WOO WING CHI AND ANOTHER v. CHAN SHUN CHING JOSEPHINE

DCCJ 299/2022

[2023] HKDC 1610

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 299 OF 2022

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BETWEEN

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DECISION

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1.  The plaintiffs issued a writ of summons with an indorsement of claim on 21 January 2022 for, inter alia, a sum of $538,200 being the outstanding loan amount and interest which was pursuant to a loan agreement between the plaintiffs and the defendant on or about 23 September 2018 (“Indorsement of Claim”). Additionally, the plaintiff sought interest on the sum of $360,000 at the rate of 18% per annum from 1 February 2022 until judgment and thereafter at judgment rate until payment, and $660,000 being a refund, loss, damages and/or rescissory damages pursuant to a breach of share transfer agreements and/or declarations of trust.

2.  The defendant failed to file any notice of intention to defend and final judgment was entered in favour of the plaintiff on 21 April 2022 (“the Default Judgment”). Thereafter, the defendant issued a summons to, inter alia, set aside the Default Judgment on 24 June 2022 based on bad and/or ineffective service with the alternative basis being that the Default Judgment be set aside based on a meritorious defence (“the Setting Aside Summons”).

3.  The Setting Aside Summons was heard before Master Patrick Siu and his (amended) order was made on 3 April 2023 ordering the Default Judgment be set aside on the condition that the defendant do pay into court $538,200 within 28 days with no order as to costs (“Master Siu’s Order”).

4.  The defendant issued a notice of appeal against Master Siu’s Order on 17 April 2023 for relief that it be stayed pending disposal of the appeal, that the Default Judgment be set aside unconditionally with costs of the Setting Aside Summons to the defendant to be summarily assessed and payable forthwith (“the Defendant’s Appeal”).

5.  The Defendant’s Appeal was fixed to be heard on 18 August 2023. On 14 August 2023, just days before the Defendant’s Appeal was to be heard, the defendant issued an additional summons to expunge certain materials on the ground that they were allegedly subject to without prejudice privilege and inadmissible (“the Expungement Summons”) which was supported by the fourth affidavit of the defendant dated 14 August 2023 (“Defendant’s 4^th Affidavit”).

6.  Mr Abel Lam, counsel for the defendant (and applicant of both said summonses), filed his skeleton submissions on 15 August 2023. Mr Jerome Liu, counsel for the plaintiffs, filed his skeleton submissions on 16 August 2023. Both the Expungement Summons and the Defendant’s Appeal were heard together before this court on 18 August 2023.

7.  Before discussing any of the substantive matters as relating to the said summonses, it is obvious that the defendant has made a shockingly late application via the Expungement Summons at the eleventh hour. Recapping the order in which such relevant documents were dated and/or filed, namely, the Defendant’s 4^th Affidavit was dated 14 August 2023, the Expungement Summons was filed on 14 August 2023, skeleton submissions of the defendant was filed on 15 August 2023 for both the Expungement Summons together with the Defendant’s Appeal of which the Defendant’s Appeal was fixed for 18 August 2023.

8.  The plaintiff was faced with a fait accompli of needing to deal with the Expungement Summons without any warning. With only a day’s time preparation, Mr Liu needed to file his written skeleton submissions for both the Defendant’s Appeal and the unexpected Expungement Summons. The foregoing state of affairs relating to the late filing of the Expungement Summons was highly undesirable at best and prejudicial at worst. Mr Liu confirmed that counsel for the defendant at the Setting Aside Summons hearing (not Mr Lam) did not raise any disputes relating to without prejudice privilege and that Mr Liu only knew of such an argument to be raised via Mr Lam’s skeleton submissions on the said issues and presumably via the Expungement Summons.

9.  Such matters were canvassed with Mr Lam and he confirmed that he did not appear at the Setting Aside Summons hearing and that he was only instructed in this case just recently to which this court accepts.

10.  In any event, the timing of the Expungement Summons is extremely late and unfair to the plaintiffs. The Court of Appeal stated its views that when late applications are made, this diverts away substantial time and energy, putting the other party and the court in a very difficult position as held in UMG Recordings Inc & Ors v Profit Chart Development Ltd & Ors, CACV 262/2012,19 February 2013.

The Expungement Summons

11.  The Expungement Summons sought relief for (1) expunging various parts of the affirmation of Woo Wing Chi dated 6 October 2022 on the ground that such parts were subject to without prejudice privilege and inadmissible; (2) that leave be granted to the defendant to file the Defendant’s 4^th Affidavit; (3) leave to uplift [the] Legal Aid stay; (4) “costs of this application be in the cause of the expungement summons”.

12.  Mr Lam submitted that pursuant to the first part of the Expungement Summons, the defendant’s application was based on the Rules of the District Court, Cap 336H under Order 41, rule 6 where the court may order to be struck out of any affidavit any matter which is scandalous, irrelevant or otherwise oppressive. Hong Kong Civil Procedure 2023, Vol 1, §41/6/1 further states that without prejudice materials contained in affidavits has the effect that the court will strike out parts of affidavits dealing with negotiations for a settlement. It is also notable that the same citation states that the court has a “complete discretion” whether or not to strike out from an affidavit the references to inadmissible “without prejudice” communications.

13.  Mr Lam focused his submissions on Poon Loi Tak v Poon Loi Cheung Desmond [2020] 1 HKLRD 511 at 516-520 when considering whether or not references are “without prejudice” where at §9:-

“The without prejudice rule is a rule governing the admissibility of evidence, which applies to exclude all negotiations genuinely aimed at settlement, whether oral or in writing, from being given in evidence: Rush & Tompkins Ltd v Greater London Council [1989] AC 1280, 1299G–1300B, per Lord Griffiths. The court has power to expunge/exclude evidence which is inadmissible by reason of without prejudice privilege.”

14.  Poon Loi Tak (ibid) 516 at §§13-14 held the following:-

“13. The principles applicable to the determination as to what constitutes without prejudice privileged negotiations for settlement have been set out in Re Jinro (HK) International Ltd [2002] 4 HKC 90 (per Kwan J as she then was) at [13], as follows:

(1) A party claiming without prejudice privilege on communication would have to show that the communication was made: (i) at a time when there was an existing dispute between the parties; (ii) legal proceedings in relation to the dispute had commenced or were contemplated; (iii) the communication was made in a genuine attempt to further negotiations to settle the dispute; and (iv) the communication was made with the intention that, if negotiations failed, it could not be disclosed without the consent of the parties.

(2) Further, it was not necessary for a “without prejudice” stamp to be expressly applied to the negotiations if it was clear from the surrounding circumstances that the parties were genuinely seeking to compromise the dispute.

14. As to the requirement set out at [13(1)(iv)] above, Hoffmann LJ (as he then was) had this to say in Forster v Friedland (unreported, 1992 WL 1351421) at p.3:

A party cannot bring within the rule statement which is not within its public policy merely by his stated or implied intention that it should be protected. Thus, whatever the parties may stipulate, the rule covers only those communications which are genuinely aimed at a settlement to avoid litigation. On the other hand, parties are free to make open offers or negotiate openly to settle their differences. The fact that a communication is aimed at settlement may be an indication — even a strong indication — of an intention that it should be without prejudice but the rule would not apply if the court concludes that the communication was in fact intended to be open. (emphasis added)”

15.  Also cited from Poon Loi Tak (ibid) 516 at §14, it is important to note that if the court comes to a finding that a communication was in fact intended to be open, that would negate the effect of the communication as being without prejudice.

16.  The relief relating to the first part of the Expungement Summons is aimed at the alleged without prejudice communications arising from a series of WhatsApp messages found in the 1^st plaintiff’s affirmation dated 6 October 2022 (“1^st Plaintiff’s Affirmation”) at (1) §5, (2) the final sentence in §41, (3) exhibits WWC-1 and (4) WWC-20, all of which are allegedly subject to without prejudice privilege and inadmissible (collectively “the WhatsApp Messages”). This decision summarizes the evidence relevant to the first part of the Expungement Summons but such summary is not meant to be comprehensive exposition. For the avoidance of doubt, this court has made a careful consideration of all the evidence relevant to the first part of the Expungement Summons.

17.  It is the defendant’s first affidavit dated 23 June 2022 in support of the Setting Aside Summons and prior to the 1^st Plaintiff’s Affirmation (“Defendant’s 1^st Affidavit) at §§4-5 that gives rise to why and how matters relating to the first part of the WhatsApp Messages arise. The Defendant’s 1^st Affidavit explains how she became aware of the present action against her and complaints regarding the same are made via a WhatsApp group between the plaintiffs and the defendant with the coordinate exhibit CSCJ-1 showing a screenshot of a discussion dated 10 October 2021 (“the WhatsApp Group”). The defendant referring to the WhatsApp Group that starts discussions relating to various other WhatsApp messages and other discussions between the parties, including the first part of the WhatsApp Messages.

18.  The Defendant’s 1^st Affidavit further complains that on 20 April 2022, the defendant through the WhatsApp Group asks why the plaintiffs were suing the defendant and for the plaintiffs to send the relevant legal documents to her company secretary since she had not received such documents from the plaintiffs to which the plaintiffs did not send the said documents to the defendant’s company and instead entered default judgment against the defendant the following day.

19.  Later in the Defendant’s 1^st Affidavit, there are allegations that the plaintiffs knew of the defendant’s financial difficulties in about March 2019 and there was further lending by the plaintiffs to the defendant in the amount of $100,000 in mid 2019 but this was repaid. There were demands by the plaintiffs to the defendant that lead up to about January 2020 for repayment of other sums. These complaints relate to another part of the WhatsApp Messages that are in dispute.

20.  Finally, the Defendant’s 1^st Affidavit refers to various events relating to the purchase of shares in two companies and their respective business operations, namely Shun Fat Company Limited (“Shun Fat”) and Fat Kee (Asia) Limited (“Fat Kee”). There is a dispute as to whether, inter alia, there was a purchase of the shares in Shun Fat and Fat Kee or whether they were loans. Related to such events were two declarations of trust both executed on 9 August 2018 (“the 1^st Declarations of Trust”), such matters are also relevant to matters later discussed in this decision. The discussion on such related matters extend to events occurring in or about March and/or December 2019.

21.  The 1^st Plaintiff’s Affirmation at §§4-5 in answer explains that the plaintiffs were not concealing the legal proceedings and that the defendant was not disclosing the entirety of the situation. The 1^st Plaintiff’s Affirmation at §5 are basically extracts from the WhatsApp messages found in WWC-1 to show the parties were engaging in repayment plans but there was difficulty on the part of the defendant to agree to the terms of the plaintiffs. The 1^st Plaintiff’s Affirmation at §5 derived from WWC-1 also show there being delay in payment by the defendant from about July to October 2021.

22.  The 1^st Plaintiff’s Affirmation states that the defendant did not make repayment of a loan of $360,000 and any interest since about May 2019 which led to the plaintiffs eventually suing for some $538,200 being the outstanding loan and interest as claimed in full. The WhatsApp messages from 27 December 2019 to 30 June 2021 were about repayment of the outstanding loan and found at WWC-20.

23.  The 1^st Plaintiff’s Affirmation final sentence at §41, which is specifically part of the allegedly offending material sought to be expunged by the defendant, explains that by 7 September 2021 the plaintiffs were surprised that the defendant failed and/or refused to give a proposal to repay a total investment that was comprised of owed funds for two companies, namely, Shun Fat for $360,000 and Fat Kee for $300,000.

24.  Mr Lam impressed upon this court that the way in which, inclusive of WWC-20, the WhatsApp Messages are to be viewed is that they were without prejudice communications from about 7 January 2020. Since the plaintiffs allegedly knew that the defendant had financial difficulties by or about December 2019, thereafter there was a deterioration of the relationship between the parties which lead to the plaintiffs demanding repayment. Mr Lam says that subsequently the 1^st plaintiff made threats of legal action and the correspondence thereafter were in the nature of settlement agreements and related proposals which were to avoid litigation.

25.  Mr Lam characterizes the aforesaid discussions relating to the WhatsApp Messages as being discussions that the parties contemplated or might reasonably have contemplated litigation would follow if there was no agreement. He further submitted that the court cannot be confined to selective descriptions of the conversations in the WhatsApp Messages and the court must objectively ascertain whether the communications in question were of a privileged nature. Furthermore, Mr Lam stated that the WhatsApp Messages were a bona fide attempt to settle the dispute since the defendant put forward a proposal or a series of negotiations and this was in order to resolve the dispute of the plaintiffs’ investments in Shun Fat and Fat Kee and thus promoting negotiation. The position of the defendant was that the court was to look at the substance of the WhatsApp Messages and if they indicate a bona fide attempt to settle a dispute then this would fall within the scope of without prejudice privilege.

26.  It has not gone unnoticed that the defendant’s 2^nd affidavit dated 12 January 2023 (“Defendant’s 2^nd Affidavit”) is in reply to the 1^st Plaintiff’s Affirmation where the defendant makes no complaint about any of the parts of the 1^st Plaintiff’s Affirmation being in breach of the rules of without prejudice privilege. The Defendant’s 2^nd Affidavit at §6 replying to the 1^st Plaintiff’s Affirmation at §5 denies owing any money, the WhatsApp Group was for running the business of Shun Fat and Fat Kee. The Defendant’s 2^nd Affidavit further stated that the defendant has not left the WhatsApp Group because she wanted to be informed of matters between the parties, that this was their “usual communication channel” and “I do not think I need to avoid talking to the Plaintiffs.”

27.  The Defendant’s 2^nd Affidavit at §§12-15 recounts various discussions between the defendant’s business partner and then a meeting between the parties regarding settlement in May 2022 where there was a good “atmosphere” but afterwards the defendant was served with a statutory demand dated 1 June 2022 (“Statutory Demand”) by the plaintiffs that was referred to in the Defendant’s 1^st Affidavit as CSCJ-2. In any event the defendant’s knowledge about any litigation against her did not arise until April 2022. The defendant’s business partner, Hui Kwan Wah Hugo (“Hugo Hui”) filed an affirmation in support dated 12 January 2023 (“Affirmation of Hugo Hui”) where at the penultimate paragraph he confirms that the settlement negotiation in May 2022 was going well until the Statutory Demand was served on the defendant on 1 June 2022.

28.  Mr Lam did not address me in any substance on why the defendant sought to expunge WWC-1 or the 1^st Plaintiff’s Affirmation final sentence at §41. Nonetheless, I have considered their relevance in relation to the Expungement Summons overall and the rules relating to without prejudice privilege.

29.  After careful consideration of all the relevant evidence before this court, I have found that the evidence that is subject to the first part of the Expungement Summons, namely those communications through the WhatsApp Messages (and the details of those messages), WWC-1 and commentary via the 1^st Plaintiff’s Affirmation final sentence at §41 were in fact intended to be open. The WhatsApp Messages were requests for repayment with no concessions made by the plaintiffs and there was an insistence on full payment. More importantly, there was never any intention expressed or any implied agreement that the WhatsApp Messages could not be disclosed without the consent of the parties. As such, by the defendant’s last round of affidavits, it appears that the various discussions between the parties until about 1 June 2022 were meant to be open and in any event, the defendant’s knowledge of any actual litigation against her did not arise until April 2022 on her own case. Although each case is factually sensitive in this area of the law, it is noted that discussions about request for repayment or payment by installments in themselves may not be without prejudice communications as per §23 in Adt Hong Kong Ltd v Projexasia Ltd, DCCJ 3823/2022, [2023] HKDC 949, 6 July 2023, DDJ David Chan.

30.  Mr Liu has cited Hu Yangyong v ALBA Asia Ltd [2020] 5 HKLRD 503, p.518-519 whereby a waiver of without prejudice privilege may have taken place where at a lower court the same materials were relied on and no objection was made. Again, there was no complaint by the defendant’s former counsel at the Setting Aside Summons hearing that there was any breach of without prejudice correspondence rules via the 1^st Plaintiff’s Affirmation after full submissions were made to Master Patrick Siu with these same materials now before this court. Although this court has already come to a finding that the WhatsApp Messages were not in breach of without prejudice privilege, this court would also have come to a finding that waiver of the defendant’s complaints had already taken place.

31.  For the sake of completeness, I refuse this first part of the Expungement Summons.

32.  Mr Lam submitted that pursuant to the second part of the Expungement Summons, his written submissions began by citing Hong Kong Civil Procedure 2023, Vol 1, §58/1/2 and 58/1/5 that an appeal from a master to a judge in chambers is a hearing de novo and the judge treats the matter as though it came before him for the first time. The judge is not fettered by the previous exercise of the master’s discretion and appellate courts thereafter would treat the substantial discretion as that of the judge and not the master with fresh points not raised before the master being allowed before the judge. Mr Lam continued by stating, without controversy, that the court in exercising its powers must ensure fairness between the parties and to always recognize that the primary aim in exercising the power of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties, pursuant to the Rules of the District Court, Cap 336H under Order 1A, rules 1 and 2.

33.  Mr Lam’s position at the hearing was further explained that the Defendant’s Appeal was to be considered as if the matter came before the court for the first time. When asked how the court should deal with the second part of the Expungement Summons, namely that leave be granted to the defendant to file the Defendant’s 4^th Affidavit, Mr Lam further submitted that it could be considered on a de bene esse basis although he accepted that his written submissions did not provide any details on this issue.

34.  After further submissions, Mr Lam on behalf of the defendant withdrew seeking relief under the second part of the Expungement Summons (save for the penultimate paragraph whereby the defendant sought relief under the first part of the said summons for expungement on the without prejudice privilege basis) since the matters stated in the Defendant’s 4^th Affidavit could have been submitted as evidence at the Setting Aside Summons which was roughly some 4 to 5 months prior to this hearing.

35.  As stated in Hong Kong Civil Procedure 2023, Vol 1, §58/1/3 and pertaining to the present case, normally no further evidence may be admitted at the Defendant’s Appeal and none of the matters in the Defendant’s 4^th Affidavit occurred after the Setting Aside Summons. Mr Lam also rightly accepted that there were no “special grounds” as per the principles of Ladd v Marshall [1954] 1 WLR 1489 to permit such further evidence to be submitted.

36.  Even if Mr Lam were not to withdraw seeking relief relating to the late filing of the Defendant’s 4^th Affidavit as aforesaid, I would have nonetheless refused leave given the reasons and legal principles as already explained. For the sake of completeness, I refuse this second part of the Expungement Summons and leave is refused for the defendant to file and serve the Defendant’s 4th Affidavit.

37.  The relief relating to the third part of the Expungement Summons was dealt with as one of the initial housekeeping matters at the hearing. I enquired with Mr Lam about the third part of the Expungement Summons, namely, what was the defendant’s position on leave to uplift the Legal Aid stay.

38.  An application for Legal Aid dated 5 July 2023 was added to the hearing bundle just days before the hearing which shows that the defendant was applying for Legal Aid. Mr Lam accepted that he made no written submissions on the same and left the matter in the court’s discretion while acknowledging that this was a very late application. It is unclear the foundation or underlying rationale for the defendant seeking this third part of the Expungement Summons nor was one given. For the sake of completeness, I find no reasonable basis to grant relief in relation to the third part of the Expungement Summons and I refuse the same.

39.  The Expungement Summons has failed and there has been considerable wastage of time and resources to the plaintiffs and the court. The timing of the Expungement Summons and the rather cavalier way in which it was substantively dealt with as already explained was surprisingly unsatisfactory. Given this court’s foregoing reasons and ruling on the various parts of the Expungement Summons, I dismiss the Expungement Summons entirely. I make an order that all costs of and incidental to the Expungement Summons be to the plaintiffs forthwith and with a certificate for counsel, to be taxed if not agreed.

The Defendant’s Appeal

40.  The Defendant’s Appeal has been advanced on two alternative bases, namely, whether the service on the defendant was regular or irregular.

41.  Mr Lam submitted that pursuant to the Rules of the District Court, under Order 10, rule 1 that there was irregular service on the defendant. For completeness sake, and as relevant to the present case, Rules of the District Court, under Order 10, rule1(1) to (3) are as follows:-

“(1) A writ must be served personally on each defendant by the plaintiff or his agent.

(2) A writ for service on a defendant within the jurisdiction may, instead of being served personally on him, be served—

(a) by sending a copy of the writ by registered post to the defendant at his usual or last known address; or

(b) if there is a letter box for that address, by inserting through the letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant.

(3) Where a writ is served in accordance with paragraph (2)

(a) the date of service shall, unless the contrary is shown, be deemed to be the seventh day (ignoring Order 3, rule 2(5) ) after the date on which the copy was sent to, or as the case may be, inserted through the letter box for, the address in question;

(b) any affidavit proving due service of the writ must contain a statement to the effect that—

(i) in the opinion of the deponent (or, if the deponent is the plaintiff’s solicitor or an employee of that solicitor, in the opinion of the plaintiff) the copy of the writ, if sent to, or as the case may be, inserted through the letter box for, the address in question, will have come to the knowledge of the defendant within 7 days thereafter; and

(ii) in the case of service by post, the copy of the writ has not been returned to the plaintiff through the post undelivered to the addressee.”

42.  Mr Lam cites Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378 where it was held by the Court of Appeal that if service of the writ was irregular then the judgment entered should be set aside ex debito justitiae. Further cited to this court was in Liu Chong Hing Bank Ltd v Union World (HK) Ltd [2005] 1 HKC 20 where Yuen JA further explains the broad underlying rationale of this approach to set the judgment aside as of right:-

“14. … the rationale for that is obvious – the rules of court do not require a defendant to show that he has a defence on the merits in any action, except when Order 14 proceedings are initiated. Since that is the case for a defendant who has been served, there is no reason why a defendant who has not been served should be in a worse position.

15. However, what is also clear from Po Kwong is that in the exercise of its discretion, the court would consider other relevant matters, including conduct of the defendant after he learns of the proceedings. Where, as in this case, the defendant delayed substantially before applying to court to set aside the judgment, the court was clearly justified in setting aside the judgment on terms.”

43.  Mr Lam submitted that irregular service, on the law and on the particular facts of this case, where the defendant does not have actual notice of the writ that this was reason alone to establish that the service of the writ could not have been effective and thus judgment is irregular.

44.  The Defendant’s 1^st Affidavit alleges that she only came to learn of these proceedings on 20 April 2022 when Hugo Hui, her business partner in operating catering and small restaurants, conducted a litigation search against the defendant as a matter of due diligence and discovered the defendant was being sued by the plaintiffs. Mr Lam stated that the defendant was proactively reaching out to the plaintiffs is a factor showing the defendant has not been evading service, this already being discussed at paragraph 18 hereinabove. However, it is notable from the 1^st Plaintiff’s Affirmation that the said WhatsApp from the defendant on 20 April 2022 never mentioned that she had ever moved, let alone that the defendant moved to her new residential address.

45.  The Defendant’s 1^st Affidavit further alleges that she moved out of her old residential address to her new residential address since about August 2019. The defendant further admits that her company secretary forgot to update her residential address and that she had reminded her company secretary to update such particulars in the new annual return for the year of 2022. This meant that the annual return for Fat Kee, as per the affirmation of service dated 24 February 2022 showing the old residential address of the defendant, was what the public would find as being the relevant address of the defendant at the time of service and last known address. It is notable that the defendant’s company secretary is a licensed company service provider and would have known that updating relevant information regarding a change in a director’s address was a compulsory and statutory requirement under the Companies Ordinance (Cap.622).

46.  The defendant further exhibits two tenancy agreements relating to her new residential address in 2019 and then in 2021 (more specifically the second tenancy was from 1 August 2021 to 31 July 2023). The defendant also exhibits bank statements ranging from 2019 to 2022 indicating that the defendant resided at the new residential address. By the filing of the Defendant’s 2^nd Affidavit, she had yet again moved to another residential address different from her new residential address but without much explanation nor distinct proof of the same save for the address being different and as stated on the face of the Defendant’s 2^nd Affidavit.

47.  The defendant has not complained of how the defendant was served was somehow inappropriate or invalid per se, which was by way of standard letterbox insertion. It would appear that the plaintiffs would not know where the defendant resided at the time of service of the writ by way of publicly available documents other than the defendant’s residential address as indicated on the annual return of Fat Kee but which admittedly was not updated due to the defendant’s company secretary omitting to make a proper update. The Defendant’s 2^nd Affidavit in reply to the 1^st Plaintiff’s Affirmation, made the statement that:-

“… I had no obligation to give the Plaintiff my New Address. I already gave them the address of my company secretary to send me legal documents, that address would then be my last known address.”

48.  Mr Liu submitted on behalf of the plaintiffs that the case of HRA Investments Ltd v Lee Yik Kwong, DCCJ 1291/2005, 14 May 2007 at §§49-54 of the judgment of H H Judge Marlene Ng (as she then was) is to be considered and of assistance to this case.

49.  Notably to be drawn from HRA Investments (ibid) is that the words “unless the contrary is shown” in the Rules of the District Court under Order 10, rule 3(a) showed it was open to a defendant to demonstrate that he did not have actual notice of the writ. HRA Investments (ibid) goes on to analyze and determine that the defendant’s claim was premised on a bare assertion without supporting evidence or documents of living at another address when service took place, with such expected documents (such as an assignment, tenancy agreement, utility bills, other invoices, management fee debit notes, etc.) which would result in “compelling evidence” to sway the court to find in favour of the defendant. It was also found that the defendant not registering his new address with the Companies Registry over 10 years was amongst one of the factors against the defendant.

50.  HRA Investments (ibid) also cited Bank of China (Hong Kong) Limited (formerly known as The China and South Sea Bank, Limited, Hong Kong Branch) v Cheung King Fung, Francis and anor CACV66/2005 (unreported, 22 July 2005) held that the court did not necessarily have to accept the defendant’s assertion no matter how improbable, and how much evidence is required is dependent on the circumstances of the particular case. As per HRA Investments (ibid), §44:-

“A defendant could have a number of usual and/or last known addresses, and a last known address would not be displaced by any other concurrent usual and/or last known addresses.”

51.  Mr Liu brought to the attention of this court that there are in fact 5 residential addresses (inclusive of the new residential address) registered by the defendant as at 6 December 2022 (with the writ being served on 21 January 2022) which on the face of the said documents confirm the same. As such, there are 4 other residential addresses that coincide with the new residential address.

52.  It is noted that although there appears to be 5 residential addresses concurrently registered by the defendant, the relevant period of time was not exactly contemporaneous with the time of the service of the writ. However, such information about the 4 other residential addresses as at 6 December 2022 also come from the Defendant’s 2^nd Affidavit and do overlap with the tenancy period(s) of the defendant’s new residential address which was from 1 August 2021 to 31 July 2023.

53.  It should also be noted that the bank statements provided by the defendant shows her new residential address from 15 October 2019 onwards. However, for the immediate months prior to October 2019 which is the material period in time which overlapped when the defendant allegedly moved to her new residential address in August 2019, have not been provided.

54.  As such, the 4 other residential addresses of the defendant as at 6 December 2022 (with such evidence emanating from the Defendant’s 2^nd Affidavit), have no coordinate supporting evidence of why these residential addresses record the defendant as concurrently being a resident in other locations. No substantive explanation was given on why there was such a state of affairs with the other residential addresses of the defendant. There is no supporting evidence of the defendant also residing at the other residential addresses such as tenancy agreements, utility bills, other invoices, management fee debit notes or the like. Mr Lam did make some submissions at the hearing of what were those other residential addresses but even he accepted that such submissions were not found in the affidavits and/or affirmations and thus I refuse to take such evidence from the Bar table.

55.  Again, adding more confusion as to the status of the defendant’s residential location, the Defendant’s 2^nd Affidavit itself in its introductory paragraph states the defendant’s residential address is yet different to the defendant’s new residential address and is one of the aforesaid other residential addresses used as of 6 December 2022.

56.  At the hearing, I enquired and Mr Lam confirmed that the tenancy agreement of the old residential address was not in the hearing bundle. As such, this court has no evidence to make at least a prima facie finding that the tenancy relating to the old residential address would have already lapsed by the time of service of the writ on the defendant. There is no positive evidence that the defendant had left the old residential address such as a return of a rental deposit, termination of utilities and other sorts of compelling evidence showing the defendant’s end of residency thereof.

57.  Certainly on the face of the evidence, the defendant still chose to use the old residential address in the annual return of Fat Kee from November 2019 until November 2021 albeit her explanation is that this was a mistake of her company secretary, but it was a mistake which persisted for 3 years in a row. The fact that the defendant used her new residential address in the annual return of Fat Kee in December 2022 which is well after the Setting Aside Summons was issued and after the filing of the Defendant’s 1^st Affidavit and the 1^st Plaintiff’s Affirmation is therefore of little use and self-serving.

58.  Mr Liu referred to the case of Kwok Kwong Pang v Shum Kit Man Alan, HCA 675/2013, 29 November 2013 where Master Chow held that where records at the Companies Registry, notwithstanding recent updating, indicated that at the time when the service of the writ took place, the defendant was still residing at the relevant address where service took place. It was found that the defendant made a bare assertion that the writ as served did not reach him and therefore default judgment was found to be a regular judgment.

59.  I have considered the cases of, inter alia, HRA Investments (supra), Kwok Kwong Pang (supra) and also Sinokawa Investment (Holdings) Ltd v Li Chun [2006] 3 HKLRD 441. The burden is on the defendant to demonstrate that he did not have actual notice of the writ. Having carefully considered the evidence in all the circumstances as aforesaid, I am very doubtful of the credibility of the defendant and the defendant has not satisfied this court that the defendant did not have notice of the writ of summons at the material time.

60.  There is an absence of compelling evidence of the defendant residing at the defendant’s new residential address when also considering there is a significant conflict of evidence against the defendant on where she was residing given the multiple locations which the defendant registered as her residential address. In fact, there has been no positive evidence to show the defendant did in fact cease her tenancy at her old residential address. The defendant’s last known address was for all accounts and purposes, at the time of service of the writ, the defendant’s old residential address as could be found in publicly searchable documents. As such, the defendant’s old residential address has not been displaced by the defendant’s new residential address (or the confusingly and unanswered other concurrent locations of the defendant’s residence as previously discussed).

61.  The Default Judgment against the defendant is thus a regular judgment. The Defendant’s Appeal now will be considered on whether the defendant had a meritorious defence.

62.  It is trite that as per Hong Kong Civil Procedure 2023, Vol 1, §13/9/14 the defendant must show that he has “a real prospect of success”. To do so, the defendant must satisfy the court that his case and the evidence that he adduces in support of it is potentially credible and carries some degree of conviction.

63.  Mr Lam submitted on matters that are factors affecting the court’s discretion if the Default Judgment is set aside and which he submitted should be done so unconditionally.

64.  Firstly, it was submitted that the defendant’s conduct after having learned of these proceedings has been entirely reasonable whereas the plaintiff has deliberately included without prejudice materials. This court does find that the defendant did take action to set aside the Default Judgment relatively soon afterwards. However, there is no adverse finding against the plaintiffs in relation to there being any inclusion of without prejudice materials as seen in the dismissal of the Expungement Summons in its entirety. As such, I do not find that there is much merit in considering the aforesaid matters as being in the defendant’s favour.

65.  Secondly, more substantively, the defendant alleges that the plaintiffs have attempted to convert what was a shareholder or investment agreement to acquire shares in Shun Fat and Fat Kee into personal loan agreements with the defendant.

66.  The defendant’s case is that in 2018 the plaintiffs were interested in joining the restaurant business which related to 3 restaurant businesses operated by Shun Fat valued at $3,600,000 which the plaintiffs invested in 10% of the equity in the business of Shun Fat at $360,000 by way of a cheque dated 9 August 2018 paid to the defendant. Afterwards, the defendant executed the 1^st Declarations of Trust of even date in favour of the plaintiffs for 10% equity in Shun Fat.

67.  Subsequently and similarly, the plaintiffs invested an additional 10% of the equity in the business of Shun Fat again at $360,000 by way of a cheque dated 23 September 2018 paid to the defendant and afterwards the defendant executed a further pair of declarations of trust of 8 October 2018 in favour of the plaintiffs for 10% equity in Shun Fat (“2^nd Declarations of Trust”). This same sort of exercise again occurred on 27 February 2019 but instead a lower amount of $300,000 was paid by the plaintiffs to the defendant which led to a pair of declarations of trust for 10% equity in Fat Kee in favour of the plaintiffs (“3^rd Declarations of Trust”).

68.  On the plaintiffs’ case, Mr Liu submitted that the events relating to the 2^nd Declarations of Trust are to be read in the context of a series of WhatsApp messages on 23, 25, 26 September 2018. This court finds that the aforesaid WhatsApp messages do show on balance that the situation relating to the 2^nd Declarations of Trust was that of a lending agreement as per the 1^st Plaintiff’s Affirmation at §5 as extracted from WWC-1 and that the 2^nd Declarations of Trust were agreed to be a pledge against that loan. Key to confirming the situation relating to the 2^nd Declarations of Trust was a loan is because the defendant mentioned on various occasions that she would and did repay interest (利息) pursuant to the $360,000 amount given by the plaintiffs. This repayment by the defendant went on for several months as confirmed in the WhatsApp messages from 25 October 2018 to 1 March 2019.

69.  The aforesaid WhatsApp messages on 23, 25, 26 September 2018 and the subsequent WhatsApp messages evidencing the payment of interest by the defendant to the plaintiffs was not countered by any of her own messages. In fact, the defendant in a WhatsApp message on 4 March 2019 indicated she could not pay off the $360,000 itself due to it being too substantive and instead would continue to pay interest by stating, inter alia, “暫時未有能力還大數” and the 1^st plaintiff replied that he could continue receiving interest.

70.  Mr Liu accepts that the events relating to the 1^st Declarations of Trust and the 3^rd Declarations of Trust have less supporting contemporaneous evidence. The plaintiffs described the advancement of those funds must be “capital guaranteed” since the defendant told them she was experienced in operating a restaurant business, the business was profitable, and the defendant undertook that the plaintiffs would be able to get back their money. The plaintiffs’ advancement of those funds are what the plaintiffs described as “The Transfer Agreements” in the Indorsement of Claim and later phrased as “(the First/Second) Guaranteed Transfer Agreement(s)” but there are nonetheless some WhatsApp messages in favour of the plaintiffs.

71.  In particular, the plaintiffs submit that they expressed to the defendant that they were not experienced in private companies and therefore they requested their invested sums, what they described as “guaranteed capital” (保本), to be protected and could be recovered. There is a WhatsApp message to both plaintiffs on 23 April 2019 that, inter alia, their capital and share capital was protected, could be recovered, and that the defendant did not want them to bear any of the business losses.

72.  Mr Lam submitted that the totality of the 3 aforesaid sets of declarations of trust (collectively “the Declarations of Trust”) is that the plaintiffs are the beneficial owners of the shares in Shun Fat and Fat Kee with the defendant holding the same on trust for the plaintiffs in consideration of their investment. As such, the transfer of funds by the plaintiffs to the defendant is basically a shareholders dispute and not for loans. Mr Lam complains that if the defendant is correct in her assertions, the plaintiffs’ claim will be barred by virtue of the principle against double recovery.

73.  Mr Lam accepts that although the plaintiffs may have suffered losses via the business losses of Shun Fat and Fat Kee, this does not constitute a claim against the defendant for the value of their investment as the plaintiffs’ claim (and also found in the relief of the Indorsement of Claim) against the defendant infringes upon the “no reflective loss” principle as per Power Securities Co Ltd v Sin Kwok Lam [2023] HKCA 594 at §71 per Yuen JA where it was held:

“As the CFA held in Waddington, as “a matter of principle”, a shareholder cannot claim for loss which was merely reflective of the loss suffered by the company. The fact that the reflective loss rule was justified by the avoidance of double recovery did not turn the principle into only a procedural rule. Importantly, Mr Joffe accepted at the hearing that double recovery was not the only rationale for the bar against reflective loss in Hong Kong (see Wah Nam Group Ltd v Roderick John Sutton and Topping Chance Development Ltd v CCIF). Irrespective of whether the rule was justified by the avoidance of double recovery, the focus was on the nature of the loss, not whether the shareholder has an independent cause of action, or whether the company’s actions or inactions would or would not replenish his loss.”

74.  Mr Lam submitted that whether the defendant gave an undertaking to refund the investment in place of the equity that the plaintiffs had acquired does not conceivably convert the plaintiffs’ claims against Shun Fat and Fat Kee to that being against the defendant.

75.  Mr Lam submitted that the plaintiffs’ allegation that they had no experience investing in private companies such as Shun Fat and Fat Kee was unbelievable given that the 1^st plaintiff was a banker, this fact not being denied. As such, the plaintiffs’ own allegation that there was a need to have their “guaranteed capital” (保本) be protected and so that the same could be recovered is a credibility issue.

76.  Furthermore, there is evidence to show that, inter alia, the plaintiffs were informed that their funds were for purchasing furniture, equipment and renovation costs. This gives an indication that the funds from the plaintiffs were related to the restaurant business of Shun Fat and Fat Kee and thus contrary to the funds being for a personal loan to the defendant.

77.  After careful consideration of the present case, this court finds that regarding the 2^nd Declarations of Trust, on balance it is found that that situation was that of a loan from the plaintiffs to the defendant. The contemporaneous WhatsApp messages that stretch for several months clearly indicated that the plaintiffs made a loan, the defendant agreed to repayment of that loan and was paying off that loan at regular intervals and at a uniform amount of 1.5% interest per month off the $360,000 principal (i.e. $5,400 per month) as evidenced also from a screenshot of a bank pay in slip of 12 November 2018.

78.  I cannot say that I am equally sure of the position with regards to the 1^st and 3^rd Declarations of Trust. The evidence being less cogent and comprehensive in relation to the 1^st and 3^rd Declarations of Trust has certainly given me pause on the exact reason(s) for the transfer of funds between parties. Given the paucity of evidence as particularly relating to the 1^st and 3^rd Declarations of Trust, I will not definitively state whether I am in agreement with Mr Lam on there being no right to recover the sums transferred by the plaintiffs as per Power Securities Co Ltd (ibid). I also find at this stage that I should not shut out the defendant from further pursuing its right to defend this action which could well be established when the ultimate outcome would depend on whose evidence is to be believed and which no provisional view is held by this court, in particular as highlighted by some of the evidential matters as stated at, inter alia, paragraphs 75 to 76 hereinabove.

79.  As cited in Kwok Kwong Pang (supra) where an assessment on the merits is required, I am reminded of the case Choi Chung Bun Vincent v Australia China Holdings [2011] 3 HKLRD 622 where McWalters J held at §29:-

“… where assessing the merits of a defence requires judges to embark upon an assessment of the credibility of competing evidence, courts have cautioned against conducting a trial on affirmations whose deponents’ claims have been untested by cross examination.”

80.  As an aside, Mr Lam made an argument that if the plaintiffs are deemed money lenders under the Money Lenders Ordinance (Cap 163) (“MLO”), then pursuant to sections 18 and 23, the “loans” of the plaintiffs would be enforceable. Mr Lam mentioned at the hearing that by reference of a WhatsApp message between the parties that the term “放數” would reasonably be interpreted to be associated with money lenders. I agree with Mr Liu that such newly developed arguments by the defendant has no evidential basis showing the plaintiffs are in the business of lending, a requirement under the MLO. Such argument on behalf of the defendant fails.

81.  Both parties are in agreement that if the Default Judgment is set aside then the court may exercise its discretion and set aside the Default Judgment on terms. Understandably Mr Lam submitted that no terms should be imposed on the defendant.

82.  As per Sinokawa Investment (Holdings) Ltd (supra), even in a situation where an irregular default judgment is set aside, if the defendant had himself to blame if creditors were led to believe his address was the one served upon then that was a factor in favour of imposing terms. Furthermore, in Kwok Kwong Pang (supra), regular default judgment was set aside but terms were still imposed since, inter alia, the risk that the plaintiff may get only an empty judgment was also a real risk, in particular where nothing has been provided in support of the defendant’s allegedly new address.

83.  This court has found that the defendant failed to show “compelling evidence” that she was residing at the defendant’s new residential address in particular where evidence of residency thereof was partial and incomplete at critical periods of time. Furthermore, the evidence showed that there was unresolved and conflicting evidence that the defendant had several other registered residential addresses that were concurrent with the defendant’s new residential address. Compounding the aforesaid difficulties regarding her residential address was that there was no evidence showing the termination of the defendant’s old residential address.

84.  Finally, there has been no impropriety on the part of the plaintiffs given that this court has already dismissed the Expungement Summons.

85.  As a side issue, there were some rather serious allegations made by the defendant against the plaintiffs’ solicitor regarding him deliberately concealing telephone conversations and other matters that would amount to misconduct on his part and related to the issue of when the defendant learnt of the proceedings against her and whether there was any delay in issuing the Setting Aside Summons.

86.  This understandably resulted in the plaintiffs’ summons dated 28 March 2023 to file and serve the affidavit of Ho Ching Yin, namely the plaintiffs’ solicitor, in answer to the allegations made in the Defendant’s 2^nd Affidavit and the Affirmation of Hugo Hui against him. This court understands that the aforesaid affidavit of the plaintiffs’ solicitors was filed to defend himself against such allegations of misconduct and matters pertaining to delay but I have found such matters peripheral to the substantive issues at hand and in any event the defendant’s accusations have little foundation.

87.  The findings that this court has already made would fairly result in the Default Judgment be set aside but on terms. Those terms would be that the amounts advanced by the plaintiffs to the defendant and the related terms regarding interest as pursuant to the 2^nd Declaration of Trusts be paid into court. As such, there is no reason to depart from the sum sought under the Indorsement of Claim, namely $538,200 being the amount to be paid into court.

88.  I order that the Default Judgment be set aside on condition that there be payment into court of $538,200 within 28 days by the defendant.

89.  Pursuant to my findings, the defendant in bringing the Defendant’s Appeal has done no better than the outcome as per Master Siu’s Order.

90.  Costs should follow the event. I grant a costs order nisi to be made absolute within 14 days that the defendant to pay the plaintiffs the costs of and occasioned by the Defendant’s Appeal with a certificate for counsel, to be taxed if not agreed.

91.  I thank counsel for their assistance.