Maxful Sail Ltd v. Yau Chung Wo Jeremiah and Another
Read the full judgment text of HCA 2003/2019 on BabelCite. This High Court CFI judgment was delivered on 28 October 2024.
1. This is an attempt to discern fact from fiction, to distinguish myth and reality. In litigation, he who comes to assert must prove his case and it is the Court which is tasked to ascertain, on a balance of probabilities, on the evidence available and on the case as pleaded, what is more probably the true version of facts. At times, reality may well be stranger than fiction, but the Court must decide what is objectively more reasonable and credible on any independent evidence as may be availab
Cited by 3 cases · Cites 11 cases
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HCA 2003/2019 [2024] HKCFI 2994 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2003 OF 2019 _____________
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_______________ J U D G M E N T _______________ Background 1.This is an attempt to discern fact from fiction, to distinguish myth and reality. In litigation, he who comes to assert must prove his case and it is the Court which is tasked to ascertain, on a balance of probabilities, on the evidence available and on the case as pleaded, what is more probably the true version of facts. At times, reality may well be stranger than fiction, but the Court must decide what is objectively more reasonable and credible on any independent evidence as may be available, short of relying on the protagonists’ own self-interested and often biased assertions. 2.The case is defined and confined by the pleadings. 3.On the Plaintiff’s case, it is incorporated in the BVI as an investment company which is controlled by Mr Pun Wai Hei (“Pun”) and his family. At the material time, (and even on the Defendants’ case) Pun was the 50% shareholder of the Plaintiff, with his wife and daughter each holding 25% of the shares. 4.The Plaintiff’s claims in these proceedings are made in reliance upon a written instrument bearing date 10 October 2019, entitled債權轉讓合同 (Debt Transfer Agreement) (“Transfer”) and signed by the Plaintiff as assignee and Pun as assignor of a debt of HK $4 million (“Debt”). The Debt was in turn evidenced by a Mortgage Memorandum dated 27 August 2010 (“Mortgage”) signed by Pun and the Defendants named in these proceedings, namely Mr Yau Chung Wo Jeremiah (“Yau”) and Madam Lau Siu Foon (“Lau”). 5.The Mortgage recorded the fact that Pun had made a loan of HK$4,000,000 (“Loan”) to Yau and Lau at their request, and that Yau and Lau agreed to transfer the title in their residence at No 1, 9th Street, Section F, Fairview Park in Yuen Long, New Territories, Hong Kong (“Property”) to Pun or his nominated company as security for their repayment of the Loan. It is not disputed that the Property was registered in the name of a company, Uni-Faith Limited (“UF”). 6.Clause 3 of the Mortgage states that the Property shall be transferred to Pun or his nominee as security “until Yau and Lau repay all the principal and interest (清還一切本息)”, whereupon Pun shall return the title in the Property to Yau and Lau at “原價” (original value/price). 7.Clause 5 of the Mortgage states that during the term of the Loan, Yau and Lau must through bank transfer pay to Pun each month HK$15,000, “until full repayment of the principal 直至本金還清”. Under clause 6, the term for repayment of the Loan was stated to be 24 months, which may be varied upon both parties’ consent, but not exceeding a maximum of 60 months. Clause 6 further provides that from the 61st month, Pun may dispose of the Property on his own, and Yau and Lau “must coordinate and may not object (必須配合,不得反對)”. 8.There is no dispute that by an assignment dated 27 August 2010, the Property was assigned and transferred from UF to the Plaintiff. On the Defendants’ pleaded case (paragraph 21 of the Amended Defence and Counterclaim (“Defence”), the Property was assigned to the Plaintiff as nominee of Pun pursuant to the Mortgage. The title deeds of the Property were delivered to the Plaintiff under the arrangement and permission or consent of Yau and Lau. 9.On the Plaintiff’s case, the Mortgage constitutes a legal or alternatively an equitable mortgage between Yau and Lau as mortgagors, and Pun or the Plaintiff as mortgagee. On its pleaded case, Yau and Lau failed to repay the Loan or any interest on the Loan despite its demands, and that as assignee of the Debt under and by virtue of the Transfer, it is now entitled to the vacant possession and sale of the Property. 10.The Defendants were both admitted to practise as lawyers in Hong Kong. Yau was admitted as a solicitor in 1991 and was a partner of a firm of solicitors until he was made bankrupt in 2000. Lau is Yau’s wife, and she has been practising as a solicitor in Hong Kong since 1994. She operated a firm (Yau and Lau) from late 1998 until 2010, and Yau was a manager of the firm in 2002. Lau is still practising and is now a salaried partner in a solicitors firm. 11.The case presented by the Defendants on the pleadings and in their witness statements can be summarized as follows. 12.Yau became acquainted with Pun while working in a criminal case concerning a friend of Pun in 2002 (“Criminal Case”). Pun became so grateful for Yau’s help, and so impressed by the fact that Yau would take up the liabilities of his firm when his partner had absconded, and that Yau could survive not only bankruptcy but his cancer diagnosis, that he invited Yau in 2007 to become his “personal adviser, consultant and mentor”, on all matters including “investment, financial, philosophical, religious, spiritual as well as personal development matters”. Pun agreed to pay Yau HK$20,000 per month for his service, as a long-term commitment until dissolved by mutual agreement. 13.Pun turned out to be a successful property developer and investor with projects in Hong Kong, Mainland China and overseas, and Yau claims that as a result of Yau’s “multiple advice, counseling and comfort”, Pun was able to make huge profits of over HK$200 million from his projects between 2007 and 2010. According to Yau, Pun was so appreciative of Yau’s services that he confirmed to Yau that his engagement as Pun’s “life coach” would last indefinitely. 14.In August 2008, Yau decided to acquire the Property in the name of UF which was then jointly controlled by Yau and a friend Li who had initially agreed to fund Yau’s purchase. However, when Li fell into financial difficulties, Yau sought financial assistance from Pun, who agreed to support Yau to purchase the Property as his “personal and genuine dwelling”. It was agreed that the Property would be charged to Pun as security for Pun’s Loan of HK$4 million, on the understanding that there would be part repayment of the Loan at HK$15,000 per month, and total repayment of the balance upon sale of the Property - at such time as Yau pleased. According to Yau, the Loan was to be interest free. At the same time, Yau claims that Pun insisted on having the Property assigned to him or to a company nominated by him, as security for the Loan. 15.On the Defendants’ case, they were very grateful for Pun’s assistance in their time of need. They had referred to Pun as their “benefactor”. However, sometime in mid-2013, Yau and Lau learned on the news that Pun had been kidnapped from his home in Hong Kong to the Mainland, and that later, Pun was charged of a criminal offence on the Mainland, for which he was ultimately found guilty and sentenced in mid-2015 to 16.5 years of imprisonment in Guangzhou. 16.Some time between 2014 and 2017, Mrs Pun approached the Defendants to discuss solutions for their repayment of the Loan and to release the Property to Yau and Lau, but they were not able to come to terms of agreement. When Mrs Pun served on Yau and Lau notice of the Transfer in October 2019, Yau and Lau were not prepared to make payment of the assigned Debt to Mrs Pun, since they were not satisfied that she had the authority to collect, or had any interest in, the Debt. The Defendants claimed that Pun and Mrs Pun had a divorce in 2019, and that Mrs Pun may be taking advantage of Pun whilst he was in prison, by seeking payment of the Debt which may not have been validly assigned to her. In these proceedings, the Defendants speculated whether Pun and Mrs Pun had ended their marriage on good terms, and questioned whether the Transfer had been signed by Pun involuntarily, or whether the Transfer was a forgery perpetrated by Mrs Pun, and that the purported assignment by the Transfer was in fact invalid. 17.Proceedings were finally commenced by Mrs Pun in 2019 in the name of the Plaintiff, the company named in the Transfer signed by Pun (and to which the Property had been assigned in 2010). 18.A Defence, described by Counsel for the Plaintiff as “convoluted” and “conflicting”, was filed for the Defendants, in which a series of roving attacks were launched against the Plaintiff’s case. Making the best effort to make sense of the pleaded case, the assertions by way of purported defence may be summarized as follows:
19.The Defendants counterclaim (inter alia) for:
20.Despite the Defendants’ insistence that they were all along grateful to their “benefactor”, and that their defence in these proceedings was only to put the Plaintiff to proof of its claim of entitlement to the Debt under the Transfer - at a time when they suspected that Mrs Pun and the Plaintiff were taking advantage of Pun’s incarceration and absence since 2013 - the Defendants nevertheless saw fit to commence HCA 1840 against Pun (as 1st defendant and the Plaintiff as 2nd defendant) in October 2020, to recover the life coach consultancy fees said to be due and payable to Yau from September 2010, seeking a total payment of HK$2,460,000 (at HK$20,000 per month from September 2010 until judgment). They obtained judgment in default against Pun in February 2021, and are seeking to set off the alleged Debt against the sum of HK$2,460,000 by virtue of the 1840 Judgment (“Judgment Debt”). 21.By the first day of trial, Counsel for the Defendants informed the Court that the Stamp Duty Defence and the Trustee Defence would not be pursued. It was only in Closing that Counsel for the Defendants indicated that the Residing Rights issue, and the argument and submissions made for Yau and Lau in Opening and at trial, that they (as opposed to UF) were not in fact owners or mortgagors of the Property, and had no title to assign to Pun, were in truth academic and would not be pursued if the Court should find in favor of the Plaintiff on the validity of the Transfer and the Mortgage, and an order for sale should be made by the Court. The late concession was indeed necessary, bearing in mind (as Counsel for the Plaintiff had highlighted) the fact that in their Defence, Yau and Lau had themselves admitted that: (1) Yau was at all material times the secretary of UF and Lau was the sole director of UF since August 2010 when the Mortgage was signed (paragraph 9 of the Defence); and (2) the Mortgage constitutes a mortgage between Yau and Lau as mortgagor and Pun as mortgagee (paragraph 23 of the Defence). 22.By virtue of the concessions, much of the lengthy evidence on the negotiations between the Defendants and Mrs Pun on the delivery up and sale of the Property will not have to be dealt with in this Judgment. 23.What remains to be the key issues in dispute, for determination by the Court at trial are accordingly:
24.The witnesses who were called to give evidence at trial were Mrs Pun for the Plaintiff, Madam Qu (“Qu”) the Mainland lawyer who witnessed Pun’s execution of the Transfer in prison in 2019, and the Defendants. Mr Pun is still in prison and could not give evidence. The other witnesses of the Plaintiff were an estate agent and Mr Kun, a solicitor, both of whom were involved in the intended sale of the Property in 2019. Yau had initially alleged in his witness statement that it was on Kun’s advice that Pun had insisted on a mortgage of the Property by way of an assignment, as Pun did not have a money lender’s licence. In his statement, Kun denied that he had ever given such advice to Pun. The Defendants did not require these witnesses to be called at trial, for cross‑examination. 25.The accounts of the events in 2010, relating to the circumstances of the Loan and the execution of the Mortgage, have therefore been given solely by Yau, and Lau. Mrs Pun had no direct involvement in these aspects, and could only refer to what she had been told by her husband. On the Defendants’ part, it was argued that the Plaintiff/Mrs Pun could have obtained a statement from Pun even if he was imprisoned, and that arrangements could have been made for Pun to give evidence by video link. It was argued that the Plaintiff and Mrs Pun chose not to make any of these arrangements, and that the Court should make the necessary inference against the Plaintiff and approach Mrs Pun’s evidence with caution if not suspicion. I have given regard to these submissions, but taking a practical and realistic approach, I consider that the possibility and ability of the Plaintiff to arrange for meetings with Pun during his incarceration on the Mainland, for instructions to be given by Pun to make affirmations or witness statements for these proceedings in Hong Kong, and for Pun to give evidence by video link, to be unlikely. 26.On the question of whether adverse inferences should be drawn by virtue of the fact that the Plaintiff has not called Pun to give evidence or to make an affirmation to support the Plaintiff’s evidence, the courts would only be inclined to do so in cases where there is “a valid and legitimate basis for making the assumption or inference” (per Le Pichon J, as she then was, in Lee Hysan Estate Co Ltd v Sky Heart Ltd HCA 8239/1995, 11 February 1997). Further, the inference is always open to explanation by circumstances which make some other hypothesis a more natural one than the party’s fear of exposure of unfavorable evidence (Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356). The position is amply explained more recently by Harris J in Moorthy Selvaraj (as one of the beneficiaries of the estate of Karupaya Selvaraj, Deceased) v Karupayee Ammal (as the administratrix and one of the beneficiaries of the estate of Karupaya Selvaraj, Deceased) and others [2024] HKCFI 403, at paragraph 20:
27.When the only other protagonist is not available to give evidence on his version of the relevant and disputed events, I have to bear in mind that Yau and Lau both have interests in the relevant transactions and that the Court should approach their claims with a healthy dose of skepticism if not with caution, bearing in mind the fallacy and unreliability of human memory (as reminded by the Court in Yu Man Fung Alice v Chiau Sing Chi [2020] HKCFI 2923, at paras 54-56). The Court should endeavour, at least, to test their one-sided evidence against whatever independent and contemporaneous evidence as is available, and of course, against plain common sense and inherent improbabilities. 28.I also bear in mind the very helpful guidance on assessment of evidence given by Leggatt J in Gestmin SGPA SA v Credit Suisse (UK) Ltd [2013] EWHC 3650 (Comm), which was actually referred to by Harris J in Moorthy Selvaraj. After referring to the reasons why memory of witnesses is fallible, Leggatt J explained:
As Harris J pointed out in Moorthy Selvaraj, and I agree, there is no reason why the approach advocated by Legatt J should be confined to commercial cases, and not be applicable to civil cases generally. 29.The observations made and set out above are pertinent when the testimony in this case on various meetings allegedly held comes from Yau only, and there is no evidence from Pun to shed light as to whether Yau’s account is truthful, accurate, or complete. Moreover, as Harris J also pointed out (at paragraph 18 of his judgment in Moorthy Selvaraj), Leggett J’s remarks were directed to the evidence of an honest witness, and there are cases in which it is likely that the witness giving evidence is in fact lying, or tailoring the evidence to present it in a way which he/she assumes is likely to make the evidence more compelling. As His Lordship observed, once the memory of a witness is shown to be unreliable in any material respect, the witness’s evidence may become less valuable, or of little value at all. 30.The conclusion made by the judge in Moorthy Selvaraj is that there are many practical difficulties in proving an oral agreement claimed to have been made in the distant past, and his reminder and observation at paragraph 13 is pertinent:
Validity and effectiveness of the Transfer 31.The Plaintiff accepts that section 9 of the Ordinance applies to govern the validity and effectiveness of the Transfer of the Debt. Under section 9, in order to be effective, the assignment must be absolute, by writing under the hand of the assignor and not by way of charge only, of which express notice in writing has been given to the debtor. The assignment then becomes effective from the date of the notice, subject to any equities entitled to priority over the rights of the assignee. 32.On behalf of the Defendants, it was argued, firstly, that the Transfer was only an agreement to assign, and not an immediate or absolute assignment. It was also argued that the assignment under the Transfer was conditional upon payment, and that it has not been established that the condition had been fulfilled. Further, it was contended that by reason of the manner in which the Transfer was executed, it was not actually signed by Pun under his hand on 10 October 2019 as the Plaintiff alleges. 33.Mr Tang for the Defendants contended that as the Transfer was expressed to be a “contract” or “agreement” for the assignment of the Debt (債權轉讓合同), it was simply an agreement to perform, and not the performance itself. He further argued that by virtue of clause 1.4 of the Transfer, the agreement for the transfer did not even have immediate legal effect. Clause 1.4 states:
34.Mr Tang further seeks reliance on clauses 2 and 3 of the Transfer, which (on his case) set out the details for performance of the agreement. Under clause 2, Pun designated his daughter Ms Pun (“Daughter”) to receive the consideration of HK$4 million for the Transfer (“Consideration”), and the Plaintiff as the assignee agreed to make payment of the Consideration to the Daughter within 14 days of its receipt of a notice for payment. According to Mr Tang, a document which sets out a timetable for performance cannot be performance itself. 35.On the evidence, Mrs Pun had on the Plaintiff’s behalf effected payment of a sum of US$550,000, equivalent to a sum exceeding HK$4 million, into the account of the Daughter on 10 October 2019. 36.The date and amount of the Plaintiff’s payment to the Daughter are one of the “obscurities” seized upon by the Defendants, to cast doubt on the overall authenticity and validity of the Transfer. According to Mr Tang and the Defendants, the Transfer stated the Consideration as HK$4 million, but Mrs Pun transferred to the Daughter on 10 October 2019 a substantially higher amount of US dollars which is equivalent to HK$4,290,000. Mr Tang asked the rhetorical question why Pun and Mrs Pun (for the Plaintiff) would agree on a sum of HK$4 million, and then immediately change the arrangement and pay in a different currency, for a higher amount. 37.Mrs Pun had explained that at the relevant time, she could only manage to utilize a sum of US dollars, and that the excess was to cover any difference that may be caused by any fluctuation in the exchange rates, at a time when there was uncertainty in Hong Kong in October 2019, as to whether the Hong Kong dollar would be unpegged from the US dollar, and she was concerned to ensure that the payment would not be less than the stated Consideration. 38.On behalf of the Defendants, Mr Tang claimed that there were many reasons for Mrs Pun to transfer US$550,000 to the Daughter, and that it might not in truth correspond to the payment of the Consideration under the Transfer. The Defendants repeatedly highlighted the fact that Pun and Mrs Pun had divorced in 2019, and they did not know if the Puns had ended their marriage on good terms, and how they had divided their assets. The Defendants also highlighted that all the suspicious obscurities to which they referred, including the circumstances of the execution of the Transfer (to be dealt with under the next heading), have not been answered by either Pun himself, or by the Daughter in relation to her receipt of the US dollars from her mother. 39.The Transfer and the Mortgage are the key, if not the only, contemporaneous and relevant documents in this case. 40.First and foremost, the content and substance of the Transfer is to be considered, rather than its label, name, or form. 41.The meaning of the Transfer, whether it is an immediate and absolute transfer, or only an agreement to transfer or a conditional transfer, is to be resolved by construing the terms of the written document. If the meaning of the document is clear, on the plain language used, and the effect can be determined as a question of law, there is no need to answer all the obscurities raised by the Defendants. The question of its authenticity is separately dealt with under the next heading. 42.As a matter of construction, I am satisfied that the Transfer is an outright and absolute transfer of all Pun’s rights and interests in the Debt under the Mortgage, and that notice of the assignment was duly served on Yau and Lau by the Notices of 17 October 2019, to satisfy the requirements of section 9 of the Ordinance, to be valid and effective. 43.In his judgment in Hughes v Pump House Hotel Co Ltd [1902] 2 KB 190 (CA), at 193, Matthews LJ explained the correct approach of the courts in construing an assignment and whether it satisfies the condition of being absolute:
44.Considering all the terms of the Transfer, it is clear that the intention of Pun as the assignor was to transfer to the Plaintiff the entire Debt specified in the Mortgage (referred to in recital 3 of the Transfer), together with the security in the Mortgage, “all the related rights and interests” thereunder, as well as the interests related to the Loan. The “Debt” and the related rights and interests are defined in clause 1.1. Pun agreed that the entire Debt was to be transferred (“甲方同意將本合同約定的標的債權全部轉讓給乙方”), and the Plaintiff agreed to accept the transfer. Under clause 1.4 of the Transfer, the parties expressly agreed that the assignment was to have immediate effect upon their signing of the Transfer. 45.I do not accept the submissions made for the Defendants, that the Transfer was only an agreement to assign or transfer the Debt, and that it was not the transfer itself. Reading all the terms of the Transfer, the parties’ intention as expressed by the language used was for the assignment to be effected by and upon the parties’ execution of the Transfer. This was made clear in the recitals, which referred to the parties’ intention to assign, and to sign the Transfer in accordance with their agreement reached. Clause 1.3 expressed the intention of Pun to assign the defined rights in the Loan evidenced by the Mortgage, and the intention of the Plaintiff to accept the assignment. Clause 1.4 makes it clear that the assignment was effective between the parties as from the date of the execution of the Transfer. 46.There is no uncertainty in either the intention to transfer, or the subject matter to be transferred. Upon Mrs Pun’s payment on behalf of the Plaintiff of the stated Consideration to the Daughter (as nominated by Pun), and the service of the Notice on Yau and Lau on 17 October 2019, there is nothing further to be done or to be performed under the Transfer, to effect or complete the assignment. 47.The Defendants allege that it was suspicious and obscure that Mrs Pun should have made payment of an equivalent sum of HK$4,290,000 instead of HK$4 million to the Daughter. On Mrs Pun’s evidence, the payment of a larger amount was to make sure that there could not be any possible dispute about whether there was sufficient payment to Pun as assignor, in view of the fluctuation in the currency exchange rates of US dollars and HK dollars. There is nothing improbable or unbelievable about that. In the context of the execution of the Transfer in September/October 2019, the Defendants had already expressed disagreement by then with Mrs Pun over the right to the Property and the security for the Loan, and Mrs Pun must have been cautious and alert to the possibility of the Defendants seeking to find room to challenge the assignment. Even if there should be a surplous after allowing for any difference in the exchange rates, bearing in mind that the immediate recipient of the amount was the Daughter, and not a stranger, it is not improbable that Mrs Pun would have been prepared to make the payment. 48.The Defendants argued that there are myriads of reasons which can explain Mrs Pun’s payment to her daughter, and that the payment of US$500,000 may not actually be the Plaintiff’s payment of the Consideration under the Transfer. 49.There may well be occasions and different causes for Mrs Pun to make payments to her daughter, but considering the matter objectively and dispassionately, I cannot agree that it is usual or commonplace for a mother to pay a large sum of US$500,000 to a daughter. In the absence of any cogent evidence from the Defendants which can shed genuine doubt on the link and relationship between the payment of the Consideration after the execution of the Transfer in September 2019, and the deposit of the US$500,000 into the Daughter’s account on 10 October 2019, I do not accept the Defendants’ suggestion that the US$500,000 from Mrs Pun was a coincidental payment to the Daughter around the time of the Transfer, which was unrelated to the payment of the Consideration under the Transfer. To make such a finding would be a matter of wild-guessing and mere surmise unsupported by any concrete objective facts. 50.An assignment of a part of a debt is not an absolute assignment within the meaning of section 9 of the Ordinance, but under the Transfer, it is clear from the language used in the entire instrument that what was to be transferred from Pun to the Plaintiff was the entire Debt under and secured by the Mortgage, being the Loan and including “all the related interests” thereunder. Authenticity of the Transfer 51.On the question of authenticity of the Transfer, it is trite that whereas the Plaintiff in this case has the persuasive burden of proving its case on the Transfer, since the Defendants are disputing the authenticity of the documents signed by Pun, they bear the evidential burden of adducing evidence probative of the forgery or tampering they allege. As the Court of Final Appeal made it clear in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387, inferences of fraud or serious misconduct can only be drawn where such inferences are properly grounded in the primary facts found, and the inferences are compelling. It is not permissible merely to choose what might be the more likely of two guesses, if neither was properly justified by the primary facts. 52.The Court of Final Appeal also pointed out in Nina Kung that to require a plaintiff to dispel all suspicious circumstances is to impose a wrong burden of proof. At paragraph 182 of Ribeiro PJ’s judgment, His Lordship explained that the civil standard requiring proof on the balance of probabilities is to be applied flexibly where an allegation is made of criminal or similarly serious misconduct. The inherently greater improbability of serious misconduct should be factored in, thus requiring the person bearing the burden of proving the allegation to prove it with evidence of commensurate cogency. Ribeiro PJ referred to the speech of Lord Nicholls of Birkenhead in Re H & Others (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563:
53.The fact that there are suspicious circumstances surrounding the execution of an instrument cannot prove that the instrument was not authentic or was not signed, or did not have the purported effect on the face of the document. It is trite, that the burden is on the party asserting a case of forgery, or wrongdoing, to establish its case on clear evidence. 54.The written Transfer bears a date of 10 October 2019 typed on the document. It bears the signature and fingerprint/thumbprint of Pun, and the signature of Mrs Pun as director of the Plaintiff. There is of course no expert evidence that Pun’s signature or fingerprint was not his, or was a forgery – apart from Yau’s own expressions of opinion, all of which are inadmissible. The Notices of the Transfer were served on Yau and Lau on 17 October 2019 by the Plaintiff’s solicitors. Each of the Notices bears the signature and fingerprint/thumbprint of Pun, and has a date of 17 October 2019 typed on the Notice. 55.On the entirety of the evidence adduced at trial, the Transfer was signed by Pun at Dongguan prison on the Mainland on 23 September 2019, in the presence of a Mainland lawyer (Qu) who visited Pun on the instructions of Mrs Pun. A Declaration was made by Qu on 23 September 2019 as to Pun’s execution of the Transfer (“Declaration”). As a result of the Defendants’ challenge of the contents and exhibits attached to the Declaration, Qu made a witness statement on 4 August 2021, and gave evidence at trial. 56.On the Defendants’ case, the circumstances of the execution of the Transfer were extremely suspicious and warranted their challenge of the authenticity of the Transfer and their refusal to make payment of the Loan to the Plaintiff. 57.First, they rely on the fact that Pun had disappeared and had been reported to have been kidnapped since mid-2013. They also rely on the fact that Pun had been sentenced in 2015 to 16.5 years imprisonment in 2015. 58.Next, the Defendants claim that Pun had divorced Mrs Pun in 2019. They speculated that the Puns might have ended their marriage on bad terms and Mrs Pun may be using the Transfer as a means to appropriate Pun’s money at a time when he was imprisoned, and explained that the Defendants had no way to verify the Transfer with Pun personally or directly. 59.As another obscurity, Counsel for the Defendants referred to the fact that Mrs Pun was only appointed a director of the Plaintiff on 18 September 2018, at a time when Pun had been kidnapped. In this regard, Counsel still made reference in his submissions to the Defendants’ failed application for discovery. That was made before trial on the basis that the documents sought might establish that there was an alleged “pattern” of Mrs Pun making up corporate documents of the Plaintiff to procure the transfer of shares to herself and her appointment as a director of the Plaintiff. The application was dismissed as a fishing expedition, but it appears that the Defendants still wished to suggest that there might have been fraud or forgery conducted by Mrs Pun – of which there is of course not a shred of evidence. 60.On Mrs Pun’s case, which is actually corroborated by what Lau said in her witness statement, and by the evidence of Kun, she had since 2014/2015 been trying to seek repayment from Yau and Lau of the Loan which Pun had made to them. According to Lau, Mrs Pun had first inquired with Lau, through Mrs Pun’s lawyer Kun, whether the Loan could be repaid in cash or from the proceeds of selling the Property. Negotiations did not produce any result and according to Mrs Pun, she had corresponded with Pun even during the period of his incarceration, and ultimately, since the Defendants would not repay the Loan, it was decided that the Debt should be purchased by the family company, ie the Plaintiff (to which the title of the Property was already assigned pursuant to the Mortgage), and that the Debt would be pursued through the Plaintiff. Qu was instructed to produce the Transfer and the Notices to Pun, to explain to Pun the decision of the assignment of the Debt and to have the Transfer and Notices signed by Pun, which was done in Qu’s presence on 23 September 2019. The Transfer and Notices signed by Pun were given to Mrs Pun on 23 September 2019, and she signed the Transfer for the Plaintiff as assignee on 25 September 2019. Mrs Pun further made payment of the US$550,000 on 10 October 2019, and informed her lawyers, who inserted the date of 10 October 2019 on the Transfer and on the Notices. 61.Qu confirmed in her evidence that she had visited Pun in prison on 23 September 2019, and had given him the Transfer and the Notices to read. She stated that Pun had read and expressed agreement to the documents and had, in her presence, personally signed and put his fingerprints/thumbprints on the Transfer and the Notices. She made her Declaration on the same day and appended copies of the Transfer and Notices to the Declaration. The substance of her Declaration was confirmed in her witness statement filed on 4 August 2021. 62.The Defendants rely on the fact that it was only in the course of opposing the Defendants’ application for specific discovery that Qu produced an affirmation on 22 March 2024 (“Affirmation”), to give further details of the circumstances of her attestation of Pun’s execution of the Transfer. According to the Affirmation, the Transfer and the Notices which Qu had returned to Mrs Pun bore the signature and prints of Pun, but the dates had been left in blank. 63.What is perhaps unfortunate about the preparation of Qu’s Declaration, which became fodder for cross-examination of Qu and Mrs Pun, is that when the Declaration was compiled, it appended documents to show Qu’s qualifications as a Mainland lawyer, and these had been updated to include her verification records for 2019, 2020 and 2021, namely for periods after the date of her Declaration. The Transfer and the Notices appended to the Declaration were copies which bore the respective dates of 10 October 2019 and 17 October 2019, which dates were inserted/typed in after Pun had signed and fingerprinted them, and the Transfer appended was the version which bore the signatures of Pun, and of Mrs Pun made after Pun had signed it on 23 September 2019. Ideally, Qu should have exhibited to the Declaration the undated versions of the Transfer and Notices which she had witnessed Pun sign. 64.On the basis of these anomalies, Counsel and the Defendants have submitted that there are doubts and suspicions as to the Transfer: whether it was genuine, was truly signed by Pun, or had been signed by him involuntarily, that the Plaintiff’s team of lawyers “had put words in a signed document”, that the Transfer had been “postdated”, and that the Defendants had reasons to be cautious as to Mrs Pun’s intentions and authority; despite the fact that the Defendants had, all along, been perfectly happy to repay the Loan owed to Pun, for whom they were grateful for his kindness, etc. 65.Having considered the evidence of Qu and Mrs Pun, and on the face of the documents, I am satisfied beyond doubt that Pun had signed the Transfer and Notices on 23 September 2019. The fact that Mrs Pun’s signature was put onto the Transfer after Pun had signed it, and only upon her receiving the signed Transfer, does not render the Transfer or Pun’s execution invalid or dubious. The Transfer was dated upon both parties’ signature, and as Qu explained and I accept, Pun must have known and agreed to the Transfer being signed for the Plaintiff after Pun had put his signature and prints on the document, and that the documents would be dated after his signature. There is no “backdating” of documents, as the Defendants allege. 66.How the Transfer could have been signed by Pun in 2019, when he was in prison, has been explained by Qu and there is no evidence to cast doubt on it. According to Qu, visits to inmates by family and lawyers are permissible, telephone calls can also be arranged for, and documents can be signed after same have been examined by, and in the presence of, prison officers. 67.As to why Pun would sign the Transfer after he had divorced his wife, I find it not incredible at all that he would wish his family to be able to recover the Loan and enforce the Debt whilst he was in prison. According to Mrs Pun, despite the divorce, she and her former husband were still on good terms and they have a daughter to care for. However close Yau may try to describe his relationship with Pun, it is highly doubtful that Pun would choose to be more generous to Yau and Lau than to his daughter and the mother of his daughter. The need and/or capability for his generosity to Yau and Lau had obviously been changed, dramatically, by his sentence and incarceration. 68.In law, the assignment under the Transfer became effective upon the service of the Notices of the Transfer on Yau and Lau. That was on 17 October 2019, as the documentary evidence shows. Whether they had inspected the original Transfer before the service does not affect the date when the Transfer takes effect under the law. 69.If it is indeed true that the Defendants had wished simply to protect their own interests by putting the Plaintiff to proof of the due execution of the Transfer and the legal effect of the Transfer, it would not have been necessary for them to launch their roving attack and their multifaceted defence in these proceedings, which has complicated the evidence, and delayed the progress of the action, the conclusion of the trial, and judgment. The malicious attacks and the allegations made have not cast the Defendants and their motives in a good light. 70.Having found that the Transfer is authentic, and satisfies section 9 of the Ordinance to be an absolute assignment in writing of which notice has been given to the Defendants, it is not necessary to deal with the arguments as to whether as an equitable assignment, Pun as the assignor of the Debt should be joined as a party to the action. Whether the Loan was interest-free 71.This perhaps is the only arguable issue of the Defence. 72.The Mortgage itself is not clear in the language used, as to whether interest on the Loan is chargeable and payable by the Defendants. This disputed issue turns of the construction of the document. The principles of construction and interpretation of contracts are now trite. 73.In Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, Lord Hoffman made the well‑known observation:
74.The law excludes from the admissible background the previous negotiations of the parties and their declaration of subjective intent. This is not an action for rectification of the loan and security agreement evidenced by the Mortgage. 75.As Lord Hutton observed in AIB Group v Martin [2002] 1 WLR 94;
This rule of objective construction is not confined to deeds. 76.The admissible background, famously referred to by Lord Wilberforce as “matrix of fact”, includes anything which a reasonable man would have regarded as relevant and which would have affected the way in which he would have understood the language of the document, and which would reasonably have been available the parties - subject to the exception as to evidence of previous negotiations and the parties’ declarations of subjective intent. The intention of the parties must be ascertained from the language they had used, considered in the light of the surrounding circumstances. 77.The document to be construed must of course be read as a whole, and the court should ascertain the meaning of the instrument taken as a whole, in order to give effect to the intention of the document. 78.In this case, Counsel for the Plaintiff highlighted the application of the contra proferentem rule. This applies where there is doubt about the meaning of a provision in the contract or words used in a contract, in which event the words and provision will be construed against the person who put them forward (The Interpretation of Contracts, 8th edition paras 7.66-7.78). This involves debate on whether the construction should be against the party who prepared the document or the clause as a whole, or against the person for whose benefit the clause operates, and there may be circumstances in which it would be difficult to identify the party which has the benefit of the clause. Hence, it was observed in Taberna Europe CDO II Plc v Selskabet af 1 September 2008 [2016] EWCA Civ 1262 that the contra proferentem rule may be useful to resolve cases of genuine ambiguity, but ought not to be taken as the starting point over and above the construction of the actual words used. 79.In other cases, the rule has been construed and applied as recognition of the fact that a party is unlikely to have agreed to give up a valuable right that it would otherwise have had without clear words (see The Federal Republic of Nigeria v JP Morgan Chase Bank, NA [2019] EWHC 347 (Comm). 80.The Mortgage does not contain an express provision for interest to be charged and the rate at which interest is to be charged. However, the Mortgage refers explicitly to the repayment of “principal and interest (一切本息)” to Pun as lender. Clause 3 states that the Property was to be assigned to Pun as security for the Loan, until Yau and Lau repay “all principal and interest”, when the Property will be returned to them. The monthly payment provision in clause 5 states that Yau and Lau were to make monthly payments of HK$15,000 to Pun, until the principal is repaid. 81.The Plaintiff’s pleaded case is that it was an implied term of the Mortgage that the HK$15,000 was to be payment of monthly interest for the Loan. 82.Yau’s evidence and pleaded case is that Pun had agreed with the Defendants that the monthly payment of HK$15,000 was to be partial repayment of the Principal. There is no express pleading in the Defence that the Loan was interest-free, although the Defendants’ evidence is that it was such (paragraph 15 of Yau’s statement). Parole evidence of the negotiations between Yau and Pun on the Loan is inadmissible, and Pun is not available to give evidence as to his version of any alleged agreement or understanding on interest which is not contained in the Mortgage. 83.On behalf of the Defendants, Counsel contended that extrinsic evidence is admissible, as an exception to the parole evidence rule, to establish that there were additional terms which have been agreed by the parties and which were not intended to be excluded from the written contract (citing Chitty on Contracts 35th ed para 16-024). 84.However, as the learned editors of Chitty on Contracts pointed out and analyzed at paragraphs 16-024 and 16-025, the exception to the parole evidence rule applies only if it can be shown that the written document was not intended to express the entire agreement between the parties. If the court finds that the document is a complete record of the contract, evidence of additional terms will be rejected. 85.On the evidence in this case, I am not satisfied that it has been shown that the Mortgage did not record all the terms agreed amongst Pun, Yau and Lau relating to the Loan and the security therefor. It was a simple loan arrangement, agreed essentially between Yau and Pun, when Yau sought financial assistance from his friend, after having agreed (on his case) to act as Pun’s life coach. Notwithstanding Yau’s insistence that it was all part of a generous, brotherly gesture on Pun’s part to help him, it was obvious that Pun was not content with just a verbal agreement. He wanted a written document, and a Mortgage was prepared by Yau/Lau - trained lawyers who Pun thought should be familiar with the preparation of the essential and necessary documents. Pun even insisted on an assignment of the Property, and the formalities of having the relevant documents to be duly registered at the Land Office in Hong Kong – as clause 4 of the Mortgage records. 86.Even against the relevant factual matrix, Pun having decided to extend and the Defendants having accepted the Loan, it is inherently more probable that the parties would have agreed that all the terms they had agreed would be recorded in the document which was to be prepared by Yau/Lau entrusted for the task. It is unlikely that, at the time when the Mortgage was signed, the parties would have thought it necessary to refer to other essential conditions which are not contained in the Mortgage. 87.On the Defendants’ account, the Loan and the Mortgage was on very generous terms. If clause 5 should be construed to mean that the payment of HK$15,000 per month should go towards repayment of the principal only, it would take more than 266 months to repay the Loan. In the meantime, the Defendants were to reside at the Property, rent-free, indefinitely (even if Pun should decide to sell the Property after 60 months in accordance with clause 6). The Defendants were free to decide whether and when, on their own accord, to sell the Property and only in the event of such sale would the balance of the Loan be repaid, less any interim repayment made. 88.There is no credible reason why the parties should consider that the condition of the Loan being interest-free, and the Defendants’ Residing Rights, should not be set out in the Mortgage. 89.On such finding that the Mortgage was intended by the parties to express and record the entire agreement between them, I am not satisfied that extrinsic evidence is admissible of other terms which add to, contradict or vary the terms contained in the Mortgage. 90.As part of the relevant factual matrix relevant to the construction of the Mortgage, Yau’s evidence sought to highlight the fact that Pun had made the Loan to him as a close friend, or a “brother”, that the agreement for the Loan was not a commercial transaction, and that the Mortgage was a home-made document – despite the admitted fact that both Defendants were lawyers and it was Lau who produced the Mortgage. Yau went to great lengths to explain that when he first approached Pun for help in 2010 with regard to the purchase of the Property, Pun had told Yau that he would like to help him to have a stable and comfortable living so that he could concentrate on Pun’s affairs (as part of Yau’s service as Pun’s life coach). Yet, even on Yau’s evidence, Pun had a main concern with regard to the security for the Loan, being the Property, and had indicated to Yau that the security must be Yau’s “genuine dwelling”. According to Yau, Pun even paid a visit to the Property to be satisfied that it was Yau’s personal dwelling place, before agreeing that the Property could be mortgaged/charged to Pun as security for the Loan. On Yau’s evidence, the terms of the Loan were that there was to be part repayment of HK$15,000 per month, and total repayment of the remaining, in one lump sum, upon sale of the Property. Pun had allegedly stated to Yau that he would not charge any interest on Yau (as Yau had allegedly not charged Pun interest on legal charges of HK$30,000 which had been outstanding when Yau had worked on the Criminal Case in 2002). According to the Defendants, Pun also undertook that they would be entitled to reside in the Property as long as they wished, and Pun further agreed to pay all stamp duty and costs in relation to the documents for the Mortgage (including the assignment of the Property). 91.Construing the words “repay all principal and interest” which appear in clause 3, it is clear that they convey to a reasonable person having all the background knowledge at the time of the contract that the parties obviously intended that principal as well as interest had to be paid by the Defendants on the Loan. To find any other meaning would be to ignore the word “interest” altogether. 92.As for clause 5, it provides for the Defendants’ “payment” of HK$15,000 per month, “until the principal is repaid”. Read together with clause 3, and the term/duration of the Loan, this should mean that the HK$15,000 is the interest payable during the term of the Loan until full repayment of the principal is made and received. If clause 5 had stipulated the monthly payment or transfer of HK$15,000 as “repayment” of the principal, it may be construed that the HK$15,000 was not intended as payment of any interest, but as settlement of the principal only. 93.According to the Defendants’ calculation, the interest rate would be 4.5% per annum (15,000 x 12/4 million). This is not an exorbitant rate. The Defendants sought to contend that this would be higher than what they claim to be the market mortgage interest rate of 2% to 2.25% per annum at the relevant time, and the Defendants could have obtained a mortgage from any commercial bank, instead of agreeing to the terms on interest in the Mortgage. This may be what the Defendants claim now, but the Court cannot in retrospect assume or speculate what the Defendants’ reasons for agreeing to the Mortgage proposed by Pun could have been. Yau himself stated in evidence that he approached Pun for alternative financial assistance when the initial agreement with Li fell through. There is no claim that he had considered obtaining a mortgage from a commercial bank. In any event, it is uncertain whether any commercial bank would have agreed to the terms of payment as specified in the Mortgage, which the Defendants accept to be extremely generous. 94.Lau’s evidence does not assist the Defence. She admitted that she had not participated in the negotiations with Pun on the terms of the Loan, and only relied on what Yau had informed her, that the Loan from Pun was interest-free. In the course of cross-examination, she admitted that she had noted that clause 3 of the Mortgage referred to the payment of “principal and interest”, when Yau had claimed that it had (allegedly) been agreed that no interest would be charged, but she had nevertheless signed the Mortgage as she did not want to revise or add to the document, or to complicate matters. She agreed that it would have been simple and clearer for clause 3 to state “principal”, instead of “principal and interest”, if the Loan was indeed interest free. 95.I do not need to rely on the principle of contra proferentem, but if it should be found that the words in the Mortgage are unclear, then I would have found that clause 3 which provides for the monthly payment should be construed against the Defendants. Not only did they draft the Mortgage, and Lau’s evidence is that she was happy to sign the Mortgage with the wording of clause 3, but the Defendants were also the parties seeking the benefit of the clause, by seeking to confine the monthly payment to repayment of the principal, and to exclude interest. Further, my finding is that in the absence of clear words providing that interest is not payable, clause 3 should not be read to deprive Pun of the right to claim interest on the Loan when the term of the Loan is considered. 96.In conclusion, I find that on construction of the Mortgage, the payment of HK$15,000 per month under clause 5 was payment of interest on the Loan. Set-off under the Judgment Debt? 97.It is the Defendants’ case that even if the Transfer is valid and effective to assign the Debt to the Plaintiff, under section 9 of the Ordinance, the Plaintiff can only take the Debt assigned subject to all equities which would have been entitled to priority over the right of the assignee. The Defendants rely on the fact that they obtained the 1840 Judgment against Pun on 16 February 2021, and that they are entitled under the 1840 Judgment to Pun’s payment to them of a total sum of HK$2,460,000 (calculated up to November 2010 only), and thereafter at HK$20,000 per month, and that they are entitled to assert their right to payment over the Plaintiff’s right to the Debt. 98.The issue therefore is whether the Judgment Debt binds Pun, to constitute an equity which entitled the Defendants to claim priority over the Plaintiff’s right to seek repayment of the Debt from the Defendants. 99.The 1840 Judgment was obtained in default against Pun, when he failed to file acknowledgment of service in HCA 1840. The 1840 Judgment was framed in the exact wording of the claims made in paragraph 7 of the Endorsement of Claim to the Writ, and paragraph (g) of the prayer to the Statement of Claim in HCA 1840, which were: “that Pun shall pay to Yau consultancy fees in the sum of HK$20,000 per month from September 2010 up to and including the date of judgment which sum shall be deducted from the loan sum of HK$4 million as stated in the Loan Agreement [ie the Mortgage]”. The claim for consultancy fees made in HCA 1840 was obviously made with the specific purpose of seeking a deduction and set-off against the Debt in mind. 100.The Defendants place reliance on the fact that neither Pun nor the Plaintiff, which was named as 2nd defendant in HCA 1840, had ever made any application to the Court in HCA 1840 to set aside the 1840 Judgment, and that the 1840 Judgment is accordingly binding on Pun. 101.In its Reply to the Defendants’ plea in the Defence of the 1840 Judgment and their claim of entitlement to a set-off, the Plaintiff pleads (at paragraph 9A) that the 1840 Judgment was obtained by fraud, or by withholding material information from the Court. 102.The Plaintiff relies on the fact that at all material times, the Defendants knew, and it is their pleaded case (paragraph 44 of the Counterclaim) and the focus of their evidence in these proceedings, that Pun had been kidnapped or had disappeared since mid-2013, and had been imprisoned on the Mainland since he was sentenced in 2015. It was by reason of the fact that Pun had been kidnapped from Hong Kong to the Mainland, and had been imprisoned, that they claim that Mrs Pun had no authority to sue for the Debt and that she was taking advantage of Pun and taking his assets whilst he was incarcerated. It is also the Defendants’ evidence in these proceedings that Pun had divorced Mrs Pun in 2019, and that the divorce might not have been on good terms. 103.On the other hand, after commencing HCA 1840 against Pun in October 2020 (a date after Pun’s sentencing, as the Defendants themselves claim), they applied for judgment in default against Pun on the basis of their service of the Writ in these proceedings on Pun in Hong Kong, at the address where he had resided with Mrs Pun in Hong Kong. The Plaintiff claims that the service of the Writ, the Statement of Claim and the application for the 1840 Judgment were all made at a time when the Defendants knew that Pun was not in Hong Kong, and could not have been validly served or given notice of the proceedings here. The Plaintiff contends that the 1840 Judgment was obtained as a result of the Defendants’ fraud, such that it should not be recognized by the Court. The Plaintiff claims that at the very least, the Defendants had withheld material information from the Court when it applied for the 1840 Judgment, and had misled the Court into granting the 1840 Judgment. On the Plaintiff’s case, the 1840 Judgment was created for the purpose of making up a set-off against the Debt. 104.It might be added that Yau and Lau were represented by the same solicitors in both HCA 1840 and these proceedings. 105.On behalf of the Defendants, Counsel refuted the claim of fraud. It was argued that the Defendants did not have any positive duty to inform the Court of their opinion of Pun’s whereabouts, and that any irregularity in obtaining the 1840 Judgment, or their silence, is not sufficient to constitute “fraud”. They argued that in 2020 (which was when HCA 1840 was commenced) they only had “reasonable suspicion” that Pun was probably still in prison on the Mainland, but that any failure on their part to inform the Court of their “suspicion” is not tantamount to fraud. In cross-examination, Yau admitted that the failure to mention or plead to Pun’s disappearance and kidnap in HCA 1840 was “deliberate”, but “not out of ill will or bad faith”. 106.Counsel for the Defendants sought to distinguish between an application for judgment under Order 13 rule 5 and Order 13 rule 6. It was argued that an application made under rule 5 does not require a summons to be issued for judgment, and does not require the service of a statement of claim, that the statement of claim is irrelevant to such an application, and that any reliance on the contents of the statement of claim in HCA 1840 is misplaced. Counsel also argued that when seeking judgment in default and proving service in HCA 1840, it was not necessary for the applicant to state that the defendant is in Hong Kong, nor to state the whereabouts of the defendant. 107.In my judgment, none of the distinctions made by the Defendants can assist them. 108.First, I reject the submission that the Defendants did not have a duty to inform the Court as to any fact which renders service of the Writ in HCA 1840 to be defective, when they applied for judgment in default. 109.Whether the application for default judgment is made under Order 13 rule 5, or Order 13 rule 6, the plaintiff has to file an affirmation to prove service, either of the Writ, or of the Statement of Claim where one is required under Order 13 rule 6 because the Writ is endorsed with a claim not falling within rules 1 to 4, and the application proceeds as an application for judgment in default of defence. 110.In any case, it is a significant matter to seek judgment from the Court. The passage highlighted by Counsel for the Plaintiff, at paragraph 13/6/1 of Hong Kong Civil Procedure, quotes from the judgment of DHCJ William Wong SC in Sky Joy Investment Ltd v Zheng Dunmu, HCA 395/2016, unreported, 16 August 2017, which was also cited and referred to by Coleman J in Alan Chung Wah Tang & Kan Lap Kee (Joined and Several Liquidators of Wah Hin and Company Limited (in liquidation) v Chung Chun Keung [2021] HKCFI 369 at para 22:
111.Mr Recorder Manzoni SC also observed in Bluesun Capital Ltd v Tewoo Group Finance No 3 Limited & Ors [2021] HKCFI 2040, as follows:
112.The question is far from unclear. 113.An application for judgment in default of notice of intention to defend being filed is made by a plaintiff’s affirmation filed with the Court, without service on the defendant. The application is ex parte and the Court only has the evidence filed by one party. The applicant accordingly does have the duty to make full and frank disclosure to the Court, and not to mislead the Court in relation to the application. The matters to be disclosed in discharge of such duty depend on what is material to the application. 114.Where judgment is sought because of a defendant’s failure to give notice of intention to defend, or its failure to file a defence, the plaintiff must prove due service of the writ, or the statement of claim, as the case may be. For judgment in default of a defendant giving notice of intention to defend, Order 13 rule 7 expressly states that judgment shall not be entered against a defendant under Order 13 unless either the defendant has acknowledged service of the Writ, or there is endorsement by a defendant’s solicitor that he accepts service on the defendant’s behalf, or (under Order 13 rule 7(1)(b)) “an affidavit is filed by or on behalf of the plaintiff proving due service of the Writ on the defendant”. 115.What has to be established under Order 13 rule 7(1)(b), before judgment in default is entered under the Order, is “due service”. 116.The HCA 1840 Judgment was obtained on the application made by Yau and Lau when Pun failed to file notice of his intention to defend the claims. The claims made in HCA 1840 include not just a claim for a liquidated demand to fall within Order 13 rule 1, but also claims for a declaration as to trust, for sale of the Property, for delivery up of title deeds and for unliquidated damages (as evident from the Endorsement of Claim). Hence, Order 13 rule 6, and not rule 5 is applicable, but this does not make any difference so far as the need for proof of due service of the Writ is concerned. 117.From the Court record, Yau and Lau did purport to prove service of the Writ when they applied for the HCA 1840 Judgment. An affirmation of Chan Chi Hung (“Chan”) was filed on their behalf on 18 December 2020, in which Chan claimed that the Writ was served on Pun by inserting it through the letterbox of Pun, at his last known address on Island Road in Hong Kong. Chan stated that in the plaintiffs’ opinion, the Writ would have come to the knowledge of Pun “within 7 days after the date of such insertion”. 118.The submission made by Counsel for the Defendants, that the service was attempted according to Order 10 rule 1(2)(a), is simply not borne out by the Chan affirmation. There is no claim made in that affirmation that the Writ had been sent by registered post to Pun at his usual or last known address, and no statement to the effect that in the case of service by post, the copy of the Writ had not been returned to the plaintiff through the post undelivered to the addressee (as required under rule 1(3)(b) (ii)). 119.The Court raised requisitions on the application for judgment, seeking (inter alia) clarification that the plaintiffs were abandoning the claims sought in the prayer to the Endorsement of Claim which are outside the ambit of Order 13 rules 1 to 5. In response, the solicitors for Yau and Lau wrote to confirm that prayers 1 to 6 and 8 to 10 of the Endorsement of Claim were abandoned, the residual claim being that for the liquidated sum of HK$2,460,000. It was on that basis that the 1840 Judgment was approved by the Court, and sealed on 16 February 2021. 120.As to due service of the Writ, which is the material matter required to be established by a plaintiff in seeking judgment in default, Counsel for the Plaintiff rightly pointed out that Yau and Lau had relied on service of the Writ in HCA 1840 under Order 10 rule 1(2)(b) RHC (as is apparent from the Chan affirmation). 121.It has to be borne in mind that the usual and basic rule, as contained in Order 10 rule 1(1), is that a writ must be served personally on each defendant. The rest of rule 1 sets out some exceptions to the requirement for personal service. Other exceptions can be found, for example, in Order 65 rule 4 and in Order 11 rule 5(3). 122.Order 10 rule 1(2) states:
123.Order 10 rule 1(3) in turn provides that where a writ is served in accordance with rule 1(2), “any affidavit proving due service of the writ must contain a statement to the effect that in the opinion of the deponent … the copy of the writ inserted through the letterbox… will have come to the knowledge of the defendant within 7 days thereafter”. That is the specific requirement in the event that a plaintiff relies on due service by insertion of the writ through the letterbox, and that is the material matter for consideration by the Court when it decides on the ex parte application for judgment in default of notice of intention to defend. 124.In this case, it cannot be disputed that on the pleaded case of Yau and Lau in these proceedings, it is their own assertion that Pun had disappeared since mid-2013, was reported to have been kidnapped from Hong Kong to the Mainland, and further, had been incarcerated on the Mainland since 2015. Yau and Lau cannot rely on these matters for one purpose, and deny knowledge of these matters for other purposes when it is convenient for them to do so - such as when they served the Writ in HCA 1840 in November 2020, and when they applied for judgment in default in December 2020, and pursued the application for judgment when they wrote to the Court in January 2021. By withholding the fact that Pun, whom they purported to serve in Hong Kong in November 2020, was in fact in prison on the Mainland at the material time, and was not in fact in Hong Kong, Yau and Lau had failed to disclose and had withheld from the Court a material fact known to them and which is relevant to the Court’s consideration of the application for default judgment. Whether they considered that the Writ might have come to the attention of Mrs Pun in Hong Kong, and she might have brought it to the attention of Pun on the Mainland, so as to support their opinion that the Writ would have come to the knowledge of Pun, are matters which Yau and Lau should have disclosed to the Court, in discharge of their duties to make full and frank disclosure of all material matters which the Court should know, and which are necessary to enable the Court to exercise its discretion properly in its determination of the application for judgment in default. It is trite, that materiality is to be decided by the Court, and not by the assessment of the applicant in an ex parte application (Thermax Ltd v Schott Industrial Glass Ltd [1981] FSR 289, 298). 125.Even if there was no “fraud” on the part of Yau and Lau, when they applied for default judgment in HCA 1840 in the circumstances of this case, by failing to make full disclosure of the fact that Pun was not in Hong Kong at the time when the Writ was purported to have been served on him, Yau and Lau were guilty of misleading the Court on a material matter relevant to the Court’s exercise of its power and discretion to enter judgment in default. 126.Further, based on the circumstances of the entire case, my judgment is that the commencement of HCA 1840 and the application for the 1840 Judgment was an abuse of the Court’s process. At the time of the commencement of HCA 1840 in October 2020, these proceedings had already been commenced and in progress for 12 months. The Defence had been filed in these proceedings on 16 December 2019. The claims made by Yau as to his alleged entitlement to set-off the Debt against his life coach consultancy fees payable by Pun could have been made by way of defence and counterclaim in these proceedings brought by the Plaintiff, without the necessity of Yau and Lau commencing separate proceedings against Pun and the Plaintiff. 127.It is true, as the Defendants have claimed, that Pun and the Plaintiff never applied to set aside the 1840 Judgment. On that basis, the Defendants argued that the 1840 Judgment remains binding on Pun, and through the Transfer, on the Plaintiff. In my judgment, however, it will be an affront to the Court to give effect to the 1840 Judgment when it is an abuse of process and was obtained by Yau and Lau misleading the Court in granting the judgment. 128.In the case of Kan Hung Cheung v Director of Immigration (unreported, HCAL 74/2007, 13 February 2008), Cheung J (as he then was) reinstated the relevant legal principles on material non-disclosure and observed at paragraph 18 of the judgment as follows:
129.Pertinently, His Lordship pointed out in Kan Hung Cheung that the Court will not allow its process to be used to the advantage of a party who has improperly obtained a benefit by reason of non-disclosure. 130.The categories of abuse of process are not closed. In Abraaj Investment Management Limited (in Liquidation) & Ors v Kes Power Limited v Shan-E-Abbas Ashary [2024] EWHC 41 (Comm), a stay application, DHCJ Sean O’Sullivan KC stated at §§54-55:-
131.In the context of committal proceedings, Coleman J in SJ v Wong Chi Fung [2023] 1 HKLRD 93 had the following observations to make on protecting the integrity of Court processes at §§19, 21:-
132.In my Judgment, as guardian of its own procedures and process, the Court should not and will not in this case permit a party to invoke and rely on a judgment which the Court finds to have been obtained by material and deliberate non-disclosure and by misleading the Court on a material matter. 133.Further and in any event, I do not consider that the 1840 Judgment can give rise to either any issue estoppel or res judicata. 134.Issue estoppel may arise only where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided (Arnold v National Westminster Bank plc [1991] 2 AC 93 at 105D-E). For estoppel which falls within the Henderson type of abuse, there must likewise be an issue which has been decided (Johnson v Gore Wood & Co [2002] 2 AC 1 and 59D). As for res judicata, there must be a final decision, pronounced on the merits. This was summarized in Spencer Bower, Turner and Handley “Res Judicata”, 3rd ed at para 9 as follows:
135.It has been explained that the “raison d’etre” of the principle of res judicata or issue estoppel lies in what is just and reasonable (decision of Lord Maugham LC in New Brunswick Railway Co v British & French Trust Corp, Ltd [1939] AC 1 (HL)), and that:
136.The 1840 Judgment may be final (until it is set aside), but being a judgment in default, there was no consideration of the merits and it was not a “decision” by the Court on the merits of any issues raised in the case. In my judgment, no estoppel arises and it is open to and necessary for this Court to consider the merits before deciding whether the Plaintiff in this case as assignee takes subject to Yau’s claims to the Loan assigned by Pun to the Plaintiff. Set-off of consultancy fees 137.Yau’s claim of entitlement to his consultancy fees for acting as Pun’s life coach, alleged to be outstanding from September 2010 at HK$20,000 per month, is already summarized at paragraphs 12 and 13 above (“Consultancy Agreement”). 138.In the absence of any defence and evidence from Pun, the Court has to decide on the existence and terms of the Consultancy Agreement on the inherent probabilities of the case and on the reliability of Yau’s evidence. There is of course no contemporaneous document of any sort to evidence the existence, or the terms, of the alleged Consultancy Agreement. 139.The onus of proof is on Yau, to establish that the Consultancy Agreement had been made, on the terms he alleged, and that the consultancy fees claimed by him are due and payable. 140.The only particulars given by Yau as to the Consultancy Agreement are that it was made orally at Pun’s request at some unspecified time in 2007, after Pun settled Yau’s outstanding bill in respect of the Criminal Case in 2002. The scope of the services to be provided by Yau under the Consultancy Agreement were wide ranging, to cover matters including investment, financial, philosophical, religious, spiritual as well as Pun’s personal development matters. There was no information as to what work, consultancy or advice Yau had actually given to Pun in the course of the years from 2007 to 2010, when (on Yau’s case) Pun ceased to pay the consultancy fee of HK$20,000 per month. Perhaps in an attempt to explain why the consultancy fee should continue to be payable after Pun’s disappearance in 2013 and during the time Pun had been incarcerated in 2015, Yau sought to explain that in around fall 2013, Mrs Pun had informed him that Pun would be missing for some time, but “they” would continue to seek advice from Yau from time to time. Hence, Yau claimed that he had continued to “gather data and information”, and to be prepared for any services to be called upon to be provided by him, as and when requested by Pun and his family from time to time. According to Yau, he would provide useful information on financial and political affairs to Mrs Pun by email or social media, when Yau considered that these would be of importance to Pun’s best interest and investment. However, no evidence in support has been produced by Yau, in the form of emails or chats on social media which he had sent to Mrs Pun at any time, or for that matter, to Pun before 2013. 141.Mrs Pun denies having asked for, or receiving, any advice from Yau as he alleged. She claims she has no information or knowledge of the services offered by Yau, to her or any member of her family. On Mrs Pun’s case, Pun was an experienced investor and a seasoned businessman, and had no need to seek any advice or guidance from a bankrupt who had lost his qualification to act as a solicitor, and that it was fanciful and disingenuous for Yau to claim that Pun would have agreed to pay HK$20,000 per month, for Yau to act as his personal consultant or coach. Mrs Pun pointed out that Pun had other lawyers, such as Kun, at all material times to give Pun legal advice. 142.According to Mrs Pun, Pun had agreed to extend the Loan to Yau simply in order to help him out, but it was agreed that the Property should be assigned to Pun/his nominee as security for the due payment of the Loan. Mrs Pun claimed that instead of repaying the Loan, or agreeing to sell the Property in order to repay the Loan, the Defendants had continued to occupy and maintain their right to occupy the Property, and well knowing that Pun had been incarcerated on the Mainland, the Defendants had commenced HCA 1840 and applied for judgment in default against Pun, for the purpose of claiming a right of set-off against the Loan which they had failed to repay. 143.I bear in mind that Mrs Pun has no direct knowledge of any negotiations or agreement between Pun and Yau, and that her evidence was based on what she claims Pun had informed her. 144.Yau’s claim of the consultancy fee agreed under the Consultancy Agreement was HK$20,000, as pleaded in paragraph 3 of his original Defence filed on 16 December 2019 and as stated in paragraph 7 of his witness statement made on 19 November 2021. The Mortgage provides for a monthly repayment of HK$15,000. 145.The claim of the agreed set-off is more ambiguous. 146.In the Defence, it was pleaded (at paragraphs 14 and 15) that Pun had (at some unspecified time) proposed to the Defendants that it would not be necessary for the Defendants to make the partial repayment of HK$15,000 on monthly basis, but only at such time and manner as the Defendants found comfortable and convenient, and further, that future partial repayments (of HK$15,000) could be set-off from the remuneration payable to Yau under the Consultancy Agreement. It was pleaded that pursuant to this agreement, Pun stopped paying the consultancy fee of HK$20,000 per month to Yau since September 2010, although Yau had continued to provide consultancy services to Pun and his family. 147.At paragraph 22 of his witness statement made on 19 November 2021, Yau claims that it was in a meeting held in September 2010, at the Harbor Plaza Metropolis Hotel in Hunghom, that Pun had proposed that as he was too busy traveling, he may not be available to meet with Yau every month, and to save trouble, Pun would not pay the consultancy fee to Yau by cheque every month. Instead, Pun suggested that Yau should deduct the monthly consultancy fee from the outstanding Loan “regularly”, and Yau might repay the outstanding Loan or any part thereof any time Yau felt comfortable, or in one whole sum upon sale of the Property. Yau claims that Pun informed him that Yau should not worry about either repayment or his own dwelling, as Pun was not in need of the paltry sum of the Loan, and that Yau should concentrate on giving Pun advice and guidance. 148.In cross-examination, Yau explained that what was agreed at the September 2010 meeting was that there would be an “automatic deduction” of HK$20,000 per month, instead of the initial arrangement of Pun paying Yau HK$20,000 consultancy fees and Yau paying Pun HK$15,000 as repayment of the Loan. Thereafter, Pun would not be making any payment of the difference to Yau any more. 149.On Yau’s case, therefore, by virtue of the alleged set-off agreement made in September 2010, the monthly repayment of the Loan under the Mortgage would be increased to HK$20,000 from HK$15,000, in order for it to be set-off against the fee payable by Pun to Yau under the Consultancy Agreement. This important fact of the increase of the repayment amount of the Loan was never mentioned in Yau’s witness statement. 150.Counsel for the Plaintiff further pointed out that the alleged amendment or variation of the monthly repayment of the Loan (from HK$15,000 as stipulated in clause 5 of the Mortgage to HK$20,000) was never pleaded in the Defence and Counterclaim. 151.It is Yau’s pleaded case (in paragraph 3 of the Defence) that he had been acting as Pun’s life coach since early 2008 and that the monthly consultancy fee had been agreed since then. In his statement, it was claimed that it was only after the September 2010 meeting in Hunghom that Pun “ceased paying” the monthly consultancy fee of HK$20,000 (and his claim in HCA 1840 was for the fee from September 2010). However, Yau has not produced any evidence at all to show Pun’s payment or Yau’s receipt of any monthly fee of HK$20,000 from 2008 to September 2010 – to prove his assertion of the existence of the Consultancy Agreement. 152.I agree, that the inconsistencies and evolving nature of the claims made by Yau render his case unreliable. 153.According to the Defendants’ own evidence, between 2010 and 2011, they had only made two repayments of the Loan, of HK$30,000 in October 2010 and HK$90,000 in August 2021, by cheques. They claim that they tried to make a third repayment of HK$60,000 in August 2012, but the payment was refused by Pun as he found it troublesome to keep track of small, irregular, repayments. As Counsel for the Plaintiff pointed out, the payments of HK$30,000 (HK$15,000 x 2) and HK$90,000 (HK$15,000 x 6) are more consistent with payment in accordance with clause 5 of the Mortgage, and contradict Yau’s assertions as to the set-off arrangement allegedly agreed in September 2010. 154.Even accepting that Pun might have been very generous and had not insisted on the monthly repayments, I find Yau’s account of the Loan and of the payment arrangement under the Consultancy Agreement to be incredible and inherently unlikely. 155.As Mrs Pun claims, and as supported by what Yau himself stated, Pun was a seasoned businessman who had made huge profits from his investment projects. I find it hard to believe, if it was seriously suggested, that the HK$200 million profits Pun had allegedly made from 2007 to 2010 could be attributed entirely or in part to Yau’s advice or services. Yau has not adduced any form of evidence which can remotely support such suggestion. He has not even produced particulars, or evidence, to support the claim of the work he had allegedly done for Pun over the years. 156.It is dubious that Pun would have agreed to a monthly liability to make payment of a fee of HK$20,000 for advice from a lawyer on investments, finances, religion and political affairs, as Yau alleges. It was not claimed to be a retainer fee for the provision of legal services, which might have been more credible, and if there had been evidence to support the services rendered. 157.If, as Yau claims, he was in such a close relationship with Pun to have been acting as Pun’s trusted personal advisor and mentor, it is also incredible that Yau would not have taken any action, or made any real attempt, to establish contact with Pun in any way, through Mrs Pun or any other contact Yau must have had in the years he had been giving advice to Pun on his investments and projects. One would expect Yau, as Pun’s life coach, to make some genuine attempts to contact Pun after his disappearance, kidnap and then charges, whether to offer his legal or other services (which Pun had been paying for), or to offer his personal and religious support and guidance (also covered in the scope of the Consultancy Agreement), or even just to confirm Pun’s intentions in relation to the Property when Mrs Pun approached the Defendants to negotiate the sale of the Property for repayment of the Loan. Yau’s excuse, that his relationship with Pun was a “brotherly bond” between men, and he had not wanted to bother Mrs Pun or to discuss it with her, beggers belief. Yau gave some tenuous excuse in the course of cross-examination that in 2013, he had tried to contact Pun, and there was some unparticularised claim by Yau and Lau that after Mrs Pun had approached the Defendants for repayment of the Loan, they had “tried” to reach Pun, but that Pun could not be contacted. Yau’s explanation, that customarily, it was Pun who initiated contact with him when Pun required advice from Yau, and he was therefore content, throughout the years after 2013, to wait for Pun to approach him, is feeble. The fact of his knowing or even suspecting that Pun had been arrested, charged, or incarcerated should be exceptional and extraordinary enough to prompt Yau, as Pun’s adviser and coach, to part from usual custom and to take some initiative to make contact with Pun. On the whole, the total inaction on Yau’s part, from 2013 to 2017 (when Mrs Pun first demanded for repayment through her solicitors), defies the so-called “brotherhood” alleged by Yau and suggests instead that there was in fact no close relationship, and no Consultancy Agreement on the terms he alleges. In short, the arrangement for set-off under the Consultancy Agreement is simply fiction. 158.It defies common sense that it could have been the parties’ agreement that the Consultancy Fee would continue to be payable, indefinitely, even though Pun and Yau had not been in contact since 2013 at the very least – and only because Yau was allegedly always on standby and preparing for any advice he might be called upon to give. If that was indeed so, one would expect Yau to consider it necessary to find out what aspects of life or business Pun was expecting assistance on, and for which Yau should be working in consideration of the Consultancy Fee. In my judgment, the idea that the Consultancy Fee continues to be payable is totally incredulous. Partial repayment 159.The only set-off or deduction I allow is for the repayments of HK$30,000 and HK$90,000 made on 25 October 2010 and 30 August 2011 respectively. These are evidenced by Lau’s cheque stubs showing the amounts of the cheques recorded to have been issued to Pun. In its Reply, the Plaintiff only does not admit the first payment and denies payment of the second. There is no evidence that the cheques and payments had not been received by Pun, and Counsel only argued that as the Defendants never raised the part repayments when they first responded to the demand for repayment of the Loan made by the Plaintiff’s solicitors, and in view of the financial situation of the Defendants, the inference should be drawn that the payment of HK$120,000 was for purposes other than repayment of the Loan. There is no sound factual basis for such inference to be drawn. Disposition 160.For all the reasons set out above, I grant judgment in favor of the Plaintiff for payment of the Debt of HK$4 million, with interest at $15,000 per month (or 4.5% per annum) up to the date of judgment, and thereafter at judgment rate, less repayment made of HK$120,000. A further order is made that if full payment of the Debt and interest is not made within 28 days, the Property shall be sold on the terms set out in the draft order submitted by Counsel for the Plaintiff. 161.The Counterclaim is dismissed. 162.The costs of the action including the costs of the Counterclaim are to be paid by the Defendants to the Plaintiff. 163.The terms of the draft order proposed by the Plaintiff are approved.
Mr Edward TC Chan, instructed by Brandon Luk & Co, Solicitors, for the plaintiff
Mr David WK Tang, instructed by Yung, Yu, Yuen & Co, for the 1st & 2nd defendants | |||||||||||||||||||||||
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