CHAU PUI NGAI v. CHAU YAU ZING AND ANOTHER

HCA 298/2017

[2024] HKCFI 1609

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 298 OF 2017

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DECISION

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A. Introduction

1.  The plaintiff (“P”)  and the defendants (“D1”, “D2”, and collectively “Ds”)  are natural brothers.  P is the eldest, D1 the second, and D2 the youngest.  Disputes have developed amongst P of the one part and Ds of the other as to the beneficial ownership of the property at Flat E on 3^rd Floor of Block 1, Charming Garden, No. 16 Hoi Ting Road, Kowloon (“the Property”).  

2.  There are 3 summonses before this Court:

(a)  Taken out by the Ds:

(i)  Summons of 29 June 2023 taken out by D1 for an order that the default judgment of 29 March 2017 entered against him (the “D1/Default Judgment”)  be set aside, with consequential directions on the filing of Acknowledgment of Service and Defence and Counterclaim (the “D1/Summons”);

(ii)  Summons also of 29 June 2023 taken out by D2 for an order that the default judgment of 26 September 2017 entered against him (the “D2/Default Judgment”, and collectively with the D1/Default Judgment, the“Default Judgments”)  be set aside, with consequential directions on the filing of Acknowledgment of Service and Defence and Counterclaim (the “D2/Summons”, and collectively with D1/Summons, the “Ds/Summonses”);

(b)  Taken out by P, the summons of 8 May 2024 (the “P/Summons”)  for an order that the materials (collectively the “Impugned Materials”)  set out in the Appendix attached thereto (the “P/Appendix”)  which Ds rely upon in support of the Ds/Summonses be expunged and/or struck out, on the ground that they are subject to without prejudice privilege and are inadmissible.

3.  Mr Lincoln Cheung appeared for P.  Mr Bache Sit appeared for Ds.

B.  The evidence

4.  For Ds:

(a)  In respect of the Ds/Summonses, in support and in reply:

(i)  D1 has filed his affirmations of 29 June 2023 and 8 January 2024 (“D1/Aff1” and “D1/Aff2” respectively).  At §2 of D1/Aff1, D1 reveals that in a related action (HCMP 186 of 2021, the “Contempt Proceedings”), D2 was found guilty of contempt of court for having failed to comply with, inter alia, the D2/Default Judgment.  For the purpose of D2’s mitigation, D1 filed an affirmation.  He in D1/Aff1 produces a copy thereof as “CYZ(2017)1” (“D1/Aff/Contempt”)  and adopts its contents;

(ii)  D2 has filed his affirmations of the same respective dates (“D2/Aff1” and “D2/Aff2” respectively).  Similarly to what D1 has done in D1/Aff1, D2 produces in D2/Aff1 his own affirmation filed in the Contempt Proceedings (“D2/Aff/Contempt”)  and adopts its contents;

(iii)  The affirmation of Chau Wai Man of 29 June 2023 (“WM Chau”, and “Uncle/Aff”). WM Chau is the younger brother of the parties’ father, and hence their uncle; and

(b)  In respect of the P/Summons and in opposition, D1 has filed his 3^rd affirmation of 23 May 2024 (“D1/Aff3”).

5.  For P, the following affirmations have been filed:

(a)  In opposition of the Ds/Summonses, P’s 4^th affirmations of 11 December 2023 (“P/Aff4”)  (which exhibits amongst others 2 of P’s affirmations filed in the Contempt Proceedings, which I have also considered); and

(b)  In support of the P/Summons, P’s 5^th affirmation of 7 May 2024 (“P/Aff5”).

6.  With the above introduction, I can now explain more about the Impugned Materials:

(a)  They are are:

(i)  Paragraphs 12-16 and 18 of D1/Aff/Contempt (the “Impugned Paras D1/Aff/Contempt”);

(ii)  Exhibits “CYZ-4”, “CYZ-5” and “CYZ-6” referred in the Impugned Paras D1/Aff/Contempt; and

(iii)  §§3, 4, 6, 8, 9, 16-19 of D1/Aff2.

(b)  I record that in the course of the hearing, upon this Court’s request for clarifications, Mr Cheung accepted that §12 of D1/Aff/Contempt (which is amongst the Impugned Paras D1/Aff/Contempt)  and the first 3 sentences of §4 of D1/Aff2 (from “As to” to “share more in the beneficial ownership of the Property”)  in any event do not infringe the without prejudice rule, and should be outwith P’s application to expunge/strike out.

C.  P’s pleaded case

7.  P’s case, according to his Statement of Claim of 9 February 2017, is as follows.  Wong Yam Ha (“Mother”)  was their late mother.  In about late 1998, P decided to buy a Home Ownership Scheme (“HOS”)  flat for his own or Mother’s use.  Subsequently, he succeeded to apply under HOS for the Property.  A legal charge for the balance of the purchase price was obtained from Hang Seng Finance Limited (the “Charge”). P was the sole owner of the Property and the sole borrower under the Charge.  Mother occupied the Property until June 2006 when she passed away.  The Property became vacant for a period.  Then, as pleaded by P[1]:

“Subsequently since about March 2008, [D1] was allowed by [P] to occupy the Property as [P] had been borrowing money from [D1] to satisfy the mortgage payments of the Property. It is averred that any such loan provided by [D1] to [P] 6 years before the issuance of this writ is effectively time barred by the operation of the Limitation Ordinance (Cap.347).”

The Charge had subsequently been repaid and was on about 28 February 2014 discharged.  P informed D1 of his intention to sell the Property and requested D1 to leave.  D1 refused to, and claimed that he was entitled to a 70% interest in the Property.  P says further that the title documents “were further unlawfully kept by [D2] without [P’s] consent.”[2] P seeks (amongst others)  against D1 possession of the Property, damages for trespass/mesne profits, against D2 delivery up of the title documents, and against both of them damages.

8.  Ds did not file any Acknowledgment of Service.  The Default Judgments were then obtained.

D.  Ds’ proposed case

9.  Ds accept that the Default Judgments have been regularly obtained.  The validity of the service process is not in issue.

10.  Whilst no draft defence in pleading form has been put forward at this stage, Mr Sit, on the basis of the affirmatory evidence, formulates Ds’ proposed defence at §5 of his written opening as follows, that “[Ds] are the main contributors towards the down payment and the subsequent mortgage repayments of the Property.  They are two of the beneficial owners and so they are entitled to possess not only the Property itself, but also its title deeds.” Mr Sit submits that Ds has by potentially credible evidence established a meritorious case, and there are in the premise and on the facts no other considerations that are of sufficient materiality for this Court not to exercise its discretion in favour of setting aside the Default Judgments. 

E.  Ds/Summonses

11.  Mr Sit submits that even without the Impugned Materials, Ds have still demonstrated a meritorious defence. 

12.  On that basis, I will consider Ds/Summonses first.

E.1.  The applicable legal principles

13.  The applicable legal principles are not in dispute.  I have nonetheless considered the authorities cited before me, which include §§13/9/12 to 13/9/14 of Hong Kong Civil Procedure 2024, Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 (Court of Appeal)  at 160F-G, El Vince Ltd v Wu Wen Sheng [2001] 3 HKLRD 445 at 456, Hung Ling Chun Felicia v Chow Yung Fong & Anor [2001] 3 HKC 209 at 217G-218D.  I apply them.

E.2.  Whether meritorious defence demonstrated

14.  In his written submissions, Mr Cheung deals with first Ds’ delay in taking out Ds/Summonses.  He submits at the end of that section of his submissions[3] that “irrespective of merits, … justice would not be served by setting aside the [D1/Default Judgment]”.  He adopts, “mutatis mutandis”, the same submissions against D2.

15.  In my view, that approach cannot be correct.  In an application to set aside a regular default judgment, as summarised by Recorder Geoffery Ma (as the former CJ he was)  in Hung Ling Chun Felicia, whilst the consideration of merits is not the only one, it is the “primary” or “dominant” one.  It is only exceptionally that despite the demonstration of sufficient merits in his defence, a defendant is still not permitted on other considerations like delay to have the default judgment set aside.  I decline to proceed as suggested by Mr Cheung.  I consider merits first.

16.  This Court is not to conduct a mini-trial.  But having considered the materials before me, I am of the view that Ds have successfully discharged the onus on them to establish a defence (as summarised by Mr Sit and set out above)  with real prospect of success.  In particular, I have formed the provisional view that Ds’ evidence on disputed factual matters (as outline below)  has a realistic prospect of being accepted, and on that basis, they have a realistic prospect of establishing a defence in law:

(a)  I start with P’s Statement of claim.  Two matters are material:

(i)  Whilst the application of the Charge has been pleaded, there is no pleading that P had paid for the down payment for the purchase of the Property;

(ii)  Whilst P pleads that he was the “sole owner of the Property and the sole borrower” of the Charge, there is no pleading that it was him who had financed and paid for all the repayments.  Rather, he pleads that he had been borrowing money from D1 to satisfy the repayments, but that all the loans have been time barred;

(b)  I bear in mind that the burden to establish a defence with real prospect of success is on Ds.  But the way in which P pleads his case remains relevant;

(c)  In D1/Aff/Contempt and D2/Aff/Contempt, both Ds state that it was D1 who solely paid for the down payment, and also between them the bulk of the mortgage repayments.  P asserts in reply that “I gathered the sum of $180,000 from my savings, my then-girlfriend’s savings, and $30,000 lent to me by a friend.”  In respect of the mortgage repayments, he disputes Ds’ case, says that he diligently made monthly mortgage payments for the same while minimizing his personal expenses, and that when he was laid off round 2000, he continued to contribute using his savings and with the support of his then girlfriend.  He says further that “subsequently”, a portion of the repayments was made “using borrowings from D1” but that those debts have been time-barred;

(d)  Their relative contributions are not matters that can be decided on affirmation, but Ds’ evidence is on all the facts before me (in particular with the matters dealt with below considered in the round)  potentially credible; 

(e)  When the Charge was paid off, all 3 of them attended a solicitor firm together to collect them.  D2 has given detailed evidence in that regard.  His evidence is supported by parties’ contemporaneous conduct, and in particular the sealing of the bags which stored the title documents (as I shall explain). D2 says that after they had collected the title documents, they walked to the HSBC Headquarters and opened a joint account (the “HSBC Joint A/C”). The purpose was that if the Property was to be sold later, the proceeds would be deposited therein.  Having done that, they proceeded to a fast food shop near World-Wide House.  There, they discussed and finally agreed upon the “業權分配” of the Property.  They also agreed that Uncle should be included.  They recorded the agreement on a piece of paper.  They signed on it (the “Alleged Written Agreement”[4]). The material contents of the same are as follows:

“本日2014年7月2日，1930，以[Property]之業權分配，就以下百份比作出共識及結論，按以下次序百份比作實，簽名作實”

The names and identity card numbers of P, D1, D2 and Uncle were set out, with the respective percentages of 14%, 64%, 14% and 8% written against their names.  The document ends with the following paragraph:

“日後如出售此單位金額，並會以以上之百份比作分配及㑹存入HSBC A/C 720-xxxxxx-xxx”[5]

(f)  Ds say that that HSBC account number is that of the HSBC Joint A/C.  Ds have through their solicitors on 3 occasions written to P’s solicitors for P’s consent to obtain more information of that account.  P has not provided any;

(g)  According to Ds, after signing the Alleged Written Agreement, they put it on top of the title documents.  They divided the title documents into 2 halves. D2 had earlier got 2 non-resealable transparent plastic bags each with the logo “Guardforce” on it.  Each has a serial number.  They put each half into one of the bags.  The Alleged Written Agreement was put into one of them.  They then sealed them, and signed on one of them to prevent tempering.  D2 raised the idea that to protect his and D1’s interest, the title deeds should be kept by them.  P agreed.  The title documents had since been with Ds;

(h)  The circumstances in which the 2 bags were subsequently opened and the Alleged Written Agreement retrieved are important.  Those were done by D1.  The date was 23 June 2023.  The process was videoed, took place in a solicitor firm, and was witnessed by a solicitor.  The video has been produced. Photographs of the bags have also been produced.  Together, they show that one of the bags had been sealed with 3 signatures.  D1 opened them with a pair of scissors.  The Alleged Written Agreement was retrieved from within one of the bags;

(i)  P disputes his signatures on the Alleged Written Agreement.  He in effect claims that it is a forgery.  He says in those regards as follows[6]:

“34. First, I had never seen the [Alleged Written Agreement] until a copy of the same was shown to me by my solicitors as an exhibit of [D1/Aff/Contempt]. I have to reiterate that I had never put my signature(s)  on that document. As I remember, on that occasion I did sign another document (together with D1 and D2)  only to the effect that we together witnessed the packing/sealing of the title deeds of the Property. The said document that we signed is not produced by Ds in these proceedings.

35.   Second, one should immediately notice that the purported signature(s)  of mine, as shown in [the Alleged Written Agreement], is/are different from the ordinary signature used by me … [and a number of his signatures are produced].”

(j)  The following points immediately emerge:

(i)  If P were and intended to be the sole owner and that Ds had no interest therein, there would not have been any reason for Ds to be present when the title documents were collected, and for them to be sealed with their signatures. It is noted that P does accept that there was a process of witnessing, packing and sealing of the title documents;

(ii)  The existence of that process of witnessing, packing and sealing supports Ds’ case that their subsequent retention of the title documents was with P’s consent, but is inconsistent with P’s pleaded case that D2 “unlawfully kept them” without his consent;

(iii)  As things turn out the title deeds had indeed since collection until the Contempt Proceedings been retained by Ds, which fact supports their case;

(k)  In respect of the authenticity of the Alleged Written Agreement:

(i)  I note P’s challenge of the authenticity of the Alleged Written Agreement.  The exercise of comparing signatures which P invites this Court to undertake at this stage cannot yield clear-cut results.  This is particularly so when P’s signatures which Ds have produced for comparison are also taken into account;

(ii)  On 8 October 2014, P and D2 exchanged some WhatsApp messages.  P made reference to “14%”, but claimed that he had 19% even without reference to some other calculations.  The relevant messages have been highlighted by D2, as follows:

Time	By	Contents
14:12	P	重有話我得14%, 根本錯曬
14:25	D2	咁點吖, 你咪同佢講囉
14:26	P	呢個係老母死之後佢睇數的record,我未計之前果D都有19%
14:28	P	積係你都覺得係我錯?

(iii)  Those messages by P can be taken as he referring to but disputing the 14% mentioned in the Alleged Written Agreement, thereby supporting its contemporaneous existence.  In any event, he was asserting only a percentage of interest, but not sole-ownership;

(iv)  Mr Cheung submitted that there was no express reference to the Alleged Written Agreement in those messages, and that in fact supports P’s case of forgery.  I do not agree.  Given P’s reference to 14% and assertion of some 19%, my preliminary view is that those messages are potentially credible evidence in support of Ds’ case, both in relation to the contemporaneous existence of the Alleged Written Agreement and their case in general that they have interests in the Property;

(v)  On the evidence before me, I have formed the provisional view that Ds’ evidence on the preparation, sealing, retrieval and authenticity of the Alleged Written Agreement has a realistic prospect of being accepted;

(l)  Mr Cheung then submits that even if the Alleged Written Agreement is genuine, it does not support Ds’ case whether on the basis of an express trust, or common intention constructive trust, or resulting.  He has cited quite a number of authorities in those regards, which I have considered.  He emphasized that the Alleged Written Agreement is one of distribution, but not contribution or one relating to interest in the Property;

(m)  With respect, whilst I have considered Mr Cheung’s submissions and analysis, I find them for the present purpose unduly legalistic and technical.  I emphasize that this is not a mini-trial.  The important points are:

(i)  The contents of the Alleged Written Agreement contradict P’s case that he was and intended to be the sole owner of the Property, but are potentially credible evidence which suggest that Ds have interests in the same;

(ii)  Specifically in the context of common intention constructive trust, the approach is to assess parties’ common intention by a holistic approach having regard to the context and the particular facts, and the Alleged Written Agreement forms a material plank of such context and facts;

(iii)  Any detriment can consist of contributions to the deposit, expenses or purchase or mortgage instalments;

(iv)  The doctrine of resulting trust may or may not be required to be resorted to, as that would be dependent upon the court’s findings on common intention;

(v)  None of Mr Cheung’s analysis alters the above.

(n)  I have considered the delay in Ds seeking to raise their defences.  I accept that they had misapprehended the nature of P’s claim.  As put by D1[7]:

“… all along I had misapprehended the nature of the [P’s] claim. I had no idea that he was denying my beneficial interest in the Property and I thought he commenced the legal proceedings merely to recover possession and the title deeds. His ultimate goal was just to share more in the beneficial ownership of the Property.”

E.3  Other considerations

17.  As Recorder Geoffrey Ma SC as explained in Hung Ling Chun Felicia, in deciding whether a regular judgment may be set aside, whilst the consideration of merits is the “primary” or dominant” one, other facts are in play.  The learned Recorder summarised the considerations as follows:

“ Exceptionally, however, despite being able to demonstrate sufficient merits in his defence, a defendant might not be permitted to have the default judgment set aside. In my judgment, the fact that a defendant is able to demonstrate a defence of sufficient merit does not mean he has an automatic entitlement to have the default judgment set aside. The consideration of the merits of the defence, albeit the ‘primary’ … or the ‘dominant’ … consideration, is not stated to be the only one.

  The court is in my view entitled, indeed obliged, to exercise its discretion under O 13 r 9 with regard to all the relevant circumstances …. What will be relevant as a factor in any particular case will of course depend on the individual facts of that case, and these other relevant factors will then have to be weighed against the dominant factor of the merits in order to see where the justice of the case lies ... It is, of course, no longer the law (if it ever was anyway)  that before a judgment can be set aside, a defendant must provide a satisfactory explanation for his default; there is simply no such condition precedent and no cause for the court to lay down such rigid rules … Relevant factors to be weighed against the merits factor include the defendant’s explanation of why he allowed default judgment to occur, his conduct after proceedings were served on him, any delay on his part to apply to set aside and any prejudice that would be caused to the plaintiff or to third parties if the default judgment were to be set aside.  All this is clear from the authorities but I need only refer to a few.”

18.  The process and documents had been validly served upon Ds.  They failed to handle them.  There has been substantial delay in Ds making the present applications. 

19.  Ds are of humble background.  In D2’s words, their “family was the grassroots of the society”.  They are also of limited education.  I accept their explanation that they had misapprehended the nature of P’s claim.

20.  D1 has surrendered possession of the Property.

21.  Whilst D2 had failed to surrender the title documents and been evading compliance, he had been committed for contempt and been punished.  The title documents are now in the hands of P’s legal advisers as stakeholders.

22.  P says that he would suffer prejudice if the Default Judgments are to be set aside.  2 principal complaints have been made: (1) P could not gather signatures of documents that he signed back in around 2014 for comparison purpose to support his case of forgery; and (2) inability to retrieve the relevant back statements.

23.  In respect of the alleged absence of signatures for handwriting comparison:

(a)  As I have observed above, P did not respond to Ds’ multiple requests for his consent to obtain further information of the HSBC Joint A/C.  P’s assertion[8] that “I could now hardly gather signatures or documents that I signed back in around 2014 … to compare …” has to be assessed against that background;

(b)  There is at this stage no evidence as to how many of P’s signatures could be obtained from records kept in respect of that account, and the sufficiency or otherwise of that or those signature(s)  for comparison purpose;

(c)  There is further no evidence that P’s signatures have materially changed, whether before or after 2014;

(d)  The alleged prejudice in this regard is speculative at this stage.

24.  In respect of the alleged absence of bank statements, I accept Mr Sit’s submissions that even by the time P commenced the present action in 2017, the Charge had been fully repaid for 3 years, and most of the statements since purchase (1998 to 2010)  had been more than 7 years old. Further, bearing in mind P’s case on the manner in which he allegedly paid the down-payment and mortgage repayments (from savings, from his ex-girlfriend, loan from a friend, depositing of cash he received from his part-time job, loans from D2), there is no evidence at this stage that any bank statements would establish a payment or withdrawal pattern in support of P’s case.

25.  In my view, on the evidence before me, the complaints by P of prejudice is speculative and opportunistic.

E.4.  Whether conditions

26.  On the evidence before me, I am of the view that Ds have discharged the burden on them to show by potentially credible evidence that they have a real prospect of success on the merits of the case.  I am further of the view that there are no other matters which justifies nonetheless my exercise of discretion against setting aside the Default Judgments.

27.  I have the discretion of imposing conditions even if I am to set aside the Default Judgments.  I have considered Po Kwong Marble at 161C-G, 162E-F and Keung Shek Cheung v PT Arpeni Pratama Ocean Line Tbk (HCA678/2014, 28 December 2016 at §13)  which Mr Cheung has cited to me.

28.  Most of the conditions relevant to the imposition of conditions (or not)  overlap with the other considerations which I have considered above, which observations equally apply here.

29.  The delay has been substantial.  This factor would otherwise have in my view justified the imposition of conditions.  I say “would otherwise have” because, if D1 had remained in possession of the Property, and D2 remained holding on to the title documents, I would have considered as conditions ordering D1 to surrender possession and D2 handing over the title documents to neutral parties pending trial.  As things have unfolded, Ds have done both.  In my view, no further conditions are called for.

E.5.  Conclusion on Ds/Summonses

30.  For the above reasons, I set aside the Default Judgments.  I am able to do so without reference to the Impugned Materials.

31.  I further grant Ds leave to (1)  within 7 days from the date of this Decision, file Acknowledgments of Service, and (2)  within 28 days from the date of this Decision, file their Defence and Counterclaim.

F.  P/Summons

32.  There is no need for me to deal with P/Summons in any details.  I have not relied on the Impugned Materials.  More importantly:

(a)  Mr Cheung accepts that the without prejudice rule is subject to exceptions.  As explained by Hoffmann LJ (as he then was)  in Muller v Linsley and Mortimer [1996] 1 P.N.L.R. 74  at 79D-G (which Mr Cheung cites):

“Many of the alleged exceptions to the rule will be found on analysis to be cases in which the relevance of the communication lies not in the truth of any fact which it asserts or admits, but simply in the fact that it was made. Thus, when the issue is whether without prejudice letters have resulted in an agreed settlement, the correspondence is admissible because the relevance of the letters has nothing to do with the truth of any facts which the writers may have expressly or impliedly admitted. They are relevant because they contain the offer and acceptance forming a contract which has replaced the cause of action previously in dispute. Likewise, a without prejudice letter containing a threat is admissible to prove that the threat was made. A without prejudice letter containing a statement which amounted to an act of bankruptcy is admissible to prove that the statement was made; see Re Daintrey [1893] 2 Q.B. 116. Without prejudice correspondence is always admissible to explain delay in commencing or prosecuting litigation. Here again, the relevance lies in the fact that the communications took place and not the truth of their contents. Indeed, I think that the only case in which the rule has been held to preclude the use of without prejudice communications, otherwise than as admissions, is in the rule that an offer may not be used on the question of costs; a rule which, as I have said, has been held to rest purely upon convention and not upon public policy.”

(b)  Mr Cheung accepts that the Impugned Materials could be admitted to explained delay on the part of Ds in seeking to have the Default Judgments set aside;

(c)  On that basis, even assuming that the Impugned Materials are protected by without prejudice privilege, they fall within one of the exceptions;

(d)  For the above reasons, I refuse to strike out or expunge the Impugned Materials for the purpose of considering Ds/Summonses.

G.  Costs

33.  In respect of Ds/Summonses:

(a)  Mr Sit concedes costs in any event, on the basis that Ds are seeking the Court’s indulgence;

(b)  I make a costs order nisi, absolute within 14 days in the absence of any application to vary, that Ds shall bear the costs of Ds/Summonses, with certificate for counsel, to be summarily assessed, and that P’s own costs be taxed in accordance with Legal Aid Regulations.

34.  In respect of P/Summons:

(a)  I see no reason why costs should not follow event;

(b)  I make a costs order nisi, absolute within 14 days in the absence of any application to vary, that P shall bear the costs of P/Summons, with certificate for counsel, to be summarily assessed, and that P’s own costs be taxed in accordance with Legal Aid Regulations.