XCHRX PENROSE INDUSTRIES LTD. v. TAM YAN LUNG

HCA 5783/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5783 OF 2000

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REASONS FOR DECISION

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1. On 9 June 2000, the Plaintiff, Penrose Industries Limited, issued a writ of summons with a general endorsed Statement of Claim seeking damages against the Defendant for breach of his duties as a director in the sales of goods to two US companies, Bennini Inc. and Unlimited Channel Inc.

2. Service was effected on the Defendant's address in Shatin N.T. by inserting into the letter box in accordance with Order 10 rule 1(2)(b) of the Rules of the High Court. The Defendant did not file any Notice of Intention to defend and on 6 July 2000, the Plaintiff obtained an interlocutory judgment against the Defendant with damages to be assessed.

3. On 22 July 2000, the Plaintiff also obtained a Marvea Injunction Order against the Defendant to the extent of just over $12 million. Miss To, on behalf of the Plaintiff, however, at the commencing of the hearing, concedes that the Plaintiff will limit its claim, insofar as the injunction order is concerned, to a sum of US$161,000.00 which sum was said to belong to the Plaintiff and had been paid into the account of the Defendant or accounts under his control.

4. There had since been a number of applications by both parties. It may not be necessary to deal with those applications in details except to set out the matters that need to be resolved today namely:-

(1) the Defendant's application to set aside the interlocutory judgment;

(2) the continuation or otherwise of the Marvea Injunction Order;

(3) the Plaintiff's application to reduce the monthly living expenses that had been granted to the Defendant; and

(4) the Plaintiff's application for specific discovery of certain cheques.

5. Mr Yu, on behalf of the Defendant, is not really challenging the application for the specific discovery and the court need to deal with the first 3 matters only.

6. At the material time, the Defendant was one of the directors of the Plaintiff and was said to be responsible for receiving orders from customers, placing orders with manufacturers, arranging delivery of goods and collecting payments from customers.

7. It is the Plaintiff's case against the Defendant that he had deliberately allowed substantial quantity of goods to be supplied to the two US companies, Bennini Inc. and Unlimited Channel Inc. without ensuring prompt and proper payments by them, thus allowing the companies to be indebted to the Plaintiff in excess of $12 million.

8. When the Defendant was asked to chase Bennini and Unlimited Channel for settlement of the debts, he insisted that the other directors, Mr Chan Wa Sang and his wife, should transfer their shares in the Plaintiff to him unconditionally.

9. The Defendant, so the Plaintiff claimed, also asked Bennini not to deal with other directors of the Plaintiff and hence the Plaintiff was unable to collect the payment from its debtors.

10. In the meantime, the Defendant was withholding payments to the Plaintiff's suppliers and tried to put the blame on Mr Chan Wa Sang. He also, so the Plaintiff claimed, instructed other debtors of the Plaintiff not to settle the debts due to the Plaintiff without his consent. When the Defendant and the Plaintiff failed to resolve their disputes, the Defendant left Hong Kong for the United States and the Plaintiff was unable to locate him.

11. The Plaintiff also suggested that subsequent to his leaving Hong Kong and his disappearance, the Defendant tried to dispose of his property in Hong Kong.

12. It is also the Plaintiff's case that the Defendant had directed the Plaintiff's debtor namely, Bennini, to place a sum of US$120,000.00 into his own personal account, a sum of US$21,000.00 into the account of his sister-in-law, and then a further sum of US$20,000.00 into the account of a former employee of the Plaintiff, Miss Ng Mou King. Those payments were said to be done at the directions of the Defendant to the detriment of the Plaintiff.

13. The Defendant denied that he had acted in a manner detrimental to the Plaintiff's interest in dealing with Bennini and Unlimited Channel. Indeed he put the blame on Mr Chan Wa Sang and his wife.

14. The Defendant admitted having had the sums of money from Bennini paid into his account and those of his sister-in-law and Miss Ng Mau King. His suggestions was that the Plaintiff refused to pay one of his suppliers, Rich Bond. When Bennini refused to pay the Plaintiff, a compromise was reached whereby the Defendant made the payments to Rich Bond on behalf of Bennini. He claimed to have done it with the full knowledge of the Plaintiff.

15. The Defendant's contention was that when the writ was served, he was in the United States and not within the jurisdiction. There was no order for service out of jurisdiction and therefore he had not been properly served.

16. In the circumstances, the default judgment is an irregular judgment and should be set aside even without going into the merit of the case.

17. There was no dispute that the Defendant's family had immigrated to the United States some time in 1997. There was also no dispute that between 1997 and December 1999, the Defendant was working for the Plaintiff in Hong Kong and the Shatin premises were his usual and last known address in Hong Kong. Despite the company's regulations, the Defendant had not reported any change of his address from the Shatin premises which he was obliged to do should there be any change of address. Indeed, in the course of his employment with the Plaintiff, the Defendant had on an earlier occasion reported his change of address from another address to the Shatin address.

18. While it is true that the Defendant was not in Hong Kong at the time of service, there is no indication that the Plaintiff was aware of it until after the default judgment was granted. In my view, the Shatin's address could be properly described as the last known address of the Defendant in accordance with the decision in the cases of Guangdong International Trust and Investment Corp. (Hong Kong) Holding Limited and Hong Kong v. Yuet Wah Limited and another [1997] 2 HKC 696, and in the case of Law Kwok Hung v. Tse Bing Man and another [1999] 4 HKC p 397.

19. What is perhaps more important is that there is in my view clear evidence that the Defendant was aware of the proceedings that had been brought against him. He spoke to the lawyer for the Plaintiff on 20 June 2000 about the writ and he was told to consult his own lawyer. The Defendant himself admitted having spoken to the Plaintiff's lawyer on that date. He, however, denied knowledge or full knowledge of the nature of the proceedings.

20. Clearly, the only reason for the Defendant to call the Plaintiff's lawyer was because he was told about the proceedings. There could be no other reason for him to get in touch with the Plaintiff's lawyer. He might not be fully aware of the details of the proceedings or the Plaintiff's claim against him. But, in my view, it was not open to him to say that he had no knowledge at all of the proceedings.

21. On the evidence, I am persuaded that notice of the proceedings had been brought to the attention of the Defendant and once he had notice of such proceedings he could not complain about the service not being good service. If the Defendant chose to ignore it, it was not open to him to say that the service was bad as he was not within the jurisdiction at the time of service.

22. Miss Yu, on behalf of the Defendant, relied on the cases of Desirable International Fashions Limited v. Chiang Shi Chan [1997] 3 HKC 170, Wing Lung Bank v. Ho Man Lam [1993] 3 HKC 318 and Barclays Bank of Swazeland Ltd v. Hahn [1989] 1 WLR 506. These cases all deal with situations whereby the Defendant was in fact not aware of the proceedings until default judgment was granted. In my view, those cases do not assist the Defendant as he was, in my view, aware of the proceedings. After all, the purpose of service is to bring the proceedings to the notice of the parties to be served.

23. In my view, irrespective where the Defendant was at the time of the service, if he had actually acquired knowledge of the proceedings he should not be allowed to complain about the service not being regular and effective. In this respect, the judgment in the case of Chu Han Lun and Yap Lisa Susanto [1999] 3 HKC 378 is relevant.

24. I am not persuaded that the judgment in question is an irregular judgment.

25. This, of course, does not mean that it should not be set aside. The court still has a discretion and depending on the background and circumstances of the case, the court should consider how such a discretion ought to be exercised. After all, a default judgment means that the Defendant had not been given the chance to properly respond and had been deprived of the chance of his day in court, so to speak.

26. In that regard, I have carefully considered the background of this case including the endorsement of claim and the helpful submissions from counsel. I must confess that even at this stage the nature of the Plaintiff's claim against the Defendant, and the extent of such claim had not been properly and fully formulated. Particularly, it had not been pleaded as to how the alleged breach of the Defendant's duties as a director of the Plaintiff could have led to the amount of damages suffered by the Plaintiff in the sum of over $12 million.

27. Miss To, of course, has conceded that insofar the injunction order is concerned, the Plaintiff wishes to limit the amount frozen to US$161,000.00 but she still fails to properly explain to the court as to how the Defendant, even on the assumption that there was a breach of duty on his part, should be liable for the uncollected debts from the customers of the Plaintiff.

28. Whether the Plaintiff wishes to pursue against those debtors is, of course, a decision for the Plaintiff to decide. But on the material before this court, I am not persuaded that the Plaintiff has properly formulated its claims against the Defendant on those matters. In any event, there are, in my view, substantial disputes as to fact, which can only be properly resolved at the trial despite the observation by Miss To on the Defendant's case.

29. I am satisfied that justice of the case demands that the Defendant be given the chance to defend the matter after the Plaintiff's case is properly formulated. I am persuaded that the application to set aside the judgment should be granted and I shall make the order on the aforesaid basis.

30. In view of the injunction order which to some extent had accorded the Plaintiff's some degree of protection, there is, in my view, no need to impose any further condition.

31. If the Plaintiff's case is properly formulated and the issues more focused, it is of course open to the Plaintiff to seek summary judgment at the appropriate stage if the Plaintiff considers such step to be justified.

32. As far as the Plaintiff's application to vary the amount of the monthly allowance is concerned, despite the earlier dismissal by Gill DJ of a similar application by the Plaintiff on 15 February 2001, I feel that the issue is a live one and can be canvassed again in this application.

33. The Plaintiff said that there had been change of circumstances by the filing of the further affirmation by the Defendant on 15 March 2001. I have considered the entire background of this case including this latest affirmation. On the evidence, I am persuaded that the Defendant had not in fact properly and completely disclosed his assets. The suggestion that he was relying on loans from friends on the background of the case is not a convincing one.

34. The court must of course allow a Defendant who is subject to an injunction order a reasonable amount for the maintenance of himself and his family. On the other hand, the court must also take into consideration the interest of the Plaintiff. So far as this case is concerned, any monthly allowance to the Defendant would be a diminishment of the protection to the Plaintiff by the granting of the injunction order.

35. The undisputed fact of this case is that the Defendant had directed substantial sums of money belonging to the Plaintiff to be diverted into his own account and accounts under his control. The court have earlier come to the view that there had been insufficient disclosure of his assets.

36. In any event, on the Defendant's own case, he had sufficient and regular earning in America to maintain himself and his family there, which income is not subject to the injunction order granted.

37. In his application, I am just dealing with the monthly living allowance. I do not consider the granting or otherwise of the legal expenses should be a relevant consideration. Those matters, if the need arises, can be dealt with in a separate hearing.

38. In my view, in the light of the court's finding, there is no basis for the Defendant to be allowed any monthly allowance which, depending on how long this matter drags on, may have the effect of completely draining the only known asset of the Defendant within the jurisdiction and thus depriving the Plaintiff of any chance of recovering the debt or part of the debt if the Plaintiff is successful in its claim against the Defendant.

39. I am satisfied that the Defendant, in the light of background should not be allowed any monthly allowance from his asset which is the subject matter of the injunction order within the jurisdiction except perhaps a nominal sum.

40. As far as the continuation of injunction order is concerned, I do not see much difficulty with it and despite the effort by Mr Yue on behalf of Defendant, the Defendant had not really made out any case for the discharge of injunction order. There are clearly issues or serious questions to be tried. Indeed I am of the view that the Plaintiff's case against the Defendant, at least on the sum of the US$161,000.00 is an extremely strong one. In the light of the background of this case, including the Defendant's departure from Hong Kong, his attempt to liquidate his only asset in Hong Kong, the attempt to channel funds belonged to the Plaintiff into his own account and accounts under the control, clearly, the balance of convenience is in favour of the Plaintiff for a continuation of the injunction order. That being the case, I will make the following orders.

41. The interlocutory judgment dated 6 July 2000 to be set aside, the injunction order granted on 22 July 2000 with the subsequent amendment is to continue until trial or until further order with the following further amendments:

(1) the amount frozen is limited to the sum of or is reduced to a sum of HK$1.5 million;

(2) the allowance of HK$7,000.00 per month towards the Defendant's normal living expenses is reduced to a nominal sum of $100.00 per month;

42. On the application for specific discovery by the Plaintiff by the summons dated 3 May 2001 which summons is not really challenged by the Defendant, I will make an order in terms.

43. I shall hear the parties on the question of costs.