Hong Kong Mortgage Accouting Affairs Ltd v. Ng Chun Shing

DCCJ 2870/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.2870 OF 2015

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DECISION

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1.By summons filed 20 May 2016 (defendant’s summons)[1], defendant applied to set aside judgment entered by plaintiff in default of defence against him on 16 Dec 2015 (default judgment)and to discharge charging order nisi obtained by plaintiff on 22 Mar 2016 (charging order) against his beneficial interest in Flat E, 17/F, Block 1, Glorious Garden, No.45 Lung Mun Road, Tuen Mun (the property). While O.13 r.9 of Rules of District Court, Cap.336H (RDC) is cited for the application, the applicable rule should be O.19 r.9.

2.Acknowledging that the default judgment is a regular one, it is submitted that the application should be allowed because defendant has a meritorious defence to plaintiff’s claim.

Background

3.Plaintiff’s claim in statement of claim (SOC)[2] is for agreed consultation fee of $300,000 i.e. 20% of $1,500,00 loan (theagreed fee) payable by defendant pursuant to an agreement dated 9 June 2015 (the agreement) whereby plaintiff agreed to act as defendant’s consultant to refer him the most suitable loan-provider with the property as security thereof.

4.Defendant and his wife held the property as joint tenants[3] and the property is a flat within Home Ownership Scheme of the Hong Kong Housing Authority (HKHA), subject to s.17B of the Housing Ordinance, Cap.283 (HO).

Procedural history

5.According to court records, the writ of summons[4] indorsed with SOC was issued by Ng, Au Yeung & Partners (plaintiff’s solicitors) on plaintiff’s behalf on 24 Jun 2015 and served on defendant at the property by registered post on 25 Jun 2015.

6.On 6 Aug 2015, defendant applied for legal aid. On 10 Aug 2015,court registry received from him acknowledgment of service (AS). On 24 Aug 2015, plaintiff’s solicitors, by way of ordinary post served at the property, gave defendant prior notice of their intention to enter judgment.

7.On 23 Nov 2015, legal aid was refused to defendant. On 16 Dec 2015, the default judgment was entered for the agreed fee, interest and fixed costs[5]. Sealed copy of the default judgment was served by plaintiff’s solicitors by way of ordinary post on the defendant at the property on 17 Dec 2015[6].

8.On 21 Jan 2016, defendant applied again for legal aid. On 22 Mar 2016, the charging order was grantedon the basis of the default judgment[7]and it was served on defendant by ordinary post at the property on 31 Mar 2016.

9.On 6May 2016, legal aid was granted to defendant and S.H. Chan & Co. now acting for him (defendant’s solicitors) was assigned on 13 May 2016 to act for him.

10.On 20 May 2016, defendant’s summons was filed together with defendant’s affirmation of the same date in support (defendant’s affirmation)[8] thereof.

11.By order of Master S.P. YIP dated 27 May 2016[9], defendant’s summons and notice to show cause to the charging order were both adjourned to a date to be fixed for argument and leave was given to plaintiff to file and serve an affirmation in opposition by 17 June 2016.

12.On 26 Sept 2016, upon plaintiff being absent on inter-parte summons, plaintiff’s solicitors was allowed to cease to act for plaintiff by Master S.P. YIP.

13.On hearing of defendant’s summons before me, plaintiff, who was not represented, did not appear. Upon satisfied that it had notice of this hearing as defendant’s solicitors had served the hearing bundle, counsel’s skeleton submissions and list of authorities on it at its registered and business addresses[10], I decided to hear defendant’s summons in plaintiff’s absence.

Applicable principles

14.The applicable principles for setting aside a regular judgment are trite. They are set out in Premier Fashion Wears Ltd. and Another v Li Hing-chung and Another [1994] 1 HKLR 377, CA, 380, 382-3, cited in Hong Kong Civil Procedure 2016, Vol.1, para.13/9/12-15 at pp.244-245.

15.The court has a wide discretion under RDC. The first consideration is whether the defendant can show a defence on the merits. It is generally not sufficient for him merely to show an arguable defence. He must show a real prospect of success. He must satisfy the court that his case, and the evidence he has adduced in support of it, carries some degree of conviction. This requires a potentially credible affidavit demonstrating a real likelihood that he will succeed on facts. In so assessing, the court must form a provisional view of the probable outcome of the action.At the same time, all the relevant circumstances of the case must be considered, including the defendant’s conducts after the proceedings were served on him.

Defence submissions

16.Mr Lam appearing for defendant submitted that the draft defence exhibited to defendant’s affirmation[11] carries real prospect of success based on credible factual evidence of the defendant adduced in defendant’s affirmation.

17.In short, defendant said he was misled or deceived by one Mr Eric Wong of plaintiff (Wong)[12] into signing on the agreement[13] and two other documents[14] (the 3 documents) thinking that they were for his free personal financial analysis and nothing further. Handwritten words now appearing on them were, defendant said, added to the 3 documents without his knowledge or consent after his signing. He never agreed to engage plaintiff’s consultancy service and never reached any agreement with plaintiff[15].

18.Mr Lam emphasized that none from plaintiff, including Wong, had dared to come forward to deny on oath defendant’s serious allegations above. Indeed, plaintiff had not seen fit to file or serve any affirmation in opposition by 17 June 2016 or at all.

19.In addition, Mr Lam submitted that SOC does not disclose any valid consideration for the agreement. The agreed fee is also an unenforceable penalty. Hence, defendant has also defence at law which carries real prospect of success.

20.Regarding defendant’s conducts after the proceedings were served on him, Mr Lam stressed that defendant did not sit back doing nothing. According to paragraphs 6 to 8 of defendant’s affirmation[16], defendant had approached district councillor, voluntary lawyer of Free Legal Advice Scheme of the Duty Lawyer Service for advice, and, of course, applied legal aid.

21.On costs, Mr Lam submitted that costs of defendant’s summons, costs of and occasioned by entry of the default judgment and the charging order can suitably be made costs in the cause but that plaintiff should pay defendant’s costs of hearing before me as it ought to have conceded to defendant’s summons.

Analysis

Meritorious defence at law

22.Notwithstanding contrary evidence was not forthcoming from plaintiff at all, looking at the entirety of defendant’s affirmation in the context of such undisputed matters thereof,I still do not find defendant’s factual assertions therein credible. On my provisional view of the case, I do not find it likely that he would succeed on his factual version of events.

23.It must, I think, be pointed out that there is no suggestion in defendant’s affirmation that defendant does not read Chinese or the 3 documents. The printed simple Chinese words on the face of the 3 documents defendant admittedly signed plainly showed that they were not merely for free personal financial analysis as defendant claimed.

24.Looking at paragraphs 13, 14 and 17 of defendant’s affirmation[17], plaintiff was, defendant admitted, introduced to him for arranging mortgage facilities for the property. He was told to go to plaintiff’s office to deal with some financial matters in relation to the property. At the office, he did ask Wong about interest rate of a mortgage if granted and Wong reverted that it was about 5% per annum.

25.Were defendant really not interested in mortgage for the property for reasons of heavy financial pressures from various loans and lack of consent from his wife as he claimed[18], one imagines he needed not attend plaintiff’s office nor ask Wong about interest rate of such mortgage at such office.

26.And had Wong and others in plaintiffadded handwritten words to the 3 documents without defendant’s knowledge or consent as defendant claimed, one images plaintiff would not have on the same day given copies of the 3 documentsto defendant for his reference to enable him to discover the truth so soon[19].

27.Looking at SOC alone, I disagree with Mr Lam’s submission of failure of consideration. It was expressly pleaded at paragraph 4[20] that plaintiff had “observed and performed their duty in procuring for the defendant the said loan of HK$1,500,000 from a bank/licensed financial institution at the interest rate of 5.5% per annum” and, thus, valid consideration for the agreement had, I think, already been pleaded.

28.Lack of particulars, as submitted by Mr Lam, as to whether it was a bank or licensed financial institution which provided such loan and as to precise identity of such bank or financial institution (which matter defendant did not bother to raise in defendant’s affirmation and, if he really does, he could request for particulars in future) is, I think, neither here nor there for present purpose.

29.Equally, whether plaintiff did in fact manage to procure such loan of $1,500,000 within the short span of time as pleaded without, as emphasized by Mr Lam, consent from HKHA required under s.17B of HO, financial proof from defendant and/or consent from his wife is again, I think, neither here nor there for present purpose. Again, defendant did notsee fit to challenge in defendant’s affirmation plaintiff’s alleged performance of its duty to procure such loan due toabsence of any of these matters and, if he does take issue with it in future, he could demand strict proof at trial.

30.Nonetheless, I agree with Mr Lam’s submission that it is reasonably arguable that the agreed fee is an unenforceable penalty at law in the pleaded case of defendant’s alleged repudiation of the agreement relied upon by Plaintiff in SOC.

31.Looking at SOC in its entirety, it seems to me that plaintiff is not relying on successful referral or deemed successful referral as defined in clause 3 of the agreement[21] to make the agreed fee payable from defendant to it.

32.Rather, it is expressly pleaded and relied upon at paragraphs 6 to 10 of SOC[22] that defendant “failed and/or refused to observe and perform his duty under the agreement by evading from or failing to cooperate with the plaintiff in further processing the defendant’s drawdown of the approved loan amount which the defendant has applied for”, thus constituting wrongful repudiation of the agreement by plaintiff. And the agreement provides in its remark for the agreed fee to be payable as agreed amount of plaintiff’s loss and damage in such repudiation (the remark provision)[23].

33.Mr Lam has helpfully cited the 2 authorities of Honest Service Property Consultants Ltd v Tse Fuk Cheong, unreported, DCCJ No.452 of 2014, 13 May 2015 (para.88 to 96) and Vigor Mortgage Consultancy Ltd v Lee Kar Loh, unreported, HCSA No.26 of 2013, 14 May 2014 (para.17 to 21) to assist this court on legal principles for distinguishing penalty clause in consultancy cases.

34.Applying such principles here, there is, I think, reasonable prospect that the remark provision does not amount a genuine pre-estimate of plaintiff’s loss and damage but a payment imposed in terrorem. If so held unenforceable, plaintiff would in the ordinary course of events be left at law to prove its loss and damage (either loss of profit or wasted expenditure) but it has so far elected not to pray forloss and damage in SOC[24].

35.For the above reasons, though I do not find defendant’s factual assertions credible, I conclude that he enjoys defence at law which carries real prospect of success.

Unsatisfactory explanations for default

36.As for defendant’s explanations for his default in defendant’s affirmation, I do not find them entirely convincing or satisfactory for the following reasons.

37.To start with, the writ of summons has, I must point out, endorsements in Chinese which explains the prescribed time limits for filing AS and defence.

38.According to paragraph 7 of defendant’s affirmation[25], voluntary lawyer of Free Legal Advice Scheme of the Duty Lawyer Service did discover for defendant that time limit for filing AS and defence has expired. It really escaped me that the said lawyer did not see fit to warn him at the same time possible entry of default judgment if no defence is filed within prescribed time.

39.All in all, I do not believe that defendant was unaware of time limit for filing defence as he claimed. While he was not represented, he could, I think, file homemade defence in the same way he filed AS and wrote Chinese words on the AS.

40.Though defendant applied for legal aid, he ought to have fileddefence on his own after it was “refused” to him on 23 Nov 2015 (it was not the case as he claimed that processing of his application was delayed for as long as 9 months[26]).

41.As things happened, defendant let go the default judgment on 16 Dec 2015, by then he had as long as about 6 months to respond to plaintiff’s claim after service of proceedings on him. He applied for legal aid again in Jan 2016 and let go the charging order in March 2016 again. By the time defendant’s summons was filed, it was 5 months after the entry of the default judgment. At all material times, I cannot but conclude that he was fully aware of the proceedings.

Discretion exercised to set aside judgment

42.Nevertheless, granted that defendant had meritorious defence at law and there was no suggestion of possible prejudice to plaintiff if the default judgment were to be set aside, all things considered, I exercise my discretion under RDC to set aside the default judgment and to discharge the charging order.

Costs

43.All things considered, I also find it appropriate to exercise my discretion to order defendant to pay plaintiff’s costs of and occasioned by entry of the default Judgment and the charging order, both having been entered regularly due to his default.

44.As for costs of defendant’s summons and of the hearing before me, as defendant had emerged successful on the said summons not on his factual assertions in defendant’s affirmation but on a point of law first raised in his counsel’s skeleton submissions, I decide to make no order of costs for the same.

Disposition

45.Accordingly, the orders I make on defendant’s summons are as follows:

(1) the default judgment be set aside;

(2) leave be given to defendant to file defence within 14 days of the date of this order;

(3) the charging order be discharged;

(4) defendant do pay plaintiff’s costs of and occasioned by entry of the default judgment and the charging order in any event, the amount of such costs to be taxed if not agreed;

(5) there be no order of costs on defendant’s summons inclusive of hearing before me on 6 Oct 2016; and

(6) defendant’s own costs to be taxed in accordance with Legal Aid Regulations.

46.Finally, it remains for me to thank Mr Lam for his assistance.

The plaintiff was not represented and did not appear

Mr Allen LAM, instructed by S.H. Chan & Co., for the Defendant