CENTRAL SOUTHWOOD LTD v. LEE KAI CHEUNG BENNY

HCA 3350/2016

[2018] HKCFI 40

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3350 OF 2016

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D E C I S I O N

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INTRODUCTION

1.  This is the defendant’s application to set aside default judgment entered in the plaintiff’s favour on 30 March 2017 and the charging order nisi granted on 19 April 2017.  If the default judgment would be set aside, the charging order should also be.

2.  The plaintiff commenced the present action on 20 December 2016, claiming against the defendant for an indemnity against the losses based on a Deed of Indemnity executed by the defendant in favour of the plaintiff on 11 March 2014 (the “Deed of Indemnity”).  According to the plaintiff, the Deed of Indemnity was executed in respect of a loan of RMB647,800 (the “Loan”) advanced by one Chen Meihua as lender (the “Lender”) to the defendant as borrower via a PRC Bank (the “Bank”) under a Chinese Personal Loan Agreement dated 11 March 2014 (the “Principal Loan Agreement”). Pursuant to the Principal Loan Agreement, the Lender, the Bank and the Defendant entered into a Chinese loan agreement (the “2^nd Loan Agreement”) on 13 March 2014 whereby the Loan was advanced by the Lender to the defendant through the Bank on 13 March 2014.

3.  There is no dispute that the defendant put his signature on the Principal Loan Agreement, the 2^nd Loan Agreement and a Receipt of the Loan (all in Chinese), and the Deed of Indemnity, in English.

DEFENDANT’S CASE

4.  By summons issued on 20 July 2017, the defendant applied to set aside the default judgment and the charging order nisi. In his supporting affirmation, he deposed in detail to the background.  Suffice to say here that in gist, the defendant had some history of borrowing from one Mr Kay of one Intell Finance and Mortgage Limited (“Intell”).  In around March 2014, Mr Kay told the defendant that he had already been indebted to Intell for about HK$300,000 and that the defendant had to further borrow to cover the old debt.  The defendant was asked to submit, as in the past, documents in relation to his personal details to Intell in its Mongkok office.  At the office, Mr Kay asked the defendant to go to Mainland China to sign certain documents for the further borrowing.  Specifically, the defendant was asked to go to CEB Bank in Shenzhen, that is, the Bank as defined above.  The defendant did so, and was received by a Ms Wu at the Bank.  Ms Wu asked the defendant to, and the defendant did, sign some documents, although the defendant did not know the contents given the shortness of time and the contents were not explained to him, not even the amount, and he was not advised to seek independent legal advice.  After all that, he went back to Intell in Mongkok and was given a cash cheque of about HK$200,000 odd.

REGULARITY OF THE DEFAULT JUDGMENT

5.  The defendant submits that the default judgment was irregular because:-

(1) The Loan was repaid for unknown reason, and the plaintiff was put on notice of it prior to obtaining default judgment.  Thus, the default judgment was entered for too large.

(2) Fraud was perpetrated by the plaintiff, Intell and/or the Lender jointly or individually to defraud the defendant.

(3) Claim should have been made by one Madam Yeung rather than the plaintiff, because it was Madam Yeung who paid the Lender.

6.  A default judgment is irregular if it fails to give credit to the undisputed payments: see Hong Kong Civil Procedure 2018 Vol 1 §13/9/7.  However, in the present case, the payments were disputed.  At this stage, I could only say that the dispute is arguable.  Thus, I am not satisfied that the default judgment is irregular for too much.

7.  For fraud, the claim is more that the defendant entered into the relevant loan agreements as a result of the fraud.  It is not much about any fraud to the Court causing the court to grant the default judgment.  Thus, I am not satisfied that the default judgment is irregular for fraud.

8.  Finally, there is dispute of the standing of the plaintiff.  The plaintiff alleges that Madam Yeung paid on its behalf.  This goes to the merits of the defence rather than regularity of the default judgment.  I am not satisfied that the default judgment is irregular for this reason.

9.  In the circumstances, I am not satisfied that the default judgment is irregular.  Thus, I shall consider the merits of the defence. 

MERITS OF THE DEFENCES

10.  In setting aside a regular judgment, the burden lies on the defendant to show real prospects of success of his defence. However, if the court cannot form any provisional view of the probable outcome of the action without a trial, the Court should set aside the default judgment: see El Vince Ltd v Wu Wen Sheng [2001] 3 HKLRD 445; Copytron (Hong Kong) Ltd v Lee Chin Leong [2007] 2 HKLRD 1. That said, I should still consider if setting aside would cause prejudice to the defendant.

11.  Mr Tsang, counsel for the plaintiff, also fairly draws my attention to a District Court decision Central Southwood Ltd v Yeung Mei Chun, unreported, DCCJ 398/2014, 15 November 2016.  In that case, DDJ J. Chow set aside a default judgment obtained by the very same plaintiff on the facts which bear some resemblance to the present case.  Be that as it may, I shall consider the evidence before me on its own.

12.  The defendant raises the following defences:-

(1) The Loan has been repaid.

(2) The plaintiff did not pay the Lender, but it was Madam Yeung.

(3) The loan was advanced as a result of fraud between the plaintiff, Intell and the Lender.

13.  I shall first deal with the first defence.  It is not in dispute that if the defendant had not borrowed money or had repaid the money as alleged, the plaintiff would not have any ground to seek the indemnity.

14.  The defendant deposed that he did not receive any money from the Lender or had repaid the sum to the Lender, referring to the fact, corroborated by the bank statement, that while the Lender advanced a sum of RMB647,800 to the defendant’s account on 13 March 2014, the next day, on 14 March 2014, a sum of RMB647,976.80 was transferred out of the defendant’s same account back to the lender’s same account with a remark of “early repayment”. 

15.  To this, the plaintiff alleged in the opposing affirmation that:-

“46… After discussing with the Lender, I would explain as follows:-

(a) The Loan was advanced by the Lender through the Bank on 13^th March 2014, on which the Principal Loan Agreement and the 2^nd Loan Agreement were signed, and not on 14^th March 2014 as the Defendant suggested.

(b) A sum of RMB647,800 was transferred from the Lender’s account No.78210051000523272 with Bank (“the Lender Bank Account”) to the Defendant account No. 6226620408829976 with the Bank (“the Defendant’s Account”) on 13^th March 2014. Such sum represented the proceeds of the Loan.

(c) On 14^th March 2014 the same amount was transferred from the Defendant’s Account to the Lender’s Account at the Defendant’s request because the Defendant wanted to receive the proceeds of the Loan in Hong Kong dollar in Hong Kong. The Lender arranged for a money changer to remit the same to Hong Kong by paying the same to a money changer in Shenzhen and for a sum of Hong Kong dollars, which was equivalent to the sum of RMB647,800, to be paid to the Defendant in Hong Kong.

(d) Due to the change of the Bank’s automatic deduction system for payment of personal income tax, early repayment of the Loan had to be made to the Defendant Account. On 14^th March 2014, an amount of RMB647,800 was transferred from the Lender’s Account to the Defendant’s Account for the purpose of such early repayment.

(e) Although, according to the Bank’s record, there was an early repayment of the Loan, the Defendant had in fact not repaid the Loan to the Lender and still owed the Loan to the Lender on 14^th March 2014 because the fund transferred to the Defendant Account was from the Lender Account and not the Defendant’s own money.

47. The matters mentioned in paragraphs 46(d) and (e) above is supported by a confirmation issued by the Bank, a copy of which is produced and shown to me marked “YSY-12”.

48. Being separate legal and commercial entities, as Plaintiff, I am unclear as to the further details of these transactions…”

16.  While the plaintiff said that the Lender withdrew back the money because the defendant requested remittance to Hong Kong direct, however there is no documentary evidence in support.  Further, the plaintiff adduced “YSY-12” being a letter of 17 August 2017 purportedly issued by the Bank to explain that the so-called “early repayment” on 14 March 2014 was made by the Lender to the defendant’s account for some tax reason. Having read the letter closely, I still do not understand why the tax matter would give rise to the “early repayment”.

17.  Added to that is of course the whole explanation is only hearsay evidence of the plaintiff from the Lender.  As the plaintiff admitted in paragraph 48 of its opposing affirmation, he was not clear as to the further details of these transactions, which are confusing.

18.  It remains for me to add that the plaintiff adduced a loan receipt dated 31 March 2014 showing that the defendant acknowledged by signing that he had received the loan from the Bank on 13 March 2014. However, I do not find it inconsistent with the fact that the money was repaid shortly thereafter.

19.  On the one hand, from the plaintiff’s evidence, I can only say that if its evidence would be believed at trial, then the defence that the Loan has been repaid could not stand.  On the other hand, if the defendant’s evidence is accepted, the defendant would establish its defence.  However, at this stage, without any trial, given the conflicting evidence above, coupled with the fact that the plaintiff’s evidence is confusing and hearsay evidence only, I cannot form any provisional view as to the probable outcome of the claim and the defence.  Thus, on this ground alone, I am satisfied that I should set aside the default judgment.

20.  Lastly, as a footnote, when the Lender demanded the plaintiff as indemnifior to pay the Lender, the plaintiff did not even check and ask if the defendant really had failed to repay.  Nor was there any attempt to confirm with the defendant whether he had repaid.   I must say that the plaintiff paid the Lender at its own risk.

PREJUDICE

21.  The plaintiff commenced the present action only in December 2016, and obtained the default judgment only in March 2017.  I cannot see any real prejudice as a result of the setting aside, given that the plaintiff obtained the default judgment not long ago.

22.  In reaching this conclusion, I have not overlooked the fact that the plaintiff in fact commenced actions promptly in 2014.  It even went so far as having obtained default judgment both in the District Court and the Court of First Instance of the High Court in August 2014 and October 2014 respectively.  However, they were set aside in July 2015 on irregularity.   In my judgment, any delay was due to its (or its legal adviser’s) own mistake, and thus I give little weight to the prejudice, if any, caused by the delay arising from the setting aside.

CONCLUSION

23.  In the circumstances, I am satisfied that the default judgment and the charging order nisi should be set aside.  As I have arrived at this conclusion, I should refrain from expressing my view on other defences.

24.  Therefore, I order that:-

(1) The default judgment dated 30 March 2017 and the charging order nisi dated 19 April 2017 be set aside.

(2) Leave be granted to the defendant to file and serve his Defence and Counterclaim if any within 28 days from today.

25.  I order that the defendant do pay the plaintiff costs of this application, with certificate for one counsel, summarily assessed to be HK$70,000; and the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.