ZIG ZIG BOUTIQUE LTD v. WONG CHIU LAM AND ANOTHER

DCCJ 2630/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2630 OF 2011

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BETWEEN

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DECISION

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Introduction

1.  There are two applications made by the 1^st defendant, Wong Chiu Lam (“D1”), and the 2^nd defendant, Lo Ting (“D2”; D1 and D2 collectively the “Ds”) before the court:

(1)  The Ds’ appeal (“Ds’ Appeal”) against the decision of Master D Ho given on 7 November 2012 ordering that (“Order”):

(a)  The judgment of 17 August 2011 (the “Judgment”) be set aside on condition that each of D1 and D2 do pay HK$150,000.00 in court on or before 28 November 2012, failing which the Judgment shall stand;

(b)  In the case of compliance with paragraph (1), each of the Ds do file and service their Defences within 28 days after payment into court;

(c)  The plaintiff (“P”) do file its Reply, if any, within 14 days thereafter; and

(d)  Costs of this application be to P in any event.

(2)  The Ds’ respective applications to stay the execution of the Order pending the Ds’ Appeal, and to stay the execution of the Judgment pending the Ds’ Appeal (the “Stay Application”).

2.  D1 and D2 respectively filed their 3^rd Affirmations (for D2, the Affirmation is entitled “2^nd Supplemental Affirmation of Lo Ting”) on 22 November 2012 in support of the Stay Application.  After hearing the submissions by the parties’ Counsel, as I reserved the decision of the Ds’ Appeal, I made an order in term of the Stay Application with costs be in the cause of the Ds’ Appeal.

3.  P was the registered owner and vendor of a property located at Flat 8, 33/F, Block E, Sunshine City, No 18 On Luk Street, Shatin, the New Territories, Hong Kong (the “Property”).  By a Writ endorsed Statement of Claim dated 13 July 2011, P claims against the Ds for HK$300,000 being the initial deposit that is allegedly due from the Ds to P for the purchase of the Property under a Provisional Agreement for Sale and Purchase dated 1 June 2011 (the “PSPA”).

4.  The Judgment was entered by default against the Ds, in the absence of acknowledgement of service, on 17 August 2011 for the sum of HK$300,000.00 together with interest thereon.  The affirmation of one Lau Wing Fat on service was filed on 4 August 2011 (“Lau’s 1^st Affirmation”) in support of P’s application for default judgment.

5.  A summons was taken out by the Ds, acting in person, on 15 May 2012 to set aside the Judgment (the “Setting Aside Summons”). A short affirmation was filed by the Ds on the same day in support of the Setting Aside Summons.  The affirmation of one Chan Ka Chung Jacky (陳嘉冲) (“Jacky Chan”), one of the directors of P, was filed on 22 May 2012 in reply.

6.  By an Order of Registrar Lui dated 23 July 2012, the parties were directed to file further Affirmations in relation to the Setting Aside Summons. D1 and D2 respectively filed their affirmations in support on 6 July 2012 (“D1’s 2^nd Affirmation” and “D2’s 2^nd Affirmation” respectively), and Jacky Chan filed his 2^nd Affirmation in reply on 18 July 2012.

7.  On 7 November 2012, the Setting Aside Summons was heard by Master D Ho. The Master decided that the Judgment was an irregular one and made the Order on the same day.

8.  By the Notice of Appeal (appeal against Master’s Decision), the Ds are now appealing against the Order, and seeking for inter alia the following orders:-

(1)  the Judgment be set aside unconditionally;

(2)  alternatively, the Judgment be set aside on the condition that each of D1 and D2 do pay HK$50,000 (instead of HK$150,000 as ordered) into court on or before a certain day; and

(3)  the costs of the Setting Aside Summons be to the Ds in any event.

9.  Ms Law, Counsel for the Ds, submitted the Ds’Appeal ought to be allowed for the following reasons:

(1)  The Master wrongfully exercised his discretion by setting aside the Judgment (which he found to have been obtained irregularly) on condition that each of the Ds do pay in Court HK$150,000.00, and he ought to have set aside the Judgment unconditionally;

(2)  Alternatively, the Master ought to have set aside the irregular Judgment by imposing a condition which the Ds could reasonably comply with; and

(3)  Costs of the Setting Aside Summons ought to have been to the Ds in any event.

Applicable legal principles

10.  An appeal to a Judge in chambers pursuant to O.58 RDC is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time. The judgewill of course give the weight it deserves to the previous decision of the Master; but he is in no way bound by it^[1]. The judge in chambers is in no way fettered by the previous exercise of the master’s decision, and on appeal from the judge in chambers, the Court of Appeal will treat the substantial discretion as the of the judge, and not of the master^[2].

11.  It is trite that an irregular default judgment would be set aside as of right without regard to the merits of the proposed defence^[3].

12.  Circumstances in which a judgment is considered to be irregular include bad or ineffective service of the writ^[4].

13.  The power to set aside a default judgment which has been entered regularly is discretionary and such power is unconditional. The defendant must normally show that he has a real prospect of success. Other relevant considerations will be considered by the court e.g. why the default occurred, the defendant’s conduct after he had notice of the proceedings, explanation for the time taken where there had been a delay in making the application, prejudice to the plaintiff, etc^[5].

14.  However, where the ultimate outcome would depend on whose evidence is believed and no provisional view of the probably outcome of the action can be formed without a trial, the appropriate test to determine whether the defendant has a real prospect of success is whether the defence “could well be established” at trial^[6].

15.  It is also trite law that it is the Ds’ burden to prove that the Judgment was irregular.  In other words, it is their burden to prove that the writ had not been brought to their notice until after the Judgment was entered.  The court does not have to accept a defendant’s assertion that he has not received the writ no matter how improbable and a defendant is required to provide “convincing evidence” to show that he does not receive the writ and he has no notice of the same.  In Bank of China (Hong Kong) Ltd. v. Cheung King Fung^[7], Tang JA (as he then was), whilst setting out the said legal principle, referred to and stated the following:-

“32. He referred as to para. 13/9/5 Hong Kong Civil Procedure where this sentence appears:

“When a defendant deposes that he has not received the writ through the post, the court has little option but to believe this save when there is sufficient material to cast doubt upon the defendant’s credibility to enable the court to disbelieve him.”

33.   We do not read this as suggesting that the court must accept a defendant’s assertion no matter how improbable.

34.   It is quite clear from Forward v West Sussex County Council, cited above, that a defendant is required to provide “convincing evidence”: at 1473G.  The Master of the Rolls went on to say of the judge that “He was in our view quite right to be sceptical of the contention that the 4^thdefendant had not received the writ in the absence of compelling evidence to show that it had not been forwarded on to him, as would in the ordinary course be accepted”: at 1474H.  Of course, how much evidence is required must depend on the circumstances of the particular case.” (emphasis added)

16.  It is accepted by Ms Law, Counsel for the Ds, that the Court has the residual discretion in setting aside an irregular judgment to impose terms by having regard to the parties’ conduct^[8]. However, each case must be decided on its own facts and the Court will be concerned to see whether the defendant’s conduct has been shown to be an abuse and whether he has contributed to what went wrong with the service of the originating process^[9].

17.  Even on setting aside a regular judgment, a condition, if imposed, should be one which the defendant can reasonably comply or else that would be tantamount to refusing him leave to defend altogether^[10].

Factual Background

18.  At all material times, P was the registered owner of the Property; D1 and D2 were fiancé and fiancée, and subsequently became husband and wife as they have married with each other on or about 18 June 2011 as evidenced by a certificate of marriage.

19.  Pursuant to the PSPA, signed (i) by Pas the vendor of the one part and (ii) the Ds as the purchasers of the other part^[11], it was stated that P agreed to sell and the Ds agreed to buy the Property at the purchase price of HK$4.45 million.

20.  The PSPA was signed with the agency service provided by a real estate agent, Ricacorp Properties Limited, of which one Mr. Ryan Li Pui Wing (“Mr Li”) was responsible for preparing the PSPA and witnessed the parties’ signatures on the same.

21.  Pursuant to the terms of the PSPA, the Ds shall upon signing the same (ie on 1 June 2011) pay to P an initial deposit in the sum of HK$300,000 (the “Sum”).

22.  The Sum was purportedly paid by the Ds by way of a cheque dated 2 June 2011 drawn by D1 made payable to P (the “Cheque”), but it was, upon presentment for payment, returned dishonoured on 3 June 2011, for the reason of “refer to drawer”.

23.  As the Ds failed to pay P the Sum, P on or about 13 July 2011 issued the writ herein claiming against the Ds for the Sum and the interest thereon.

24.  Since the Ds filed no Notice of Intention to Defend, the Judgment was entered against them on 17 August 2011.

25.  In about September 2011, the P’s solicitors had attended Flat 18, 5^th Floor, Chung Kwan House, Chung On Estate, Ma On Shan, New Territories (“Chung Kwan House Address”)with the view to serving upon the Ds the Statutory Demands (the “SD”).

26.  On about 28 September 2011, D1 contacted the P’s solicitors and thereby made arrangement with the same for personal service of the SD.

27.  On 6 October 2011, the SD and the Judgment were personally served upon D1. As the Ds still made no payment to P, nor did they take out any step to set aside the Judgment or the SD, Pfiled a Bankruptcy Petition (the “Petition”) against D1 on 5 December 2011.

28.  The Petition was respectively heard on 29 February, 26 March, 14 May and 28 May 2012, and was eventually adjourned to a date pending the determination of D1’s application to set aside the Judgment.

29.  All along, the Ds had made no application to set aside the Judgment until 15 May 2012; by that date, D1 had already attended hearing of the Petition for 3 occasions.

Discussion

Whether the Judgment was obtained irregularly

30.  According to Lau’s 1^st Affirmation, two separate copies of the Writ were served on 14 July 2011 upon D1 and D2 respectively by inserting the same into the post box of Chung Kwan House Address.

31.  Chung Kwan HouseAddress was provided by D1 as the address of his and D2 in the PSPA on 1 June 2011, ie about 6 weeks before the service of the writ. However, D2 said that she did not know that Chung Kwan House Address was used in the PSPA^[12].   Hence, I think that I have to accept her evidence in this regard for the purpose of the Setting Aside Summons.

32.  On or about 14 June 2011 (ie one month before the service of the Writ), the P’s solicitors had written to the Ds a letter before action (the “Letter before Action”) and sent the same to Chung Kwan HouseAddress by registered post.  This letter has not been returned undelivered.

33.  It is not disputed that D2’s parents were at all material times residing at Chung Kwan HouseAddress and D2 had (together with her parents) lived at the same place at least until 18 June 2011.  Hence, Mr Koo, Counsel for P, submitted that D2 must have notice of the Letter before Action on or about 14 June 2011.  However, I find that 14 June 2011 is a Thursday and 18 June 2011 is a Monday and only 4 days are in this period including Saturday and Sunday.  It is not clear to me from the evidence at what time on 14 June 2011 the Letter before Action was sent by registered post at the Post Office and at what time on 18 June 2011, the Ds moved out from Chung Kwan HouseAddress.  I am not able to conclude that D2 must have notice of the Letter before Action on or about 14 June 2011 as submitted by Mr Koo.  In any event, I think that is not directly relevant to the main issue as to whether the Ds had notice of the writ.

34.  D2 alleged that the writ was not brought to her notice until January 2012 on the following reasons:-

(a)   though she had resided at Chung Kwan House Address, she had moved away after getting married with D1 on 18 June 2011;

(b)   since about June 2011 until about January 2012, she did not have any communication with her parents due to family disputes and personal problems;

(c)   during the same period (from July 2011 to January 2012), no one had ever mentioned to her the present proceedings until D1 informed her so. As of that time, D2 was just diagnosed with pregnancy, and her health conditions were bad as she was found to be pregnant with a “large fundal fibroid 11x7cm”.

35.  On the other hand, D1 alleged that the writ was not brought to his notice until September 2011 on the following reasons:-

(a)   D2 and he moved out of Chung Kwan HouseAddress to reside at Tin Shui Wai on 18 June 2011;

(b)   D2 had some disputes with her parents on holding a wedding banquet;

(c)   since their moving out of Chung Kwan House Address, there was no contact between D2 and her parents until about September 2011;

(d)   D1 did not have notice of the posts relating to the present proceedings until about September 2011.

36.  Mr Koo, Counsel for P, submitted thatassuming that the Ds did move out of Chung Kwan House Address when the writ was served, it is apparent that D2’s parents would have forwarded the envelopes (containing copies of the writ) to the Ds or notified them of the same.  Mr Koofurther submitted that apart from the Ds’ mere allegation of no communication between the parents and them, they have produced no convincing evidence to prove that the parents did not notify them of the envelopes or forward to them the same.  In my view, Mr Koo’s submission seems logical and reasonable in normal situation when the Ds were in good term with D2’s parents. Nonetheless, as the Ds had already said that they had some disputes with D2’s parents on holding a wedding banquet, it is not entirely unbelievable that at the material times, D2’s parents had not forwarded the envelopes (containing copies of the writ) to the Ds or notified them of the same.   

37.  In addition, Mr Koo, Counsel for P, contended that Ds have failed to produce documentary evidence, such as a copy of tenancy agreement, utility bill or bank statement, to prove that they (or at the least D2) had moved of Chung Kwan House before 14 July 2011 and that the certificate of marriage is not evidence of “moving out” at all. It is the evidence of the Ds that they first moved to Tin Shui Wan in June 2011 after their marriage on 18 June 2011. The Ds then moved to “Flat C, 15^th Floor, Tower 5, Lake Silver, No 599 Sai Sha Road, Ma On Shan, Sha Tin, New Territories” (“Silver Lake Address”) in or about August 2011.  I think that as the Ds just stayed in the house at Tin Shui Wan for about 2 months, it may be difficult or a bit harsh for them to produce copy tenancy agreement, utility bill or bank statement.

38.  I am aware that when the Ds firstly took out the Setting Aside Summons, they did not say in their joint affirmation that they did not have notice of the writ or the proceedings, or they had not received the writ; they merely alleged that they had not received the notice of hearing of the proceedings^[13].Nevertheless, I am of the view that I shall take into account of fact that they had not sought any legal advice at the time when preparing this joint affirmation.  In my view, failing to mention that they had not received the writ does not mean that they had received it.

39.  It is undisputed that D1 had been served with the Judgment and the SD on 6 October 2011.  Mr Koo, Counsel for P, argued that it is unbelievable that that D1, being the husband of D2, would not have mentioned to her anything about the present proceedings, which involved both of them and a considerable sum of HK$0.3 million, for almost half a year, ie from about September (or October) 2011 to January 2012. In my judgment,it cannot be said such evidence totally unbelievable in view of D2’s pregnancy with a large fibroid and her poor health conditions.

40.  The Ds alleged that they had (after marriage on 18 June 2011) moved from Chung Kwan House Address to Tin Shui Wai.  Mr Koo for P challenged that D1’s address providedin his affirmation filed on 6 July 2012 was still Chung Kwan House Address. On the other hand, it is noteworthy that in the earlier joint affirmation filed on 15 May 2012, Silver Lake Address had already been used by the Ds.  It is very likely that D2’s parents are still residing at Chung Kwan House Address and that they may allow D1 to use this address in his affirmation filed on 6 July 2012.

41.  The fact that the Ds had taken no action whatsoever to set aside the Judgment until May 2012is not directly relevant to the main issue as to whether the Ds had notice of the writ.  In my opinion, the Ds’ conduct as such may be relevant to the next question whether I should exercise my residual discretion to impose terms upon setting aside an irregular judgment.

42.  I consider that the Ds’ explanation that they moved out of the D2’s maiden home right after their marriage was not incredible.  In the circumstances, I am satisfied that the Ds had no notice of the writ at the material time and conclude that the Ds have discharged their burden to prove the Judgment was irregular, which shall be set aside as of right.

Whether this court should exercise residual discretion to impose terms

43.  Although I will not consider the merits of the defence, it does not mean that I shall shut my eyes to the surrounding circumstances.  It is trite that I have residual discretion to impose terms upon setting aside an irregular judgment by having regard to the parties’ conduct^[14].

44.  As to the conduct of D2, I think that she has much less to be blamed than D1 save that when she has notice to the writ in January 2012, she and D1 only took out the Setting Aside Summons on 15 May 2012 to set aside the Judgment.  There is about 4-month delay which although not a very long one, still it is an unreasonable delay.  Besides, only D1 but not D2 has applied for legal aid in March 2012.  No explanation was given by D2.  I am of the view that this court shall exercise residual discretion to impose terms upon setting aside the Judgment.

45.  Regarding D1, I am of the view that his situation is even much worse than that of D2.  First, the PSPA was signed by him and D1 alleged that he also signed it on behalf of D2 as stated in the PSPA.  Nonetheless, D2 contended that D1 had no authority to sign on her behalf.   In this regard, their evidence seems conflicting. The issue as to whether D1 has the necessary authority, impliedly or apparent, from D2 is a very serious factual dispute, which I am not in a position to resolve at this stage.

46.  Secondly, D2 also alleged that Chung Kwan House Address was used and provided by D1 as the correspondence address in the PSPA without her knowledge.  As a result, the writ was served on the Ds at such address.  Thirdly, the Cheque was drawn by D1 rather than D2 and was, upon presentment for payment, returned dishonoured.

47.  Thirdly, it is undisputed that it was D1 but not D2 who signed the authorization letter dated 1 June 2011[15] in favour of the estate agent, Mr Li.

48.  Last but not least, on about 28 September 2011, D1 contacted the P’s solicitors and thereby personal service of the SD was arranged. On 6 October 2011, the SD and the Judgment were personally served upon D1 who still failed to take out any step to set aside the Judgment or the SD. Then, Pfiled the Petition against D1 on 5 December 2011 which was heard on 29 February, 26 March, 14 May and 28 May 2012, and was eventually adjourned to a date pending the determination of D1’s application to set aside the Judgment.  D1 did not inform D2 of the present proceedings immediately until January 2012.

49.  After D1 had already attended hearing of the Petition for 3 occasions, he and D2 eventually made application to set aside the Judgment on 15 May 2012. There is about 7-month delay which I do think is a very long period.  No explanation is offered by D1 as to why he only decided to apply for legal aid in March 2012 but not earlier when he has been personally served with the Judgment in October 2011.

50.  In my view, D1’s conducts are extremely unreasonable as a whole. I must exercise my residual discretion to impose terms upon setting aside the Judgment.

51.  I agree that if term is imposed, it should be one which the Ds can reasonably comply or else that would be tantamount to refusing them leave to defend altogether^[16].

52.  Ms Law, Counsel for the Ds, referred me to the 3^rd Affirmation of D1 and 3^rd Affirmation of D2 in support of the Stay Application and submitted as follows:

a.   At §14 of both of their Affirmations, they deposed to the fact that both D1 and D2 are only in their thirties and have just married in June 2011. D2 gave birth to their daughter in June 2012 who is now only 6 months old.

b.   D2 is a clerk and D1 is currently unemployed. The Ds do not have much savings and have very limited financial means. Each can only afford HK$50,000.00 as payment in court.

53.  In my judgment, if the Ds intend to vary the condition on the purported ground of their limited financial means, they should frankly disclose and produce sufficient documentary proof of incomes, bank statements, tax returns or any other documents to show their alleged limited means instead of mere-say-so.  They have the chance to do so when filing the supporting affirmations for the Stay Application, but did not and no explanation was given.

54.  It is not in dispute that the Ds or at least D1 had planned to acquire a property of their own as their matrimonial home after marriage in June 2011. According to the affirmation of D1, the purchase price of the Property shall be less than HK$4.45 million (inclusive of agency commission pursuant to the authorization letter dated 1 June 2011), 30% down payment of which would amount to about HK$1.3 million.  It means that D1 shall be able or was ready to make payment of this HK$1.3 million at that time if the estate agent can successfully bargain with P the purchase price of the Property inclusive of agency commission below HK$4.45 million. Furthermore, according to the plain wordings of the said authorization letter, Mr Li was authorized to pass on the initial deposit to P^[17]. Thus, when D1 drew the Cheque for HK$300,000 as initial deposit of the Property on 2 June 2011, he must have the ability to honour at least this HK$300,000. 

55.  In the circumstances, I am not satisfied that D1 is unable to pay a sum of HK$300,000.  Concerning D2, I accept her Counsel’s suggestion of HK$50,000.  I allow the Ds’ Appeal and set aside the Order.  I now order that:

a.   The Judgment against D1 be set aside on condition that he do pay HK$250,000.00 in Court on or before 28 February 2013, failing which the Judgment against him shall stand;

b.   The Judgment against D2 be set aside on condition that she do pay HK$50,000.00 in Court on or before 28 February 2013, failing which the Judgment against her shall stand;

c.   In the case of compliance with paragraph (a) and (b), the Ds do file and serve their respective Defences within 14 days after their respective payments into court;

d.   P do file and serve its Reply, if any, within 14 days from the respective dates of service of the defences of D1 and D2.

56.  Concerning the question of costs[18], I disagree that the Ds are plainly not to be blamed for the state of affairs that led to the irregular judgment, in particular Chung Kwan House Address was provided by D1 in the PSPA and the Ds did reside there before 18 June 2011. Thus, I exercise my discretion to order costs of the Setting Aside Summons, the Stay Application and the Ds’ Appeal be costs in the cause including all costs reserved and costs before Master D Ho.