TSE SHIU HOI v. SUN BO

HCA 1095/2019

[2021] HKCFI 2351

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1095 OF 2019

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DECISION

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INTRODUCTION

1.  On 23 September 2019, final judgment was entered against the defendant in default of notice of intention to defend for the sum of HK$15 million with interest.  By summons dated 11 November 2019, the defendant applied for the judgment to be set aside.  On 10 June 2020, Master Kenneth Lee set aside the judgment unconditionally. 

2.  This is the plaintiff’s appeal against the master’s decision. 

3.  An appeal from a master to a judge under Order 58, rule 1(1)  of the Rules of the High Court is by way of re-hearing.  I should treat the summons as if it came before me for the first time: Hong Kong Civil Procedure 2021 at 58/1/2.

4.  In this appeal, Mr Jonathan Chang, SC, leading Ms Sheena Wong, appeared for the plaintiff.  His primary submission was that the judgment was a regular judgment.  Mr Chang advocated that the principle set out by the Court of Appeal in Honour Finance Co Ltd v Chiu Mei Mei [1989] 2 HKLRD 146 is binding and applies.  Given that the writ was sent by registered post to the defendant’s usual and last known address when he was within the jurisdiction, the judgment, Mr Chang submitted, was a regular one.  He further submitted that the defendant’s case does not have a real prospect of success. 

5.  On the other hand, Mr Chang accepted that if Honour Finance should not be followed and that the defendant succeeds in showing that he had no actual notice of the writ before the judgment was entered, the judgment would be an irregular one and should be set aside.

THE PLAINTIFF’S CASE

6.  The plaintiff’s statement of claim and his opposing affirmation reveals the following case.

The claim

7.  The plaintiff’s cause of action is a straightforward one.  He says that on 16 January 2019, at the defendant’s request, he lent to the defendant a sum of HK$15 million, as the latter needed it for investment purposes.  The loan was repayable on demand.  It was not interest-bearing.  The plaintiff had since requested the repayment of the loan on several occasions.  On or about 22 May 2019, the plaintiff’s solicitors issued a demand letter to the defendant.  But the defendant has failed to repay the loan.  The plaintiff proceeded to issue the writ on 19 June 2019.

Service of the writ

8.  It is not in dispute that the defendant is the chairman of Core Economy Investment Group Limited, a Hong Kong listed company, which has a principal place of business at Suites 04 & 05, 19/F., Harbour Centre, 25 Harbour Road, Wanchai (“the Company Address”).

9.  On 21 June 2019, the plaintiff’s solicitors sent the writ to the defendant at the Company Address by registered post.  According to the post office records, the post was delivered on 24 June 2019.

10.  The defendant has confirmed that he was in Hong Kong from 14 to 29 June 2019.

11.  No acknowledgment of service was lodged within the prescribed deadline.   Final judgment was entered on 23 September 2019.

12.  The plaintiff contends that the Company Address was the defendant’s usual and last known address, he was in Hong Kong when the writ was delivered, and the plaintiff has duly complied with Order 10, rule 1(2)(a).  Hence, relying on Honour Finance, the plaintiff says that the judgment was a regular one and that is so whether or not the defendant had actual notice or knowledge of the writ when the judgment was entered.

THE DEFENDANT’S CASE

13.  In support of the setting aside application, the defendant made two affirmations.  He also relied on an affirmation made by Ms Cheung Hoi Ue, the financial controller and company secretary of Core Economy.  In gist, the defendant says that he did not have notice of the writ until 8 October 2019, ie after judgment was entered.  The judgment was therefore irregular and ought to be set aside.  Even if the judgment was a regular one, the defence has a real prospect of success and the judgment should still be set aside.

The defence

14.  The defendant came to know the plaintiff in January 2019 through the introduction of a Mr Wu Kai.  Wu and the defendant had been business acquaintances.  In the course of their business dealings, Wu was indebted to the defendant in the sum of about HK$60 million.

15.  In January 2019, the defendant requested Wu to make some repayment.  Against this background, Wu introduced the plaintiff to the defendant and told the defendant that the plaintiff had agreed to pay on Wu’s behalf the sum of HK$15 million as a partial repayment of the debt. 

16.  This the plaintiff did on 15 January 2019.  He gave a cheque in that sum to the defendant on Wu’s behalf.  He confirmed to the defendant that the cheque was a repayment to reduce Wu’s indebtedness to the defendant.  At that meeting, the plaintiff did not mention anything about the sum being a loan to the defendant or that it being repayable on demand. 

17.  The defendant therefore says that the sum was not a loan as now alleged by the plaintiff and he is not liable to repay at all. There has been no loan agreement or any documentary evidence in support of the plaintiff’s allegation.

Notice of the writ

18.  The defendant frequently travels overseas and often stays for extended periods in the United Kingdom and Australia.  He is often away from Hong Kong.  He only returns to Hong Kong when he has company or personal business to attend to here.  Notwithstanding that he is the chairman of Core Economy, even when he is in Hong Kong, he does not regularly attend the Company Address.  In fact, he seldom goes to the company unless there is any specific business which he needs to conduct. 

19.  On 24 May 2019, the defendant was in Macau.  He received a WeChat message from Cheung, which was a photocopy of an unopened envelope from the plaintiff’s solicitors.  The defendant instructed Cheung to open the mail.

20.  The defendant was shocked to see the letter dated 22 May 2019 from the plaintiff’s solicitors purportedly demanding repayment of the sum of HK$15 million.  The defendant immediately sent a WeChat message to Wu to protest and enquire what was going on.  Wu agreed to make enquiries with the plaintiff for him.  The WeChat messages exchanged on 24 May 2019 were exhibited to the defendant’s affirmation.

21.  The defendant then travelled to Dubai on 30 May 2019.  He returned to Hong Kong from London on 13 June 2019 in order to attend the annual general meeting of Core Economy which was held on the following day.

22.  On 19 June 2019, unknown to the defendant, the plaintiff issued the writ.

23.  On 20 June 2019, the defendant had dinner with Wu and the plaintiff in Hong Kong to discuss some investment opportunities. The plaintiff did not make any mention of the demand letter or the writ during the dinner.  (These facts are accepted by the plaintiff, who explained that the dinner was a social gathering occasion.)

24.  It would be recalled that the writ was sent to the Company Address on 21 June 2019.  The defendant was in Hong Kong from 14 to 29 June 2019.  He only attended the company once in the month of June, on 14 June when the AGM took place.

25.  After that, the defendant was out of Hong Kong travelling to a number of places.  In September 2019, he was in Hong Kong for some time.  But he did not return to the Company Address at all.  In late September 2019, he travelled to Sydney.

26.  On 8 October 2019, whilst in Sydney, he called Cheung to discuss some business matters.  He requested Cheung to check the mail which had been accumulating in his office as he had not returned for several months. 

27.  Cheung opened the mails.  She then saw the writ and the judgment.  The defendant immediately asked her to pass the documents to his solicitors.  Upon seeking legal advice, the defendant took out the setting aside application on 11 November 2019.

28.  Mr Chan Chi Hung, SC, who appeared with Mr Derek JY Chan for the defendant, did not accept that the Company Address was the defendant’s usual or last known address.  But even assuming that it was, his primary submission was that the defendant has adduced cogent and detailed evidence showing that he did not have notice of the writ until 8 October 2019, which was after the signing of the judgment. 

29.  On the applicable legal principle, Mr Chan submitted that the correct test for service of a writ by registered post is whether it had been brought to the defendant’s notice and not whether it had been delivered to the defendant’s last known address.  He relied on a long line of first instance decisions in support of the “actual notice” test, including Sinokawa Investment (Holdings)  Ltd v Li Chun [2006] 3 HKLRD 441 at para 15; Cosec Nominees Ltd v Lau Hon Ming [2001] 2 HKLRD 581 at 588C; Phillip Securities (HK)  Ltd v Lam Chi Bin Stanley [2002] 1 HKC 432 at paras 12-14. Mr Chan also relied on the Court of Appeal decision in Bank of China (Hong Kong)  Ltd v Cheung King Fung [2007] 1 HKLRD 462 at paras 35-41.

30.  In the circumstances, the judgment was irregular and ought to be set aside.

DISCUSSION

31.  The first issue is whether the judgment was a regular one.  The parties disagree on the correct test which I should apply when determining whether a judgment was a regular or irregular one in the context of Order 10, rule 1(3)(a).

The correct test

32.  The plaintiff submits that where a plaintiff has delivered the writ in compliance with the rules, it amounts to effective service and a judgment obtained in default of notice of intention to defend would be a regular judgment.  This is so regardless of whether the defendant had actual notice or knowledge of the writ prior to the entering of judgment. 

33.  As noted at the outset, the plaintiff relies on Honour Finance in support of this test, which I shall refer to as the “mere delivery” test.  Mr Chang emphasised that this test as laid down by the Court of Appeal is binding on this court, notwithstanding the contrary view expressed by the English Court of Appeal in Forward v West Sussex County Council [1995] 1 WLR 1469 at 1476A-1477E. 

34.  As regards the long line of first instance decisions in Hong Kong which applied the “actual notice” test instead of the “mere delivery” test (including Sinokawa Investment and Cosec Nominees), Mr Chang argued that they were incorrectly decided and should not be followed.

35.  In my view, Mr Chang’s submission is untenable.  As a matter of principle and on the authorities, the correct test is the “actual notice” test.

36.  Mr Chang has devoted almost two-thirds of his written submissions discussing the authorities in this area.  I hope I can be forgiven for not going through all his arguments.  It is unnecessary to do so.  The answer can safely be found in the decisions in Phillip Securities and Bank of China.

37.  In Phillip Securities, Deputy High Court Judge Lam (as Lam PJ then was)  undertook a review of the relevant statutory provisions and the case law, including the House of Lords decision in Barclays Bank of Swaziland v Hahn [1989] 1 WLR 506, Forward and the long line of Hong Kong first instance cases, deciding in favour of the “actual notice” test.  His lordship came to the clear view that Forward should be followed and that service by registered post and by insertion through letter box took effect when the defendant had notice of the proceedings and not on mere delivery: paras 12-14.

38.  In relation to Mr Chang’s main submission that Honour Finance, being a Hong Kong Court of Appeal decision, remains binding on first instance courts, his lordship rejected the same argument at para 13:

“Whilst it is my duty to follow the decision of the Court of Appeal in Hong Kong even if it is in conflict with a decision of the English Court of Appeal, what I face with is more than just a conflict between the two decisions. As mentioned, there is a substantial number of local first instance decisions plus an endorsement by the Court of Appeal in Chu Kam Lun of the principle enunciated by the English Court of Appeal in Forward. The authority of Honour Finance is also weakened by its inconsistency with the House of Lords’ decision in Barclays Bank of Swaziland v Hahn [1989] 1 WLR 506. In these circumstances, I do not see any reason why I should not adopt the construction of O10 r 3(a)  laid down in Forward.”

39.  Furthermore, subsequent to Phillip Securities, the Court of Appeal in Bank of China clearly applied the “actual notice” test, instead of the “mere delivery” test expounded in Honour Finance. In that case, the plaintiff sent the writ to the defendant’s business address by registered post.  The defendant did not deny receipt of the letter at that address but sought to explain that she herself had not seen the writ.  Tang JA found her explanation unsatisfactory.  The court was therefore not satisfied that she did not have notice of the writ at the material time: paras 35-40.

40.  The Court of Appeal’s ruling was then set out in para 41:

“Since we are of the view that she had not shown that she had no notice of the writ at the material time, the judgment must on any view be regarded as regular.”

41.  It is plain from the above that the court applied the “actual notice” test in that case.  There, delivery of the writ was established.  If the “mere delivery” test had been the correct test, that fact alone would have been sufficient to dispose of the appeal.  It would not have been necessary for the court to consider at all whether the defendant had notice of the writ.

42.  Hence Bank of China is in conflict with Honour Finance.

43.  In light of the analysis undertaken in Phillip Securities and the ruling in Bank of China, I do not agree with Mr Chang’s submission that I am bound to follow Honour Finance.  

44.  In conclusion, the correct test is the “actual notice” test set out and adopted in Forward, Phillip Securities and Bank of China.  That is to say, service by registered post and by insertion through letter box took effect when the defendant had notice of the proceedings and not on mere delivery.

Did the defendant have actual notice of the writ?

45.  The burden is on a defendant to produce convincing and cogent evidence to show that he had no notice of the writ or proceedings before the judgment was entered.  How much evidence is required must depend on the circumstances of the particular case: Bank of China at para 34.

46.  Having reviewed the affirmation evidence, I am of the view that the defendant has discharged the burden. 

47.  First, the objective fact is that the defendant is the chairman of a Hong Kong listed company.  It is his evidence that he travels extensively and unless there is a special need, he does not return to Hong Kong.  And, more relevantly, he does not attend the company unless there is business which he needs to conduct there.  That helps to explain why he did not manage to see the mail enclosing the writ and sent to the Company Address in June 2019 in a timely manner.  This is a piece of evidence which the plaintiff would have no knowledge about and would not be in a position to comment or rebut.  What the defendant says is not inherently implausible.  It is also noteworthy that he appeared to be able to put down in detail his travel itinerary during the relevant months in 2019 in support of his allegation.

48.  Second, his allegation that he was not aware of the writ until Cheung opened the mail for him on 8 October 2019 is confirmed by Cheung herself.  She is the financial controller and company secretary of Core Economy.  She has no apparent connection with the dealings between the plaintiff and the defendant.  As such, her evidence should be given due weight.

49.  In her affirmation, Cheung gave a straightforward account of how she came to open the mails addressed to the defendant and sent to the Company Address.  As the company secretary, she is mainly responsible for secretarial works of the company, including drafting and issuing announcements, liaising with the directors on governance matters and preparing agenda for directors’ meetings.  When mail is received addressed to the defendant care of the Company Address, the mail would be left in the defendant’s office unopened.  If the defendant had not returned to the office for quite a long time, he would some time direct Cheung to open the accumulated mail and authorise her to see the content. 

50.  On 24 May 2019, Cheung noticed an envelope from Messrs TC Lau & Co addressed to the defendant.  As she noticed that Core Economy had no business connection with the law firm before, she informed the defendant forthwith via WeChat.  She was then directed by him to open the mail. 

51.  Then, on 8 October 2019, the defendant phoned her to discuss some business matters.  He requested her to open his mails.  It was only then that Cheung found out that the mails contained the writ and the judgment.

52.  As a matter of analysis, it is notable that on the one hand, Cheung took the initiative to alert the defendant of the law firm mail in May 2019 but on the other hand, she apparently did nothing about the mail coming from the same law firm which was received in the following month. There was no explanation in her affirmation as to why she did not immediately inform the defendant of the June mail.  In fact, she did not even say whether she was aware of the mail back in June in the first place.

53.  It is trite that in a setting aside application, the burden is squarely on the defendant to adduce evidence to show that he had no notice of the proceedings.  This is a matter about which the plaintiff would usually have no knowledge.  The court invariably has to look to the defendant himself to give a proper account with convincing details if details are called for in the light of the factual circumstances.

54.  The gap in Cheung’s evidence has initially given me pause about the veracity of the defendant’s allegation.  The whole crux of the matter turns on whether the defendant did or did not know about the mail enclosing the writ which was delivered to the Company Address in June 2019. Cheung could have been more forthcoming and explicit about the circumstances back then.

55.  On the other hand, Mr Chan stressed that Cheung is not the defendant’s personal secretary.  Cheung is the company secretary of the listed company.  She is a certified public accountant.  It seems clear from her affirmation that she is not tasked with the general responsibility of opening the defendant’s mail while he is away.  She has her own duties within the company.

56.  In the end, I consider that Mr Chan’s point is a valid one.  Cheung did make it clear in her affirmation that in general she would open the mails for the defendant at the latter’s request.  It seems tolerably clear from the overall factual context that it was not part of her general job duty to check the defendant’s mails from time to time.  In the circumstances, I am prepared to accept her evidence that she only opened the mail containing the writ on 8 October 2019 and that the defendant was made aware of it on the same day.

57.  Thirdly, Mr Chan made a further point in support of the above conclusion.  He submitted that it is inherently improbable that the defendant would have ignored the writ or allowed judgment to be entered if in fact he had notice of it.  Back in May 2019, when he received the demand letter, he immediately took steps to ask Wu to resolve the situation. That is supported by the contemporaneous WeChat messages.  There is therefore no good reason why he would just ignore the writ in June if he had notice of it. Instead, as soon as he found out about the writ and judgment on 8 October 2019, he approached his lawyers for advice. 

58.  I think it is a fair point, which is corroborated by documentary evidence.  It reinforces the conclusion that the defendant had actual notice only on 8 October 2019. In this regard, I note that the summons was taken out one month later, accompanied by the supporting affirmations.

59.  In sum, I am satisfied that the defendant has shown that he had no notice of the writ or the proceedings until 8 October 2019. That is after judgment was entered against him.  The judgment was therefore an irregular judgment.

60.  Mr Chang accepted that in these circumstances, the judgment should be set aside.  I would therefore uphold the master’s order.

Does the defence have a real prospect of success?

61.  Given my ruling, it is not necessary for me to consider the merits of the defence.  However, I would state that if I am wrong and the judgment was a regular one, I would still uphold the master’s decision as I am satisfied that the defence has a real prospect of success.  My brief reasons are as follows.

62.  The case primarily turns on the credibility of the parties.  The loan alleged by the plaintiff simply took the form of a cheque.  So far the plaintiff has not adduced any documentary evidence in support.  On the defendant’s case, the sum was paid by the plaintiff on behalf of Wu as a partial repayment of the debt owed by Wu to the defendant.  Similarly, there has been no contemporaneous documentary evidence in support of the allegation around the time of the transaction.  There were the WeChat messages exchanged in May 2019.  But I take note that the messages were sent after the defendant received the demand letter from the plaintiff’s solicitors.

63.  The outcome of the case is very much dependent on whose evidence is likely to be accepted and the factual disputes cannot really be resolved properly on affidavits alone.  In such a case, in determining whether the defendant has a real prospect of success, the proper question to ask is whether the defence “could well be established”: Hong Kong Civil Procedure 2021 at 13/9/14.  Here, I would answer the question with a “Yes”.

ORDERS

64.  In light of my conclusion in para 60 above, I order that the appeal be dismissed.

65.  I make the following costs order nisi. The defendant do have costs of the appeal.  The legal principles applicable in the present case are well-established and the factual issues involved are straightforward.  I would therefore grant a certificate for junior counsel only. The defendant has already lodged his statement of costs.  The plaintiff should within 14 days from the date of handing down lodge and serve his list of objections, if any, not exceeding two pages.  The costs will be summarily assessed on the papers after the deadline.