XCHRX CHAN KIN YUEN v. CHAN KIN YIP

HCA 17878/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17878 OF 1999

____________

_______________________

REASONS FOR DECISION

_______________________

1. This is an application taken out by Madam Cheng Yau Choi to be joined as a party in this action for the purpose of applying to set aside a default judgment obtained against her former husband, the Defendant herein, on 21 February 2000 and to apply for a stay of this action pending the determination of the application for ancillary relief against her former husband. The application is made under the Rules of the High Court, O. 13 r. 9, O. 19 r. 9 and O. 15 r. 6 and under the inherent jurisdiction of the court.

2. The Plaintiff is the younger brother of the Defendant. In this action, the Plaintiff claims a declaration against the Defendant that he holds a half share and interest of the property known as Flat A, 2nd Floor and Flat Roof A, Siu King Building, Nos 14 - 16 Tsat Tsz Mui Road, Hong Kong ("the Property") in favour of the Plaintiff. Apart from being used as the matrimonial home of Madam Cheng and the Defendant, the Property has also been used as a workshop, storage place and office area for the Plaintiff's business in the name of "Woodland" and for the Defendant's business in the name of "Wooden House Craft Collection". The nature of both businesses is the manufacture and sale of souvenirs made in wood.

Background facts relating to the Property

3. The Property was assigned to the Plaintiff and the Defendant as tenants in common in equal shares by an assignment dated 13 December 1982. The purchase price was HK$673,800.00. It is unnecessary go into the question as to how the purchase was financed. On 2 September 1992, the Plaintiff divested his half share in the Property to the Defendant by an assignment. That assignment was prepared by a firm of solicitors and was made between the Plaintiff and the Defendant as the vendor and the Defendant as the purchaser. It was stated in the assignment that "in consideration of the sum of HK$800,000.00 Hong Kong currency paid by the Purchaser to the Vendor (receipt whereof is acknowledged) the Vendor as beneficial owners and as tenants in common in equal shares assigns to the purchaser" the Property.

4. It is the Plaintiff's case against the Defendant that at the time of the assignment in 1992, the Plaintiff had agreed orally with the Defendant to give the Defendant time to pay the purchase price of HK$800,000.00 until (a) the sale of the Property by the Defendant; or (b) the transfer of the Property held by the Defendant into the joint names of the Defendant and Madam Cheng, whichever was the earlier. The Plaintiff claims that the Defendant has not paid him the purchase price. Hence, the Defendant holds the half share in the Property under a constructive trust in the Plaintiff's favour.

5. The Defendant has not filed a notice of intention to defend his action, as a result the Plaintiff applied for and obtained the default judgment against the Defendant. After Madam Cheng has issued the summons seeking to be joined as a party in this action for the default judgment to be set aside, the Defendant has filed affirmations in which he stated that he did not pay the HK$800,000.00 to the Plaintiff.

6. It is Madam Cheng's contention that the purchase price of HK$800,000.00 had been paid by the Defendant to the Plaintiff, as acknowledged by the Plaintiff in the assignment aforesaid, and that the Defendant had also told her before the breakdown of their marriage that he had paid the said sum to the Plaintiff.

Background facts relating to this action and the divorce proceedings

7. It is necessary to go into the history of the matrimonial proceedings and the present proceedings.

8. On 16 August 1999, Madam Cheng filed a petition for divorce against the Defendant under FCMC No. 8124 of 1999. She moved out of the Property the next day. Also on 16 August 1999, she filed a notice of application for ancillary relief in which she seeks a property transfer order of the Defendant's interest and share in the Property. That notice was registered in the Land Registry on 18 August 1999. The Defendant filed an answer and cross petition in the divorce suit on 5 October 1999 in which he alleged that the Plaintiff's name as a co-owner of the Property was removed in 1992 due to the incessant nagging of Madam Cheng. It is also alleged by the Defendant that it was agreed between him and the Plaintiff that the Defendant should pay HK$800,000.00 to the Plaintiff to buy out the Plaintiff's half share "if and when [the Defendant] had the money or when [the Defendant] eventually sells [the Property]."

9. The Plaintiff took no action about the alleged agreement to pay him HK$800,000.00 for his half share in the Property for 7 years. On 18 November 1999, 3 months after Madam Cheng had applied for ancillary relief in respect of the Property, the Plaintiff issued the writ in this action claiming a constructive trust in respect of his half share in the Property. He was then represented by a firm of solicitors, Messrs Gary K W Tam & Co. The Plaintiff made no mention in his affirmations why he had decided to sue the Defendant (who is still sharing the Property with the Plaintiff for their businesses) in November 1999.

10. On 10 December 1999, the Plaintiff filed a notice to act in person in this action. 7 days later, the same solicitors, Messrs Gary K W Tam & Co., filed a notice to act for the Defendant in the divorce proceedings. On 10 January 2000, the Plaintiff, who was acting in person, took out an inter partes summons, which appeared to be professionally drafted, seeking judgment in this action under O. 19 r. 7 on the ground that the Defendant had not defended this action. The Plaintiff's affirmation in support would also appear to have been professionally drafted. The summons and supporting affirmation were duly served on the Defendant.

11. Madam Cheng had no notice of this action, let alone the Plaintiff's application for default judgment. Her solicitors first became aware of this action when they received the Defendant's pleading in the divorce proceedings dated 18 February 2000, which was prepared by Messrs Gary K W Tam & Co. and in which it was stated that the Plaintiff had filed a writ against the Defendant in this action to claim a declaration that the Defendant held a half share in the Property on constructive trust for the Plaintiff.

12. On 21 February 2000, the Plaintiff and the Defendant both appeared in person before Deputy Judge Chu. I am given to understand by the Applicant's solicitors, who appeared before Deputy Judge Chu on 8 May 2000 in the call-over hearing of Madam Cheng's summons, that the Judge recalled at the call-over hearing she had asked the Plaintiff and the Defendant on 21 February 2000 why it was still necessary to seek a declaration from the court when the Defendant could simply have executed a declaration of trust in favour of the Plaintiff. The reply given to the court was that the parties had been advised by lawyers to do so. The court was not told that the Property is the subject of a property transfer order sought by Madam Cheng in the divorce proceedings. Judgment was ordered to be entered for the Plaintiff in this action on 21 February 2000.

13. On 22 February 2000, Madam Cheng's solicitors wrote to Messrs Gary K W Tam & Co. referring to the relevant paragraph in the Defendant's pleading in the divorce proceedings in which the High Court action was mentioned and requested for copies of all documents and pleadings in this action and information on the "present development" of this action. The solicitors did not reply until 7 March 2000 when they informed Madam Cheng's solicitors that judgment had been entered against the Defendant. Copies of the documents and pleadings in this action were not supplied to Madam Cheng's solicitors.

14. On 26 April 2000, Madam Cheng took out the present summons seeking joinder and setting aside of the default judgment.

Grounds of opposition

15. Both the Plaintiff and the Defendant have appeared at this hearing to oppose Madam Cheng's application. They are separately represented. The main grounds of opposition are as follows:

(1) Madam Cheng cannot apply to be joined as a party under O. 15 r. 6(2) because judgment has been entered against the Defendant and there are no proceedings to which her application for joinder can relate.

(2) She does not have any legal interest in the Property.

(3) She does not have a defence on the merits.

(4) There is a need to balance the needs of the Plaintiff and the Defendant as against the needs of Madam Cheng as regards the use of the Property.

(5) A stay of this action should not be granted because this would lead to multiplicity of proceedings.

16. I would deal with each of these grounds in the order set out above.

No proceedings for an order of joinder to be made

17. Mr T Y Bok, who appeared on behalf of the Plaintiff, has referred me to O. 15 r. 6(2) which provides that "at any stage of the proceedings", the court may order any person to be added as a party on the grounds in paragraphs (b)(i) and (ii). It is argued that since judgment has been obtained, the proceedings are dead and cannot be revived. There are now no "proceedings" in which Madam Cheng can be added as a party under O. 15 r. 6(2). In support of that argument, he has cited the decision of Barnett J in United States Garment Factory Ltd v. Sea-Land Service Inc and Anr [1995] 1 HKLR 323. The relevant extract at p. 326 reads as follows:

"Whatever merits [the intended intervener] may have on its side, the fact is that the action between [the Plaintiff] and [the Defendant] has been finally resolved and is no longer in existence. I agree with [the Plaintiff's counsel] that there are no proceedings to which this application can relate. The action is dead. It is not capable of resurrection. It is trite that there must be an end to litigation. It is not right that parties, between whom all issues have been resolved, should be vexed by a third party who seeks to reopen their action. However inconvenient it may be, I am satisfied that such a third party must seek such remedies or relief as may be available to him by other means."

18. Those words were said in the context of a judgment obtained by the Plaintiff against the Defendant in an Order 14 application and in which the time for an appeal against the summary judgment had expired. There was a judgment on the merits. The situation in which a default judgment has been obtained is very different. There is no hearing on the merits. It does not seem to me that the words of Barnett J are meant to have such wide application so as to cover the situation of a default judgment, particularly as there has been a well established practice, which goes back to cases in the last century, by which a person who is not a party to the proceedings is allowed to set aside a default judgment under O. 13 r. 9. I refer to para. 13/9/5 in The Supreme Court Practice 1999 which reads as follows:

"The rule is designed to enable judgments by default to be set aside by those who have, or can acquire, a locus standi; it does not give a locus standi to those who have none (Jacques v. Harrison (1883) 12 QB D 136). A third party who desires to apply to set aside a judgment must show he has a direct interest in so doing and must either do so in the name of the defendant with his leave or he must make both the plaintiff and the defendant parties to the application and ask for leave to intervene (ibid; Sedgwick, Collins and Co. v. Rossia Insurance Co. [1926] 1 KB 1; affirmed in H L sub nom Employers' Liability Assurance Corporation v. Sedgwick, Collins and Co. [1927] AC 95, where garnishees were held not entitled to apply). See Minet v. Johnson (1890) 63 LT 507, CA, judgment for possession of land set aside on application of party in possession not made party to action; The Bolivar [1916] 2 AC 203; Windsor v. Chalcraft [1939] 1 KB 279; [1938] 2 All ER 751, CA (successful application by insurance company, liable under the Road Traffic Act 1934, s. 10 (now Road Traffic Act 1972, s. 149) to pay the amount of a judgment obtained by default against the insured)."

19. Thus, there are many examples in which the court had allowed a third party to set aside a default judgment and thereafter to allow the third party to be joined as a defendant to defend the action. Mr. Bok is unable to tell me why this well established practice in allowing a third party to set aside a default judgment should no longer be followed. I rule against him on this point.

Does Madam Cheng have a legal interest in the Property?

20. Madam Cheng does not have a legal title over the Property. In her application for ancillary relief seeking a property transfer order of the Property, her entitlement is founded under the Matrimonial Proceedings and Property Ordinance, Cap. 192. She claimed she had contributed to the family as a wife and an assistant without pay in the Defendant's woodwork business, and that the earnings of the business were used to discharge the mortgage instalments of the Property. Her claim for ancillary relief has yet to be adjudicated. I am satisfied that she does have a legal (as opposed to a commercial interest) in the outcome of the litigation between the Plaintiff and the Defendant. Her claim for a property transfer order would be injuriously affected if this judgment by default is allowed to stand. In my judgment, she clearly has a locus standi to apply to set aside the default judgment.

Is there a defence on the merits?

21. I have already set out the respective positions taken by the parties as regards the Defendant's interest in the Property. In applying to set aside the default judgment, Madam Cheng would need to show that her defence does have sufficient merits. As the disputes between the parties have yet to be decided, I do not wish to go into the details of the strength and weakness of the case of each party here. I would only say that the points made on behalf of the Defendant as to the apparent strength of the Defendant's case and the alleged weakness of the Plaintiff's case are not conclusive. I was referred to the bank statements disclosed by the Defendant which showed that an exact amount of HK$800,000.00 had not been paid into the Defendant's bank account. In addition, there was a letter from the solicitors who had acted for the Plaintiff and the Defendant in the assignment in 1992 stating that "the purchase price was not paid through" the solicitors according to their file record. As pointed out by Madam Cheng's solicitors, the mere fact that payment was not made through the solicitor's firm did not mean that payment was not made at all. In my view, the issues raised by Madam Cheng as a defence to the Plaintiff's claim are sufficiently substantial to merit going to trial.

Balancing the parties' needs of the use of the Property

22. I am quite unable to see how this may be a relevant factor in deciding whether to set aside the default judgment. The Plaintiff and the Defendant might well be anxious that they should be allowed to stay in the Property to carry on their woodwork businesses and they must have been concerned that Madam Cheng's claim of entitlement to the Property in the matrimonial proceedings may jeopardise their usage of the Property and their businesses. Madam Cheng's entitlement and the extent of it have yet to be decided by the court. She has been unjustifiably shut out from defending this action because the Plaintiff has chosen not to make her a party (notwithstanding that her notice of application was registered in the Land Office) and the Defendant has chosen to allow a judgment to be entered by default.

Whether a stay of this action should be granted?

23. Madam Cheng seeks to stay this action if the default judgment is to be set aside. It is proposed that the Plaintiff should seek leave from the Family Court to intervene in the application for ancillary relief as the court hearing an application for transfer of property does have jurisdiction to determine the rights and interest of any third parties who are interveners in the proceedings (Jackson's Matrimonial Finance and Taxation, 6th ed., para. 7.11). Madam Cheng's solicitors have written to the Plaintiff's solicitors confirming that they would raise no objection to the Plaintiff seeking leave to intervene in the ancillary relief proceedings. That offer has not been taken up by the Plaintiff's solicitors.

24. This seems to me to be a sensible suggestion. I understand that the parties in the ancillary relief proceedings have filed all the evidence they intend to file and discovery has been completed. The hearing of the application has been adjourned to a date to be fixed. The Plaintiff's claim in respect of the half interest in the Property is obviously relevant to Madam Cheng's claim for a transfer of property order. The disputes should be dealt with by the same court and that should be the court hearing the application for ancillary relief. Similar observations were made by Sakhrani J in Chan Ting Wai William v. Lam Sai Pak and Anr [1999] 1 HKC 843.

25. In the circumstances, I think it would be appropriate to stay this action pending the determination of the application for ancillary relief. I cannot compel the Plaintiff to apply to intervene in the ancillary relief proceedings. I hope those advising the Plaintiff would explain the position to him and that an application would be taken out in the Family Court as soon as possible for leave for the Plaintiff to intervene.

Conclusion and Orders

26. For the above reasons, I allow the application of Madam Cheng and make the following orders:

(1) The order and default judgment herein obtained by the Plaintiff on 21 February 2000 are set aside.

(2) Leave is given to Madam Cheng to be joined as the 2nd Defendant in this action.

(3) The proceedings in this action are stayed pending the determination of Madam Cheng's application for ancillary relief in FCMC No. 8124 of 1999.

Costs

27. Madam Cheng's solicitors have applied for the costs of this application against the Plaintiff and the Defendant on the ground that they have colluded to obtain a quick judgment in this action with an intention to defeat or at least to reduce substantially Madam Cheng's claim for ancillary relief. I have set out in some detail what had transpired between Madam Cheng's notice of application for ancillary relief and the aftermath to the default judgment. As the disputes between the parties have yet to be decided, I do not wish to use language that may be unduly critical of the Plaintiff and the Defendant. Suffice it to say that I regard their behaviour as reprehensible and I think there is justification in ordering costs of the application to be borne by the Plaintiff and the Defendant. I make an order that Madam Cheng's costs in this application, which I have assessed at HK$50,000.00 on a gross sum basis in lieu of taxed costs, are to be borne by the Plaintiff and the Defendant equally and to be paid forthwith. I also order that Madam Cheng's own costs be taxed in accordance with the Legal Aid Regulations.