Taiping Securities (HK) Co Ltd v. Mystery Idea Ltd and Others

HCA 1334/2019

[2021] HKCFI 2362

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1334 OF 2019

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Before:  Hon K Yeung J in Chambers

Date of Hearing: 28 July 2021

Date of Decision:  13 August 2021

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DECISION

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Matters before the court

1.There are two matters before this court:

(a)  the appeal(“Appeal”) of the 2^nd defendant (“D2”) against the order and consequential directions made by Mr Registrar S Kwang on 8 January 2021 (the “Dispensation Order”) dispensing with the re‑service of the Writ of Summons dated 24 July 2019 (“Writ”);

(b)  the summons dated 25 June 2021 (“Summons”) taken out by the plaintiff (“P”) for inter alia:

(i)   leave to adduce further evidence in opposition of the Appeal; and

(ii)  if the Appeal is allowed, certain further orders and directions (the “Further Orders and Directions”), that:

(1)    leave to extend the validity of the Writ;

(2)    leave to issue a Concurrent Writ and to serve the same out of jurisdiction;

(3)    the service or re‑service of the Writ and Concurrent Writ to be dispensed with.

2.Ms Jasmine Cheung appeared for D2.  Mr Maurellet SC leading Ms Ellen Pang appeared for P.

Whether leave to rely on the additional evidence

3.I deal first with two preliminary matters.  The first one is whether leave should be given to P to rely on the further evidence in opposition of the Appeal.

4.The additional evidence which P seeks to adduce is the Affirmation of Xie Kaicong dated 25 June 2021 (“Xie” and “Xie/Aff”) and its exhibits.  Xie/Aff is also filed in support of the Summons (for which P does not need leave).

5.In Xie/Aff, Xie sets out the background of the case, the nature of P’s claim against D2, the underlying agreements and their alleged breaches, the developments after issuance of the Writ, steps which P has undertaken to effect service of the same, and the facts in support of the reasons why the Further Orders and Directions should be granted.

6.I have considered Order 58 rule 1(5).  I have also considered the rule in Ladd v Marshall [1954] 1 WLR 1489.

7.In respect of Xie/Aff and its contents:

(a)  The events set out in Xie/Aff took place mostly before the Dispensation Order.  It is however parties’ common ground that the Dispensation Order was made by the learned Registrar on his own initiative.  That common ground is confirmed by the transcript of the hearing before the learned Registrar.  Parties were there to deal with a default judgment which P had obtained against D2, which was to be set aside by consent.  It was not contemplated that evidence of the nature and in the form of Xie/Aff would be required during that hearing. In that sense, I am satisfied that the evidence could not have been complied and anticipated with reasonable diligence for that hearing;

(b)  I am satisfied that the proposed evidence has an important influence on the result of the case; and

(c)  I am satisfied that the contents of Xie/Aff are apparently credible.

8.For the above reasons, I at the beginning of the hearing granted P leave to adduce Xie/Aff in opposition of the Appeal.

Whether the Summons should be entertained

9.The Notice of Appeal was taken out on 22 January 2021, with 2 hours requested.

10.The Summons was taken out on 25 June 2021, returnable on the same date as the Appeal was set down to be heard, with 30 minutes requested.

11.Ms Cheung calls the applications P makes via the Summons “Backdoor Applications”.  In her written submissions, she objects to the Summons being dealt with together with the Appeal.  She submits that P should not be allowed to hijack the Appeal hearing in the way P has.

12.However, at the beginning of the hearing, Ms Cheung informed me and accepted that whilst she maintained the objection, but to be practical and as a matter of reality, the only issue both in respect of the Appeal and the Summons at the end of the day is whether there is good reason for P not having sought leave to serve the Writ outside jurisdiction, and not having served the Writ before it became expired.

13.I agree.  I will come back to explain why I do.

14.In any event:

(a)  Ms Cheung at one stage complained that D2 had not been afforded any chance to deal with the Summons.  I note however that during the month after the Summons had been filed, D2 had made no attempt to file any evidence in opposition.  This Court also offered to sit beyond the 2 hours reserved for the Appeal, so that the Summons would not eat into the time allocated to the Appeal;

(b)  The issues raised by the Summons are issues which in the round are relevant to the resolution of the Appeal;

(c)  In her written submissions, the main reason Ms Cheung raised in support of her opposition is that applications of the type raised in the Summons should by nature be made ex parte.  She relies on the remarks made by Godfrey JA in Lee Fai (trading as Fai Kee Timber) v Chan Kui [1997] HKLRD 1154 at §§3‑4;

(d)  I have considered Lee Fai.  Applications for extension or service out are by nature made at a time when the defendant has not been served, so that they are necessarily made ex parte.  There is simply no defendant to be summoned on an inter partes basis.  The facts of the present case should however be noted.  In the present case, the Dispensation Order has been made.  It has not been set aside.  D2 is a party. The decision to pursue the Summons on an inter partes basis is in the circumstances a reasonable and appropriate one.  As I raised with Ms Cheung during the hearing, D2 might in fact have a cause for complaint if P had decided to take the ex parte route instead.

15.For the above reason, I allow the Summons to be heard together with the Appeal.

16.In the course of the hearing, Mr Maurellet applied to amend the Summons so as to enable P to seek the Further Orders and Directions irrespective of the outcome of the Appeal.  Ms Cheung fairly did not object.  In the course of the hearing, I granted P leave to amend.

The claim, and the defendants

17.According to the General Indorsement to the Writ, P’s claim is for the outstanding sum of HK$18,529,549.03 plus contractual interest against the 1^st defendant (“D1”) as principal debtor, and against D2 and the 3^rd defendant (“D3”) on a joint and several basis as personal guarantors. 

18.According to Xie/Aff, P pursuant to a number of loan and guarantee agreements agreed to make available to D1 a margin facility up to HK$75,000,000. D1’s performance of all obligations under those agreements is guaranteed by D2 and D3.  Since October 2016, P had advanced various sums to D1.  D1 deposited shares to P as collateral for the margin loans from time to time.  On 21 September 2018, P made a margin call demanding D1 to repay HK$4,608,445.22.  D1 had failed to comply.  P exercised its rights to dispose of the collateral shares maintained by D1.  After such disposal, the outstanding sum payable by D1 was HK$25,656,864.39.  Upon D1’s failure to repay, P pursued D2 as the guarantor.  Some partial repayments had been made, leaving the balance of HK$18,529,549.03. That is the amount which P is claiming against D2 in the present action.

19.D1 and D3 have both been wound up.

20.D2 is a permanent Hong Kong citizen.

21.The guarantee which P relies on against D2 is dated 27 September 2016 (the “Guarantee”).  It is in Chinese.

22.At page 4 of the Guarantee[1], D2 stated his residential address.  It is one at Island Road.  Parties have called it the “DWB Address”, which term I adopt.

23.The registered owner of the property at the DWB Address is Linkful Shares Limited.  D2 is the sole director and shareholder of Linkful[2].

24.Clause 17.2 of the Terms and Conditions of the Guarantee[3] provides that the Guarantor shall promptly notify P if the Guarantor becomes aware that any information that he has provided changes, is incorrect or misleading.  D2 had provided P with no such notification in respect of any change of his residential address.

Background facts leading to the Dispensation Order

25.After the issue of the Writ, P made a number of attempts to serve it upon D2.

26.On behalf of P, a number of affirmations have previously been filed (for different specific purposes) setting out those attempts.  Full details are now conveniently set out in Xie/Aff (in particular §32 thereof).

27.At §7 of his written submissions, Mr Maurellet has given a summary of those steps, which I adopt here with some modifications:

Date	The steps taken
25-7-19	By way of registered post at Unit 2003&2005, 20/F, AIA Central, 1 Connaught Road, Central, Hong Kong (the ‘AIA Address’), which was eventually returned by the Hong Kong Post.
28-11-19	By way of registered post at three addresses: 1.        the DWB Address; 2.        Suites 1106-08, 11th Floor, the Chinese Bank Building, 61-65 Des Vouex Road Central, Hong Kong (the ‘CBB Address’); 3.        Flat B, 11/F, Hing Lung Commercial Building, 68‑74 Bonham Strand, Sheung Wan, Hong Kong (the ‘HLCB Address’) (collectively, the ‘Three Last Known Addresses’) These attempts were also unsuccessful.
5 & 17-6-20	P sent letters to D2 by registered post and ordinary post to each of the CBB and HLCB Addresses for the purpose of making an appointment with D2 to effect personal service.
12 & 24-6-20	By way of personal service on D2 at the CBB and HLCB Addresses.  These attempts were unsuccessful.
15 & 22-6-20	By way of insertion into the letterbox of the DWB Address.

28.In respect of those addresses at which services had been attempted:

(a)  The AIA address is a place of business of Carnival Group International Holdings Limited (“Carnival”).  As of 25 July 2019, Carnival was a Hong Kong‑listed company, in which D2 was a major shareholder, an executive director, a joint chair of the Board of Directors, and an authorized representative;

(b)  In respect of the DWB Address:

(i)  I have explained that address above;

(ii)  Further, according to the annual returns produced, as of 21 August 2020[4], D2 was the director of 14 companies in Hong Kong.  With the exception of one (which stated an address in the Mainland), the DWB Address was declared in the annual returns of those companies as D2’s residential address;

(iii)  Supported by annual returns in the year of 2019, Xie states[5] that as of 24 July 2019 when the Writ was issued, D2 was serving as director of those 14 companies;

(iv)  D2 does not dispute the above, but claims that the information kept by those companies has not been updated[6];

(c)  The CBB Address is the office of the corporate company secretary of Cheertex Investment Limited, Ever Lead Holdings Limited, Genius Choice Investments Limited, three of those 14 companies;

(d)  The HLCB Address is the principal office of Enterprise Development Holdings Ltd.  It is a listed company.  According to public records as of July 2020, D2 was one of its substantial shareholders.

29.On the strength of the service on 15 and 22 June 2020 by way of insertion into the letterbox of the DWB Address, default judgment was obtained on 23 September 2020 (the “Default Judgment”).

30.In the meantime, by his 3^rd affirmation of 24 July 2020[7], Ng on behalf of P sought on an ex parte basis an order for (1) substituted service of the Writ, and (2) extension of the validity of the Writ for service.  Queries were raised by the Master.  Apparently, upon the approval of the Default Judgment, the application was not proceeded with further[8].

31.On 4 November 2020, D2 took out a summons to set aside the Default Judgment on the basis that he was not in Hong Kong when the service was deemed to be effected.  The summons was set down to be heard before the learned Registrar on 8 January 2021.

32.D2’s case that he was not in Hong Kong at the material time is supported by his movement records obtained from the Immigration Department[9]. They show “No Further Movement” after D2’s departure from Hong Kong on 14 November 2019.  They however also show that between 23 August 2019 and 14 November 2019 when P was taking steps to effect service of the Writ on him, he had been in and out of Hong Kong for some 23 times.

33.On 7 January 2021, parties filed a consent summons for an order by consent that the Default Judgment be set aside.

34.Despite the consent summons, the learned Registrar directed that the hearing should proceed.

35.During the hearing on 8 January 2021, in addition to setting aside the Default Judgment, the learned Registrar on his own initiative made the Dispensation Order.

36.It is against that Dispensation Order which D2 is appealing.

The law

37.The Court has the power to grant retrospective leave to serve out.  As observed by G Lam J (as he then was) in China Medical Technologies Inc. v Paul, Weiss,Rifkind,Wharton&Garrison LLP[2019]HKCFI 2631 at §§236‑238, and Footnote 83, the route for the exercise of that power is Order 2 rule 1.  The test for the exercise of the discretion was once said to be the existence of “exceptional circumstances”, as a result of Leal v Dunlop Bio‑Processes International Ltd [1984] 1 WLR 874.  That has been held by the House of Lords to be incorrect.  The test now is one of “good reason” or “good cause”.  The position in Hong Kong is the same — see the Court of Appeal decision of Tan Kah Eng v Tan Eng Khiam [2012] 1 HKLRD 329 at §§39-40, and China Medical at Footnote 83.  

38.The Court also has the power to extend the validity of the writ for service retrospectively.  The basis of the jurisdiction is again Order 2 rule 1. Despite Order 6 rule 8 restricting the court’s power to extend the validity of a writ for a period not exceeding 12 months at any one time, the power nonetheless exists under Order 2 rule 1 (and possibly Order 3 rule 5) to extend time, if necessary, for more than 12 months — China Medical §240 and the cases cited therein, and Hong Kong Civil Procedure 2021 at §11/4/36 application[10].  Whilst the power to renew is ultimately a discretionary one, the discretion does not arise unless “the plaintiff first establishes matters amounting to good reason for extension or at least capable of so amounting” — Chow Ching Man v Sun Wah Ornament Manufactory Ltd [1996] 2 HKLR 338, 341B‑C, and Amadeaus Investment Ltd v Lin Kao Kun [2019] 2 HKLRD 647, §§20-22.

39.The Court also has the power to dispense with service.  At §11/4/36 of Hong Kong Civil Procedure 2021, in the context of re‑grant upon discharge on ground of material non‑disclosure of leave to serve out, it is explained that:

“ At the time of re‑grant, the court will have to consider service issues, i.e. whether to require re‑service or to dispense with service on the basis that the defendant is already well aware of the proceedings. Further, the writ may well have expired by the time of re‑grant or a limitation defence may have accrued. In such cases the court may extend the validity of the writ under O.2, r.1 and O.3, r.5 where there is ‘good cause’ or ‘good reason’ and the court’s desire to re‑grant discharged leave may of itself be such cause, Tan Kah Heng, [2012] 1 HKLRD 329, [40]. Having decided to re‑grant leave, there would be little sense in the court then defeating its own decision by declining to extend the validity of the writ.”

40.Ms Cheung relies heavily on Bank of China (Hong Kong) Ltd  v Regal Link Investment Ltd [2009] 3 HKLRD 203.  I accept Mr Maurellet’s submission that that case is distinguishable.  As observed by Yuen JA in Regal Link at §33, “the writ in each of the actions … is not valid for service out and no application has been made for leave to serve out” (emphasis added).  In Tan Kah Eng, Sakhrani J distinguished Regal Link on the basis that “there was no application made at any time to issue a concurrent writ for service out of the jurisdiction”.  In the present case, the Summons is before this Court for the Further Orders and Directions.

41.As can be seen from the discussion above, the common threshold or test for the exercise of the above powers and discretions is “good reason” or “good cause”.

42.The fact that the threshold test is the common one of “good reason” or “good cause” is the reason why I agree with Ms Cheung thatthe only issue both in respect of the Appeal and the Summons at the end of the day is whether there is good reason for P not having sought leave to serve the Writ outside jurisdiction, and not having served the Writ before it became expired.

Whether “good reason”

43.For the following reasons, I am of the view that good reason has been established for P not having sought leave to serve the Writ outside jurisdiction, and not having served the Writ before it became expired.

44.In the Guarantee, D2 stated the DWB Address as his residential address.

45.D2 has not notified P of any change of his residential address.  That was so despite Clause 17.2 of the Terms and Conditions of the Guarantee.

46.The DWB Address was stated as D2’s residential address in the annual returns of 13 out of 14 companies which D2 was at the material time serving as director.

47.According to D2, the DWB Address was indeed his residential address, just that he claimed that he ceased living there from the end of 2018, and that those 13 companies have failed to update their records.

48.Even assuming the truth of D2’s version, P would not have known that those companies had failed to update their records.

49.In advancing her case, Ms Cheung relies heavily on a    telephone conversation on 14  August 2019 (the “Aug/19 Tel Conversation”) between the parties’ respective solicitors at the time (Messrs. Gall (“Gall”) for D2, and Messrs. Wilson Sonsini Goodrich & Rosati (“WSGR”) for P):

(a)  What was exactly exchanged during the Aug/19 Tel Conversation is in dispute.  In Gall’s letter to the learned Registrar of 21 September 2020[11], it was said that “Back on 14 August 2019, our firm had an open telephone conversation with the Solicitors for the Plaintiff, informing them that our client was resided in the Mainland ”.  In reply, WSGR said in their letter of 22 September 2020 that a Ms Yuen of Gall “for a moment claimed that the 2^nd Defendant was not in Hong Kong at the time of our attempt of service of Writ of Summons in late July 2019.  At no time GALL claimed that the 2^nd Defendant was resided in the Mainland or had left Hong Kong for good”;

(b)  No one from either Gall or WSGR has filed any affirmation on the contents of the Aug/19 Tel Conversation.  Nor has any attendance note been produced;

(c)  At the time when that conversation took place, Gall was not the solicitors on record for D2.

50.Having considered also the matters discussed in §§44‑48 above, I accept Mr Maurellet’s submission that even on the assumption that the phone call indeed took place,P cannot be expected to rely on an oral representation over a phone call in conducting proceedings, particularly when Gall was not even the solicitors on record for D2.

51.Ms Cheung relies on Chan Lap Shun v Cheng Shing and another, unrep, DCCJ 4449/2009 (15 November 2011) (in particular §88) and submits that P would have had knowledge or at least suspicion that D2 might be out of the jurisdiction.  She relies on the Aug/19 Tel Conversation and the fact that the annual return of one of those 14 companies stated a Mainland address as D2’s residential address.

52.The facts in Chan Lap Shun are very different.  In that case, P knew that the defendants had set up a business in the Mainland.  He knew of a judgment from a Mainland Court, and was able to tell therefrom D1’s address in Zhong Shan.  A simple land and business registration search would also have revealed that the alleged last known address of D1 had been sold, and the defendant’s firm had ceased to exist.

53.In the present case, D2 had failed to notify P of any change of address, as required by the Guarantee.  Presumably, he had also failed to notify those 13 companies of his alleged change of residential address, so that they did not update their records.  P in the circumstances cannot be faulted for relying on the DWB Address as one of his last known addresses.

54.D2 had clear connection with the other addresses which P had used.

55.P would have concluded that their efforts had brought the existence of the Writ to Ds’ knowledge.  Otherwise, Gall would not have called WSGR on 14 August 2019 to start with.

56.P in fact in July 2020 made application for substituted service and extension of the validity of the writ for service.  Just that it was not followed through given the approval of the Default Judgment.

57.Ms Cheung criticized WSGR heavily for not having disclosed the existence of the Aug/19 Tel Conversation when applying for the Default Judgment. 

58.The significance of that conversation has to be viewed in the context of the full facts as discussed above.  In any event, as submitted by Mr Maurellet which I am prepared to accept, even if the matters could have been conducted better, it does not mean that good reason has not been shown.

59.I also take into account the facts that no limitation issue is involved.

60.On all the facts before me, I am satisfied that there are good reasons for P not having sought leave to serve the Writ outside jurisdiction, and not having served the Writ before it became expired.

Overall consideration

61.On the facts before me, I am satisfied that there are good reasons for the Writ to be extended for service retrospectively. 

62.On P’s claim against D2, I have considered the contents of Xie/Aff.  No contrary evidence has been adduced by D2.  I am satisfied that P has established a good arguable case that P’s claim falls within one or all of the gateways under Order 11 rule 1(1)(d)(iii), (iv) and Order 11 rule 1(1)(e), and that P has also shown at least serious issue to be tried on merits.

63.On the facts before me, and given the Summons which is before me, I am satisfied that there are good reasons for retrospective leave to be granted to P to serve out.

64.Ms Cheung submitted in the course of the hearing that even if this Court is to grant retrospective leaves to extend and to serve out, this Court still may not dispense with service.

65.I have considered that submission.  Given the circumstances of the case, D2’s full knowledge by now if not much earlier of the nature of P’s claim against him, and the absence of any prejudice, I see no purpose and utility to anyone in requiring P to serve the process all over again.  All the costs and time that would be wasted are completely unjustified, and allowing such wastage would be contrary to all the Underlying Objectives.

Disposition of the Appeal

66.For the reasons set out above, I dismiss the Appeal.

Disposition of the Summons

67.As Mr Maurellet has submitted, which I agree, the Appeal and the Summons are in reality two sides of the same coin.  To avoid any further unnecessary and technical arguments on further appeal or otherwise, P seeks the Further Orders and Directions irrespective of the result of the Appeal.  I agree that that would be the most cost‑effective, expeditious and practical step to take.  In any event, given the Appeal, the consequential directions given by the learned Registrar have not been complied with.  Another set of directions has become necessary.

68.I grant §§1 and 2 of the Summons.

Costs

69.I make a costs order nisi that:

(a)  P shall have the costs of the Appeal, with certificate for 2 counsel, to be assessed summarily; and

(b)  there be no order as to costs in respect of the Summons.  P is after all seeking the indulgence of the Court.

70.Any application for variation shall be made within 14 days from the date of this Decision, upon receipt of which this Court will give further direction on paper.

Mr José‑Antonio Maurellet SC, leading Ms Ellen Pang,instructed by Deacons, for the Plaintiff

Ms Jasmine Cheung, instructed by Gall, for the 2^nd Defendant