Tang Lai Ngor v. Tseng Anne Formerly Known As Tseng Heng Tzu

DCCJ 2061/ 2018

[2019] HKDC 469

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 2061 OF 2018

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DECISION

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Introduction

1.The failure of Ms Tseng to file and serve her defence within the prescribed time gave rise to two applications calling for my determination. First, by summons dated 8 October 2018 (“the Default Judgment Summons”), Ms Tang applies for default judgment and then by summons taken out two days later (“the Retrospective Leave Summons”), Ms Tseng applies for retrospective leave to file her defence out of time. Ms Tseng filed and served her purported defence (“the Defence”) without leave on 28 September 2018, two days after it was due on 26 September 2018.

2.Both Ms Tsau, for Ms Tang, and Ms Liao, for Ms Tseng, agree that in line with the authorities[1], I should deal with the Retrospective Leave Summons first. Before doing so, I should mention the state of evidence before me.

3.To support the Default Judgment Summons, CLY Lawyers, acting for Ms Tang, filed two affirmations by their staff to prove service of various legal documents relating to the application. On the other hand, Ms Tseng did not file any affirmation in support of the Retrospective Leave Summons when it was taken out.

4.When the two Summonses first heard by a master on 24 October 2018, in addition to the adjournment of the substantive hearing of the two Summonses to this court, the master made an order (“the Order”) and gave Ms Tseng leave to file and serve an affirmation regarding the two Summonses within 21 days and leave for Ms Tang to file and serve an affirmation in reply, if any, regarding the Retrospective Leave Summons only. No further affirmation without leave is allowed under the Order.

5.I should point out that it is only trite that in relation to the Default Judgment Summons, no evidence should be received[2]. I note the disagreement of Ms Liao based on the decision of DHCJ Marlene Ng (as she then was) in Lung Ka Kuen v Chu Chun Yuk Alias Chu Chun Yuk Margaret and Anor., unreported, HCA 2832/2015, 24.10.2016 in this regard and for the reasons given below, I do not need to deal with her arguments. In respect of the Retrospective Leave Summons, Ms Tseng being the applicant should have the last word on evidence.

6.Pursuant to the Order, Ms Tseng filed two affirmations both dated 14 November 2018. Ms Tseng made an affirmation herself to oppose the Default Judgment Summons (curiously enough not to support the Retrospective Leave Summons) and there she set out her purported defence. On the other hand, Ms Vivian Tang of Messrs Ho & Associates, her solicitors, made an affirmation to explain the 2-day delay. In my view, both affirmations should be regarded as the supporting affirmations in support of the Retrospective Leave Summons. Ms Tsau does not take issue with this anyway. I shall consider all the affirmations for the purpose of the Retrospective Leave Summons.

7.Ms Tsoi of Messrs CLY Lawyers filed an affirmation in reply dated 4 December 2018 (“the Reply Affirmation”). Ms Tang has not filed any affirmation herself to rebut the allegations of Ms Tseng.

The Retrospective Leave Summons

8.The applicable legal principles are not in dispute. The two conflicting principles identified in The Decurion [2012] 1 HKLRD 1063 are at play. First, the procedural rules are to be observed and the default by a party may result in the entry of judgment against it. Second, a party should not be deprived of an adjudication on the merits due to a procedural default unless there is prejudice to the other party which cannot be compensated by costs. Neither of these principles is overriding.

9.When the defence is at least arguable, the court should treat it as an important factor in the balance when considering whether or not to exercise its discretion to grant the extension of time sought: California Insurance Company Ltd and Ors. v Choung Suk Wah and Ors., unreported, HCA 172/2002, 19.9.2002, §§44-48 per DHCJ A Cheung (as he then was).

10.I start with the explanation for the 2-day delay given by Ms Vivian Tang. She frankly admitted in her affirmation that it was due to her erroneous calculation of the due date of the defence. She mistakenly thought that the summer vacation referred to in O.3 r.3, Rules of the High Court would be applicable to civil proceedings in the District Court and time did not run in August without knowing that there is no corresponding provision in the Rules of the District Court.

11.I accept the submission of Ms Tsau that Ms Vivian Tang, given her legal experience and the Notice of Intention to Enter Judgment served on Ms Tseng on 12 September 2018, should have found out the correct position and avoided the default.

12.However, I am convinced that it was a genuine mistake and the delay is only minimal. I fail to see how Ms Tang was prejudiced by the two-day delay in the scheme of things. I cannot accept that it was a delaying tactics on the part of Ms Tseng to file her defence two days late. The risk and the costs are far too high for her to take such a course and the default could serve no tactical purpose.

13.I now turn to assess the merits of the Defence. In light of my foregoing observations about the 2-day delay, an arguable defence would suffice to entitle Ms Tseng to retrospective leave to file the Defence.

14.The bone of contention in these proceedings is the beneficial ownership of the 315,000 shares (“the Relevant Shares”) of Fu Ren Financial Services Limited (“the Company”) now registered in the name of Ms Tseng. Ms Tang claims that Ms Tseng holds the Relevant Shares on trust for her and, among other matters, seeks a declaration to this effect.

15.Ms Tang’s pleaded case can be outlined as follows.

16.The Company is locally incorporated and Ms Tseng is its founder. It has 5,000,000 issued shares and Ms Tang subscribed 250,000 of them in consideration of HK$250,000. On 29 November 2009, Ms Tang further acquired 65,000 shares of the Company from another shareholder and thus held the Relevant Shares.

17.On the other hand, from 2007 to August 2010, Ms Tseng held 1,300,000 shares. Ms Tang and Ms Tseng are not related and their relationship is of a business nature. 

18.In September 2010, Ms Tseng represented to Ms Tang that in order to enhance the appeal of Ms Tseng to the potential clients of the Company as its majority shareholder, Ms Tang should transfer to her the Relevant Shares and she would hold them on trust for her. She explained that this arrangement would benefit the Company and its shareholders including Ms Tang.

19.Ms Tang agreed to this arrangement and a trust agreement was signed on 21 September 2010 (“the Trust Agreement”). The Trust Agreement provided that Ms Tseng should merely hold the legal title of the Relevant Shares whereas Ms Tang should have equitable rights over the Relevant Shares.       

20.On 24 September 2010, solely for the purpose of effecting the transfer of the legal title of the Relevant Shares (“the Transfer”), the Bought and Sold notes relating to the Relevant Shares were duly signed by Ms Tang as vendor and Ms Tseng as purchaser. Pursuant to the understanding of the parties, no consideration was given by Ms Tseng for the Transfer.

21.There are other allegations made against Ms Tseng concerning her fiduciary duties allegedly owed to Ms Tang as her trustee. They are premised upon the alleged equitable interest of Ms Tang in the Relevant Shares. The central issue remains to be the existence of the alleged trust relationship.

22.In her 3-page Defence, Ms Tseng has another story to tell. She first pointed out that on 20 September 2010, Ms Tseng entered into a Sale and Purchase Agreement (“the SPA”) with Ms Tang. By the SPA, Ms Tseng agreed to purchase the Relevant Shares from Ms Tang in consideration of HK$20,000 (“the Consideration”).

23.Pursuant to the SPA, the parties executed the Bought and Sold notes to effect the Transfer on 24 September 2010.

24.On or around 7 November 2010, the former solicitors of Ms Tseng sent a cheque in the sum of HK$20,000 (‘the Cheque”) to Ms Tang to pay the Consideration.

25.In May 2012, Ms Tseng found out that the Cheque had never been presented. Therefore, on or about 17 May 2012, her former solicitors deposited a sum of HK$20,000 into the bank account of Ms Tang with Hang Seng bank (“the Deposit”).

26.On or about 1 June 2012, the former solicitors of Ms Tseng received a cheque of HK$20,000 (‘the Refund Cheque”) from the former solicitors of Ms Tang with a covering letter. In the covering letter, an allegation that Ms Tseng held the Relevant Shares on trust for Ms Tang was made.

27.It is remarkable that in the Defence, Ms Tseng dealt with the Trust Agreement, which is undoubtedly cogent evidence of the beneficial ownership of the Relevant shares, only by way of a simple denial of its very existence.

28.I should add that in the statement of claim, Ms Tang also mentioned the Cheque, the Deposit and the Refund Cheque.

29.In her 2-page affirmation consisting of 8 short paragraphs, Ms Tseng repeated her denial of the existence of the Trust Agreement and asserted that she has a bone fide and meritorious defence.

30.She also referred to a witness statement filed by Ms Tang dated 19 March 2012 with the Labour Tribunal in support of her claim against the Company for, among other things, arrears of wages under LBTC 1001/2002 (“the Witness Statement”). There, she described herself as Human Resources Director and Acting General Manager with a monthly salary of HK$40,000.

31.In the Witness Statement, Ms Tang demanded the return of the Relevant Shares. She explained that by the end of 2010, the shareholding of Ms Tseng in the Company was increased from 26% to 48.6% by her acquisition of shares sold by other members or transferred by other members to her to hold the same for them temporarily. Ms Tang wished to increase her shareholding in order to facilitate her solicitation of business opportunities for the Company. She alleged that the considerations of such transfer were paid by an account of an overseas company having a similar business name. It is noteworthy that she alleged that after the Transfer, she repeatedly demanded Ms Tseng to sign a trust agreement but Ms Tseng kept delaying.

32.I have studied the Annual Return of the Company dated 6 June 2018 and the Trust Agreement.

33.As mentioned, Ms Tang merely relies on the Reply Affirmation to oppose the Retrospective Leave Summons. There, Ms Tsoi merely stated that the Trust Agreement was executed by Ms Tang and Ms Tseng before a witness on 21^st September 2010. However, the execution was well before the retainer and she did not explain how she acquired the knowledge of the execution of the Trust Agreement apart from reading the document herself.

34.Ms Tsoi further averred that the Trust Agreement had been in the safe custody of her firm since August 2018. 

35.The bulk of her affirmation focuses on the conduct of Ms Tseng and her legal advisers in these proceedings. It sheds little light on the main controversy between the parties and has little evidential value.

36.Before making my assessment of the merits of the Defence, I should express my dissatisfaction with the quality of the evidence filed by both parties. There are a lot of gaps to be filled and certain relevant documents such as the SPA and the Bought and Sold notes are not even produced.

37.For the following reasons, I conclude that Ms Tseng has at least an arguable defence that the Transfer was made pursuant to the SPA rather than the Trust Agreement. In other words, Ms Tseng does not hold the Relevant Shares on trust for Ms Tang as alleged.

(1) Alarmingly, Ms Tang has said nothing about the SPA and the Consideration. She does not deny the existence of the SPA. For the Transfer, the SPA should not be an essential document. If it did exist, an explanation should be given by Ms Tang.

(2) I have no idea why it was only after about seven weeks from the date of the SPA that the Cheque was sent to Ms Tang’s former solicitors to settle the Consideration. I am equally perplexed by the fact that Ms Tang’s former solicitors did nothing to return the Cheque and clearly state the true position to Ms Tseng by way of correspondence.

(3) Ms Tang’s assertion in the Witness Statement does cause me some concern about the authenticity of the Trust Agreement. If the Trust Agreement was executed in September 2010 round about the same time when the Transfer was made, there is no reason why Ms Tang complained about the purported delay of Ms Tseng in executing a trust agreement concerning the Relevant Shares in 2012. This inconsistency cries out for an explanation and the silence of Ms Tang is deafening.

(4) The purported reason given by Ms Tseng to Ms Tang for the Transfer is unconvincing. I cannot readily believe that Ms Tang would be persuaded by such a reason to part with the Relevant Shares, which she had paid a substantial amount to acquire.

38.I am unable to accept the submission of Ms Tsau that the Consideration is incredibly small taking into account the price that Ms Tang paid for the acquisition of the Relevant Shares at the outset. Contrary evidence to challenge the Consideration should be adduced by Ms Tang but she just failed to say a word about it. I, thus, am not in a position to come to the conclusion advocated by Ms Tsau.

39.It is not desirable for me to delve further into the respective cases of the parties once I have come to the conclusion that the Defence is at least arguable and the claim of Ms Tang is questionable. I am aware of all other allegations and criticisms about the conduct of Ms Tseng and her legal advisers, both former and current, but they could not in any way alter my view on the merits of both the claim of Ms Tang and the Defence.

40.Coupled with the fact that the delay is minimal and insignificant, I would exercise my discretion to grant Ms Tseng retrospective leave to file the Defence. Overall justice demands a proper adjudication of the dispute between the parties.

The Default Judgment Summons

41.In light of my foregoing conclusion on the Retrospective Leave Summons, the Default Judgment Summons must fall away. I need not express my view on Ms Liao’s submission that evidence should be received for the purpose of the Default Judgment Summons. 

Conclusions and Dispositions

42.For the reasons given, I allow the Retrospective Leave Summons and grant the retrospective leave sought whereas the Default Judgment Summons should be dismissed.

43.Ms Tang was, in my view, perfectly entitled to take out the Default Judgment Summons despite the filing of the Defence without leave. However, after the completion of the filing of evidence, the parties should have taken a realistic approach to this matter with a view to an expeditious determination of their core dispute. With a modicum of common sense and good judgment, this hearing might well have been avoided. Argy-bargies in correspondence proved to be counter-productive and incurred unnecessary costs. This must be discouraged.    

44.In the circumstances, I make an order nisi that Ms Tseng should forthwith pay Ms Tang her costs of the Default Judgment Summons and the Retrospective Leave Summons up to 18 December 2018 (2 weeks after the filing of the Reply Affirmation) including all the reserved costs before the master with certificate for counsel, to be taxed if not agreed. Thereafter, each party do bear her own costs of both Summonses.

45.It remains for me to thank both Ms Tsau and Ms Liao for their helpful submissions.

Ms Margaret Tsau, instructed by Messrs CLY Lawyers, for the plaintiff

Ms Tara Liao, instructed by Messrs Ho & Associates, for the defendant