissioner for Oaths who said the drafting was incorrect.  Herefers to the inconsistency between this document and his present claim, and states he did not read the 28 May 2007 Affirmation save the parts he had written or corrected, that he had no legal advice, and that the contents thereof were incorrect.

   (f)   As to the addresses used for service:

   (i)   D1 claims that his mother lived at the Everwin Address but left there in the latter half of 2007 (and he had completed this address on documents such as the 28 May 2007 Affirmation at Bill Chan’s direction);

   (ii)   His sister lived at the Healthy Gardens Address, and left there by the latter half of 2007, but none of them could remember the exact date or month she left.

Issues

46.  The issues identified by D1, represented by Daniel Kuan, are as follows:

   (a)   Whether there was proper service of the Writ;

   (b)   Whether the AS should be set aside;

   (c)   Whether D1 had notice of the default judgment application;

   (d)   Whether leave should be given to withdraw the 8 June 2007 admissions;

   (e)   The “minor” issue of “possible” delay; and

   (f)   P’s suggestion of a payment into Court as a condition of defence.

Proper service of the Writ; and the AS

47.  I do not think the issue of service of the Writ can be severed from the fact of the AS.

48.  RHC Order 10, rule 1(2) provides that where a defendant is in the jurisdiction, service may be effected upon him other than personally, by sending a copy of the writ by registered post to his usual or last known address; or inserting it through the letterbox for that address.  If service occurs when the defendant is not in the jurisdiction, such service is invalid.  The timing of service is deemed pursuant to rule 1(3), unless the contrary is shown.

49.  In this case, there is no affidavit of service of the Writ[8]. P’s counsel accepts there appears to have been an incorrect address used for D1 in the Writ, and therefore it may be presumed that service of the Writ to the address stated in the Writ was at an incorrect address and not duly made.

50.  RHC Order 10, rule 1(5) provides that, subject to Order 12, rule 7,where a writ is not duly served but a defendant acknowledges service of it, the writ shall be deemed, unless the contrary is shown, to have been duly served on him and to have been so served on the date on which he acknowledges service.  By analogy with Cosec Nominees Ltd v Lau Hon Ming Alan [2001] 3 HKC 290 at 290E, 296C–E, the deemed service will be effective when the defendant has notice of the proceedings (if established), rather than the date of the AS.

51.  In this case, it appears from D1’s 28 May 2007 Affirmation in the Yam Action that he had notice of P’s action by 28 May 2007.  The fact of notice was repeated in the 8 June 2007 Affirmation.

52.  Ho 1 was silent about D1’s activities in 2007 with regard to the Properties, in particular the 28 May 2007 Affirmation and the attempts to join all actions concerning the Properties.  He merely deposed to making the 8 June 2007 Affirmation (the subject matter of D1’s Summons) as described at para 43(e) above, and to signing the AS.

53.  D1 has given no evidence of his education or qualifications.  However, his counsel confirmed there was no evidence of D1 being under a disability such that he could rely on non est factum or its equivalent.

54.  There are only two possibilities: either (1) D1 is not telling the truth now and understood what he was doing in 2007 and it suited him to do that at that time; or (2) he was entirely reckless in 2007 about making affirmations and statements to the court without regard to their truth or to the consequences for himself.  Either way, he would in my view be stuck with the consequences of making those affirmations.

55.  Beyond doubt is the statement in para 7 of Ho 1 for the purposes of D1’s Summons that D1 knew he was a defendant in P’s Action when he affirmed the 8 June 2007 Affirmation.

56.  D1 clearly had notice of the Action when he signed the AS on 21 June 2007.

57.  If D1 could spot that he was a defendant from the 8 June 2007 Affirmation, then he could certainly also do so from the AS (bearing the names of the parties).

58.  D1’s assertion that he did not understand the legal consequences of signing and filing the AS because he is not proficient in English and did not receive legal advice gets him nowhere:

   (a)   He himself states (at Ho 1 para 8) that Bill Chan told him he needed to file the AS to acknowledge service of the Writ.

   (b)   The evidence does not support a lack of proficiency in English of D1.  Rather, I note from D1’s own evidence of the formation of the Redevelopment agreement with D3 that D1 was receiving and sending letters in English.  Counsel’s attempt to deal with this, without direct evidence from D1 on the point, was to suggestthat the letters were handled and prepared by Yam on D1’s behalf,but this broke down given that D1 signed an English letter on behalf of D2 in August 1997 [9], after D1 had parted company with Yam.

   (c)   A lack of legal advice can obviously never by itself be a reason for setting aside an AS, where our legal system enables litigants to act in person.

59.  To the extent it is suggested that D1 did not receive the Writ before 30 October 2015, I find that incredible. If not untrue, he clearly knew that there was a Writ by May or June 2007, and he has only himself to blame if he allowed the AS to be filed to acknowledge service of the Writ if he had not received the Writ.  He could of course have obtained a copy of the Writ if he had indeed not received it.

60.  Insofar as necessary, I agree with P that I could hold the service of the Writ good in the circumstances, despite its irregularity, pursuant to RHC Order 2, rule 1.

61.  I also agree that where D1 has known about the proceedings since 2007, even if not served with the Writ, it is now way too late (over 10 years later) to complain about not being properly served, and seek to set aside service, when D1 could easily have obtained the Writ.

62.  D1 sought to rely on Richie Interiors Ltd v Sanko Technology [2002] 3 HKLRD 441 as authority for the proposition that one cannot rely on an AS to prove service if there is no affidavit of service.  However, I agree with the submission that such an interpretation would render Order 10, rule 1(5) meaningless.  I consider that Richie Interiors is concerned with whether default judgment was properly entered when the date of service was unknown as there was no affidavit of service, and reliance on the AS in that case would make the default judgment application premature.

Application to withdraw the AS

63.  D1’s application is under Order 21, rule 1.  This provides:

“ A party who has acknowledged service in an action may withdraw the acknowledgment at any time with the leave of the Court.”

64.  The Court has a broad discretion.  It is not limited to cases of the acknowledgment being returned by accident or filed without authority.  The discretion is unfettered but will be exercised with caution and the court will have regard to all the circumstances of the case, weighing the balance between the faults of the parties and the prejudice which will or may be occasioned to each of them arising from the grant or the refusal of such leave: White Book 2018 12/1/1; Rothmans Ltd v Saudi Airlines [1981] 1 QB 368 per Mustill J at 377G – 378H.

65.  It is to be noted that an AS may be amended without leave at any time before judgment is entered (RHC Order 20, rule 2(2)).

66.  I am satisfied, having regard to the circumstances, that this is not an appropriate case in which to permit the AS to be withdrawn:

   (a)   D1 knew of P’s Action against him[10], and proceeded to sign the AS and authorize it to be filed in June 2007, over 10 years ago.

   (b)   This was at a time when D1 was actively involved in relation to the various actions in respect of the Properties, and prepared and/or signed numerous documents to be filed in Court detailing a particular version of events.

   (c)   For whatever reason, he had decided in 2007 to align himself with the Deceased rather than Yam.

   (d)   For whatever reason from mid 2017 when Ho 1 was filed, D1 sought to advance to the Court an entirely different version of events from that contained in the 2007 documents, contrary to P’s interests.

   (e)   The Deceased died in 2012, and it is no longer possible to have theDeceased’s version of events directly tested by cross-examination.  I note that this would also have been the case if D1 had sought to contest the Judgment Summons in October 2015.  However, there is no denying that a withdrawal of the AS at this stage would cause prejudice to P.  Had the AS not been filed and/or the 8 June 2007Affirmation not made, P may have prosecuted the case differently.I note by way of analogy the obiter example given by Mustill J in Rothmans at 378B – C ie that if a writ had been served and the defendant had submitted to jurisdiction within the time period for bringing a claim, he would not have permitted withdrawal of an unconditional appearance after the expiry of the time period because there was a failure to object to jurisdiction at a time when the other party could still commence proceedings in a proper jurisdiction.

   (f)   I find quite incredible D1’s explanation now for why he made theAS and 8 June 2007 Affirmation (which are logically interlinked):

   (i)   It is incredible that D1, apparently a man who had achievedbusiness success and wealth before 2007, would sign court documents without reading or understanding them, despite knowing he was a named defendant.

   (ii)   D1’s affirmations both in 2007 and now are riddled with an attempt to shift responsibility to those around him (whether Michael Chan, Bill Chan or Yam, amongst others), done so often as to not ring true.

   (iii)   I note that the 8 June 2007 Affirmation contains evidence not only in respect of the relationship between D1 and P and Yam and the Properties, but also in respect of the solvency situation of D1 and D2 and the involvement of a third party Mr Lam in the reorganization of the financial affairs of D1/D2.  This indicates that the evidence was prepared by or on behalf of D1, not P.

   (iv)   It simply does not make sense to say D1 signed the 8 June 2007 Affirmation on the condition that such affirmation would not be deployed before D1 had obtained Yam’s confirmation of the matters therein, where the purpose of signing the 8 June 2007 Affirmation was to assist P’s claim against Yam.

   (v)   Indeed, although D1 claims now that he signed the 8 June 2007 Affirmation on the basis of misrepresentation and inducement, I do not consider that is made out even on his own version of the facts.  There does not appear to be anything untruthful, let alone unlawful, about asking D1 to make an affirmation in order to assist P’s claim against Yam, or to say that D1 was joined to ensure he would be a witness whereas the real target of P’s claim was Yam (where it was Yam not D1 challenging P’s claim), nor in saying the affirmation would be kept until it needed to be used.

   (vi)   In light of D1’s chopping and changing of stories in respect of any agreement to share the consultancy fee with P, without satisfactory explanation, it is not possible to find his current evidence reliable. 

   (g)   In any event, none of this detracts from the fact that D1 undoubtedly knew he was a defendant to P’s Action when he signed, and authorized the filing of, the AS.

Service of the default judgment papers

67.  RHC Order 65, rule 5 provides, so far as material, that:

   (a)   Where a document to be served is not required by the rules to be served personally, then it may be left at or posted to the proper address of the person to be served.

   (b)   A person’s proper address is the address for service of that person,or if there is no such address, and the person is an individual who is not legally represented, at his usual or last known address.

68.  D1’s AS provides the Everwin Address as his address for service. Despite D1’s evidence that he and his family retain no connection with the Everwin Address, and that the Deceased, and subsequently his executrix P, knew that he lived predominantly on the mainland and just returned from to Hong Kong from time to time, the Everwin Address is the address D1 has given as the address for service, and D1 has not taken steps to withdraw, update or change it.

69.  I am satisfied from P’s evidence of service in Hau 4 that the Judgment Summons and related papers were served at the Everwin Address.

70.  Accordingly, I consider the service to be regular.  See, eg Morigood Development Ltd v Sunny Trading Co [1999] 2 HKC 710 at 714I – 715A.

71.  Indeed, D1’s counsel conceded that service of the Judgment Summons would be good service if the AS stands.

Setting aside D1 Judgment despite regular service

72.  D1 applies to set aside the default judgment under RHC Order 19, rule 9, and the judgment on admissions under Order 27, rule 3.

(a)   Default judgment

73.  As to RHC Order 19, rule 9, the Court’s discretion is very broad —it may set aside a judgment entered in default of defence pursuant to Order 19on such terms as it thinks just.  The Court will take a similar approach to that taken on Order 13, rule 9 applications to set aside judgements entered in default of notice of intention to defend.[11]

74.  On an application to set aside a regular default judgment, the major (but not sole) consideration is whether the defendant has shown a defence on the merits to which the court should pay heed.  There is no point setting aside a judgment if there is no defence.  Yet if the defence has merits, the court will not prima facie desire to let a judgment pass on which there has been no proper adjudication.  (White Book 2018 13/9/13.)

75.  As to the merits, the defendant must show that he has a real prospect of success; it is not sufficient to show a merely arguable defence that would justify leave to defend under Order 14.  The court must form a provisional view of the outcome of the action.  If the ultimate outcome will depend on who is believed at trial and no provisional view can be formed on the outcome of the action without a trial, the appropriate test is whether the defence “could well be established” at trial.  (White Book 2018 13/9/14.)

76.  The Court will have regard to all the circumstances, not only the merits.  The usual factors are: why the default occurred; the defendant’s conduct after he had notice of the proceedings; an explanation for the time taken where there has been delay in making the application; and any prejudice that would be caused to the plaintiff or third parties if the default judgment were set aside.  These factors are then to be balanced against the dominant factor of merits.  (White Book 2018 13/9/13.)

77.  As to the merits, in a nutshell, P advances a claim of an oral agreement made in 1991 between D1 and P, to the knowledge of Yam, that the Deceased and D1 would cooperate on a proposal for the Redevelopment to include preparatory work by the Deceased in bringing the owners together to agree to the Redevelopment; and that such work culminating in a joint venture agreement for the Redevelopment would attract a consultancy fee to be paid to D2 and subsequently divided between the Deceased and D1 on a one-third, two-thirds basis.

78.  In 2007, D1 agreed with P’s claim.

79.  By Ho 1, 10 years later, D1 states, to the contrary, that he entered an agreement with Yam in 1990 to carry out the Redevelopment on the basis that the consultancy fee be split 30% to Yam, 70% to D1; and that the Deceased never asked him for a share of his commission and he had never agreed to share any part of his commission with the Deceased, and the Deceased had never done any part of the preparatory work as alleged in the SOC:

80.  If one considers D1’s defence as advanced now ie that the alleged agreement with P was not made, in isolation from what happened in 2007, there would be a conflict of oral evidence and the defence would prima facie be at least arguable.

81.  However, in 2007, P’s version of events was admitted by D1, not just once but several times, and he also took positive steps to make Court applications on that basis.

82.  In such circumstances, to advance a contrary case over 10 years later raises at the very least serious credibility issues for D1.  The explanation for the 2007 documents was not complete and forthcoming, as it really only emerged after P’s opposition evidence, and even then D1’s explanation is unconvincing.  D1 essentially blames the people around him and claims they duped him, where D1 is under no disability and such allegations seem implausible.

83.  P’s counsel submits with some justification that D1’s new version of events in Ho 1 is internally inconsistentand unsatisfactory, eg:

   (a)   D1 states his agreement with Yam in about 1990 to have been a 70:30 split, but then in 1994 when about 70% of the consultancy fee had been realized to enable D1 to fund other projects, there was an agreement that the remainder of the consultancy fee (ie the Properties) would be divided 70:30.

   (b)   D1 states that Yam had tried to sell part of the Properties without D1’s knowledge, but then goes on to say he endorsed the sale.

   (c)   D1 states that he was at no time informed of the settlement in Yam’s Action and was not a party to that proceeding (notwithstanding D1 had in 2007 taken active steps to seek nullification of his own signature to the settlement agreement).

84.  I do not find that D1’s new defence “could well be established” at trial.  I think that his credibility is such that his prospects of success would be negligible unless he could point to any contemporaneous supporting evidence.

85.  In my view, the limited contemporaneous documents do not assist D1’s merits argument:

   (a)   D1’s counsel points to the inconsistencies between P’s pleaded case and D3’s pleaded case in respect of P’s contact with D3 (The pleadings are of course not contemporaneous documents but I consider the argument in any event):  

   (i)   P’s RASOC paras 1 and 3, and P’s witness statement paras 6and 36, state that the Deceased brought the Redevelopment Proposal to D1, who then assigned Yam to assist P with preliminary and preparatory work, and that the Deceased, having been born and raised at the location of the Redevelopment, “was pivotal” in bringing the owner families at that location (including the Cheng family who effectively controlled D3) together to agree to the Redevelopment, because he knew his neighbours well and he was able to gain the confidence of the owners.

   (ii)   D3 pleads that it was D4 that approached D3 about the Redevelopment, but that D3 was not privy to and has no knowledge of any arrangement between P, D1, D2 and/or D4; then denies P’s alleged involvement in the Redevelopment.

   (iii)   I see there is an apparent inconsistency between P’s pleaded story and D3’s pleaded story, but I am not in a position to attach much value to D3’s denial where it is without particulars, and is on the basis of an averral of a lack of knowledge of arrangements as between P and other Ds, and P’s case is that D4 acted as P’s assistant.

   (b)   I was shown an undated unsigned letter apparently written by the Deceased to Mr Leung of D3 setting out the Deceased’s recollection of events relating to the Redevelopment (which is consistent with P’s case). In the absence of an explanation of this letter, or evidence from the sender or recipient, if it was indeed sent, I am unable to place any reliance on that document at this stage.

   (c)   D1’s counsel relied on 4 documents as supporting D1’s claim: they are correspondence between D3 and D2 (acting by D1) from9 July 1991 to 20 December 1994.  These record the agreement(s)for D3 to pay D2 consultancy fee(s) for services rendered.  These do not assist matters as it is common ground that the agreement for D3 to pay consultancy fees was with D2 acting by D1; the disputed issue is whether there was agreement between P and D1 to share such fee.

   (d)   D1’s counsel pointed to the uncontroversial fact that in about 1994 there was a swap of Flat 36B with Flat 36D.  It was originally proposed that Flats 36A and 36B would be transferred to the Cheng family, and 36C and 36D would be transferred to the Hung family, as original owners.  D3 agreed to contribute Flats 36A and B to D2 as consultancy fee.  D1’s counsel asks what was the need to swap 36B with 36D if the Deceased was entitled to the consultancy fee of 36A and 36B anyway.  P’s counsel responds that there is a distinction between the Deceased himself, and his family (father and uncles) who owned the original plot.  I can see that this may be a useful area for seeking to challenge P’s case if the matter were to go to trial but it does not seem to me to tip the balance to show D1’s case could well be established at trial, given D1’s other weaknesses.

86.  In the context of D1’s admission of P’s version of events in 2007 whilst the Deceased was alive, and serious credibility issues arising from (at least) the change of story after the Deceased’s death, I regard D1’s prospects ofestablishing his version of the oral agreement at trial as extremely low.  I note that there is not even a witness statement from Yam to support D1’s version (this would not be conclusive of course, but its absence is striking).

87.  D1’s counsel raised a new legal argument in his written reply submissions. He argued that P’s case was an attempt to enforce an oral contract or oral trust for the disposition of land not evidenced in writing which is unenforceable, pursuant to sections 3 and 5 of the Conveyancing and Property Ordinance (Cap 219) (“the CPO”).  I accept P’s submission in response that P’s pleaded case at para 15 of the RASOC is that the Properties are held on constructive trust for P, so that section 5(2) of the CPO applies to disapply the writing requirements in section 5(1).

88.  D1’s counsel raised a new argument in his oral reply, not raised inhis skeleton and, although I gave Ms Chan an opportunity to respond, she saidshe had not had time to consider it.  Mr Kuan argued that if the D1 Judgment was not set aside, but P’s Action against the other defendants went to trial, then there was a risk of judgment after trial being inconsistent with the D1 Judgment.  I was initially concerned about this.  I was shown no relevant authority.  However, in a multi-defendant action, there must always be the possibility of default judgments or judgments on admissions being entered against some defendants, with the other defendants continuing to trial, with the chance the latter may succeed at trial despite such outcome being inconsistent with the default judgments or judgments on admissions.  This risk of inconsistency is not by itself good enough grounds to set aside a regularly-obtained default judgment.

89.  As to why the default occurred, assuming D1’s evidence to be correct for these purposes, this seems to be because the address for service provided by D1 was not an effective means of bringing the Judgment Summons to D1’s attention.  However, it is D1 who must bear responsibility for this as he provided that address in his AS and did not change it.

90.  As to D1’s conduct after he had notice of the proceedings.  D1 knew of the proceedings in 2007, filed an AS and thereafter apparently took no notice of the proceedings despite having given an address for service that was no longer appropriate.

91.  Then D1 delayed in making this application after discovery of the D1 Judgment:

   (a)   D1 found out about the D1 Judgment on 3 November 2015, only 4 days after it had been entered.

   (b)   On 5 November 2015, D1 found out the D1 Judgment was also based on admissions.

   (c)   Yet D1 did not take out his application until 12 July 2017, which I regard as dilatory and without proper excuse:

   (i)   D1 took out at least one summons in person in 2007, and could have done so again, so lack of funds for lawyers is not a good enough excuse.  In any event, D1 had solicitors acting for him in late October to early November 2015 (at least).

   (ii)   The excuse that it took time to obtain documents relating to events which occurred so long ago, without detail, is unattractive.  It is especially unattractive where Ho 1 sought to assert that the 8 June 2007 Affirmation had been obtained by inducement and misrepresentation, without disclosure of the fact that there were many documents made by D1 in 2007 saying similar things—which only came to light after P’s opposition evidence referred to the 28 May 2007 Affirmation.

   (iii)   The excuse that time was needed to avoid self-incriminationdoes not hold water.  If one is going to make an application to the Court which may involve giving contradictory evidence to earlier evidence, that is a decision to be made which should not take 20 months.

   (iv)   D1’s solicitors informed P’s solicitors before 26 January 2016 that D1 would be seeking to set aside the D1 Judgment.   

   (v)   D1 also appears to have told the Court on 20 January 2017, incorrectly, that he had not been aware of the D1 Judgment and would apply to set it aside, but did not do so until another 6 months later, some 20 months after learning about the D1 Judgment.

92.  I have already addressed the prejudice to P if the D1 Judgment were set aside, at para 66(e) above.  None of D3, D4 or D5 have appeared to make submissions as to whether there would be prejudice to them.  As D5 is a subsequent purchaser of 1 of the Properties, I do not believe that it would be affected in any way.  I understand that D3 was not party to the agreement as to how P, D1 and/or D4 would distribute the Properties, and again I do not believe it will be prejudiced by the D1 Judgment being set aside.  I understand D4’s case to be directly contradictory to P’s case.  Accordingly, I believe it would be to D4’s benefit if the D1 Judgment were set aside.  P would howeverbe prejudiced, due to the passage of time and P’s inability to call the Deceased as a live witness, whose evidence would be crucial.

93.  In the circumstances, I would dismiss the application to set aside the D1 Judgment insofar as it is a judgment in default.

(b)   Setting aside the judgment on admissions

94.  Order 27, rule 3 provides:

“ Where admissions of fact or of part of a case are made by a party to acause or matter either by his pleadings or otherwise, any other party tothe cause or matter may apply to the Court for such judgment or order as upon those admissions he may be entitled to, without waiting for the determination of any other question between the parties, and the Court may give such judgment, or make such order, on the application as it thinks just.”

95.  D1 seeks leave to withdraw the 8 June 2007 Affirmation, in reliance on the notes in the White Book 2018 at para 27/3/9.  These state:

“ Resiling from admissions—Leave to withdraw an admission shouldnormally be given in circumstances where: (a) it can be done without injustice to the other party; (b) there is no question of bad faith; and (c) a triable issue with reasonable prospects of success is raised. There is normally no injustice if the other side can be compensated by costs [citing authority]. … Although not a conclusive factor, bad faith remains a powerful factor against an application for withdrawal ‌….”

96.  These notes are primarily directed at the ability to resile from admissions made prior to judgment on admissions being granted.  In this case, D1 faces the extra hurdle that he is seeking to resile from admissions made after a judgment has been entered thereon.  Cf Gale v Superdrug Stores Plc [1996] 1 WLR 1089.

97.  Neither party suggests that admissions cannot be withdrawn after judgment has been entered, but obviously, the Court must be satisfied that grounds exist for setting aside the admission notwithstanding the judgment has been entered.  Where the judgment has been entered not only on the basis of admissions but on other grounds which are unassailable, then that will be relevant.  For the reasons given below, it is not necessary to consider this aspect further in this case.

98.  I have already expressed my views at para 66(f) above as to the incredibility of D1’s current explanation in Ho 1 for having made the 8 June 2007 Affirmation.

99.  I am not satisfied that there is no question of bad faith.  Indeed I consider that D1 has either been untruthful in 2007 or now, alternatively that he has been entirely reckless as to the making of affirmations to the Court and has thereby abused the Court’s process.  The timing of D1’s change of story, after the Deceased’s death, and after D1’s discharge from bankruptcy and the release of the trustee in bankruptcy, add to my concern about D1’s bona fides in making this application to withdraw the 8 June 2007 Affirmation admissions.

100.  I have already given my views above on the merits of D1’s case, and I do not consider D1 to have discharged the burden of raising a triable issuewith reasonable prospects of success, even if the 8 June 2007 Affirmation were withdrawn, given the existence of the other 2007 documents identified earlier.

101.  Finally, where the Deceased is no longer able to give live evidence,I do consider that setting aside the judgment on admissions, and the withdrawalof the 8 June 2007 Affirmation, could not be done without injustice to P.  HadD1 sought to withdraw his admissions whilst the Deceased was still alive, there may not have been such prejudice to P.

102.  For all these reasons, I decline to permit D1 to withdraw the 8 June 2007 Affirmation, nor to set aside the judgment on admissions.

Conclusion

103.  D1’s Summons is dismissed.

104.  I make an order nisi in respect of costs: D1 is to pay P’s costs of and incidental to D1’s Summons, to be taxed if not agreed.

105.  Any challenge to the order nisi should be made in writing within 3 days.  Any response to such challenge should be made in writing within 3 days thereafter.