Konew Capital International Ltd v. Lee Chi Man and Another

DCMP 3712/2020

[2023] HKDC 1202

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3712 OF 2020

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BETWEEN

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JUDGMENT

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(A) Nature of the Application

1.This is the 2^nd defendant’s application for setting aside the default judgment of this case to the extent that the default judgment concerns or affects her as the 2^nd defendant.

2.The plaintiff commenced the present mortgagee action and money lenders’ action and applied for an order for sale of the subject mortgaged property. Both defendants had not acknowledged service of the Originating Summons. They also failed to appear before the court at the hearing on 30 June 2022. By the order of Deputy District Judge Vincent Lung dated 30 June 2022, it was ordered that, inter alia, the 1^st defendant shall pay to the plaintiff the amount due under the mortgage, both defendants shall deliver vacant possession of the subject property to the plaintiff and the subject property be sold by public auction or private treaty at a reserve price of not less than HK$8,500,000 (“the Default Judgment”).

(B) Background

3.At all material times, the plaintiff was a licensed money lender. Both defendants were the registered owners of a property known as Unit 4 on 13^th Floor, Southorn Garden, No 2 O’Brien Road, Hong Kong (“the Property”) in joint tenancy. The 2^nd defendant is the mother of the 1^st defendant.

4.At all material times, there was a subsisting mortgage registered against the Property at the Land Registry in favour of Hang Seng Bank. On about 18 October 2019, the 1^st defendant and the plaintiff entered into a loan agreement whereby the 1^st defendant borrowed HK$1,100,000 from the plaintiff by charging his interest in the Property in favour of the plaintiff (the “Second Mortgage”). By virtue of Clause 1.1 of the Second Mortgage, the Second Mortgage meant credit facilities made available or to be made available to the 1^st defendant by the plaintiff from time to time; and that the 1^st defendant’s obligations included all principal, interest and other amounts from time to time owing by the 1^st defendant to the plaintiff on any current and/or other account and all other liabilities whatsoever of the 1^st defendant to the plaintiff whether present, future actual and/or contingent.

5.On about 21 February 2020, the plaintiff and the 1^st defendant entered into another loan agreement (“the Loan Agreement”) whereby the 1^st defendant borrowed a sum of HK$1,185,000 (“the Loan”) from the plaintiff. The interest rate of the Loan was 26.40% per annum and the Loan was repayable by 180 monthly instalments.

6.After repaying for six instalments, the 1^st defendant had defaulted in repaying the Loan and interest since the 7^th instalment which was due on 15 September 2020. It is the plaintiff’s case that the previous loan of HK$1,100,000 under the previous loan agreement dated 18 October 2019 had been fully settled, the 1^st defendant only defaulted in repayment of the Loan and interest under the Loan Agreement.

7.On about 16 November 2020, the plaintiff took out the present Originating Summons pursuant to Order 83A and Order 88 under the Rules of the District Court (Cap 336H) against the 1^st defendant and sections 2, 3 and 6 of the Partition Ordinance (Cap 352) against both defendants. The plaintiff claimed against the 1^st defendant for, inter alia, repayment of the outstanding loan and interest, order for delivery of vacant possession of the Property by both defendants, order for sale of the Property and directions for disposal of the sale proceeds, costs, etc. The plaintiff joined the 2^nd defendant in this action because she was the co-owner of the Property and her interest would be affected by the court order. There was no evidence that Hang Seng Bank purported to apply for factual possession of the Property. A charging order absolute in favour of Hang Seng Bank dated 11 November 2021 was registered against the Property at the Land Registry.

8.Both defendants had not acknowledged service of the Originating Summons and they did not appear in any court hearing.

9.On 30 June 2022, the Default Judgment was entered against both defendants. The Reasons for Decision were handed down on 20 July 2022.

(C) The Service and the Default Judgment

10.On about 16 November 2020, the plaintiff took out the present Originating Summons. In support of the Originating Summons, the affirmation of Wong Kin Keung (“Mr Wong”) was filed on 5 May 2022 on behalf of the plaintiff. In his affirmation, Mr Wong exhibited, inter alia, the plaintiff’s money lender licence, the previous loan agreement dated 18 October 2019, the Second Mortgage, the Loan Agreement, demand letters, land search record of the Property, a letter issued by the plaintiff to Hang Seng Bank, a letter issued to the Director of Lands, a valuation report of the Property, etc.

11.The plaintiff also filed an affirmation of service on 23 June 2022. According to the affirmation of service, a sealed copy of Originating Summons was served on each of the defendants on 18 November 2020 by inserting the same through the letter box for the address of the Property being the defendants’ last known address. Another sealed copy of the Originating Summons was served on the Director of Lands on 19 November 2020. A Notice of Intention to Proceed in these proceedings dated 7 March 2021 was served on each of the defendants by ordinary post at the address of the Property. On 10 May 2022, a sealed copy of the Notice of Appointment to Hear Originating Summons and a true copy of the affirmation of Mr Wong together with exhibits were served on each of the defendants by sending the same to the address of the Property by ordinary post.

12.Furthermore, on 10 May 2022, a clerk of the plaintiff’s solicitors firm attended the Property and he posted up a sealed copy of the Originating Summons, a sealed copy of the Notice of Appointment to Hear Originating Summons and a true copy of Notice to Occupants in a conspicuous place at the main entrance of the Property.

13.On 9 June 2022, the clerk of the plaintiff's solicitors firm served one set of the hearing bundle and the plaintiff’s counsel submission together with the list of authorities on each of the defendants by sending the same to the address of the Property by ordinary post.

14.None of the defendants had acknowledged the service of the proceedings. On 30 June 2022, both defendants did not appear at the court hearing. Upon considering the affirmation of Mr Wong, Notice to Occupants, affirmation of service, Certificate of No Acknowledgement and submission of the plaintiff’s legal representative, the Default Judgment was entered against both defendants on 30 June 2022.

(D) Setting Aside Default Judgment

15.The 2^nd defendant claimed that the service of the present proceedings on her was irregular and the Default Judgment was irregularly obtained. She asserted that she had no notice of the present proceedings before the Default Judgment was entered against her. In the alternative, if the service was regular, the 2^nd defendant claimed that she had a real prospect of success to the plaintiff’s claim because she would face great hardship if the Property was ordered to be sold.

16.The 2^nd defendant had filed two affirmations in support of her application.

17.Her 1^st affirmation was a homemade affirmation filed on 12 October 2022. In her 1^st affirmation, she stated that she was 80 years of age, the 1^st defendant was her only son who was hospitalized from 15 June 2022 until he passed away suddenly on 19 July 2022. The 2^nd defendant claimed that she was only aware of this court action on 10 August 2022. She also stated that the Property was her only asset. She had lost the financial support from the 1^st defendant. She emphasized that she had no knowledge of this action before 10 August 2022 and requested that this action should be tried openly.

18.In her 1^st affirmation, the 2^nd defendant exhibited her letter to the District Court dated 31 August 2022 as an exhibit. Her letter was received by the District Court Registry on 31 August 2022. In her letter, she stated that the 1^st defendant had not told her anything about the loans or the legal documents. She only received those court documents in August 2022. She lived alone and did not understand English. With the explanation by her friend, she then realized that the 1^st defendant had owed some debts before his death. She then found some legal documents from the 1^st defendant’s personal properties. She said that she had applied for legal aid pending the approval by the Legal Aid Department.

19.It should be noted that on the same date, the 2^nd defendant also filed another homemade affirmation on 12 October 2022 by which she purported to authorize Madam Lee Si Wai Sivia, her son’s friend, to handle the present court case.

20.The 2^nd affirmation of the 2^nd defendant was drafted by her legal representatives who were assigned by the Legal Aid Department and it was filed on 12 December 2022. In her 2^nd affirmation, the 2^nd defendant deposed to the following facts:-

(a) She was born in Indonesia. She married her late husband, a Hong Kong citizen, in 1979 and has been living in Hong Kong since then. The 1^st defendant was born in 1981. She was a housewife at all material times.

(b) In about 2012, her late husband sold their former flat at HK$3,000,000 and used the sale proceeds as part of the purchase price to purchase the Property at HK$7,500,000. The balance was financed by charging the Property in favour of Hang Seng Bank. The Property was purchased in the names of the 1^st defendant and 2^nd defendant in joint tenancy.

(c) Her late husband passed away in 2016.

(d) The 1^st defendant was a merchandise manager before his death. In March 2022, the 1^st defendant was found to have suffered from cancer. In April 2022, the 1^st defendant was admitted to the hospital for a surgical operation. He was discharged 5 days later. The 1^st defendant was further admitted to the hospital on four other occasions between May 2022 and July 2022. On each occasion, he was hospitalized for a week up to about 10 days. Eventually, he passed away on 19 July 2022.

(e) She had no notice of the previous loan of HK$1,100,000 or the Loan until after the 1^st defendant had passed away.

(f) The 1^st defendant had all along been the one who collected the mail from the mailbox. She stayed at home most of the time and only went out to the market every other day or so.

(g) At the material times, she had never seen any letters sent by the plaintiff. She believed that the 1^st defendant might have withheld those letters because the 1^st defendant did not want her to know anything about the loans from the plaintiff.

(h) She only became aware of those loans and the present proceedings after she had received a copy of the letter from the plaintiff’s solicitors dated 8 August 2022. She was utterly shocked.

(i) She all along depended on her late husband and the 1^st defendant financially. After the death of the 1^st defendant, she had applied for Comprehensive Social Security Assistance (“CSSA”) and her application was approved.

(j) She stated that the sale of the Property would cause her a “very great hardship”. She did not have any savings or income other than CSSA. If the Property was ordered to be sold, she would not be able to use her share of the net proceeds to acquire another similar property.

(k) She exhibited two sets of documentary evidence as exhibits. The first set of exhibits contained a series of medical documents, medical certificate and the death certificate of the 1^st defendant. The second set of exhibits was the documents concerning the approval of the 2^nd defendant’s CSSA application by the Social Welfare Department.

(E) Legal Principles

21.This is an action commenced by an originating summons. Order 28 Rule 4(1) of the Rules of the District Court (Cap 336H) (“RDC”) provides that:-

“(1) The Court by whom an originating summons is heard may, if the liability of the defendant to the plaintiff in respect of any claim made by the plaintiff is established, make such order in favour of the plaintiff as the nature of the case may require, but where the Court makes an order under this paragraph against a defendant who does not appear at the hearing, the order may be varied or revoked by a subsequent order of the Court on such terms as it thinks just.”

22.Hence, the Default Judgment was made under O 28 r 4(1) RDC. According to O 28 r 4, the discretion of the court is wide and unfettered in deciding whether or not to set aside an order or judgment obtained by default.

23.In Liu Chong Hing Bank Ltd v Union World (HK) Ltd and Ors [2005] 1 HKC 20, at para. 10, per Rogers VP, the Court of Appeal held that where a defendant who sought to set aside a default judgment entered against him under O 28 r 4(1), it was appropriate for the court to apply the same principle under O 13 r 9.

24.Where a default judgment was obtained irregularly, an irregular judgment would be set aside ex debito justitiae, ie without regard to the merits of the proposed defence: Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157.

25.In Liu Chong Hing Bank Ltd v Lee Chau Kun & Another [2006] 4 HKLRD 38 at para. 20, the District Court applied Liu Chong Hing Bank Ltd v Union World (HK) Ltd and Ors (above) and held that:-

“23. Where the judgment was obtained regularly, the burden is on the defendant to show a defence with a “real prospect of success”. If the defendant cannot demonstrate that he has a defence with a “real prospect of success”, this is usually the end of his application. ... ” (per Deputy District Judge Thomas Au (as he then was) at para 23).

26.Hence, the main issues of the present application between the plaintiff and the 2^nd defendant are:-

(a) whether the Default Judgment was obtained regularly or irregularly;

(b) if the Default Judgment was regularly obtained, whether the 2^nd defendant has shown a real prospect of success in this action, or whether there are other reasons that the court should exercise its discretion to set aside the Default Judgment.

(F) Analysis

27.With respect to the service of the documents of the present proceedings on the 2^nd defendant, including the Originating Summons, the affirmation of Mr Wong in support of the Originating Summons, Notice of Appointment to Hear Originating Summons, Certificate of No Acknowledgement and submission of the plaintiff’s legal representative, the 2^nd defendant did not challenge the contents of the affirmation of service filed by the plaintiff.

28.The 2^nd defendant also admitted that she lived at the Property at the material times when service of the abovementioned documents of the present proceedings was effected.

29.The 2^nd defendant, however, argued that she did not have actual notice of all those court documents. The 2^nd defendant had stated her case in her affirmations. She mainly alleged that at the material times, she had no knowledge of the loans owed by the 1^st defendant, she had never seen any letters from the plaintiff, and she had never received any court documents before the death of the 1^st defendant. The 2^nd defendant also said that she was an 80 years old housewife and the 1^st defendant had all along been the one who collected the mail from the mailbox.

30.At the present hearing, Mr Miu, counsel for the 2^nd defendant, conceded that the plaintiff as a mortgagee in possession was a person interested in the Property within the meaning of section 3(1) of the Partition Ordinance (Cap 352). Therefore, the plaintiff might institute proceedings under the Partition Ordinance by way of an action for the sale of the Property.

31.Mr Miu submitted that even if the documents of the present proceedings were purportedly served on the 2^nd defendant at the address of the Property, the service was still ineffective and the Default Judgment was an irregular judgment. So long as the 2^nd defendant did not have actual notice of the present proceedings, the Default Judgment should be set aside as of right.

32.In paragraph 7 of the 2^nd affirmation of the 2^nd defendant, she stated as follows:-

“7. I have never received or seen any of the letters which the Plaintiff had sent to me before the death of my son. I believe that my son might have withheld them since he did not want me to know that he had borrowed these loans from the Plaintiff. I only became aware of these loans and these proceedings after I received a copy of the letter from the Plaintiff’s Solicitors dated 8 August 2022. I was utterly shocked.”

33.The 2^nd defendant had said that she only became aware of the present proceedings after she had received a copy of the plaintiff’s solicitors letter dated 8 August 2022. This is consistent with her assertion in her 1^st affirmation that she only had notice of the present proceedings on 10 August 2022.

34.Mr Miu referred the court to the 1^st defendant’s medical documents. Mr Miu endeavoured to show that when the service of the documents of these proceedings was purportedly effected by the plaintiff on the 2^nd defendant, the 1^st defendant was not hospitalized. Therefore, according to the 2^nd defendant’s contention, the 1^st defendant might have collected all those documents that were addressed to the 2^nd defendant. As a result, the 2^nd defendant would not know the existence of the Loan or these proceedings. That was the reason why the 2^nd defendant failed to acknowledge service of the court documents in these proceedings or attend the court hearing on 30 June 2022.

35.According to the exhibit “CTL-1” of the 2^nd affirmation of the 2^nd defendant, ie the 1^st defendant’s medical documents, the 1^st defendant had gone through a very difficult period starting from about March 2022 onwards. On 10 March 2022, ultrasound examination revealed that there was a large heterogeneous mass in his body and its malignancy could not be excluded. He was referred to the hospital for clinical correlation. The 1^st defendant was then hospitalized during the following periods:-

(a) Between 19 April 2022 and 24 April 2022;

(b) Between 12 May 2022 and 20 May 2022;

(c) Between 26 May 2022 and 31 May 2022;

(d) Between 13 June 2022 and 19 June 2022;

(e) Between 11 July 2022 and 18 July 2022;

36.It is true that when the service of the documents of these proceedings on the 2^nd defendant was effected by the plaintiff, the 1^st defendant was not hospitalized. The medical documents of the 1^st defendant also showed that the 1^st defendant was granted sick leaves after he had been discharged from hospital. For example, he had to attend hospital for follow up examination on a daily basis starting from 21 May 2022 to 29 May 2022. Unfortunately, he was hospitalized again on 26 May 2022.

37.Mr Cheung, counsel for the plaintiff, argued that the real issue is whether the 2^nd defendant had demonstrated by credible evidence that she did not have notice of the present proceedings. The plaintiff had complied with the rules in effecting service of the court documents on the 2^nd defendant. In usual cases, the 2^nd defendant should have notice of the present proceedings. It is for the 2^nd defendant to prove her assertion that the 1^st defendant had collected the 2^nd defendant’s documents relating to these proceedings, rendering her failure to appear before the court and the Default Judgment was entered against her.

38.Among other things, Mr Cheung drew the attention of the court to the fact that on 10 May 2022, the plaintiff purported to effect service of the Notice of Appointment to Hear Originating Summons and the affirmation of Mr Wong on the 2^nd defendant by ordinary post. Mr Cheung submitted that in the usual course of events, the 2^nd defendant would have received the mail one or two days later. The 2^nd defendant might have received the mail on 12 May 2022 when the 1^st defendant was hospitalized.

39.Mr Cheung also submitted that on 10 May 2022, a clerk of the plaintiff’s solicitors firm had attended the Property and posted up a sealed copy of the Originating Summons, Notice of Appointment to Hear Originating Summons and a true copy of the Notice to Occupants in a conspicuous place at the main entrance of the Property. Mr Cheung contended that the 2^nd defendant should have notice of those court documents and the present proceedings. Mr Cheung also complained that the 2^nd defendant had failed to ask the watchman or neighbour to depose an affirmation to prove that only the 1^st defendant would collect mail from the defendants’ mailbox.

40.Mr Miu replied that the clerk simply posted up those court documents without informing the occupants by ringing the doorbell. The 2^nd defendant did not know someone had posted up some documents at the main entrance of the Property. If the 1^st defendant was the one who collected all the mail, he would also take away those documents that were posted up at the entrance of the Property when he saw them.

41.In an application for setting aside default judgment, when an applicant asserts that he has no notice of the legal proceedings, the facts of each particular case are different. The circumstances of each particular case and the evidence of the applicant must be closely examined.

42.For easy reference, I summarize the following events which form part of my consideration:-

(a) the Originating Summons was issued on 16 November 2020 and was served on 18 November 2020;

(b) Notice of Intention to Proceed was served on 7 March 2022;

(c) Notice of Appointment of Hear Originating Summons and the affirmation of Mr Wong were served on 10 May 2022;

(d) Notice to Occupants together with other court documents were posted up at the entrance of the Property on 10 May 2022;

(e) Default Judgment was entered against both defendants on 30 June 2022;

(f) the 1^st defendant passed away on 19 July 2022;

(g) according to the court’s record, a Memorandum of Notification of an Application for Legal Aid dated 29 August 2022 was filed to the court on 30 August 2022. The memorandum stated that the 2^nd defendant had applied for legal aid;

(h) by a letter dated 31 August 2022, the 2^nd defendant wrote to the District Court setting out her complaint that she only had notice of the court documents in August 2022 after the death of her son. She said she had applied for legal aid pending Legal Aid Department’s approval. The letter was received by the District Court Registry also on 31 August 2022;

(i) on 12 October 2022, before the legal aid certificate was granted, the 2^nd defendant, acting in person, filed her 1^st affirmation and reiterated her complaint that she had no notice of these proceedings before 10 August 2022. In addition, she filed another affirmation also on 12 October 2022 in which she deposed to the fact that she was 80 years of age and she purported to entrust the handling of this action to Madam Lee Si Wai Sivia, her son’s friend;

(j) according to the court’s record, the 2^nd defendant was granted a legal aid certificate on 16 November 2022.

43.Referring to the above chronology of events, it can be seen that the 2^nd defendant had taken no steps at all in response to the plaintiff’s service of the court documents of these proceedings for about one year and seven months since November 2020. However, from August 2022 onwards, she was very responsive to the present proceedings. She took this case very seriously by applying for legal aid, sending or delivering a letter to the District Court Registry on 31 August 2022. She even filed her homemade 1^st affirmation on 12 October 2022 before her legal aid application had been approved. She also purported to authorize her son's friend to handle the case for her by filing another affirmation on 12 October 2022. I give weight to the 2^nd defendant’s conducts after August 2022, including her letter dated 31 August 2022, her 1^st affirmation filed on 12 October 2022 and her purported conduct of entrusting the handling of this action by Madam Lee Si Wai Sivia.

44.Mr Cheung contended that the plaintiff had complied with the rules and requirement in serving the court documents, including the Originating Summons and the Notice of Appointment to Hear Originating Summons, on the 2^nd defendant. Those court documents were deemed to have come to the notice of the 2^nd defendant. Hence, the 2^nd defendant should adduce credible, cogent and compelling evidence to prove that she had no notice of the present proceedings against her. Bare denial of receipt was not sufficient. In support of his argument, Mr Cheung cited AIA International Ltd v Cheng Chung Sing DCCJ 804/2016, unreported, 18 May 2017, at paras 15 and 16, in which the District Court applied the principle laid down by the Court of Appeal in Bank of China (Hong Kong) Ltd v Cheung King Fung [2007] 1 HKLRD 462.

45.In AIA International Ltd case (above), a pre-action letter was sent to the defendant’s email in January 2016. Service of the writ was effected on 22 February 2016 at the defendant’s Tin Shui Wai address by registered post and also by inserting through the letter box of the same address. No intention to defend was filed and default judgment was made. The defendant argued that he actually lived in another place in Tuen Mun. He purported to adduce a tenancy agreement of the Tuen Mun address covering the period between 2012 and 2014; and also a bill issued by a gasoline company to him dated in May 2016. The court held that the dates on those documents did not assist the defendant. The defendant also argued that he rarely checked his email account. The court opined that the defendant had neither stated how rare he would check his email account, nor had he stated when he first became aware of the pre-action letter at his email account. The court held that the defendant’s allegations of lack of notice to the legal proceedings were bare assertions.

46.The facts of the present case are different. I have already summarized the 2^nd defendant’s evidence and set out the chronology of relevant events, including her response to the present action after August 2022. I do not expect that a watchman or a neighbour can helpfully depose to the fact that only the 1^st defendant would collect mail from the defendants’ mailbox. On the other hand, the lack of such evidence will not affect my appreciation of the 2^nd defendant’s evidence. In fact, in the evidence of this case, there is no evidence about the location of the mailbox at Southorn Centre and its location in relation to the watchman’s counter (if any).

47.Notice of Intention to Proceed was served by the plaintiff on both defendants on 7 March 2022. Referring to the 1^st defendant’s first medical report, ie an ultrasound examination report dated 10 March 2022, the 1^st defendant was referred to the A&E Department of a hospital for further clinical correlation. Then the 1^st defendant went through a difficult period between April 2022 and mid-July 2022. It is probable that he did not inform the 2^nd defendant about the existence of the present proceedings, including the hearing date on 30 June 2022. He might not want his mother to know the court hearing. Because of his acute medical condition, he might not bother to deal with the present proceedings.

48.The mere fact that the 2^nd defendant simply asserted that she was old and she let her son to check the mailbox cannot be credible or compelling evidence. However, if all matters in this case are taken to be considered together, including the background of the present case, the 2^nd defendant’s personal background, her affirmations and her response to the present proceedings from August 2022 onwards, etc, the 2^nd defendant’s assertion that she had no notice of the present proceedings, including the Originating Summons, the hearing date scheduled on 30 June 2022, carries some degree of conviction and is credible. This explains why she had not responded to these proceedings at all for about one year and seven months from November 2020. After the death of the 1^st Defendant on 19 July 2022, it was probable that the 2^nd defendant had to dispose of the 1^st defendant's personal properties and she then found out some legal documents from the 1^st defendant's personal properties. All of the legal documents, including the plaintiff's demand letters and the Notice to Occupants, were in English. With the explanation of her friend, the 2^nd defendant then became aware of the present proceedings. She immediately applied for legal aid and wrote a letter to the court on 31 August 2022. While her legal aid application was still pending for approval, she even filed her homemade 1^st affirmation to the court on 12 October 2022. As she was old and did not understand English, she filed another affirmation also on 12 October 2022 and purported to authorize her son's friend to handle the case for her. This showed that she did not want to the Property to be sold. Her case of lack of actual knowledge was also supported by her 2^nd affirmation. If she had had notice of the present proceedings before the death of her son, knowing that the Property was to be sold, it would have been unlikely for her not to response to the present proceedings at all in the past. Hence, the 2^nd defendant's assertion of lack of notice to the present proceedings is credible.

49.For the purpose of this application, the court is concerned with the issue of whether the 2^nd defendant had actual notice of the present proceedings, rendering her non acknowledgement of the Originating Summons and her failure to attend the court hearing on 30 June 2022. I need not resolve the issue of whether the 2^nd defendant actually knew the loan in 2019 or the Loan in 2020 at this stage.

50.In the premises, the Default Judgment as against the 2^nd defendant was irregular and it should be set aside or revoked pursuant to O 28 r 4 RDC as of right, without considering the proposed defence of the 2^nd defendant.

(G) Meritorious Defence

51.In deference to the arguments of the counsel for both parties, I shall deal with the 2^nd defendant’s purported defence to the plaintiff’s claim in relation to the order for sale of the Property, based on the 2^nd defendant’s present evidence.

52.The 2^nd defendant relied on Fortis Bank Asia HK formerly known as Generale Belgian Bank v Yu Kam Hoi Herman and Another, HCMP 134/2002, unreported, 4 March 2004 at paras 77 to 82; and Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825 at paras 16 to 19 and 107 to 108, in support of her contention that the Property should not be ordered for sale.

53.The plaintiff contended that the 1^st defendant’s interest in the Property should be realized to pay off his outstanding debt and there was public interest in maintaining the commercial discipline, unless the order for sale would not be beneficial to all co-owners or would result in very great hardship to one co-owner, citing Re Liu Yi Fang (a bankrupt) [2015] 3 HKLRD 668 at paras 69 to 70. The plaintiff complained that the 2^nd defendant’s evidence of very great hardship resulting from the sale of the Property was a bare assertion.

54.In the present case, the 2^nd defendant stated that she was old and financially dependent on the 1^st defendant in the past, she had no other assets or savings and her CSSA application was approved.

55.I am not satisfied with the 2^nd defendant’s evidence on the point of very great hardship resulting from the sale of the Property. First of all, she had not disclosed how many bank accounts or savings she actually had (if any). She simply saying that she had no savings. She did not explain how she received the CSSA from the government, whether received in cash or through any bank account. Furthermore, she did not disclose if she was the beneficiary or one of the beneficiaries of the estate of the 1^st defendant. There is no evidence of whether the 1^st defendant left a will or not or whether the 1^st defendant had a wife or issues. She briefly said that she had no savings or other assets in one simple paragraph in her 2^nd affirmation.

56.Concerning the Property, the court can only gather some information from the land search record of the Property which sheds light on the probable outcome of the order for sale. The Property was purchased in 2012 at HK$7,500,000. The 2^nd defendant said that her husband had paid HK$3,000,000 as part payment and the balance of the purchase price was financed by charging the Property in favour of Hang Seng Bank. That is to say, the loan from Hang Sang Bank in about 2012 was about HK$4,500,000. Presumably, the mortgage repayments were paid in the last ten years. There is no evidence as to the amount of the monthly mortgage repayment. The court does not know how much is still outstanding under the mortgage loan with Hang Seng Bank. The charging order absolute in favour of hang Seng Bank was not produced as evidence. According to the Default Judgment, the reserve price of the Property is HK$8,500,000. The proceeds of the sale shall first be applied to settle the government rents and rates, then the mortgage with Hang Seng Bank. Then, after deducting the costs in connection with the sale of the Property, 50% of the remaining proceeds relating to the 1^st defendant’s interest in the Property would be applied to pay the plaintiff’s costs and discharge of the Second Mortgage, etc. Hence, based on the present state of evidence, the court does not know how much the 2^nd defendant will be receiving upon the sale of the Property, unless there is evidence about the outstanding amount owed to Hang Seng Bank.

57.The 2^nd defendant failed to explain why she did not put forward any evidence about the outstanding sum owed to Hang Seng Bank. On a pure assumption that the HK$4,500,000 loan had not been repaid at all in the past (which is impossible), after the sale of the Property at the reserve price of HK$8,500,000, the 2^nd defendant would have received about HK$2,000,000. The mortgage loan with Hang Seng Bank had actually been repaid in the past ten years. That means that the 2^nd defendant would have received more than HK$2,000,000 after the sale of the Property.

58.I agree with Mr Cheung that the sale of the Property might cause some inconvenience to the 2^nd defendant who had been living in the Property for the last eleven years, but inconvenience should be distinguished from the issue of very great hardship. Mr Cheung submitted that by the Second Mortgage, the joint tenancy of the defendants had severed, citing Moneysq Limited v Liu Kit Ling and Another, DCMP 3315/2018, unreported, 3 July 2019 at para. 9, in which the District Court applied Ma Sum alia Ma Wing Sum v Ma Choi Kee & Ors [1967] HKLR 177 at 195. Mr Cheung also contended that the 2^nd defendant, as a co-owner of the Property, should not expect that she would be able to purchase another property with a similar area in the same locality as a sole owner. After the sale of the Property, the 2^nd defendant should be able to rent another similar property in the same locality for living. Her application for CSSA was not caused by the sale of the Property but was caused by the death of the 1^st defendant or the 2^nd defendant’s financial need. The plaintiff argued that the proceeds of the sale of the Property could relieve the 2^nd defendant from her financial difficulty if any.

59.Hence, the evidence filed by the 2^nd defendant so far is far from sufficient to show that the sale of the Property would result in causing very great hardship to her. The 2^nd defendant failed to show a meritorious defence or a real prospect of success to the plaintiff’s case.

(H) Costs

60.As a general principle, the costs of the 2^nd defendant’s application for setting aside the Default Judgment should follow the events.

61.In a writ action, where a defendant fails to give notice of intention to defend, a plaintiff may invoke the application for default judgment by taking out a summons pursuant to Order 13 of RDC. The present case was commenced by originating summons. The plaintiff had not invoked and should not invoke an Order 13 procedure. Whether or not the defendants had acknowledged service of Originating Summons and/or the Notice of Appointment to Hear Originating Summons, the plaintiff has to attend the hearing on 30 June 2022 in any event. Hence, the costs up to 30 June 2022 should be regarded as costs of the action.

62.The costs of and occasioned by the 2^nd defendant’s application for setting aside the Default Judgment should start from the time she filed her 1^st affirmation on 12 October 2022 in which she had not fully disclosed all of the circumstances under which she had no notice of the present proceedings. By her 2^nd affirmation filed on 12 December 2022, the 2^nd defendant then supplemented her case by giving more details and evidence.

63.The circumstances under which default judgment is irregular vary from case to case. This is not a case in which the plaintiff served the court documents on the defendant at a wrongful address or otherwise effected service defectively. The plaintiff’s solicitors have fully complied with the prescribed rules in effecting service on the 2^nd defendant. The 2^nd defendant did not challenge the affirmation of service filed on behalf of the plaintiff. It is the 2^nd defendant’s own decision to let the 1^st defendant to collect mail from their mailbox. In the context of costs, the 2^nd defendant should not take advantage of her own decision of letting her son to collect the mail in the expense of the plaintiff. It is the 1^st defendant who did not inform the 2^nd defendant about the present proceedings. It is the 2^nd defendant’s case that the 1^st defendant took away her legal documents and letters. The plaintiff had done nothing wrong in effecting service on the defendants. I appreciate that in most of the cases involving irregular judgment, the defendants should have the costs of setting aside applications. However, in the present case, as a matter of fairness and justice, it would only be fair to hold that there should be no order as to the costs between 12 October 2022 and 12 December 2022, ie the period that the 2^nd defendant filed her 1^st affirmation and 2^nd affirmation. My conclusion can also be understood in a different way. On the basis that the plaintiff had fully complied with the prescribed rules in effecting service of the documents of the present proceedings on the 2^nd defendant, the 2^nd defendant filed two affirmations and claimed that she only had actual notice of the present proceedings after the Default Judgment had been entered and after the death of her son. Assuming that the plaintiff had conceded to the 2^nd defendant’s assertion and agreed to have the Default Judgment set aside as of right by consent without a court hearing for argument, I would have come to the same conclusion that there should be no order as to costs in relation to the costs of and occasioned by the two affirmations filed by the 2^nd defendant.

64.In the present case, the 2^nd defendant had only set out her full case by her 2^nd affirmations filed on 12 December 2022. The plaintiff decided to contest the 2^nd defendant’s application. Costs of and incidental to the setting aside application after 12 December 2022 including the costs of the hearing on 23 June 2023 should follow the event. Hence, the 2^nd defendant is entitled to the costs on this part.

65.I also consider that the parties had fully argued the issue of very great hardship on the part of the 2^nd defendant resulting from the sale of the Property. Both parties referred me to a number of court cases. I have not lost sight to the fact that the 2^nd defendant initially purported to take a legal argument that the plaintiff did not fall within the meaning of “person interested” in invoking the order for sale application under the Partition Ordinance. The merits of the 2^nd defendant’s purported defence were fully argued in the substantive hearing on 23 June 2023 and the 2^nd defendant failed in showing a meritorious defence or a real prospect of success to the plaintiff’s claim.

66.In the premises, I exercise my discretion in allowing 50% of the 2^nd defendant’s costs of and occasioned by her application for setting aside the Default Judgment after 12 December 2022.

(I) Disposition

67.It is ordered that:-

(a) the Default Judgment as against the 2^nd defendant be set aside or revoked;

(b) a costs order nisi that there should be no order as to the costs concerning the 2^nd defendant’s costs of and occasioned by her 1^st and 2^nd affirmations filed between 12 October 2022 and 12 December 2022;

(c) a costs order nisi that the plaintiff shall pay 50% of the 2^nd defendant’s costs of and occasioned by her application for setting aside of the Default Judgment after 12 December 2022, including the hearing on 23 June 2023, to be taxed if not agreed, with certificate for counsel;

(d) the 2^nd defendant’s own costs be taxed in accordance with Legal Aid Regulations.

68.The costs orders nisi in paragraph 67(b) and (c) above shall become absolute 14 days after this judgment. Any party who seeks to vary the costs orders nisi shall take out a summons and apply by written application.

69.I thank counsel for their assistance to this court.

Mr Tommy Cheung, instructed by Foo & Li, for the plaintiff

Mr Nelson Miu, instructed by Cedric & Co, for the 2^nd defendant