HEITKAMP & THUMANN KG v. OUMEISI LTD AND OTHERS

HCA 2006/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2006 OF 2016

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DECISION

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Introduction

1.  The plaintiff is a victim of an email fraud.  Consequently, the plaintiff issued proceedings in Hong Kong originally against the 1^st to 8^thdefendants on 1 August 2016 claiming relief by way of a generally indorsed Writ.

2.  By way of such generally indorsed Writ, the plaintiff, inter alia, sought that the defendants do account for sums received by them in the aggregated sum of US$4,200,000 (€3,760,000) or the Hong Kong dollar equivalent.

3.  Subsequently on 8 August 2016 pursuant to the order of Madam Justice B Chu dated 5 August 2016, the plaintiff amended the Writ to include the 9^th to 13^th defendants and to revise the sum claimed to US$4,160,000, (there was no amendment of the amount claimed in Euros).

4.  On 5 August 2016 Madam Justice B Chu also granted an injunction against the 9^th to 13^th defendants, which inter alia restrained them from dealing with or disposing of any of their individual assets that represented any part of the total sum of US$4,160,000 or the Hong Kong dollar equivalent.

5.  Such injunction order also required the 9^th to 13^th defendants to make disclosure of information.  Such injunction was continued by the order of Mr Justice Chung dated 12 August 2016 until judgment in this action or further order of the court.

6.  Following service of the Writ, the plaintiff obtained judgment in default of acknowledgement of service for the sum of US$4,160,000 or the Hong Kong dollar equivalent against, inter alia, the 9^th defendant on 22 September 2016.  The plaintiff then applied for a garnishee order against a bank that holds funds for and on behalf of the 9^th defendant and obtained an order nisi on 3 October 2016.

7.  By way of summons dated 16 November 2016 the 9^th defendant applied to set aside the default judgment.  Consequent upon that application the hearing of the garnishee order to show cause dated 3 October 2016 against the 9^th defendant scheduled for 18 November 2016 was vacated and adjourned sine die with liberty to restore.

8.  The 9^th defendant’s “setting aside” summons dated 16 November 2016 was listed for hearing and heard by Master Chow on 25 May 2017.  However, on 18 May 2017 the plaintiff took out a summons, which inter alia sought leave to amend the default judgment entered to reduce the amount of such judgment against the 9^th defendant to the sum of US$350,000 and further, that there be an interlocutory judgment against the 9^th defendant for damages to be assessed.

9.  At the hearing on 25 May 2017, Master Chow decided that:

(1) the default judgment given against the 9^th defendant was irregular and upon the fulfilment of a condition that the 9^th defendant pay into court the sum of US$350,000, such default judgment be set aside;

(2) the garnishee order nisi dated 3 October 2016 in respect of the 9^th defendant be discharged upon the setting aside of the default judgment; and

(3) the application for amendment of the judgment be dismissed.  

A costs order nisi in favour of the 9^th defendant was also made and directions were given for a 30 minute hearing to be fixed to address the court on how to effect the condition of payment into court given that there was an injunction order in place.

10.  By way of an amended notice of appeal, (amended on 27 July 2017 pursuant to leave granted by Mr Justice Chow by way of order dated 26 July 2017), the plaintiff seeks to overturn the orders made by Master Chow, the dismissal of the 9^th defendant’s “setting aside” summons dated 16 November 2016, and insofar as necessary an order for the amendment of the default judgment in terms of the plaintiff’s summons dated 18 May 2017, together with costs.

11.  Subsequent to the order by Master Chow, there was an ex parte hearing before Deputy Judge To on 26 May 2017 as a result of a difference of views between the parties as to the effectiveness of the injunction at that time.  The 9^th defendant took the view that the injunction had ceased to be effective upon the entry of the default judgment and that, notwithstanding the setting aside of the default judgment by Master Chow, it remained ineffective.  On the plaintiff’s ex parte application, Deputy Judge To ordered for the avoidance of doubt that the injunction order against the 9^th defendant dated 5 August 2016, as continued on 12 August 2016, remained effective until final judgment in this action or further order.

12.  The inter partes summons issued by the plaintiff dated 29 May 2017 was adjourned on 1 June 2017 by Madam Justice Mimmie Chan by consent with directions given, and is now listed for substantive hearing on 1 November 2017.  I am invited by the plaintiff to bring forward that hearing from 1 November 2017 and deal with it together with its appeal in order to save time and costs.  The plaintiff has issued a summons dated 18 August 2017 in this regard.  That summons is opposed by the 9^th defendant and Ms Athena Wong informed me in her oral submissions that the 9^th defendant wishes to file evidence in respect of such summons, (although I do note that no such evidence has yet been filed although there has been the opportunity for the 9^th defendant to do so).

Applications before the court

13.  Before the court are the plaintiff’s appeal seeking the relief described in paragraph 10 above, together insofar as necessary an application to amend the default judgment such that the 9^th defendant is required to pay US$350,000 or the Hong Kong dollar equivalent together with interest to the plaintiff and that there be an interlocutory judgment against the 9^th defendant for damages to be assessed.  Further, if the appeal is allowed, the plaintiff has sought a post injunction order in the terms set out in the plaintiff’s summons dated 18 August 2017.  Alternatively, if the appeal is dismissed, the plaintiff has requested in essence that the injunction granted by Madam Justice B Chu on 5 August 2016, continued by Mr Justice Chung on 12 August 2016 and Deputy Judge To on 26 May 2017, be continued.

Legal principles

14.  As set out at §58/1/2 of Hong Kong Civil Procedure 2017, an appeal from a Master to a Judge in Chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the Judge treats the matter as though it came before him for the first time.

15.  The substance of this appeal turns on a number of matters.  First, whether the default judgment is regular or irregular.  Second, if it is irregular as a consequence of the amount for which it has been entered being incorrect, whether the plaintiff has made an application in a manner so as to amend the default judgment such that it is amended to the proper sum.  Third, if the plaintiff has made such an application for amendment, in determining whether to allow the amendment should I give consideration to the merits of the defence.

16.  Taking the first matter, if the default judgment is regular, then I consider the merits of the defence need to be considered and the 9^th defendant needs to satisfy me that its defence has “a real prospect of success” in order for me to set aside the default judgment in its entirety.

17.  If the default judgment is irregular, however, then I consider I am bound to set it aside as of right and without considering the merits of the defence for the reasons set out below.

18.  Order 13, rule 9 of the Rules of the High Court provides that the court may, on such terms as it considers just, set aside or vary any judgment entered pursuant to a failure to give notice of intention to defend.

19.  The rationale for such discretionary power is to allow the court, in the situation where it has not ruled on the merits, to avoid the injustice that may be caused by allowing a judgment obtained in default to stand.

20.  The position in this case is similar to that in Connaught Real Estate LtdvPrimocargo Agency Ltd (unreported, DCCJ 935/2008).  In that case Her Honour Judge Mimmie Chan (as she then was) addressed the situation where a judgment had been entered against the defendant in default of notice of intention to defend being filed for too large a sum, as the plaintiff had failed to give credit for an amount of HK$71,440 that the plaintiff had paid to it.  Upon application by the defendant to set aside the default judgment, Her Honour Judge Mimmie Chan considered herself “bound by Po Kwong[1] and by the decision of Deputy Judge L Chan in the case of Kerry Freight (Hong Kong) LtdvDel Prado Asia Ltd[2005] 3 HKLRD 804, where the learned judge held that the court should set aside an irregular default judgment without considering the merits of the defence and drawing no distinction between cases where the irregularity was due to defective service of the writ and other examples of irregularity.”

21.  Paragraphs 6 to 9 of the decision of Deputy Judge L Chan (as he then was) in Kerry Freight set out below are particularly relevant:

“6. The law on setting aside an irregular judgment has been reviewed in detail by Cheung J (as he then was) in the unreported judgment of New China Hong Kong Finance Ltd v Shimada Ltd (unrep., HCA No 11030 of 1999) and by Deputy Judge J Poon in Cosec Nominees Ltd & Another v Lau Hon Ming [2001] 2 HKLRD 581.  I do not think I can make any further contribution to this jurisprudence by repeating the exercise.

7. Having gone through these two cases and the authorities analysed therein, I agree that I am bound by the Court of Appeal’s decision in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157.  I therefore should set aside the default judgment without considering the merit of the defence, but I have a wide discretion to impose terms upon setting aside the judgment having regard to the defendant’s conduct.

8. Mr Yeung, Counsel for the plaintiff, has in his written submissions asked me to consider that because the irregularity of the judgment had nothing to do with the mode of service of the writ, I could follow the approach of the English Court of Appeal in Faircharm Investment Ltd v Citibank International Plc [1998] Lloyd’s Rep Bank 127 and consider the merit of the defence. 

9. This approach was suggested by Cheung J (as he then was) in para.24 of his judgment in New China Hong Kong Finance Ltd v Shimada Ltd (unrep., HCA No 11030 of 1999) and echoed by Deputy Judge Lam (as he then was) in Philip Securities (HK) Ltd v Lam Chi Bin Stanley [2002] 1 HKC 432 at para.15.  I, however, find it difficult to follow this approach if I have to follow Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157.  The reason being that there does not appear to be any difference between the defendant in a case of anirregular judgment because of defective service and a defendant of an irregular judgment because of other irregularities.  The position of the defendant may be the same in the two types of cases.  Even though the writ has not been properly served when the default judgment was entered, the defendant in such a case would be aware of the existence of the writ as well as the cause of action when he applies to have the irregular judgment set aside.  If this defendant can have the judgment set aside without showinga meritorious defence, I think the same should apply to the defendant of a default judgment tainted with other types of irregularity.  I would thus follow Po Kwong Marble Factory Ltd v Wah Yee Decoration Ltd [1996] 4 HKC 157 and not apply the approach in Faircharm Investment Ltd v Citibank International Plc [1998] Lloyd’s Rep Bank 127.  I would set aside the default judgment without considering the merits of the defence, but I should also consider whether terms should be imposed.”

22.  I consider myself to be in a similar position to that of Deputy Judge L Chan (as he then was) in Kerry Freight and Her Honour Judge Mimmie Chan (as she then was) in Connaught Real Estate.  First, in that I find the default judgment obtained in this case to be irregular mindful that it has been entered for too large a sum.  Secondly, in that I consider I am obliged to set aside such default judgment without considering the merits of the defence in light of the irregularity.

23.  In such situations, however, the plaintiff can apply to amend the default judgment if entered for too large a sum.  This issue did not arise for consideration in Po Kwong or Kerry Freight as the matters of irregularity in those cases related to service.  Further, in Connaught Real Estate, counsel for the plaintiffs conceded in the course of the hearing that the default judgment could not be cured by amendment and therefore, notwithstanding that the plaintiffs had issued a summons to amend the judgment by deducting the amount of the payment that had been received, Her Honour Judge Mimmie Chan dismissed the plaintiffs’ summons to amend in light of the concession.

24.  In this case the plaintiff has applied to amend the default judgment and relied upon §13/1/3 and §13/9/7 of Hong Kong Civil Procedure 2017, as well as, inter alia, Luxworld LtdvETS Wolf SA & CIE (Asia) Ltd (unreported, DCCJ 2478/2007), Pollard Construction Co LtdvYung Yat Fan [1999] 3 HKC 109 and New China Hong Kong Finance LtdvShimada (unreported, HCA 11030/1999), to support its position that a plaintiff is at liberty to apply to reduce a default judgment entered for more than the amount actually due to the proper sum.  Indeed, it was rightly accepted by Ms Athena Wong on behalf of the 9^th defendant (in the written submissions filed on behalf of the 9^th defendant), that:

“ … an irregular judgment in default will be set aside as of right or ex debito justitiae, that is without consideration of the merits of the proposed offence, ‘subject to the right of the plaintiff, in a proper case, to apply to have the amount of the judgment reduced: Muir v Jenkins [1913] 2 K.B. 412.” … “[To] put it differently, the defendant is entitled to have the judgment set aside as of right unless the plaintiff obtains an amendment so as to reduce it to the proper sum: Muir v Jenkins (supra).”

25.  The plaintiff’s application to amend the default judgment to a proper sum is opposed by the 9^th defendant on the basis that no sum is due by it to the plaintiff.  If it were the case that the plaintiff was seeking simply to amend the default judgment from US$4,160,000 or the Hong Kong dollar equivalent to US$350,000 or the Hong Kong dollar equivalent, then in light of the decision of Mr Justice Cheung in Pollard Construction, where the learned Judge decided that “[i]n considering whether the irregular judgment should be set aside or simply amended, one should consider the merits of the defence” and further, the learned Judge’s decision in New China, I should consider the merits.  However, this is not the situation in this case, as the plaintiff is also seeking an interlocutory judgment against the 9^th defendant with damages to be assessed.

26.  Hence, the plaintiff seeks more by its application to amend than a simple correction of the sum sought to an amount that is proper based on all the evidence.

27.  In summary, therefore, I find that I am obliged to set aside the default judgment and decline the application to amend it without having to consider the merits of the arguments raised by the 9^th defendant in defence of the plaintiff’s claim that it is not liable for either US$4,160,000 or US$350,000, as it has a good defence to the entirety of the plaintiff’s claim.

28.  Having said that, if I had been obliged to consider such merits, I would have had to balance the points raised by the 9^th defendant regarding the alleged deficiencies in the indorsement on the Writ and the difficulties with the 9^th defendant’s defence and supporting materials as identified by the plaintiff.  In conducting such balancing exercise, the issue that I would have had to face would have been that the plaintiff’s pleaded case is restricted to a general indorsement on the Writ and its evidence against the 9^th defendant is understandably limited and mainly circumstantial as a consequence of it being a victim of a fraud.  In essence, the basis of the plaintiff’s claim is a restitutionary claim in money had and received, placing reliance upon “unjust enrichment”.  The 9^th defendant submits that it has shown a defence which has a real prospect of success, as no money was received by the 9^th defendant directly from the plaintiff; the 9^th defendant was not enriched by any of the money received as the money was received as part of its trading business; and there was little or no evidence indicating that the money received by the 9^th defendant was traceable to the proceeds from the plaintiff and no evidence indicating that the 9^th defendant has any knowledge of the fraud, if any, committed by the entity which received the plaintiff’s initial remittance based upon the email fraud, (which entity is not a party to this action).  The 9^th defendant submits that it is a bona fide purchaser in good faith or there was a change of position by it in good faith.  Further, the 9^th defendant places reliance upon the fact that the only arguments the plaintiff has against it are that certain parties, including the 1^st defendant and the 11^th defendant, remitted money to it, but the 9^th defendant asserts such remittances were legitimate transactions.

29.  Whilst serious questions were raised regarding the 9^th defendant’s defence in light of the evidence and documents produced by it, (and in this regard I note that Master Chow concluded that such defence is “full of holesand inconsistencies…many are shadowy and many lead to more questions”), on balance I consider that if I had to make a finding as to the merits of the 9^th defendant’s defence, in all the circumstances I would have considered that the 9^th defendant should be entitled to run its defence that the monies remitted to it were part of legitimate transactions.  Hence, I would have accepted that the 9^th defendant’s defence has a real prospect of success.

Other issues raised

30.  The plaintiff complains that no irregularity is alleged in the 9^th defendant’s summons seeking to set aside the default judgment.  The plaintiff’s primary position is therefore, that it should not be open to the 9^th defendant to argue that the default judgment is irregular with reliance being placed upon Order 2, rule 2(2) of the Rules of the High Court, (which point I understand was raised by Master Chow during the hearing before him), and §13/9/20 of Hong Kong Civil Procedure 2017.

31.  However, I accept the points raised by the 9^th defendant that it was well known to the plaintiff that the 9^th defendant would raise such challenge and so the plaintiff was not taken by surprise.  By the time the hearing before me the plaintiff’s knowledge as to the 9^th defendant’s position was greater and therefore, I accept that there was neither surprise nor prejudice.

32.  Mindful of the findings I have reached, I do not need to deal with the plaintiff’s request for an interlocutory default judgment for damages to be assessed and the related arguments, and I will not do so.

33.  I also do not need to rule specifically on the 9^th defendant’s complaint that the general indorsement on the Writ is defective for want of particulars under Order 6, rule 2 of the Rules of the High Court and hence, the default judgment is irregular.  Order 6, rule 2 requires “a concise statement of the nature of the claim made”.  As was held by Mr Justice Tang VP (as he then was) when giving reasons for the judgment of the Court of Appeal in Ting Siu Wing v Chan Kwok Bun (CACV 221/2011): “How much detail is required may vary from case to case.  What is important is that a defendant should know what is the claim against him.”

34.  I consider that is clear from all the evidence and arguments placed before me that the 9^th defendant was in no doubt of the case raised by the plaintiff against it and I would therefore, have found the same, if I had been obliged to do so.

Continuation of existing injunction if appeal dismissed

35.  The plaintiff has invited me to continue the existing injunction dated 5 August 2016 and continued on 12 August 2016 and 26 May 2017, if the appeal is dismissed.

36.  I accept, however, the 9^th defendant’s arguments regarding the purpose of this hearing.  Hence, I do not consider that I should deal with whether there should be a continuation of the injunction, but rather that should be substantively argued at the hearing currently listed for 1 November 2017.  However, for the avoidance of doubt, I note that the terms of the order of Deputy Judge To continue to apply such that the injunction order remains effective until final judgment in this action or further order and such terms are not affected by this judgment save to the extent set out below in respect of allowing the 9^th defendant to make payment of US$350,000 into court.

Post judgment injunction summons dated 18 August 2017

37.  With respect to such summons dated 18 August 2017, mindful that the appeal is not allowed, no order can be made under paragraph 1, as that is premised upon the appeal being allowed.

38.  Paragraph 2 of such summons seeks advancement of the substantive hearing of the plaintiff’s summons dated 29 May 2017, which I have not agreed to and so, no order is made under paragraph 2.

39.  Accordingly, such summons is dismissed.

Condition

40.  I now turn to consider if any condition should be imposed with respect to setting aside the default judgment.  I should have regard to the parties’ conduct when exercising my residual discretion under Order 13, rule 9 of the Rules of the High Court, as was recognised in a number of previous decisions including that by Deputy Judge J Poon in Cosec Nominees LtdvLau Hon Ming [2001] 2 HKLRD 581 and Deputy Judge L Chan (as he then was) in Kerry Freight as set out in paragraph 21 above.

41.  The manner in which the 9^th defendant responded to its receiving service of the court documents and the delay by it in addressing the same are matters that I must take into account.  The 9^th defendant has accepted that it received the court documents on 19 August 2016, 30 August 2016 and 14 October 2016, but that it did not on the first and second occasions take them seriously, but rather put them to one side.  That is said to be because of a lack of understanding of English by the director of the 9^th defendant.  However, on the third occasion and apparently with assistance of an English speaking person, legal advice was sought by the 9^th defendant from a Hong Kong solicitor and the seriousness of the matter was appreciated, whereupon Messrs David Ravenscoft & Co were instructed to represent the 9^th defendant.

42.  Whilst an apology is proffered to the court for the failure of the 9^th defendant to file a notice of intention to defend in a timely manner, I have regard to the fact that the penal notice indorsed on the injunction order of Madam Justice B Chu dated 5 August 2016 was in English and in Chinese, and the Notes for Guidance and warning notice that accompanied the Amended Writ were also in English and Chinese.

43.  Accordingly, I do not accept the explanation for delay given by the 9^th defendant and notwithstanding the matters set out above regarding the merits of the defence, in light of the 9^th defendant’s conduct, I consider that a condition should be imposed on the setting aside of the default judgment, namely being that the sum of US$350,000 shall be paid into court by the 9^th defendant in order that the default judgment be set aside and as a condition thereof.

Orders

44.  I hereby make the following orders.

45.  Upon US$350,000 being paid into court by the 9^th defendant, the default judgment be set aside.

46.  The injunction order of Madam Justice B Chu dated 5 August 2016, continued by Mr Justice Chung on 12 August 2016 and Deputy Judge To on 26 May 2017, be varied solely to allow the 9^th defendant to utilise its assets to make payment of US$350,000 into court.  As it remains open to the 9^th defendant to apply to vary/discharge the injunction order and mindful of the matters to be addressed at the hearing scheduled for 1 November 2017, I say no more regarding such injunction order.

47.  The appeal is dismissed.

48.  The application to amend the default judgment is dismissed.

49.  The garnishee order to show cause be discharged upon the setting aside of the default judgment.

50.  With respect to costs, mindful that the 9^th defendant has been successful in respect of all matters other than in relation to the condition imposed upon the setting aside of the default judgment, which issue occupied a limited amount of time only, I make an order nisi that the plaintiff is to pay to the 9^th defendant:

(a) 85% of the costs of the appeal;

(b) the costs of the 9^th defendant’s “setting aside” summons dated 16 November 2016 and the plaintiff’s summons to amend the default judgment dated 18 May 2017 as from 19 May 2017, mindful that, as Master Chow found, notice of reliance by the 9^th defendant on the grounds of irregularity were only made known in the written submissions of the 9^th defendant dated 19 May 2017; and

(c) the costs of the plaintiff’s “post judgment injunction” summons dated 18 August 2017,

all in any event to be taxed if not agreed with, in relation to the hearing before me, certificate for counsel.

51.  As to the garnishee proceedings, I consider that if the 9^th defendant had acted without delay, the garnishee proceedings would not have been launched by the plaintiff.  Hence, mindful the garnishee order to show cause shall be discharged upon the fulfilment of the applicable condition (namely, the setting aside of the default judgment upon US$350,000 being paid into court by the 9^th defendant), I make an order nisi that upon such discharge there be no order as to costs in respect of the garnishee proceedings as between the plaintiff and the 9^th defendant.

52.  It only remains for me to thank counsel for their helpful submissions and assistance, which I hereby do.