Chan Sau Ha v. Leung on Yu

DCCJ 1493/2023

[2025] HKDC 676

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1493 OF 2023

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BETWEEN

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DECISION

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INTRODUCTION

1.This is the appeal against the Order of Master Andrea Yu made on 11 September 2024[1] (the “11/9/2024 Order”)  which allowed the summons issued by the Defendant (“D”)  on 6 November 2023[2] (the “6/11/2023 Summons”), applying for, inter alia, the default judgment entered by the Plaintiff (“P”)  against D on 31 October 2023[3] (the “Default Judgment”)  be set aside.[4] (the “Appeal”)

2.By the 11/9/2024 Order, D was given leave to file and serve his defence within 28 days from the 11/9/2024 Order.  In other words, the deadline for D to file and serve his defence would fall on 9 October 2024.

3.On 23 September 2024, D filed his defence and counterclaim without signing a statement of truth (the “D&C”)[5]. However, D only served the D&C on P by ordinary post dispatching the same to P’s solicitors on 8 November 2024.[6]  The service of the D&C is deemed to be effected on 10 November 2024[7] and there was a delay by about 1 month. P took issue on D’s late service of the D&C.  On 29 November 2024, HH Judge Alan Kwong directed that the matter concerning D’s late service of the D&C be dealt with at the substantive hearing of the Appeal.[8]

4.At the substantive hearing of the Appeal, P was represented by Mr Edward Lun of Counsel and D appeared in person. Mr Lun confirmed that P no longer took issue on D’s late service of the D&C, to wit if the Appeal was unsuccessful, P would not take issue on D’s late service of the D&C.

5.At the end of the substantive hearing, D informed the Court that he understood English and agreed to my decision to be written in English.  I reserved my decision to be handed down on or before 27 April 2025.

6.This I now do.

BACKGROUND

7.The following is the indisputable background of this case.

8.P and D were lovers between about October 2020 and late 2021.  They often communicated with each other by WhatsApp.

9.On 29 July 2021, P transferred HK$1 and HK$129,999 from her savings account numbered 012-xxx-x-xxx638-9 at Bank of China (Hong Kong)  Limited (“P’s BOC Account”)  to D’s BOC account numbered 012-xxx-x-xxx736-3 (“D’s BOC Account”).[9]  On the same day, P transferred a further sum of HK$70,000 from her Standard Chartered Bank account numbered 407-x-xxx185-1 (“P’s SCB Account”)  to D’s BOC Account.[10]

10.At the material time,

(a)  D held two securities trading account with a securities company called Futu (富途牛牛)  (“Futu”), one in Hong Kong currency numbered 1001xxx12xxx2935[11] and another one in US currency numbered 1001xxx52xxx4616[12] (respectively “D’s HK Trading Account”, “D’s US Trading Account” and collectively “D’s Trading Accounts”);

(b)  D was trading securities via the “富途牛牛” apps under Futu; and

(c)  P had access to D’s Trading Accounts.

11.As of 10 August 2021,

(a)  D held in D’s HK Trading Account various securities of the total value of HK$386,691.00 and cash of HK$77,380.78[13]; and

(b)  D held in D’s US Trading Account various securities of the total value of US$5,223.57 and cash of US$641.67[14].

12.As of 28 February 2022, D held in D’s HK Trading Account various securities of the total value of HK$14,540.00 and cash of HK$90,082.21.[15]

13.As of 1 March 2022, D held in D’s US Trading Account securities of the total value of US$969.81 and cash of -US$11,416.07.[16]

14.On or about 8 July 2022, P demanded D to repay the sum of HK$200,000.00 via WhatsApp.[17]

15.On 28 February 2023, P’s solicitors Chang & Co issued a demand letter to D for the repayment of the loan of HK$200,000.00 advanced by P to D on 29 July 2021 (the “Demand Letter”).[18]

16.Despite the Demand Letter, D has not repaid P the sum of HK$200,000.00.

17.On 13 April 2023, P issued her specially-indorsed Writ of Summons (the “Writ”).[19]

18.On 28 April 2023, D was deemed to have been served with the Writ.[20]

19.On 3 May 2023, D acknowledged service of the Writ, intending to contest the proceedings.[21] In D’s acknowledgement of service form, D has failed to give his residential address for service.

20.On or before 31 May 2023, D should have filed and served his defence, but failed to do so.[22]

21.On 28 July 2023, P filed a Notice of Intention to Enter Judgment dated 26 July 2023 pursuant to Order 19, rule 8A of RDC(the “Notice”).[23]  The Notice was served on D by leaving in the letterbox at the last known address of D on 28 July 2023[24] and was deemed to be served on D on 31 July 2023[25].

22.On 31 October 2023, P entered the Default Judgment against D for, inter alia, the sum of HK$200,000.00.

THE PARTIES’ RESPECTIVE CASES

23.P’s case is simple and straightforward. P claims[26] as follows:-

(a)  During a discussion over telephone in or about July 2021, P entered into an oral agreement with D whereby P would lend D the sum of HK$200,000.00 without interest and to be repayable upon demand (the “Loan Agreement”).[27]

(b)  Alternatively, it was implied by law under the Loan Agreement that the loan of HK$200,000.00 was repayable upon demand.

(c)  Despite the Demand Letter, D still fails and/or refuses to repay P the loan of HK$200,000.00.

(d)  D remains indebted to P in the sum of HK$200,000.00 and P is entitled to the repayment of HK$200,000.00.

(e)  Further or in the alternative, D holds the sum of HK$200,000.00 on trust for P.

24.P has abandoned her claim for a declaratory relief that D holds the sum of HK$200,000.00 on trust for P, and relied solely on his liquidated monetary claim for the said sum.[28]

25.As gleaned from various Affirmations filed by D[29] in support of the 6/11/2023 Summons and the D&C[30], D’s case is as follows:-

(a)  The sum of HK$200,000.00 was not a loan, but a sum provided by P to D for investment purpose.  If the investment was successful, there would be return. But if the investment was not favourable, P would be responsible for her own loss and D needed not return the sum claimed to her.[31]

(b)  Since P’s parents had invested in the Hong Kong stock market and gained money, P encouraged and proposed to D to make investment in the Hong Kong stock market.[32]

(c)  On 29 July 2021, despite D’s refusal, P insisted on transferring the sum of HK$200,000.00 to D as joint investment capital.  The sum of HK$200,000.00 was then transferred to D’s HK Trading Account.  D himself also invested a sum of HK$300,000.00 as joint investment capital.[33]

(d)  D told P that he was confident that he would win back the capital very soon and that he could get back or transfer back to P the profits from the joint investment and the capital very soon.[34]

(e)  P also participated in investing in securities by using her mobile phone to access D’s HK Trading Account.  All along, P had “watched over” what shares D had purchased and had participated jointly with D in the investment of Hong Kong shares.  P also made joint decision with D on how to invest in shares and used D’s HK Trading Account to carry on the sale and purchase of the Hong Kong stock 3800 (保利協鑫能源).[35]

(f)  Their joint investment suffered tremendous loss.  As of 28 February and 1 March 2022, D’s Trading Accounts were only left with HK$21,054.00.  Proportional to their respective investment amount, P was able to get back HK$8,421.00 from D’s Trading Accounts though D could pursue P for HK$50,000.00 as P was willing to bear jointly the loss arising from their joint investment.[36]

(g)  Before P broke up with D, P had admitted that the sum of HK$200,000.00 was advanced to D for joint investment purpose.  The total joint investment sum was HK$500,000.00 and P still owed him HK$50,000.00.[37]

(h)  Whenever P quarrelled to break up with D, D would think of using his savings to compensate P’s loss of investment capital in a bid to make her feel happy and to salvage their relationship.[38]

(i)  Only after P broke up with D did P begin to regard the sum of HK$200,000.00 as a loan advanced by her to D and chase D for the sum.[39]

(j)  D is now married to another woman, and his daughter was born on 17 July 2023.[40]

26.In the D&C, D counterclaimed for a sum of HK$200,000.00 to compensate him for out of job for 2 years and his trauma.[41]

RELEVANT LEGAL PRINCIPLES

Appeal under Order 58, rule 1 of RDC[42]

27.An appeal from the master to the judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time, save that the party appealing, even though the original application was not by him but against him, has the right as well as the obligation to open the appeal.  The judge will of course give the weight it deserves to the previous decision of the Master; but he is in no way bound by it.  The judge in chambers is in no way fettered by the previous exercise of the master’s discretion.[43]

Setting Aside Default Judgment

28.The legal principles in setting aside default judgment entered in pursuance of Order 19 of RHC (counterpart of Order 19 RDC)  were adumbrated by DHCJ Marlene Ng (as she then was)  in Shun Pong Limited v Chan Koo Kai Felix and Others [2018] HKCFI 2628 in §§ 47-51:-

“47. Setting aside default judgment Order 19 rule 9 of the RHC provides that “[the] Court may, on such terms as it thinks just, set aside or vary any judgment entered in pursuance of this Order”. The rule gives the court a discretion to set aside a default judgment. “The purpose of the power is to avoid any injustice that may be caused by the entering of judgment in default. Two underlying principles that come into play in the exercise of this power are, on the one hand, that a party should observe procedural rules with judgment entered against him in default and, on the other, that a party should not be deprived of an adjudication of the case on its merits”.

48. If a default judgment is regular, the defendant must show a meritorious defence with a real prospect of success or which carries some degree of conviction. Bare assertions are not sufficient for this purpose. Unless potentially credible affidavit evidence from the defendant has demonstrated a real likelihood that he will succeed on fact, he cannot have shown that he has a real prospect of success. This requires the court to form some provisional view of the probable outcome of the action. Where the outcome depends on whose evidence is likely to be accepted, the appropriate test for determining whether the defendant has a real prospect of success is to ask whether the defence “could well be established” at trial or whether the defence witnesses could well be believed at trial.

49. It is not correct to adopt the approach that if the defendant can show he has an arguable defence, a default judgment against him ought to be set aside unless there is incontrovertible evidence before the court to negate it. The court is also entitled on assessment of the affirmation evidence to come to a view that the defence put forward is inherently unbelievable and the defendant therefore has failed to discharge the burden of putting forward a defence with a real prospect of success.

50. But, on the other hand, the Court of Appeal in Maryo Development Limited v Tsang Yau May[44] explained that:

“13.  Godfrey JA speaks in terms of the defendant being required to show ‘a real prospect of success’ and the court forming a provisional view of ‘the probable outcome of the action’.  These formulations have their origin in the judgment of the English Court of Appeal in the ‘Saudi Eagle’.  There is a danger that they can be read as requiring the court to undertake a mini-trial on the affirmations as to the likely outcome if the matter goes to trial.  This is not what is required and perhaps the correct approach can be more helpfully summarised as requiring the court to form a provisional view as to whether or not the defendant has a realistic prospect of successfully defending the action. Determining this will involve assessing whether or not the defendant’s evidence on disputed factual matters has a realistic prospect of being accepted and, if it has, that the defendant has a realistic prospect of establishing a defence in law.  The assessment has to be carried out mindful of the interlocutory nature of the application and with a sense of proportionality.”

51. There are other considerations which a court must consider in deciding whether or not to set aside a default judgment, such as the reason why default judgment was allowed to occur in the first place, and any delay in setting aside and any consequent prejudice caused to the plaintiff. The court’s approach is to conduct a balancing exercise of all relevant factors. But the critical factor and starting point are the merits of the defence. If the defence has no real prospects of success, there is no point in setting aside the same.”[45]

ANALYSIS

Regular Default Judgment and D’s explanation for failing to file the defence in time

29.There was a lapse of 5 months between the prescribed deadline for D to file and serve his defence[46] and the entry of the Default Judgment[47].  There was a further lapse of 6 days between the entry of the Default Judgment and the 6/11/2023 Summons.

30.In D’s 1^st Affirmation made and filed on 6 November 2023, D deposed that since he was not clear about the legal procedure, he only filed his acknowledgement of service form giving his intention to defend the proceedings but failed to file his defence.[48]

31.In the conclusionary paragraph of D’s 3^rd Affirmation filed on 6 May 2024[49], D further deposed the following:-

(a)  He did not have sufficient legal knowledge, so he did not know that he was required to submit his defence 28 days after he received the letter from the court.

(b)  He only received the Notice after the deadline since he had moved to live with his mother-in-law in Fanling after his daughter was born on 17 July 2023.  He had lived in Fanling for about 1.5 year so that his daughter could be taken care of by his mother-in-law.  At the time, he did not return to live in his Shatin residence, so he did not receive the court documents.

32.I do not accept that the explanation given by D is a good one.  Neither do I accept in particular that D did not know the time requirement of filing and serving his defence.  In clause 2 of the “Directions for Acknowledgement of Service” both in English and Chinese accompanying the Writ, the time for filing and serving the defence[50] which was described as “IMPORTANT” in both English and Chinese at the 1^st and 2^nd pages of the Writ must have been brought to the attention of D.  D must have read the “Directions for Acknowledgement of Service” accompanying the Writ.  Otherwise, he would not have been able to file his acknowledgement of Service giving his intention to defend the proceedings within time.

33.As I have said earlier on[51], there was no need for P to issue and serve the Notice since D does not have a solicitor on the record in the proceedings and has not stated a Hong Kong address or any address at all in the acknowledgement of service form at which he can be served.  This being the case, P was at liberty to enter the Default Judgment after the deadline for D to file and serve his defence on 31 May 2023.

34.In my view, the Default Judgment is a regular judgment and D has not taken any issue as to the regularity of the Default Judgment.

Defence with No Real Prospect of Success

35.In the instant case, D must show a meritorious defence with a real prospect of success or which carries with it some degree of conviction.  The Court is required by the law to form a provisional view as to whether or not D has a realistic prospect of successfully defending the instant action.  In assessing whether or not D has a meritorious defence with a real prospect of success, the Court is not obliged to suspend its critical faculties and assume that D’s evidence is accurate.  If, having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, D’s defence does not reach the requisite threshold, the Court must say so.  I am also mindful of the interlocutory nature of the application and the assessment has to be carried out with a sense of proportionality.

36.After deliberating on all the relevant evidence and the submissions of Mr Lun and D, I am driven to the view that D has failed to show a meritorious defence with a real prospect of success.  My reasons are as follows: -

(a)  The essential issue in the instant case is whether the transfer of the HK$200,000.00 from P’s bank accounts to D’s BOC Account on 29 July 2021 was a loan or a sum provided by P to D for joint investment purpose.

(b)  P’s case is that the loan agreement was entered into orally and not in writing.  This however does not automatically follow that the instant action must be tried.  This is particularly so where at the time of the transfer of the said HK$200,000.00, P and D were lovers and in an intimate and romantic relationship.[52]

(c)  That said, both P and D have exhibited their WhatsApp communication records to their affirmations in support of or in opposition to the 6/11/2023 Summons and I am required to look at the WhatsApp communication records closely.  The WhatsApp communication records are contemporaneous records evidencing the parties’ intention at the material time. The closer the WhatsApp communication records to the time of the transfer of the said HK$200,000.00, the more probative would be those records of the parties’ intention.  It is because closer to the time of the transfer, the relationship between P and D was still harmonious and there was no reason why D had to say something to pacify P and to salvage their relationship.  According to the WhatsApp communication records, there are a lot of conversations between P and D suggesting strongly if not overwhelmingly that the transfer of the said HK$200,000.00 by P to D was in the nature of a loan.  The following are the relevant excerpts from the WhatsApp communication records:-

(i)  After the sum of HK$130,000.00 (ie part of the said HK$200,000.00)  was transferred from P’s BOC Account to D’s BOC Account on 29 July 2021, D said, “Ok thank u I would return soon by hangseng maybe”[53] and “Ok return you soon”[54].  When P told D that only after Standard Chartered Bank approved D’s new registration could she use P’s SCB Account to transfer the money to D, D replied, “No problem Don’t worry Would return u soon”[55].  D also mentioned that it would be easier for him to remember the sum if the whole sum was HK$200,000.00.[56]  P and D then discussed which bank of P D could transfer the money to and thereafter, P said, “到時可以 directly transfer to China Bank”.[57] In the same conversation, D asked P whether she would feel scared and P replied, “真正買既人係你  應該你驚d  ”.[58]

(ii)  On 14 September 2021 when the relationship between P and D was bumpy, D said, “I would return you 100k as soon as possible”.[59]  Thereafter on the same day, there was a discussion on whether D had already returned HK$100,000.00 to P or the earlier transfer of HK$100,000.00 by D to P had failed.  In the same conversation, D said, “放心   我唔會走你錢  俾少少時間我  我賣左 d野會俾翻你”.[60]

(iii)  When P and D were on the verge of breakup:-

(aa)  On 9 November 2021, P told D that she saw him losing money “睇到你輸左錢”[61].

(bb)  On 11 November 2021, D uttered, “我同你相處得好辛苦 .. 那我們分手吧  你唔使擔心我無錢還俾d時間我就可以！  我唔會再揾你  我會儘快還俾你  你可以俾定戶口我  影俾我”[62].  P then forwarded to D P’s BOC Account information.

(cc)  On 15 November 2021, D asked P, “錢個度  你係咪要我馬上還”. Then P said, “果20萬 你可以既時候就過返數界我” and D asked, “有無deadline”. P said, “acc你睇返record就有” and D replied by asking, “我諗要d時間”. P then answered, “ok”. D asked P again, “有無deadline？” P said, “你自己決定”.[63]

(dd)  On 16 November 2021, D implored P to go out with him. During conversations, D said, “你可以咁絕  我唔會無義的  我唔會走你錢”. P then retorted, “我唔係絕  係太了解你了”.[64]

(ee)  On 8 December 2021, D again implored P to see him the last time. During the imploration, D told P, “我以後唔煩你  我問人借錢還翻俾你 以後不煩你”[65].

(iv)  After P broke up with D, P chased D for the repayment of the sum of HK$200,000.00 on various occasions.  On 9 July 2022, D raised that P said before “共同承擔” as an answer to P’s pursuit of the repayment of the said sum. P immediately answered, “你reject了 “.[66]

(d)  In light of the WhatsApp communication records, D’s defence that the transfer of the HK$200,000.00 by P to D was not a loan but for a joint investment purpose, cannot stand up to scrutiny.  If the said transfer was in the nature of capital injected by P for a joint investment, D would not have told P just after receipt of HK$130,000.00 from P that he would return the money to P soon and inquired with P as to which bank of hers he should directly transfer the sum of HK$200,000.00 to.  They should have been more interested in exploring ways to profit from their joint capital, such as what particular shares they should purchase and whether those shares should be held for long term or short term.  There was indeed no mention of the said transfer being for a joint investment purpose or anything about return on investment.  Remember also that at the early stage of the said transfer, P already told D that D was the person who purchased securities and D should be the one who was scared.

(e)  All along, D had acknowledged to repay P the HK$200,000.00.  It was only in July 2022 that D began to dispute the repayment.

(f)  Furthermore, D’s case has been varying all along.  In D’s 1^st Affirmation filed on 6 November 2023 in opposition, D deposed that the sum of HK$200,000.00 was provided by P to him for investment purpose and if the investment was not favourable, P would be responsible for her own loss and D needed not return the sum claimed to her.[67] In D’s 2^nd Affirmation filed on 24 January 2024 in opposition, D deposed that their joint investment suffered tremendous loss and as D’s Trading Accounts were only left with HK$21,054.00, P was able to get back HK$8,421.00 from D’s Trading Accounts though D could pursue P for HK$50,000.00 as P was willing to bear the loss jointly arising from their joint investment.[68]  In D’s 3^rd Affirmation filed on 6 May 2024 in opposition, D deposed that the total joint investment sum was HK$500,000.00 and P still owed him HK$50,000.00.[69]  In the D&C, D did not raise a counterclaim against P for the said sum of HK$50,000.00, but only counterclaimed for a sum of HK$200,000.00 to compensate him for out of job for 2 years and his trauma.[70]

(g)  D’s case is that only after P broke up with D did P begin to chase D for the sum of HK$200,000.00.[71] D’s case on when P broke up with D in his 3^rd Affirmation filed on 6 May 2024 is at variance with his case in the D&C.  In his 3^rd Affirmation filed on 6 May 2024, D deposed that P broke up with him in late December 2021.[72]  Whereas, in the D&C, D pleaded that P broke up with him in November 2021.[73]  If P broke up with D in November 2021, there would be no reason why D approached P in December 2021 to inform her that he would return the said sum of HK$200,000.00 to her unless the said sum was a loan and D was truly indebted to P.

(h)  I am also alive to D’s case that P had “watched over” what shares D had purchased and had participated jointly with D in the investment of Hong Kong shares.  This part of D’s case is neither here nor there since P and D were in intimate relationship and it was not unusual for P who also had prior experience in investing in Hong Kong shares to be concerned about D’s personal investment in securities.

37.For the above reasons, I conclude that D has failed to discharge the onus on him to establish a defence with a real prospect of success.  I also find that it has not been shown by D that there are other reasons or considerations for this Court to exercise its discretion to set aside the Default Judgment.

DISPOSITION

38.For all the reasons stated above, I would allow the Appeal and the 11/9/2024 Order be set aside. On costs, I order on a nisi basis that D shall bear the costs of and occasioned by the Appeal and the 6/11/2023 Summons and the hearings below, to be taxed on a party and party basis if not agreed, with certificate for counsel.  This costs order nisi shall become absolute after 14 days from today’s date unless any party applies to vary the same within the 14-day period.

Mr Edward Lun, instructed by Chang & Co, for the Plaintiff

The Defendant appeared in person