LI FOOK CHU v. CHUNG SHAU CHING

CACV 1068/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1068 OF 2000

(ON APPEAL FROM HCA NO. 8549 OF 1998)

_________________________

_________________________

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1. At the conclusion of the hearing of this appeal, this court indicated that it would allow the appeal and heard arguments as to costs. The reasons for the judgment were to be handed down later together with the order as to costs. This we now do.

Background

2. Mr Chung Shau Ching became a teacher at St Luke's College in Hong Kong in 1967. The principal of that college was Mr Li Fook Chu. He had been the principal of the college since the early 1960s. Mr Li lived with his sister, Dr Wai Chee Li. Mr Chung's wife knew Dr Li very well.

3. It appears that in 1988 Mr Chung was made redundant. At any rate, he ceased to work at St Luke's College. He claims he was entitled to a redundancy payment. Mr Chung wished to emigrate to England. He discussed the matter with Mr Li in about early 1989. Mr Li, who describes himself in his affidavit as a "rather well-to-do person", arranged for a solicitor, whom he knew in London, to advise Mr Chung. The advice was that Mr Chung should invest a minimum of ￡150,000 in the United Kingdom in order to be able to become an immigrant. Mr Chung was able to raise a substantial part of the investment money himself. He sold his electro-plating business and a jewellery shop. In doing that he raised approximately $1 m. He needed further funds to reach the target.

4. Mr Chung says that at that stage Mr Li offered to lend him $700,000. On 1 March 1989 Mr Chung signed a promissory note in the sum of $700,000. The interest payable under that note was to be 9% per annum, the interest to be offset by rental to be received from a company by the name of Safeairo Limited (18-24 St Oswald's Road, Gloucester, England). Mr Chung had bought the head lease of 18/24 St Oswald's Road. The sub-lessor was Safeairo Limited, which ran a Chinese restaurant at the premises.

5. Mr Chung says that at the time his wife felt that $700,000 was, perhaps, not enough for their needs and they required a little more to be comfortable. They, therefore, asked Mr Li to lend them $780,000 instead. Mr Chung says that on the following day he and his wife executed an assignment of their flat in Lisa House in favour of Mr Li. They were given a bank draft for $780,000. Mr Chung says that the assignment of the flat was a form of security. When the flat came to be sold in 1991 he, Mr Chung, was given a power of attorney by Mr Li to make the sale. The proceeds of sale were divided between Mr Chung and his wife on the one hand and Mr Li on the other. Mr Chung has produced a copy of an account from a well-known firm of Hong Kong solicitors showing that $780,000 was paid to Mr Li. Then there was an amount shown in the account in respect of payment to the Inland Revenue and the amount for the solicitors' costs. The balance of $274,503.80 was paid to Mr Chung.

6. Mr Chung denies ever having received a separate payment of $700,000. On the other hand, it is Mr Li's case that in addition to the payment of $780,000 on 2 March 1989 there was a payment of $700,000 on 1 March. Whereas Mr Li has exhibited a copy of the draft for $780,000 given on 2 March, there is no copy of any cheque or draft of $700,000 nor any copy of a bank statement showing a payment of $700,000 to Mr Chung. Indeed, Mr Li does not condescend to give any particulars as to how he says the payment of $700,000 was made.

7. Mr Chung says that the rent paid by Safeairo was paid to Mr Li until February 1992. He also says that he and his wife met Mr Li in London in July 1991. At that meeting they asked Mr Li to return the promissory note because Mr Li had been repaid. Mr Li indicated that he did not have the promissory note with him at the time but said that he would give it to them when he had it.

8. In September 1992 Mr Chung received a letter from solicitors in London asking him to repay a promissory note in favour of Mr Li, which was identified as having been signed by Mr Chung in Hong Kong in 1987 in the sum of ￡70,000. There was a reply from solicitors acting on behalf of Mr Chung. They indicated that they were perplexed at the statement in relation to a promissory note signed in 1987. They asked for a copy of the same. Apart from that, the letter denied that there were any monies owing from Mr Chung to Mr Li. The reply from Mr Li's solicitor of 23 October suggests that the fact that there had been a settlement of accounts between the parties had already been canvassed in earlier correspondence. The letter is somewhat ambiguous as to the existence of the promissory note; the letter indicates that the solicitors were under instructions to prepare proceedings. Those solicitors did nothing and, seemingly, Mr Chung heard no more from Mr Li until the commencement of these proceedings. Furthermore, no correspondence has been produced that would be the correspondence referred to. The plaintiff has filed a witness statement saying that instructions to the solicitors were made relying on his memory and that that accounted for the references to pounds sterling and 1987.

9. Dr Li unfortunately passed away on Saturday 23 May 1998. These proceedings were commenced on 26 May 1998. On 2 June 1998 the plaintiff obtained leave to issue a concurrent amended writ of summons and to serve the same on the defendant at either 24 Thrush Close, Abbeydale, Gloucestershire or at the St Oswald's Road address. It is not in dispute that the proceedings were duly served.

10. From then on these proceedings appear to have taken a highly irregular course. The defendant consulted solicitors in Gloucester, England. In view of the subsequent events, they will be referred to in this judgment as the English firm. The English firm signed the acknowledgement of service themselves, in their own name, and gave their firm name followed by the words "solicitors of" and then their address and the reference for the solicitor concerned. It is to be noted that in larger type than the rest of the acknowledgement of service there is printed at the bottom of the form the following:

"Notes as to address for service.

Solicitor. Where the defendant is represented by a solicitor, state the solicitor's place of business in Hong Kong.

Defendant in person. Where the defendant is acting in person, he must give his residence or, if he does not reside in Hong Kong, he must give an address in Hong Kong where communications for him should be sent. In the case of a limited company, 'residence' means its registered or principle office."

11. These notes reflect the provisions of Ord. 12 r. 3 of the Rules of the High Court. Ord. 12 r. 3(1) requires that the acknowledgement of service must be signed by the solicitor acting for the defendant or if he is acting in person by the defendant in person. Ord. 12 r.3(2) relates to the address for service in Hong Kong.

12. The acknowledgement of service was accompanied by a letter addressed to "The High Court of the Hong King (sic) Special Administrative Region". That letter says amongst other things:

"We are now instructed by the defendant in respect of the above matter and would bring to your attention that our client resides in the UK and cannot afford to return to Hong Kong or instruct a Hong Kong lawyer.

We would therefore request, if at all possible, if this matter could please be transferred to a court in the UK to enable our client to protect his position.

We look forward to hearing from you in due course and would request that all correspondence is sent to our offices at the above address."

13. There was also a form of defence which was enclosed with the letter, again signed by the English firm calling themselves the solicitors for the defendant. It would be at once apparent that not only could the English firm not be the solicitors for the defendant, since they are not Hong Kong solicitors, but the acknowledgement of service was defective for the further reason that there was no Hong Kong address given. Needless to say, the suggestion that proceedings could somehow be transferred to the United Kingdom could be categorised as quaint. There were further and better particulars which were provided by the English firm in September 1998. In November 1998 the English firm endorsed its consent to the plaintiff's reply being served out of time. They also signed a consent summons which was approved by a master vacating the date for hearing the application to file the reply out of time.

14. On 15 December 1998 the plaintiff caused a summons for directions to be issued. An affidavit was filed indicating that it had been sent by registered airmail to the English firm at its address. It appears that, at the hearing of the summons, a letter from the English firm was put before the master asking for amongst other things 42 days to file a list of documents and also for a preliminarily hearing to determine whether there was a cause of action or whether there was no case to answer and in the event that the judge determined that there was a case to answer that the matter be transferred to the United Kingdom.

15. There is no record of this letter on the court file but it is understood that the plaintiff's solicitors did show it to the master. The result was that an order was made by the master that the defendant should file a list of documents within 14 days.

16. On 2 February 1999 an inter partes summons was issued by the plaintiff applying for an order that the defence be struck out unless the defendant should file his list of documents within 7 days. That summons was addressed to the English firm at their address. There was a peremptory order made on that summons on 5 March 1999 by the master that the defendant should file his list of documents within 28 days after service of the order. On 18 March 1999 the plaintiff's solicitors sent a sealed copy of the order by registered post to the English firm at their address. On 16 April a solicitor's certificate was filed by the plaintiff's solicitors certifying that no list of documents had been served. On 27 May 1999 judgment was entered because of the defendant's failure to file a list of documents.

17. Under Ord. 11 r. 9(4) any summons, notice or order issued, given or made may be served outside the jurisdiction with leave of the court. However, no leave of the court was sought or obtained for service of any of the summonses or orders.

18. It is clear, from both Mr Chung's affirmation and from the affirmation of the solicitor in the English firm handling the matter, that on 5 January 1999 the solicitor wrote to Mr Chung informing him of the summons for directions and enclosing a copy of his letter to the court in Hong Kong. In the letter to Mr Chung they said:

"As you will see, I have raised one or two matters of concern in my letter to the Court and we will have to wait and see how the Master in Chambers deals with the issues in question.

If my points are ignored and the Directions are issued as requested by H.H. Lau & Co, then the decision will either have to be made to arrange representation in Hong Kong for the Hearing or to take no further action until such time as Mr. Li has obtained a judgement and then seeks to enforce it in the United Kingdom.

I will let you know when I hear further but if you have any questions to ask me in the meantime, please do not hesitate to get in touch."

19. It is clear that the solicitor never did get in touch with Mr Chung and that the next Mr Chung heard of the matter was when he was served with proceedings which had been commenced in August 1999 in England to enforce the judgment which had been obtained in Hong Kong.

20. As a matter of completeness it might be mentioned that the papers disclose that, although the English firm was advised by counsel in September 1999 that they should no longer act on Mr Chung's behalf but for obvious reasons, should advise him to seek representation by another firm, the English firm did not inform Mr Chung of this nor advise him to seek other representation until February 2000.

21. In his affidavit Mr Chung says:

"In short, (the English firm) took no action to prevent the Default Judgement being entered against me and, moreover, failed to keep me informed of the steps being taken in the Hong Kong action. I relied upon (the English firm) to look after my interests. However, I was not concerned at the lack of information as the solicitors had advised me that, in the event that Mr Li were to obtain judgement in Hong Kong, he would have to take action in England to enforce that judgement and I would then be able to defend the action on the merits (ie on the basis that I had already repaid the sums claimed). I am now advised that this advice was wrong and that, having submitted to the Hong Kong jurisdiction by filing an Acknowledgement of Service, I would not be permitted to defend the English Proceedings in this way and should have pursued this defence in the Hong Kong proceedings."

22. Application was made under Ord. 24 r. 17 to set aside the judgment. Although the summons for the peremptory order had a marginal note Ord. 25 r. 1, that relates to a summons for directions. The order made entering judgment for the plaintiff was clearly under Ord. 24 r. 16 and in my view Ord. 24 r. 17 would be applicable.

23. The Registrar before whom the application was first made gave a reasoned decision. Not only did he disbelieve Mr Chung that he had not heard from the solicitor of the English firm after 5 January 1999, but he also said that, because the defendant had been a teacher and, therefore, an educated person, he found it difficult to believe that he relied purely on the advice of his lawyer. I regret I cannot go along with those sentiments. There were no grounds for disbelieving Mr Chung on his oath. The Registrar also cast doubt on the veracity of the defendant's allegation that all sums had been repaid to Mr Li. He did so on the basis of the fact that the bare defence which was filed initially did not condescend to such particulars. Again, in the circumstances of this case, I do not consider that an adverse inference against the honesty of the defendant can be drawn from the way in which the original defence was drafted by the English firm.

24. The judge below considered that the defendant had deliberately decided not to obey the court orders. He did so on the basis that "the defendant must have instructed his solicitors in England not to take any further action in Hong Kong proceedings". This is an inference which is contradicted by the evidence and, in my view, is unwarranted.

25. At the hearing of this appeal the court itself raised the question as to the regularity of the procedure. First, there was the acknowledgement of service and pleadings which were served by and in the name of persons who were not Hong Kong lawyers and were outside the jurisdiction. Then, more importantly, there was the service upon them of the various summonses and orders in this action. This was not a matter which was raised by the defendant but was a matter which was raised by the court as a matter of the court's own procedure.

26. In my view, any judge or master on seeing correspondence such as emanated from the English firm should, at once, have been put on his or her guard. In the first place it is quite wrong for the court to treat a lawyer who is overseas, particularly one who is not admitted as a solicitor in Hong Kong, as a solicitor. One glance at the letters from the English firm would be enough to confirm that the writer of those letters had no knowledge of Hong Kong procedure. Whatever knowledge the writer might have had of English procedure, I refrain from commenting upon.

27. When a summons for directions is heard, that must never be treated as a formality. It is the master's duty to consider all matters which will lead to a speedy and effective hearing of the trial of the action. It was, in my view, a serious error of the court as well as of the parties not to take steps to disabuse the English firm of its misconception that it could be the solicitors on the record in Hong Kong. This would have entailed the court insisting that such notification be directed not simply to the English firm but to the litigant himself at the place at which service of the proceedings was originally ordered. The failure of the court and the parties in this respect was a matter which was bound lead to difficulties.

28. When the February 1999 summons was heard, again, the same matters should have occurred to the master hearing that summons. On that occasion there was the additional factor that the court and the plaintiff was alerted to the fact that no steps had been taken by the defendant in respect of the order on the summons for directions.

29. When judgment in default is to be entered as a matter of course following a peremptory order it is the court's duty to consider all factors relating to the judgment. In particular, the court must consider whether the judgment is warranted not merely on the basis of the pleadings but, if it is a judgment in default, whether all the factors which justified a judgment in default are satisfied. This includes, in particular, whether there has been proper service of the order which directly leads to the entering of the judgment.

30. In this case the master considering the peremptory order should have given consideration, in particular, to the address at which the order was to be served. Had he done so he would have noticed, first, that it was not the address at which leave to serve outside the jurisdiction was given, secondly, that no order had been made permitting service of the order outside the jurisdiction and thirdly that service was being made upon somebody purporting to act as a solicitor in Hong Kong proceedings although he was not qualified to do so. He would also have seen that that person's concept of Hong Kong procedure was clearly erroneous. In my view, at a minimum the master should have insisted that the order made on the summons in March be served at the addresses at which the proceedings had been originally served.

31. Mr Remedios on behalf of the plaintiff, submits that the defendant was contumelious and deliberately decided not to comply with the orders in Hong Kong. He relies very heavily on the passage in Mr Chung's affidavit quoted in paragraph 21 above. In my view that is not correct. It is clear from the letter of 5 January 1999 that the English firm told Mr Chung that they would keep him informed as to the developments. They never did. Mr Chung therefore never took any decisions in respect of what to do about the discovery orders because he was never told of them.

32. The plaintiff's solicitors were well aware of Mr Chung's address. Had they complied with Ord. 11 r. 9 they could have obtained orders to effect service of various documents upon Mr Chung. They chose not to do that.

33. The matter of service of the summonses and orders is an important matter, particularly in this case. The defendant was not told of them. The fact that the documents were not served on the defendant therefore assumes a greater significance. Mr Remedios has argued that it would be unfair on the plaintiff for the judgment to be set aside for irregularity since the service point was not taken originally and there has now been a long lapse of time since judgment was entered. That is, of course, an important factor to be taken into account. In this case, however, it is unnecessary to decide the matter. The important fact is that the defendant was unaware of the summonses or orders. The points as to service amplify Mr Chung's complaint. It cannot be said that he took any deliberate steps to ignore them, or was contumelious or contumacious or that any of the other pejorative adjectives, which have been used in the cases, apply to him.

34. In my view, on the facts alone Mr Chung would appear to have a good prima facie defence to this action.

35. Furthermore, apart from the defence on the merits because of the facts of the case, there also appears to be a good defence under the Limitations Ordinance. As argued by Mr Coleman on behalf of Mr Chung, time under the promissory note would run from 1 March 1989. There was no payment of interest after February 1992. Mr Coleman's argument proceeds that since there was no time for repayment specified and the promissory note states that it is repayable on demand, time starts to run from the date of the loan and not from the date of any demand. As Mr Coleman has pointed out, there does not appear to be any statutory equivalent in Hong Kong of the provisions of section 6 of the Limitation Act 1980, which has partially altered the position in the United Kingdom.

36. In my view, therefore, the defendant has demonstrated the likelihood of a very real and substantial defence to the plaintiff's claim in two respects. The fact that the judgment was entered for failure to comply with an order for discovery was unknown to the defendant at the time and it is right that in this case the judgment should be set aside and that time for complying with the discovery order should be extended in order to enable the defendant to file his list of documents, which is now ready.

37. In those circumstances, in my view the appeal should be allowed, the orders below should be set aside, time should be extended for complying with the order of the 5 March 1999 to 14 days from the date the order on this appeal becomes effective and the judgment entered should be accordingly set aside.

38. In view of the fact that the defendant is in effect asking the court for an indulgence, I consider that it is correct that he should bear the costs in front of the Registrar. Although there was fault on the plaintiff's part as well, in serving the summonses and orders in the wrong fashion, as I have explained, all parties, including the court, must share part of the blame. As regards the appeal before the judge and this court, in my view the costs should be to the defendant, as the successful party, in the normal way.

Hon Le Pichon JA:

39. I agree.