XCHRX PIONEER RICH INVESTMENT LTD. v. SIU TUNG

No. A9534 of 1994

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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This Application

1. On 10 November 1994, I gave judgment against the defendant under Order 14. I now have before me a summons, issued by the defendant on 22 November 1994, asking for an order setting aside this judgment.

Background

2. On 24 September 1994, the plaintiff issued a writ of summons against the defendant in which it was alleged that the plaintiff was the owner of Flat 3 on the nineteenth floor in a building at 1 Harbour Road, Hong Kong (the premises). It is alleged that, on or about 1 April 1992, the plaintiff orally granted a licence to the defendant to use and occupy the premises for which the defendant gave no consideration, and, with effect from 20 September 1994, the plaintiff determined the licence, but the defendant wrongfully continued the use the premises. The plaintiff claimed a declaration that the defendant's right to use and occupy the premises had been determined and an injunction to restrain the defendant from using and occupying them. Damages were also claimed.

Regular Judgment?

3. In the first place, the defendant seeks to set aside the judgment on the basis that it was irregular. Mr Kenneth Chow argues that this is so for two reasons.

4. Firstly, he says that there should have been no judgment under Order 14 because the defendant did not acknowledge service and did not give any notice of an intention to contest the proceedings.

5. The defendant having given no notice of intention to defend the action, the plaintiff should not have applied for judgment under Order 14, and I should not have granted it under this provision. However, if the defendant was duly served, I had jurisdiction to grant default judgment against him. It matters nothing to anyone on what basis a party puts a case to the court for relief. If judgment is entered, the question is whether or not it was within the jurisdiction of the court to grant that judgment. Here, clearly, assuming proper service, I had jurisdiction to grant the relief sought.

6. Secondly, Mr Chow submits that the writ of summons was not properly served.

7. The writ was addressed to the defendant at the premises. An affirmation of service of the writ says that it was served on the defendant by pre-paid registered letter posted to the defendant at the premises, "being the last known address of the said Defendant", on 24 September 1994. The certificate of posting bears no address other than "Wanchai, HK". The affirmation says that the letter has not been returned, and that, in the opinion of the deponent, the writ would have come to the notice of the defendant within seven days of the posting of the writ.

8. In his affirmation in support of the relief claimed in this summons, the defendant says that he first became aware of the proceedings on 17 November 1994 when he was personally served with my order of 10 November 1994 at his offices at Exchange Square. He says he lived at the premises, but travels frequently on business and he never received the writ of summons. He does not mention the Order 14 summons. He says that a letter from the plaintiff's solicitors dated 16 June 1994 was addressed to him at Exchange Square and another writ of summons issued by the same solicitors on 10 June 1994 was addressed to the defendant at the premises, Exchange Square and an address in Quarry Bay.

9. Order 10, rule 1 provides that a writ may be served "by sending a copy of the writ by registered post to the defendant at his usual or last known address". Order 10, rule 4 provides that "Where a writ is indorsed with a claim for the recovery, or delivery of possession, of premises or land, in addition to, and not in substitution for any other mode of service, a copy of the writ shall be posted in a conspicuous place on or at the entrance to the premises or land recovery or possession of which is claimed".

10. The writ is this case is indorsed with a claim for a declaration that the defendant's right to use and occupy the premises has been determined and for an injunction to restrain the defendant from using or occupying the premises. If relief were granted in accordance with these claims, the effect would be, of course, that the defendant would be bound to deliver up possession of the premises. The court is concerned with substance, not form. In my view, the matter falls squarely within the provisions of Order 10, rule 4.

11. Was the address of the premises the defendant's "usual or last known address"? The writ was issued on 24 September 1994. A letter from the plaintiff's solicitors dated 16 June 1994 was addressed to the defendant at an address in Exchange Square and another writ of summons issued by the same solicitors on 10 June 1994 was addressed to the defendant at, firstly, an address in Quarry Bay, secondly, at the premises, and, thirdly, at Exchange Square. The defendant was personally served with my order of 10 November 1994 at his offices at Exchange Square. In view of the fact that I have found that there was no proper service under Order 10, rule 4, it is not necessary to make a finding on this aspect of the matter, but I will say that, when solicitors know of several addresses for a defendant and have used, in other communications with the defendant, an address different from that used on the writ, they do take the risk that a court may find that the address they have chosen, apparently at random, may not be the defendant's "usual or last known address".

12. The plaintiff having failed to effect proper service of the writ has obtained a judgment that is irregular. Whether one considers that, in these circumstances, the defendant has a right to have the judgment set aside or only a confident expectation that this should be done does not, in this case, matter. I take it that, even if the defendant has only a confident expectation, there must be some good reason, usually concerning his own conduct in the case, why this expectation should be frustrated, and I know of none in this case. Accordingly, on this ground alone, I would set aside the judgment.

The Merits

13. For the purposes of the next stage of my judgment, I will assume that the judgment was regular. If this were so, I take it that the defendant has to show that he has a defence that has "a real prospect of success. To do so he must satisfy the court that his case, and the evidence he has adduced in support of it, carries some degree of conviction." ". . . unless potentially credible evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success." per Godfrey, J.A., Premier Fashion Wears Ltd. v. Li Hing-chung and Another [1994] 1 HKLR 377, at 383, line 10.

The Defendant's Case

14. In his affirmation, the defendant says that the plaintiff was originally controlled by Mr Deng Liu Gen (Mr Deng), who was also the major shareholder and controlling individual behind a company called China Weal Limited (China Weal), which was the "actual beneficial owner behind" the plaintiff. The defendant says that he held one of the two issued shares in the plaintiff in trust for China Weal. The defendant says that Mr Deng had full authority to act for the plaintiff and China Weal. The defendant assisted Mr Deng, the plaintiff and China Weal in financing the purchase of the nineteenth and twentieth floors at 1 Harbour Road. In return, Mr Deng undertook on behalf of the plaintiff and China Weal that the defendant would be allowed to purchase the premises at cost, and, in the meantime, he would be allowed to reside at the premises free of rent or other payment.

15. Pursuant to this agreement, the defendant moved into the premises and has resided there since 1992 rent free. In about June or early July 1994, he discussed the matter with Mr Deng. Mr Deng told him his companies were facing financial difficulties so they negotiated a variation of the original terms of the agreement. Instead of purchasing the premises at cost, which would have worked out to about $6 million, the price would be $10 million and China Weal would pay a further sum of $5 million to the plaintiff. The plaintiff, acting through Mr Deng, and the defendant then entered into a written agreement dated 7 July 1994 reflecting these terms, and the plaintiff gave a receipt acknowledging the payment of $5 million. This receipt also recorded that the defendant would have the exclusive right to use and occupy the premises before completion. Later, Mr Deng provided the defendant with another document in which the plaintiff said that the cheque for $5 million had been provided by China Weal.

The Plaintiff's Case

16. The plaintiff's statement of claim alleges that "on or about 1st April 1992, the Plaintiff orally granted the Defendant a licence to use and occupy the Premises and the Defendant gave no consideration therefor", and this licence was determined as from 20 September 1994. The affirmation in support of the Order 14 summons alleges that, on or about 1 April 1992, Mr Deng "for and on behalf of the plaintiff" orally granted a licence to the defendant to use and occupy the premises without consideration.

17. The plaintiff filed an affidavit by Mr Clement Tang, a solicitor. He says that, in December 1993, he was instructed by a company called Topfast Development Limited (Topfast) in the acquisition of the entire issued share capital of the plaintiff. The plaintiff was the wholly owned subsidiary of China Weal and Mr Deng was its managing director. He drew up an agreement for the purchase of the shares by Topfast, with China Weal as the seller and the defendant and one other as the trustees of the shares in the plaintiff. All the parties, other than the defendant, signed the agreement on 18 December 1993. The defendant refused to sign the agreement and the share transfer. In July 1994, Mr Deng handed to him the share transfer signed by the defendant in favour of a director of China Weal. He was then able to complete the transaction, apparently, towards the end of July 1994. He was instructed that the matter was to be treated as settled on 18 December 1993. Accordingly, the agreement was said to have been made "as of" the 18 December 1993. When he learnt of the defendant's allegations, he spoke to Mr Deng who told him that the agreement "had fallen through due to the failure by Mr Siu to come up with the $5 million deposit".

18. The plaintiff has also filed an affirmation by Mr Wong Ying Kin, a director of the plaintiff. He does not deal with the substance of the defendant's allegations about his agreement with the plaintiff, saying that they are irrelevant or not sustainable at law. He tells about the defendant holding one share of the plaintiff in trust for China Weal. He also tells of the agreement "dated the 18th December 1993" in terms of which the plaintiff's shares were sold to Topfast. He says that the plaintiff was not aware of the dealings between Mr Deng and the defendant, but there is no record of a payment of $5 million from the defendant, China Weal or Mr Deng to the plaintiff. He says that the defendant's wrongful refusal to transfer his share led to the delay in completing the sale of the plaintiff's shares and the resignation of the directors. He alleges that "for all purposes and intents" they ceased to be directors and did not "hold out ostensibly as such" since 18 December 1993.

19. Further affirmations were filed by the defendant and Mr Wong Yin Kin late in the day. There is no need to refer to them here. They take the matter no further.

Assessment of the Merits of the Defendant's Case

20. The defence is primarily based on the written agreement entered into between the plaintiff and the defendant dated 7 July 1994. This agreement was entered into by Mr Deng Liu Gen on behalf of the plaintiff. There is no reason to doubt the authenticity, lawfulness or legal effect of this agreement, or the authority of Mr Deng to enter into it. Indeed, it is the plaintiff's own case that Mr Deng had authority from the plaintiff to grant a licence to the defendant to use and occupy the premises rent free. If he was in a position and had authority to do this, there is no reason to think, in the absence of other evidence, that he had no authority to act for the plaintiff in selling the premises for valuable consideration. No evidence has been adduced before me that seeks to deny that Mr Deng did what the defendant says he did. Indeed, the only "evidence" adduced by the plaintiff in this respect goes the other way. When Mr Clement Tang sought confirmation from Mr Deng about the agreement, he says Mr Deng who told him that the agreement "had fallen through due to the failure by Mr Siu to come up with the $5 million deposit". This, of course, if accepted, confirms what the defendant says about Mr Deng entering into the agreement, although Mr Deng seems to say, contrary to the effect of the written documents, that the defendant had the responsibility of paying the deposit. The defendant's case is supported by the unchallenged evidence that he was allowed to stay in the premises for a very long time, both before and after 7 July 1994.

21. It seems to me that there is little doubt that the defendant will be able to establish at a trial that Mr Deng entered into the agreement as alleged by the defendant.

22. The plaintiff, I suppose, will be seeking to show that Mr Deng had no authority to enter into the agreement because of the share agreement entered into "as at 18 December 1993". According to the minutes of the meeting of the directors of the plaintiff held on 29 July 1994 produced by the plaintiff, Mr Deng did not resign as a director of the plaintiff until that date, and it was on that date that the plaintiff authorised two directors to execute the agreement of sale of shares of the plaintiff. It appears from letters written by the plaintiff's solicitors that the plaintiff was aware that the defendant was in occupation of the premises. The plaintiff's solicitors wrote to the defendant on 16 September 1994 saying - "Whilst our client agrees that there were discussions with [the defendant] concerning the sale of [the premises], such discussion has not materialised into any [agreement] with you." There is no explanation why the plaintiff's solicitors said this when it seems that a simple enquiry of Mr Deng would have disclosed, as it did subsequently, that an agreement had materialised from the discussion.

23. The agreement between the plaintiff and the defendant was not registered in the Land Registry until 20 December 1994, but priority is not a factor in this case. The agreement "as at 18 December 1993" is not an agreement affecting land, and is not capable of registration in the Land Registry.

24. It is true that the agreement between the plaintiff and the defendant has not been implemented, but there is no evidence that either party has taken any action to terminate it, so it is still subsisting. In terms of the agreement, the first step, after payment of the first instalment which is acknowledged to have been paid, is to be taken by the plaintiff. There is no reason why the defendant should press for completion; he is enjoying the use and occupation of the premises without payment, other than in respect of management charges and other outgoings.

25. This is not to say that the defendant's case is without flaw. The provision in the agreement about China Weal paying the sum of $5 million is odd, but the machinations of businessmen in Hong Kong often appear strange to simpler folk. Mr Deng was in control of the plaintiff and China Weal, and it may be that he had some reason for wanting to move funds from China Weal to the plaintiff under this agreement. Mr Deng was acting for the plaintiff at the time, and it is for Mr Deng to explain this. I can hardly expect the defendant to produce evidence from Mr Deng about this when Mr Deng is on the other side of the fence.

26. On this analysis, I believe that the defendant has a real prospect of success in his case.

Conclusion

27. In the result, I find that the judgment should be set aside, and I so order. Leave is given for the defendant to file his defence to the plaintiff's claim within 14 days.

Costs

28. There seems no reason why the plaintiff should not pay the defendant's costs. I make an order nisi accordingly.

(J.K. FINDLAY)

Judge of the High Court