BRANTNER TRANSPORTS SLOVAKIA, S.R.O. v. KYOMURA ELECTRONICS (H.K.) LTD AND OTHERS

HCA 1347/2023

[2025] HKCFI 2301

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1347 OF 2023

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DECISION

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INTRODUCTION

1.  This Decision deals with the 7^th defendant’s summons filed on 17 January 2025 (“the Summons”)  to set aside:

(1)  the default judgment dated 11 July 2024 (“the Default Judgment”)  obtained under Order 19 rule 7 of the Rules of the High Court (Cap.4A, Laws of Hong Kong)  (“RHC”); and

(2)  the garnishee order absolute dated 12 September 2024 (“the Garnishee Order”)

BACKGROUND

2.  This is an email fraud case.

3.  According to the plaintiff’s pleaded case:

(1)  the fraud was executed on around 13 July 2023, as a result of which it transferred US$2,175,000 (“the Defrauded Sum”)  from its bank account in Slovakia to the 1^st defendant’s Bank of China (Hong Kong)  Limited bank account (“D1’s Account”);

(2)  Having received the Defrauded Sum at around 9:22am on 13 July 2023, the 1^st defendant transferred US$200,000 (“the Received Sum”)  from D1’s Account to the 7^th defendant’s Hong Kong HSBC bank account (“D7’s Account”)  at 2:17pm on the same day.  The Received Sum was part of the Defrauded Sum.

4.  On 16 August 2023, the plaintiff obtained an ex parte proprietary and Mareva injunction against, inter alia, the 7^th defendant (“the Injunction Order”).

5.  The plaintiff issued the Writ of Summons in this action on 24 August 2023.  As far as the 7^th defendant is concerned, the plaintiff (in the general endorsement):

(1)  asked for an order of payment of the Received Sum on the basis of money had and received through unjust enrichment and/or constructive trust; and

(2)  sought to hold the 7^th defendant liable jointly and/or severally with the other defendants, and asked for an order that the 7^th defendant be liable for the Defrauded Sum on the basis of knowing receipt, dishonest assistance, conspiracy to defraud and/or injure by unlawful means, tort of deceit and/or tort of conversion.

6.  On 4 September 2023, DHCJ M.K. Liu granted the plaintiff leave to amend the Injunction Order vis-à-vis the 7^th defendant (“the Amended Injunction Order”).  His Lordship also ordered for the continuation of the Amended Injunction Order until 1 December 2023 or further order of the Court (“the Continuation Order”).

7.  Pursuant to leave granted on 4 September 2023 and 15 September 2023, the Writ of Summons had been amended twice, for the purposes of firstly adding the 11^th – 16^th defendants as parties and then secondly including their respective Chinese names.  The Re-Amended Writ of Summons was filed on 11 October 2023.

8.  On 24 October 2023, the plaintiff filed its Statement of Claim herein.

9.  On 3 November 2023, the plaintiff filed an Amended Statement of Claim pursuant to Order 20 rule 3 of the RHC.  On the same day, the plaintiff’s solicitors arranged to have the same served on the 7^th defendant at his address in Shanghai by courier.

10.  On 5 November 2023, the plaintiff’s courier successfully delivered the Amended Statement of Claim to the 7^th defendant at his Shanghai address.  The 7^th defendant acknowledged receipt of the same personally.

11.  On 14 November 2023, the plaintiff made an ex parte application to serve, among others, the following documents out of jurisdiction on the 7^th defendant:

(1)  A Concurrent Re-Amended Writ of Summons;

(2)  The Amended Injunction Order; and

(3)  The Continuation Order.

12.  Leave to serve the above out of jurisdiction on the 7^th defendant was granted on 21 November 2023.

13.  Arrangement was then made for the aforesaid documents to be served on the 7^th defendant through the Mainland judicial authorities.

14.  The Concurrent Re-Amended Writ of Summons was eventually served on the 7^th defendant’s address in Shanghai on 16 January 2024.

15.  On 24 May 2024, the plaintiff applied for default judgment against, inter alia, the 7^th defendant, which was granted on 11 July 2024.

16.  On 24 July 2024, the plaintiff obtained a garnishee order nisi against HSBC, which was made absolute on 12 September 2024.  Pursuant to the Garnishee Order, a sum of US$1,650,606.80 was debited from D7’s Account.

17.  On 17 January 2025, the 7^th defendant took out the Summons, on the following grounds:

(1)  The Default Judgment, which was granted by reason of the 7^th defendant’s default in serving a Defence, was obtained irregularly, as the plaintiff purported to serve the Amended Statement of Claim out of jurisdiction on 5 November 2023, prior to the service of the Re-Amended Writ at the 7^th defendant’s address in the PRC on 16 January 2024;

(2)  Further or alternatively, the 7^th defendant has a meritorious defence and counterclaim against the plaintiff that has a real prospect of success.

THE LEGAL PRINCIPLES

18.  The legal principles are trite and not in dispute:

(1)  Where a default judgment was obtained irregularly, the judgment would be set aside as of right, and the Court would not go into the merits of the defence.

(2)  Where the default judgment is regular, the power to set it aside is discretionary.  The major consideration is whether the defendant has shown a defence which has a real prospect of success.  The defendant must adduce credible evidence in support of his case.  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.

(3)  However, the demonstration of a defence with real prospect of success does not mean that the Court is bound to set aside the default judgment, for the Court should weigh other relevant factors against the merits of the case (even though merits is the primary and dominant consideration).  “Other relevant factors” include the defendant’s explanation as to why he allowed default judgment to be entered, his conduct after proceedings were served on him, any delay on his part to apply to set aside the judgment, and any prejudice that would be caused to the plaintiff or to third parties if the default judgment were to be set aside.

(4)  The setting aside of a default judgment (whether regular or irregular)  would generally result in the setting aside of any garnishee order nisi or absolute obtained by the judgment creditor pursuant to the default judgment.

DISCUSSION

Regular or irregular judgment

19.  The first question which the Court should decide is whether the Default Judgment is a regular judgment.

20.  The sole argument made by the 7^th defendant in support of his stance that the default judgment was irregular is that the Amended Statement of Claim was served on the 7^th defendant (on 5 November 2023)  before the service of the Re-Amended Writ of Summons (on 16 January 2024).

21.  As simple as it is, counsel from both sides confirmed that they were unable to locate any authority which had dealt with a similar situation before.

22.  In my view, Order 18 rule 1 of the RHC is relevant for our purpose.  It provides that:

Unless the Court gives leave to the contrary or a statement of claim is indorsed on the writ, the plaintiff must serve a statement of claim on the defendant or, if there are two or more defendants, on each defendant, and must do so either when the writ is served on that defendant or at any time after service of the writ but before the expiration of 14 days after that defendant gives notice of intention to defend.

(emphasis added)

23.  The effect of the said rule is clear.

24.  The first part of the said rule provides for the obligation on the part of the plaintiff to serve a statement of claim on the defendant, unless:

(1)  the Court gives leave to the contrary; or

(2)  a statement of claim is indorsed on the writ of summons.

25.  The second part of the said rule stipulates the timing of service of the statement of claim.  It should be either:

(1)  when the writ of summons is served on that defendant, or

(2)  at any time after service of the writ of summons but within 14 days after the defendant gives notice of intention to defend.

26.  Hence, under the said rule, it is anticipated that the service of the statement of claim would be at the same time or after the service of the writ of summons, but not before.

27.  The matter in the present case is complicated by the fact that we are concerning a defendant who is not within the jurisdiction of Hong Kong at the material time.  As Mr Maurellet SC pointed out, by the time of the service of the Amended Statement of Claim, the plaintiff has not even applied for leave to serve the Hong Kong court process on the 7^th defendant out of jurisdiction, not to mention the grant of such leave.

28.  In other words, when the Amended Statement of Claim was served, the Hong Kong Court has not yet asserted jurisdiction over the 7^th defendant by virtue of successful service of the process. In fact, it has not even agreed to do so because the plaintiff was yet to make any application under Order 11 of the RHC.

29.  That being the case, the service of the Amended Statement of Claim before the valid service of the Re-Amended Writ of Summons must be ineffective.

30.  Mr Brown submitted that even if there had been any breach of the RHC, such a breach was highly technical which could be cured or ignored. 

31.  With respect, I disagree that the breach is a technical one which may be ignored as suggested.

32.  Further, even if I hold the view that retrospective leave may be given for the early service of the Amended Statement of Claim (which I do not), it is now too late for such leave to be given, because it cannot change the fact that such leave had not been given at the time when the Default Judgment was granted.  Such a judgment was still irregularly obtained.

33.  Mr Brown also suggested that those instructing him decided to serve the Amended Statement of Claim on the 7^th defendant early only because of fairness – they wanted to alert the 7^th defendant as soon as possible about the present case.

34.  Putting aside my queries as to why, if that was the case, the plaintiff’s solicitors did not serve the Statement of Claim on the 7^th defendant once that was filed on 24 October 2023, I do not consider the plaintiff’s intention is a relevant matter to be taken into consideration.

35.  It is therefore my conclusion that the Default Judgment was irregular and the 7^th defendant is entitled to have it set aside as of right.

36.  The above conclusion is adequate for the purpose of the disposal of the Summons. 

37.  However, for the sake of completeness, I proceed to deal briefly with the situation if the Default Judgment were a regular one.

Merits

38.  The 7^th defendant’s defence is that he is a bona fide purchaser for value without notice in respect of the Received Sum.  It was said that the whole reason for his receipt of the Received Sum was for a currency exchange transaction that was carried out with the assistance of a Mr. Huang.  Mr. Huang did so with the help of two other persons (one of them had the surname Hou (“Hou”))  whom the 7^th defendant did not know.  Prior to, and in exchange for, the 7^th defendant’s receipt of the Received Sum, he had arranged for RMB1,460,000 to be deposited to 2 designated bank accounts in the PRC.

39.  In relation to the entirety of the Defrauded Sum, the 7^th defendant’s case is that he did not know any of the other defendants in the present action, and that he had never entered into any conspiracy agreement with anyone to defraud the plaintiff.

40.  The plaintiff naturally could not produce any evidence to contradict the 7^th defendant’s factual case.  However, it was argued that the 7^th defendant’s defence has no real prospect of success because:

(1)  While there is evidence showing that certain monies had been deposited into the designated accounts, there is no evidence which shows that those monies came from the 7^th defendant.  This is also relevant to the 7^th defendant’s case that he had changed his position;

(2)  There is a question of whether the 7^th defendant acted bona fide in the transaction. There are two elements to this: whether he engaged in illegal conduct and whether he acted in a non-commercial manner.

41.  On the factual challenge that there is no proof that the sum of RMB1,460,000 came from the 7^th defendant, I am of the view that, be that as it may, the Court should not lose sight of the evidence[1] that:

(1)  Mr Huang had made enquiry with Hou on the exchange for US$200,000 at 11:48am on 12 July 2023.  That was before the Defrauded Sum was transferred away from the plaintiff’s bank account to D1’s Account;

(2)  It was in fact Hou who informed Mr Huang that the exchange could only be done on the following day;

(3)  On the face of the WeChat messages, the transfers of the total sum of RMB1,460,000 were in relation to the 7^th defendant’s receipt of the Received Sum.

42.  These go a long way to prove the 7^th defendant’s case even though there is no direct evidence which links the RMB1,460,000 with any bank account of the 7^th defendant. 

43.  In relation to the plaintiff’s argument that underground banking is indisputably illegal under PRC law, and that such illegality is relevant to both a bona fide purchaser for value defence and a defence of change of position, the fundamental problem here is that the plaintiff has not adduced any expert evidence on PRC law.  Neither has the plaintiff given any notice pursuant to section 59 of the Evidence Ordinance (Cap.8, Laws of Hong Kong)  and Order 38 rule 7 of the RHC.  These provisions read:

S.59 of the Evidence Ordinance – Evidence of foreign law

(1)  A person who is suitably qualified to do so on account of his knowledge or experience is competent to give, in civil proceedings, expert evidence as to the law of any country or territory outside Hong Kong, irrespective of whether he has acted or is entitled to act as a legal practitioner there.

(2)  Where any question as to the law of any country or territory outside Hong Kong with respect to any matter has been determined (whether before or after the commencement of this Part)  in any such proceedings as are mentioned in subsection (4), then in any civil proceedings (not being proceedings before a court which can take judicial notice of the law of that country or territory with respect to that matter)—

(a)  any finding made or decision given on that question in the first-mentioned proceedings shall, if reported or recorded in citable form, be admissible in evidence for the purpose of proving the law of that country or territory with respect to that matter; and

(b)  if that finding or decision, as so reported or recorded, is adduced for that purpose, the law of that country or territory with respect to that matter shall be taken to be in accordance with that finding or decision unless the contrary is proved:

Provided that paragraph (b)  shall not apply in the case of a finding or decision which conflicts with another finding or decision on the same question adduced by virtue of this subsection in the same proceedings.

(3)  Except with the leave of the court, a party to any civil proceedings shall not be permitted to adduce any such finding or decision as is mentioned in subsection (2)  by virtue of that subsection unless he has in accordance with rules given to every other party to the proceedings notice that he intends to do so.

[…]

Order 38 rule 7 of the RHC – Evidence of finding on foreign law

(1)  A party to any cause or matter who intends to adduce in evidence a finding or decision on a question of foreign law by virtue of section 59 of the Evidence Ordinance (Cap. 8)  shall—

(a)  in the case of an action to which Order 25, rule 1, applies within 28 days after the pleadings in the action are deemed to be closed, and

(b)  in the case of any other cause or matter, within 21 days after the date on which an appointment for the first hearing of the cause or matter is obtained,

or in either case, within such other period as the Court may specify, serve notice of his intention on every other party to the proceedings.

(2)  The notice shall specify the question on which the finding or decision was given or made and specify the document in which it is reported or recorded in citable form.

(3)  In any cause or matter in which evidence may be given by affidavit, an affidavit specifying the matters contained in paragraph (2)  shall constitute notice under paragraph (1)  if served within the period mentioned in that paragraph.

44.  That being the case, there is simply no admissible evidence on the said question of foreign law.

45.  Mr Brown accepted that for the purpose of a summary judgment application or at the trial, it is indeed incumbent upon his client to give a section 59 notice under the Evidence Ordinance.  However, he submitted that the Court should project what happens at the trial, and consider whether the 7^th defendant has a real prospect of establishing his defence at the trial. 

46.  With greatest respect, I do not accept that the suggested approach is acceptable.  In my view, the Court should assess whether the 7^th defendant has a real prospect of success only by reference to the admissible evidence placed before the Court for the purpose of the Summons.  Just as the Court would not consider any defendant’s assertion that he/she would be able to adduce credible at the trial even though such evidence is not yet available at the moment, the Court would not consider the plaintiff’s suggestion that he/she would be able to disprove the defendant’s defence by evidence to be adduced.

47.  The plaintiff further relied on the case of Grupo Pacifica Incorporada v Worldwide Marine Product Limited & Others [2018] HKCFI 1930 and submitted that the election of the 7^th defendant to deal with unknown parties and accept funds into D7’s Account was a failure to act in a commercially acceptable manner, which would defeat his allegation of “good faith”.  However, it should be noted that the facts in Grupo are totally different.  In that case, the defendant concerned lent the use of its account to others for money exchange service.  What was said by the trial Judge in that case should therefore be viewed with caution.

48.  I therefore take the view that, considering all the admissible evidence placed before this Court, the 7^th defendant has demonstrated that he has a defence which has real prospect of success.

Other factors

Why the 7^th defendant allowed the Default Judgment to be entered

49.  The 7^th defendant explained in his Affirmation that:

(1)  The Re-Amended Writ of Summons was served on his Shanghai address and was received by his son.  He was in Dalian at the material time.  He did not have notice about the court documents so served until February 2024 when he returned home;

(2)  When he eventually saw the documents, he thought the plaintiff’s claim related only to the Received Sum as he did not understand English.  He thought it was a misunderstanding which would be cleared up.  As the amount concerned was small, he did not think it worthwhile to engage solicitors.  He did not know that the plaintiff would be seeking to hold him liable for the entirety of the Defrauded Sum nor that the plaintiff would be able to get its hand on the pre-existing balance in D7’s Account.

50.  It is difficult to understand why the 7^th defendant would have thought that the matter “would be cleared up”.

51.  It is also puzzling as to why the 7^th defendant did not even bother to make a phone call himself (without engaging solicitors)  to the plaintiff’s solicitors so as to explain the “misunderstanding”.

52.  The 7^th defendant’s explanation is therefore not entirely satisfactory.

The 7^th defendant’s conduct upon service

53.  On the captioned matter, the plaintiff first of all relied on the 7^th defendant’s conduct upon his receipt of the Amended Statement of Claim. 

54.  On my part, given my view that the service of such a pleading before the service of the Re-Amended Writ of Summons is invalid, I do not think it is fair for the Court to take such conduct into account.  If the service of the Amended Statement of Claim is ineffective, then the Court ought to treat it as if there was no such service.  Otherwise, the Court would be in some way giving effect to such service, which cannot be right.

55.  I will therefore only consider the 7^th defendant’s conduct after the service of the Re-Amended Writ of Summons. 

56.  I have already covered this matter in the preceding section and I do not propose to repeat the same.

57.  However, I should add that it is evident that after the 7^th defendant had learned that the sum of US$1,650,000 had been debited from D7’s Account on 3 October 2024, he indeed immediately instructed solicitors to deal with the matter and contacted the plaintiff’s solicitors.

Prejudice to the plaintiff

58.  Another factor which the plaintiff relied on is that it would be prejudiced if the funds it got from D7’s Account have to be returned, because it had already spent the said funds on the ordinary and normal course of its business, and therefore the plaintiff has changed its position.

59.  As submitted by the 7^th defendant’s counsel, the short answer to this argument is that such “change of position” defence is simply not available to the plaintiff given the expenses incurred were not “extraordinary expenditure” and the plaintiff would have to spend such expenses anyway: ANZ Commodity Trading PTY Ltd v Excellence Raise Overseas Limited & Others [2023] HKCFI 179 at [209] – [210].

Balancing exercise

60.  Having considered the other relevant factors in the round, I do not think they are enough to outweigh the merits of the 7^th defendant’s defence, which is the primary and dominant factor.

61.  In other words, the outcome would be the same even if the Default Judgment were a regular one.

ORDER

62.  By reasons of the aforesaid, I order that:

(1)  the Default Judgment be set aside on the ground that it was irregular;

(2)  the Garnishee Order be set aside consequentially;

(3)  the 7^th defendant do have leave to lodge his Acknowledgement of Service of the Re-Amended Writ within 14 days of this Order and to file a Defence and Counterclaim within 28 days thereafter.

COSTS

63.  I make a costs order nisi that the plaintiff shall bear the costs of the Summons, with certificate for two counsel, to be taxed forthwith if not agreed.

64.  The above order nisi shall become absolute in the absence of application to vary (which, if any, will be disposed of on paper)  within 14 days hereof.