CHEUNG SAI LON v. CHEUNG SAI HA AND ANOTHER

HCA 2218/2019

[2021] HKCFI 904

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2218 OF 2019

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D E C I S I O N

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A. Introduction

1.  By my Judgment dated 5 October 2020 [2020] HKCFI 2551 (“Default Judgment”), I gave the plaintiff (“P”) liberty to enter default judgment against D1 and D2 for his proprietary claims for relief relating to House 72 itself.  I shall continue to use the definitions and abbreviations adopted in the Default Judgment.  The relevant default was that neither of the defendants had filed any Acknowledgement of Service giving notice of intention to defend, nor any Defence.

2.  I further directed that as regards the other issues raised in the P’s claim, the action be listed for trial of those issues and the P be at liberty to proceed to trial notwithstanding the default of the defendants in serving a defence.

3.  The full extent of the claim – and the materials deployed by P in support of it – can be seen summarised in the Default Judgment, and need not be rehearsed at great length here.  By way of introduction it suffices to say that P has twin sisters, of whom one is D1, and the two sisters– that is, D1 and Cheung Sai Kuen (“CSK”) – are together D2, as the executrices of the estate of their Father.

4.  The claim pleaded in the SOC can be grouped into three distinct parts:

(1)   Ownership of the landed property known as No. 72 Tai Shui Hang, Shatin, New Territories on Lot No. 935 in Demarcation District No. 196 (“House 72”);

(2)   The liquidated sum of $3,521,100, comprised of

(a)  $2,300,000 of alleged unauthorized withdrawals (“Unauthorized Withdrawals”) by the Father in favour of D1 from the joint account Hang Seng Bank No. 259-3-076181 held in the names of the plaintiff and the Father (“Joint Rental Account”) and

(b)  $1,221,100 of alleged missing rental income (“Missing Rental Income”) not paid into the Joint Rental Account from leasing House 71 and House 72;

(3)   Proceeds (“FF Proceeds”) from the sale of Shops 54 and 55 at 1/F, Fu Fai Gardens, Shatin, New Territories (“FF Shops”) in the amount of $2,257,105 representing the sum of money the plaintiff paid to the Father to acquire jointly the FF Shops, which the Father allegedly sold without authorization and which proceeds were applied to acquire the shop at G/F, 93 Tai Shui Hang, Shatin, New Territories (“TSH Shop”) in the joint names of the Father and D1 as joint tenants.

5.  The matter had previously come to court on an inter partes application for injunctive relief.  I gave a proprietary injunction on 27 December 2019 (“Injunction Order”) restraining D1 from disposing of the property and funds the subject matter of the action, and made ancillary orders for D1 to file and serve an affirmation in relation to the whereabouts of some of those funds.  D1 is in breach of that requirement, and the subsequent unless order made by me on 23 January 2020 (“Unless Order”) that if she did not provide the discovery she should pay $600,000 into court.

6.  By summons dated 13 November 2020 (“Set Aside Summons”), D1 and D2 applied for orders:

     (1)  setting aside the Default Judgment on the sole ground of irregularity of service;

     (2)  discharging Injunction Order, or varying the time for compliance with it;

     (3)  discharging or varying the Unless Order;

     (4)  setting aside all previous costs orders; and

     (5)  seeking a stay of execution of the Default Judgment and all costs orders.

7.  The Injunction Order and the Unless Order were referenced by me at §5 of the Default Judgment, and again at §64 where I continued the Injunction Order until the trial/assessment or further order (save to permit Ds to act in compliance with the declarations and orders made in the Default Judgment).

8.  I heard the substantive argument on the Set Aside Summons on 1 April 2021. D1 and D2 were represented by Mr Tony Ko and Ms Lisa Lam of Counsel. P was represented by Mr Earl Deng of Counsel.  This is my Decision.

B.     Preliminary Point - Hadkinson

9.  Mr Deng submitted – on the basis of Hadkinson v Hadkinson [1952] 2 All ER 567, and K&L Gates v Aggarwal (unreported, HCA 1061/2011, 18 August 2011) at §§6-9 – that the Court should not hear Ds’ application until they materially complied with both the Injunction Order and the Unless Order.  He pointed out that Ds seek the Court’s indulgence in the exercise of discretion in their favour, yet without any attempt to comply with the Injunction Order, by refusing to disclose the most obvious evidence that would probably undermine the basis of the Default Judgment (being the source of funds and tracing of funds).

10.  Mr Deng reminded me that the point had been taken and Ds’ Counsel had been supplied with the authorities governing the Hadkinson principle as early as the directions hearing on 8 December 2020.  Yet, Ds failed to produce any clear or objective evidence that would undermine the basis of the Injunction Order or the Default Summons, or even to explain the absence of the relevant bank account and other objective records of D2’s financial dealings and situation, or to explain why the Unless Order has not been complied with or why D1 is not capable of complying with it.

11.  Whilst, for present purposes, it suffices to say that there is real force in Mr Deng’s submission, I do not think in the overall circumstances it would be right to shut Ds out from putting forward their argument on the Set Aside Application.  Rather, it seems to me that the criticisms made by Mr Deng about Ds’ conduct properly come into play in the overall approach to the exercise of discretion.

12.  On the other hand, the Hadkinson point has potentially much more force in the context of what is the application to set aside or vary the Injunction Order and the Unless Order, though again I think it right for present purposes that the point comes into play in the discretionary approach.

C.     Applicable Principles – Setting Aside

13.  The principles applicable on an application to set aside a default judgment are well-settled, and they can be set out without lengthy reference to previous authority.  A distinction is to be drawn between a default judgment entered regularly, and one obtained irregularly.

14.  A default judgment entered irregularly (in the sense that it was obtained without good and effective service of the writ) is liable to be set aside ex debito justitiae, and the Court does not have to consider the merits of the proposed defence.  The Court does not have to accept a defendant’s assertion that he has not received the writ, which the defendant must show by compelling evidence.  The relevant time is the time at which the default judgment was entered; therefore, it is for the defendant to show that he did not have notice of the writ at that time.  Nevertheless, even if there was no effective service, the Court retains a residual discretion to impose terms for setting aside, having regard to the parties’ conduct.  One such term might be to impose a condition that a payment into Court be made (for example where the court considers the defendant intended to evade service, or delayed substantially before applying to Court to set aside the judgment).

15.  However, if the judgment is regular, the Court may set it aside if a meritorious defence can be shown by the defendant.  The defendant must show a real prospect of success, meaning a defence which is one that could well be established at trial, requiring clear and objective evidence casting doubt on the claim.  The power to set aside a regular default judgment is discretionary and unconditional, and the Court should have regard not just to the merits of the defence case put forward, but to all relevant circumstances.  Typically, the circumstances taken into account in the discretionary exercise include: why the default occurred; the defendant’s conduct after he had notice of the proceedings; the explanation for the time taken where there has been delay in making the application; and any prejudice that would be caused to the plaintiff or third parties if the default judgment were to be set aside.

16.  I have noted that the Set Aside Summons identifies on its face that the Default Judgment should be set aside on the sole ground that it is an irregular judgment.  Nevertheless, it seems to me that if I am not satisfied of irregularity, I can within the terms of the application still properly consider the position that flows from a finding that the judgment was entered regularly.  Indeed, both Mr Deng and Mr Ko addressed submissions to the merits of the claim and defence.

D.     Applicable Principles – Service

17.  RHC Order 10 rule 1(1) provides that an alternate mode to personal service of a writ on a defendant can be in the form of service by inserting the writ through the letterbox at the defendant’s usual or last known address.  In this context, the last known address is the address last known to the plaintiff, and it does not matter that the plaintiff could have found a different address for the defendant with further investigation (even if it would have been prudent and advisable to do so).

18.  Nevertheless, it is well-established that the real test as to whether there has been properly effected service is whether the writ has been brought to the attention of the defendant, and not simply whether it has been delivered to his usual or last known address.

19.  Therefore, where a defendant was not living at the address where the writ was served, and it was not brought to the defendant’s notice, service was irregular.

20.  Of course, the writ – or the fact that there is a claim brought by the plaintiff against the defendant – can be brought, or can come, to the attention of the defendant in other ways.  For example, if the defendant is in clear receipt of other documents which make clear, and give sufficient notice of, the fact of the claim commenced by the writ, then (depending on circumstances) it may not matter that the attempted service of the writ itself was not effective.

21.  Further, the requirement for insertion into the letterbox at the usual or last known address is not to be construed unnecessarily narrowly or strictly.  In an appropriate case, documents left on the top of a letterbox can be effective as service: see, for example, Elijah Saatori v Raffles Medical Group (Hong Kong) Ltd (unreported, HCMP 3224/2016, 13 September 2017) at §§29-30, where the Court of Appeal rejected a complaint of non-compliance with Order 65 when affirmations were placed on top of the letterbox and not inserted into it, when there was no dispute that the affirmations had reached the plaintiff and the contents were brought to his attention.

22.  As a final point, it seems to me that Mr Deng is correct that if there was good service on D1, where D1 and CSK were also acting jointly in their capacity as executrices in the administration of the Father’s estate, there was good service on D2.  This is because D1 and CSK are treated in law as a single entity (referred to collectively as D2), and there was no need separately to have served on each of D1 and CSK in order to have effected service on D2.

E.     Chronology

23.  Mr Deng helpfully provided a chronology of service, with other references to some of the evidential materials, either agreed or as put forward by the parties.  Save to correct one typographical error, Mr Ko took no issue with the chronology.  Some of the following matters come from that helpful summary.

24.  Probate was granted to D1 and CSK as executrices named in the Father’s Will.  The Will is dated 18 February 2008, and simply appoints the executrices and bequeaths the entire (net) estate to D1, CSK, and D1’s two daughters in equal shares absolutely.  I take account of the fact that the Will was made in 2008, namely at a time when P says he enjoyed good relations with the Father, yet P does not feature as either an executor nor as a beneficiary.

25.  The Probate was granted on 11 May 2018, and identified both D1 and CSK as residing at G/F, House 35 Tai Shui Hang Tsuen (“House 35”).

26.  The Schedule of Assets and Liabilities dated 27 March 2018, annexed to the grant of Probate, is significant in that it identifies just $1,102.01 cash at bank, and no other assets at all except House 72.  There are no stocks or shares, no household goods, no motor vehicle, no insurance policies, no property held as trustee, no other assets and no liabilities.

27.  P says that when he realised the content of the Will, he instructed his solicitors to write to D1 and CSK.  The letter is dated 14 August 2018 and is addressed to them at House 35 (where they claim to have been living just a short time earlier), but was also copied to G/F House 72 (the only real asset in the estate).  It identified the various claims, including (a) P’s claim to House 72, put forward on the basis that P paid for the entire costs of it, and that it was held on trust for P by the Father; (b) the Missing Rental Payments; and (c) the FF Proceeds.

28.  A second letter was sent on 12 September 2018 reiterating the claims.  That letter was sent to D1 and CSK at House 35, again copied to House 72.  As it is common ground that D1 and CSK removed their personal belongings from House 35 only in September 2018, it seems likely that they would have received the two letters.  They seem to have chosen not to respond.

29.  It is P’s case that D1 and CSK moved into G/F of House 72.  Though that is disputed, they had been granted probate over House 72, and it seems to me to be likely that they were exercising control over that property, including its letterbox.  In other words, they would likely have received the copies of the correspondence sent to that address.

30.  P’s solicitors wrote a further demand letter dated 25 January 2019, addressed to D1 at G/F House 72.  The letter stated that unless P’s demands were met, he would commence proceedings in relation to his intended claim without further notice.  I think it likely that D1 received the letter.  Subsequently, P’s solicitors then wrote on 29 January 2019 to the solicitors (“GYCM”) who had acted for D1 and CSK in relation to the Probate, asking if GYCM had instructions to accept service on behalf of D1.  It is natural to assume that GYCM contacted their client(s), and that seems to be all the more so in circumstances that the claim intimated was against House 72, the very property which was main subject of the grant of Probate.  I note that no evidence has been filed by D1 or D2 to contradict the natural assumption.  Instead, there has been the odd suggestion that GYCM would not file evidence as there might be a conflict of interest (where it seems to me the only conflict as might arise would be if – contrary to what D1 and CSK say – GYCM were to state that they had indeed passed the information and sought instructions).  Anyway, again, there was simply no response to the letters.

31.  It is common ground that in October 2019, the parties’ mother (“Mother”) injured her hip, and upon discharge from hospital on 18 November 2019 moved to stay at G/F House 72.  Though denied by them, it is P’s case that D1 and CSK had moved into G/F House 72 at the latest by that time, and that Mother went there so that they could help care for the Mother.  There is some clear logic to that idea, and the Mother has filed an affirmation confirming that D1 and CSK arranged for her temporarily to move into G/F House 72 to live with them.  She also says that at the time she moved back to House 71 in January 2020, D1 and CSK were still living at G/F House 72 (though they later moved to 2/F and rented out G/F).  It is D1 and CSK’s case that at the time they actually had moved to and were living in 2/F House 110.

32.  The writ was issued on 29 November 2019.

33.  On 3 December 2019 service of the writ, the injunction summons and P’s first affirmation was made at House 72.  Though not made clear in the original affirmation of service, the person serving the document has subsequently clarified that a copy of the writ only, addressed to D1 and CSK in their capacity as D2, was inserted through the letterbox of G/F House 72. But the envelope addressed to D1 alone, containing a separate copy of the writ as well as the injunction summons and P’s affidavit and supporting documents was thicker and would not fit through the letter box, so was left on top of the letterbox directly above the slot for G/F House 72 and leaning against the wall.

34.  It is the Mother’s evidence that a couple of weeks after moving into House 72 she saw D1 and CSK taking out some stack of papers from brown envelopes in the living room.  They flipped through the papers and became agitated, and the Mother heard them say to each other that P was now suing them both, and that even court documents had arrived.  This evidence is denied by D1 and CSK.

35.  On 27 December 2019, the injunction summons was heard leading to the making of the Injunction Order.  The Injunction Order was served by insertion through the letterbox of G/F House 72.  At the time of service, the person serving the document noted that the letterbox had been emptied and that the brown envelope previously placed on top of the letterbox had been removed.  The photographic evidence produced shows that there was room for a large envelope or small parcel to be placed on top of the letterbox, and that if it had fallen off it would have fallen onto the ground very near to the letterboxes and close to the entrance door next to which is the number “72”. There is no evidence of something left lying nearby at the time.

36.  The Injunction Order was also served on all banks which, according to P’s knowledge, held accounts in the name of D1, putting them on notice of the Injunction Order and requesting all accounts or banking facilities maintained by D1 (whether in her own name or in joint names) to be frozen until further order of the Court.

37.  In the evidence is a significant email sent by P to his solicitor on 6 January 2020. In it, P was checking whether service of the Injunction Order had been made “without a problem”.  Amongst other things, P told his solicitor that his presence would not have been of any aid when effecting service as D1 was unlikely to open her front door to him, indicating the perceived “problem” was that D1 might wish to evade service.  He also stated in the email “She [D1] already knew her account was freeze and the summons was received by her as related to me by my mother (4th December)” (sic).  This email contemporaneously corroborates what the Mother has subsequently described in her affirmation.

38.  It also seems to me to be unlikely that D1 was never contacted by any bank to explain why her account was frozen, and/or that she never enquired of any bank why her account was frozen.  Indeed, in her first affirmation, D1 expressly (though perhaps inadvertently) stated that the Injunction Order, which restrained her “from using such a large sum of money amounting to HK$3,271,500”, had “created extreme difficulty and inconvenience” for her to support the lives of herself and her daughters.

39.  On 20 January 2020, service was effected of the unless order summons, the statement of claim (“SOC”), the affidavit in support, and the hearing bundle.  The person making service effected service by inserting an envelope containing the summons, the SOC and the affidavit through the letterbox of G/F House 72, and effected service of the hearing bundle by placing it on top of the letterbox as previously.

40.  On 23 January 2020, I made the Unless Order.  Copies of the Unless Order were also sent to the banks.

41.  In July 2020, D1 and CSK moved to the 2/F and roof top of House 72. They say they moved from House 110.  P says they moved up from G/F House 72. G/F House 72 was subsequently let to a tenant from September 2020.

42.  The default judgment summons dated 6 August 2020 was served on D1 and D2 by ordinary post.  The relevant envelopes were quite thin, and the person posting them states his belief that the postman would have inserted them through the letterbox of G/F House 72.  In any event, it has been admitted that the default judgment summons was received, though D1 says she picked up the hearing bundle for the Injunction Order application and the default judgment summons on the public road outside House 72, and that she did so out of pure luck.

43.  D1 produced as an exhibit a photograph of the hearing bundle, which shows it to be in apparently pristine condition, with the solicitors’ compliment slip dated 20 January 2020 still stapled to the front of the lever arch file.  The idea that the file had been outside from January to August 2020, on a public road, until it was supposedly stumbled across by D1, yet remained in such good condition, seems to me to be highly unlikely.  It also seems to me to be unlikely that that lever arch file would happened to have been on the road next to or near the separate envelope containing the default judgment summons, delivered nearly 7 months later, yet which D1 claims to have discovered by chance at the same time.

44.  The directions given that the default judgment application be dealt with on written submissions and by way of paper disposal were posted to D1 and D2 at House 72 by the Court on about 24 August 2020.  Subsequently, P’s solicitors attempted to serve P’s skeleton submissions and authorities by ordinary parcel post.  A tracking system showed that an unsuccessful attempt to deliver was made on 23 September 2020, but the understanding was that a collection card would have been inserted into the mailbox identifying the parcel as available for collection at the local post office within 14 days. No one collected the parcel, which was eventually returned to P’s solicitors.

45.  On 5 October 2020, I gave the Default Judgment.  On 21 October 2020, P’s solicitors wrote to GYCM urging that there be compliance with the orders made.

46.  However, I also note that even before that letter was sent GYCM notified P’s solicitors that they had come on the record to act for D1 and D2 in this action, and had written to the Registrar of the High Court authorising their clerk to conduct a search of the Court file.  It seems to me to be noteworthy that it was GYCM that have been acting for D1 and D2, being the same solicitors to which P’s solicitors wrote the letter before action.

47.  Still, it was only on 13 November 2020 that the Set Aside Summons was taken out with the first affirmations of D1 and CSK filed in support.

F.     Regular or Irregular Judgment

48.  Both Mr Ko and Mr Deng agree that the crux of the argument surrounded whether service was properly effected or not, the focus on being whether Ds received notice of the existence of the claim against them.

49.  On the basis of the matters canvassed in Section E above, I am satisfied that notice of existence of the claim was indeed brought to the attention of D1 and CSK.  I accept the evidence that they received the Writ, as well as the injunction application materials, in December 2019 as described by the Mother, and as contemporaneously recorded in the email sent by the plaintiff to his solicitor shortly thereafter (where I do not think there was any reason then to have fabricated the relevant point).  Further, where D1 and CSK (even on their own case) lived throughout the material time within a few minutes of House 72, and had unimpeded access to House 72 and its letterboxes under their control and responsibility, I think there is no reason why they would not have checked the mailboxes and would not have found the various documents served.

50.  I also take into account that after Ds say they moved into 2/F House 72 in July 2020, G/F House 72 was let out in September 2020.  When preparing the premises for a tenant, it is more likely than not that the mailbox would have been emptied.  Further, when the skeleton submissions for the Default Judgment summons were posted after Ds had moved into part of House 72, it is unrealistic to think that the tenant would not have informed his or her landlord (living upstairs) of the receipt of legal documents.

51.  I have also taken into account the various utility bills produced by D1/CSK in the attempt to demonstrate that they were not resident at House 72 at the time of service.  Against the fact that they had control and responsibility over House 72 at all material times, precisely where they resided may not be so important if the focus is on whether notice of the claim against them was actually received.  But in any event the relevant utility bills for G/F House 72 at the relevant times, which would be the most obvious bills to have produced to show who was in residence at those times, have not been produced.  Further, even if not residing there, Ds were clearly responsible for the payment of the supply of utilities to that property, and would likely have checked the mailbox for the utility bills (and would have found any other mail at the same time).  The appropriate adverse inference to be drawn from the absence of what seem to me to be the most relevant utility bills is, to my mind, obvious.

52.  Further, it is in any event not in dispute that by August 2020 Ds had notice of the proceedings, and the looming application for default judgment, before the application was heard.  Therefore, at least by the material time of the hearing of the application (even though dealt with by way of paper disposal) the relevant notice had been received.

53.  Though strictly it may not matter, I also do not accept the reasons put forward by D1 and CSK for not reacting sooner after August 2020.  The excuse put forward to explain why no legal advice was sought until October 2020 is fear of the Covid-19 pandemic and a desire not to go out at all, but even if that were true it cannot explain the failure to have sought legal advice for example by telephone, email or any other of the technical possibilities readily available.  I accept Mr Deng’s submission that there was no need for D1, contrary to her suggestion, to start looking the lawyers.  The obvious lawyer to contact was the lawyer dealing with the estate comprising House 72, the subject of the claim.  Indeed, that is the firm who was subsequently contacted and which now acts as solicitor on the record.  I also note that the service of the original documentation in December and January 2020 was before the relevant public health concerns arose in Hong Kong.

54.  On that basis, it seems to me to be sufficiently clear that the judgment was entered regularly.  Indeed, I accept the force in Mr Deng’s submission that Ds have in fact been actively avoiding service, or engagement with proceedings of which they were fully aware.

55.  As the Default Judgment is regular, it is necessary for Ds to demonstrate a real prospect of success, meaning a defence that could well be established at trial.

G.     Merits

56.  What D1 says are the merits of the proposed defence have been set out by her in her affirmation evidence.  Mr Ko highlighted several aspects of that evidence.

57.  First, by reference to the original Chinese takeaway business in England, it was owned solely by the Father, and the children really helped out as employees earning monthly salaries.  When P started working as a full-time counter cashier at the business in 1987, he was about 17 years old and had just dropped out of college.  So, it is submitted, it was impossible for P to have had any capital to start and invest in the business in cooperation with the Father.  Further, all the children were involved in assisting on a monthly salaried basis.  It is also to be noted that P was not the only son, and was not the elder son.  So, if it is true (as P claims) that the Father was a traditional man, it would be expected that the traditional approach would not have involved asking only P to join as a business partner and share profits, without asking the elder son to do so as well.

58.  Further, the basis for the alleged accumulation by P in his sole name accounts of between HK$3.5 million and HK$4.5 million through profit and sale proceeds of the business are submitted to be contradictory to other aspects of the evidence.  P asserts he and £2,000-£3,000 a month, and would share one third of the profits.  If both were true he would be earning almost £60,000 a year, whilst the Father would be taking only about £46,666 per year – less than the son and alleged junior partner.  Instead, it is said that the Father opened various bank accounts in Hong Kong in his sole name, in the sole name of P and in the joint names of himself and P for the purpose of transferring the profits on money made by the Father back to Hong Kong, in order to reduce the risks of having the business investigated by tax authorities.  Monies held by P were held as a trustee of the Father.

59.  As to the FF Shops, the main point made is that the property was held 100% by the Father, and there is no real evidence that there was either a common understanding that he would be entitled to 50% beneficial ownership or that the Father would hold a share on trust for P, whether as a gift or otherwise. It was in any event implausible for P, who was only 23 years old in 1993, to have accumulated and contributed such a large sum of money to purchase the FF Shops.  The submission is that the documentary evidence is not sufficient to support P’s case, not least because the banking book evidence does not identify the transferee of the purpose of any transfer.  It is also submitted that it makes no sense for the Father to be the sole owner of the FF Shops if P had truly invested such a huge sum of money in the purchase.  Naming both P and the Father as joint owners would not in any way have prevented the Father from managing the FF Shops.

60.  Mr Ko also submitted that there is no solid or cogent evidence provided by P to support the fact that the sales proceeds of the FF Shops, that is the FF Proceeds, have been used to purchase the TSH Shop. Further, even were that true, without proof of the interest in the FF Shops, no interest can be proved in the TSH Shop.  The high evidential burden for establishing a common intention is not met in light of the matter is now placed before the court.

61.  As to the construction and allocation of the village houses, there were three such houses not two, namely Houses 70, 71 and 72.  Mr Ko made reference to the various mismatches of transferred sums and further transfers and payments, as well as certain chronological inconsistencies.  He also pointed out that when it was demonstrated that the amounts P claimed himself to have transferred to the Father did not match with the total construction costs of the two houses, the difference was described as the cost of furnishings, though not supported by any contemporaneous documents.

62.  Reference is also made to the fact that the three houses were intended to be dealt with as follows.  Houses 70 and 71 would be given to the elder brother and P, and so were registered under their respective names.  However, the Father would retain House 72 for himself during his lifetime, with the beneficial interest to be transferred to the daughters and D1’s daughters in equal shares after he passed away, so it was held in the Father’s sole name. The fact that the Will was made by the Father in 2008, appointing D1 and CSK as executrices and leaving House 72 to D1, CSK and the daughters in equal shares absolutely supports that fact.

63.  As to the alleged Missing Rental Income, Mr Ko submitted on the evidence that the rental income for House 71 was in fact paid into the HSB Joint Account, and the withdrawals from that account were the rental income generated by House 72.  The Father subsequently took HK$2.3 million out of the HSB Joint Account and transferred it to his joint account with D1. It is said that as he was the legal and beneficial owner of House 72, he was entitled to have done so.

64.  In response, Mr Deng submitted that P’s evidence was clearly set out in his first affirmation, and the material was analysed by reference to the pleadings in the Default Judgment as regards House 72 (where it was deemed that the issues in relation to the FF Proceeds or the Unauthorised Withdrawals and Missing Rental Income were more suitable for trial in any event).  Mr Deng pointed out that Ds had had more than six months from October 2020 to provide evidence in reply to P’s evidence covering the matter of the source of funds, but had failed to do so despite (a) being the executrices of the Father’s estate and (b) being subject to three separate court orders to give disclosure of the source of funds of the Father to support their defence.

65.  As regards the two main thrusts of Ds’ proposed defence – namely (1) the Father funded the entirety of acquisition and construction of three houses, evidenced by a series of payments made by the Father from his personal account to the contractor, and (2) the Father intended to assign House 72 to his two daughters, having left the other two houses to his two sons already – Mr Deng made the following broad submissions.  First, he submitted that Ds had not denied the transfer of funds from P to the Father, while simply offering a reason for the transfer amounting to no more than a bare assertion. Secondly, Ds had omitted to address the fact that P has provided concrete evidence that the acquisition and construction of House 72 came from his bank accounts, where he was able to identify specific transfers with amounts and dates, reflecting individual elements of the construction and the identification of the particular funds used for particular purposes.

66.  Mr Deng also pointed to the incongruity of the existence of the Joint Rental Account setup by P and the Father for the purpose of collecting rent generated from leasing House 72 with the idea that House 72 was intended to be for Ds.  He also submitted that Ds had not suggested that there was no detrimental reliance by P on his alleged common intention, or no unconscionability for the Father to depart from such intention.  Hence the submission that the line of defence lacks a real prospect of success.

67.  As to the other matters – which Mr Deng submitted do not really arise on the current argument – he submitted as follows.  On the basis that Ds admit that P was the legal and beneficial owner of House 71, it is insufficient to assert that the part of the Missing Rental Income which is comprised of the rental income from House 71 has been paid into the Joint Rental Account, without addressing the whereabouts of the specific amounts P says is missing.  Further, Ds’ assertion of the existence of an agreement between P and the Father for repayment of construction costs by way of assignment of rental income generated from one flat of House 71 ignores that neither of them were party or privy to any such agreement, which in any event is firmly denied by P.  In addition, the rental income from all three flats at House 71 was deposited into the Joint Rental Account, which is telling.  Indeed, when rental income from leasing all three houses was deposited into the one account, the monies were mixed and the Unauthorised Withdrawals cannot be solely generated by the income from House 72.  Yet further, Ds appear to accept that some withdrawals were actually unauthorised, but say that they were made by the Father while still alive, not by them.

68.  I have also kept in mind that the fact that the Father is the sole named owner of House 72 may not be particularly strong evidence as to the true beneficial ownership, when it is remembered that each of Houses 70, 71 and 72 were built under the ‘small house’ policy, so that the named owners of each house were likely necessarily one single male family member.  The position may be different in relation to the sole ownership of the FF Shops.

69.  I have also taken into account that I do not see great merit in the limitation defence and the joint tenancy defence put forward by Mr Ko in submission (though I do not make any finding on either point).  As to the evidence/argument of P, I have set that out in my earlier Default Judgment, where I also canvassed the applicable legal principles relevant to the claim.

70.  Nevertheless, looking at matters overall – including in particular in the context that I have required significant issues to go to a trial in any event – I am satisfied that sufficient merit has been demonstrated that I should set aside the Default Judgment.  There is at least a potentially important overlap between the issues surrounding the true beneficial ownership of House 72 and those matters which will be appropriately investigated in the interlocutory steps towards and at a trial of the other issues, and sufficient matters have been raised overall to warrant the entirety of matter being dealt with on a proper interlocutory and trial basis.

71.  However, in the broad exercise of my discretion to set aside the Default Judgment, it seems to me that fairness and justice necessarily require the setting aside to be conditional upon proper compliance with previous court orders.  I again take into account the absence of any real explanation as to why the Unless Order has not been complied with or why it is not capable of being complied with.

H.     Injunction Order and Unless Order

72.  On the approach I take below, the Hadkinson point does not need to come into play here.

73.  First, I am satisfied that the Injunction Order should in any event remain in place.  Though I have set aside the Default Judgment, there is (on the competing factual cases on the totality of the evidence) clearly at least a serious issue to be tried on P’s claim.  The balance of convenience is in favour of the grant of the injunction, and I think it is just and convenient to grant and continue the injunction.  The particular injunction granted relates to a specific asset held by or under control of Ds, or the traceable proceeds, in respect of which a proprietary claim is made by P.

74.  Secondly, the disclosure of information and documentation required under the Injunction Order is directly relevant and necessary.  Not least when the matter is now going to a trial on all issues, that disclosure will be required in any event.  But, I see no reason why it should be – and many reasons why it should not be – delayed to await an ordinary interlocutory discovery exercise.

75.  I will nevertheless extend the time for compliance with the Unless Order (in particular paragraph 2) until 9 July 2021.

76.  Should there be continued non-compliance after that date, and in addition to the consequence specified in the Unless Order, I grant leave to P to apply as to what further consequences should flow from the failure to comply with the Unless Order within the extended time, where I have made such compliance a condition of the setting aside of the Default Judgment.

I.     Residual Discretion

77.  Had it been necessary to say so, I would point out that even if I were satisfied that the Default Judgment had been entered irregularly, I would in the overall circumstances have chosen to exercise the residual discretion to impose terms for setting aside.  The terms that I would have imposed are the same as those which I have imposed.

J.     Costs

78.  The application to set aside the Default Judgment on the basis that it was irregular has failed.  Further, it seems to me that the setting aside of the regular Default Judgment can properly be seen in the circumstances I have outlined as something of a significant indulgence.  Indeed, I have also made the order conditional on compliance with previous orders.  That also means that I have refused to discharge or vary the Injunction Order or to discharge the Unless Order (though I have extended time for compliance with it).  The Set Aside Summons is also a stand-alone application.

79.  Those are all circumstances which indicate to me that the appropriate costs order on the Set Aside Summons to be made in the exercise of my discretion is for Ds to pay P’s costs of and occasioned by the Set Aside Summons forthwith, to be summarily assessed.  However, as I have not yet heard argument on costs, I shall make that order on a nisi basis.  The nisi order will become absolute unless either party makes an application for variation of it within 14 days.  If such an application is made, I will deal with it and any possible summary assessment of costs by way of paper disposal.