Zhang Jinsong and Another v. Zhang Yu and Another

HCA 1569/2023

[2026] HKCFI 4002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1569 OF 2023

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BETWEEN

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D E C I S I O N

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Background

1.This is the 5^th and 7^th Defendants’ application by Summons dated 11 February 2026 (“Summons”) to set aside the default judgments (“Default Judgments”)  entered in favour of the Plaintiffs on 10 July 2024.  

2.The underlying claim involves the 1^st Plaintiff making a loan in the sum of HK$35,886,600 to the 1^st Defendant under a Loan Agreement dated 28 May 2021 (“Loan”).  Clause 2.2 of the Loan Agreement provides that the proceeds of the loan should be used to finance the 2^nd, 3^rd and 4^th Defendants’ subscription of 197 million new shares in China Smartpay Group Holdings Ltd (“China Smartpay”)  (HKEX Stock Code: 08325). 

3.On 10 June 2021, the 1^st Defendant drew down the Loan.  On 30 June 2021, the 2^nd, 3^rd and 4^th Defendants subscribed for the shares in China Smartpay (197 million shares in total). After the share subscription on 30 June 2021, the 2^nd, 3^rd and 4^th Defendants held their shares under their respective names in the securities accounts with GLAM Capital Ltd (“GLAM”).

4.Deeds of Share Charges (“Share Charges”)  were executed by the 2^nd, 3^rd and 4^th Defendants in favour of the 2^nd Plaintiff, charging the 197 million shares in favour of the 2^nd Plaintiff as security agent for both the 1^st and 2^nd Plaintiffs.  

5.The maturity of the Loan fell on 31 December 2021.  After the 1^st  Defendant defaulted in repayment, the Plaintiffs attempted to enforce the Share Charges on around 1 February 2023, upon which it was discovered that the subject shares had already been transferred away, in breach of the Share Charges.

6.Part of the charged shares were transferred to the 5^th Defendant (who is the sister of the 1^st Defendant)  and the 6^th Defendant. That was done through the arrangement of the 7^th Defendant (who was an employee of China Smartpay).  By a Writ dated 28 September 2023, the Plaintiffs claim against the Defendants for, inter alia, conspiracy to injure by unlawful means.

7.Interlocutory judgments were entered against all of the Defendants, and assessment of damages took place on 18 December 2025, and final judgment was entered inter alia against the 1^st Defendant for the principal sum of HK$35,886,600  plus interest, and against the 1^st to 9^th Defendants joint and severally in the sum of HK$10,047,000 as damages for conspiracy.

Setting aside of default judgment

8.The relevant principles in relation to the setting aside of default judgment are summarised in Hong Kong Civil Procedure 2026 at note 13/9/4 and 13/9/10.  They are not in dispute.  An irregular judgment is liable to be set aside ex debito justitiae, without regard to the merits of the defence.  Nonetheless, that is not to say that the Court will shut its eyes to the surrounding circumstances and why things went wrong, and there is a residual discretion to impose terms for the setting aside of an irregular default judgment by having consideration to the parties’ conduct.  In exercising its discretion to set aside a regular judgment, the Court will have regard to all relevant factors in the exercise of its discretion, including, inter alia, why the default occurred and any prejudice that would be caused to the plaintiff or to other third parties if the default judgment were to be set aside.  The main consideration is whether the defendants can show a defence that has a real prospect of success. 

Regular or irregular judgment?

9.It is not disputed that the 7^th Defendant received the Writ and filed the Acknowledgment of Service of the Writ on 13 October 2023, which stated his address of Flat E, 5/F, On Fook Industrial Building, 41-45 Kwai Fung Crescent, Kwai Chung, Hong Kong  (“D7’s Kwai Chung Address”). The 7^th Defendant, however, argues that he did not have notice of the Statement of Claim, which was served at D7’s Kwai Chung Address by way of prepaid post posted on 20 March 2024.  According to the 7^th Defendant, he was under administrative detention from 12 December 2023 until 11 January 2024, when he was released from administrative detention and placed under residential surveillance at a designated address in the PRC until 22 January 2025.

10.While the movement record of the 7^th Defendant [B/34] shows that he left Hong Kong on 12 December 2023 through the Hong Kong-Zhuhai-Macao Bridge Control Point, and only returned from the West Kowloon Control Point on 22 January 2025, the Residential Surveillance Notice issued by the Municipal Public Security Bureau [B/26], shows that the 7^th Defendant was placed under residential surveillance from 11 January 2024, 10:00 am onwards, with a Hong Kong address in Shatin stated therein.  It is unclear how this discrepancy arises. 

11.According to paragraph 16 of the Affirmation of the 1^st Plaintiff, whilst the Plaintiffs were making preparations to effect service out of jurisdiction on the 5^th Defendant through the relevant PRC judicial authorities, on 9 November 2023, the 5^th Defendant had already filed her Acknowledgment of Service.  The Acknowledgment of Service filed by the 5^th Defendant provided an address at 23/F, Connaught Marina, 48 Connaught Road West, Hong Kong, which was the address of the principal place of business in Hong Kong of China Smartpay at that time.  

Analysis

12.Under O 10, r 1(5)  of the Rules of the High Court (“RHC”):-

“Subject to Order 12, rule 7, where a writ is not duly served on a defendant but he acknowledges service of it, the writ shall be deemed, unless the contrary is shown, to have been duly served on him and to have been so served on the date on which he acknowledges service.”

13.The effect of O 10, r 1(5)  RHC is explained in Hong Kong Civil Procedure 2026 at note 10/1/10:-

“Order 10 rule 1(5)  reflects an old English practice which was known as appearance “gratis”, under which a person could at any time after the issue of a writ or an originating summons, waive service and enter an unconditional appearance (Oulton v Radcliffe (1874)  LRCP 189; Pike v Nairn & Co [1960] Ch 553). A person may acknowledge service of the writ “gratis” without previous service even after the validity of the writ for service has expired (The Gniezno [1968] P 418). The date of service will be deemed to be the date of receipt of the acknowledgment in the Registry.”

14.Having considered the evidence and parties’ submissions, I came to the view that the default judgments entered against the 5^th and 7^th Defendants were entered regularly.

(1)  The 5^th Defendant argues that the signature on the Acknowledgment of Service was not signed by her.  This is a serious allegation of forgery, but there is not any cogent proof of that.  On the contrary, the Plaintiffs have adduced an expert report on handwriting in support of the contention that the signature on the Acknowledgment of Service is consistent with the 5^th Defendant’s other sample of signature.  The 5^th Defendant did not file any reply affirmation to refute this, nor had she exhibited other samples of her usual signature to rebut the expert’s conclusion.

(2)  The 5^th Defendant argued that the expert report on handwriting exhibited to the 1^st Plaintiff's affirmation was not admissible, as the expert did not make an affirmation, and no leave was granted by the Court to adduce such expert evidence.  I do not agree with these submissions:-

(a)  O 38, r 36 RHC provides that:-

“(1)  Except with the leave of the Court or where all parties agree, no expert evidence may be adduced at the trial or hearing of any cause or matter unless the party seeking to adduce the evidence–

(a)  has applied to the Court to determine whether a direction should be given under rule 37 and 41 (whichever is appropriate)  and has complied with any direction given on the application.

…

(2)    Nothing in paragraph (1)  shall apply to evidence which is permitted to be given by affidavit or shall affect the enforcement under any other provision of these rules (except of Order 45, rule 5)  of a direction given under this part of this Order.”

(b)  O 41, r 5(2)  RHC provides that:-

“An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof.”

(c)  An application to set aside a default judgment is interlocutory in nature under the “applications test”. 

(3)  In relation to the 7^th Defendant, it is not disputed that he received the Writ on 6 October 2023, and he filed an Acknowledgment of Service on 13 October 2023.  It was, however, argued that he was out of jurisdiction at the time of service of the Statement of Claim, and he did not have knowledge of the same until January 2025 when he returned to D7’s Kwai Chung Address. 

(4)  However, as Ms Tse for the 7^th Defendant accepted, there was no evidence that he was not able to communicate or receive documents in the PRC.  It is unbelievable that, having filed the Acknowledgment of Service and stated D7’s Kwai Chung Address as his address, he would have completely omitted to take any further steps in relation to these proceedings, including arranging for the checking of D7’s Kwai Chung Address for any further documents in relation to the case.

(5)  Further, different from the service of a writ, the RHC do not require the defendant to be within the jurisdiction for the valid service of the Statement of Claim to be effected.  In our case, the Statement of Claim was validly served by prepaid post to, inter alia, D7’s Kwai Chung Address.

15.For these reasons, I concluded that the Default Judgments entered against the 5^th and 7^th Defendants were regular. 

Whether the Court should exercise its discretion to set aside the Default Judgments

16.At the outset, it must be noted that Ms Tse confirmed that the 5^th and 7^th Defendants do not raise any defence of illegality in relation to the transactions involved.  Further, as Ms So submitted, any potential regulatory issues regarding the dealings among the 1^st Defendant and the 2^nd to 4^th Defendants do not concern the Plaintiffs, and there is no evidence suggesting that the 1^st Plaintiff had assumed a role other than a genuine lender of the Loan.  As such, I do not consider that the nature of the transactions among the Defendants gives rise to any special feature justifying the setting aside of the Default Judgments.

17.The purported defences of the 5^th and 7^th Defendants are covered only very briefly in their affirmations in support of the Summons, spanning only half a page and slightly less than a page respectively, and amounted to little more than bare denials.  In gist:-

(1)  The 5^th Defendant alleges that she was not a party to and had no knowledge of the Loan and the Share Charges.  Her case was that she was asked by the 1^st Defendant in early 2023 to hold the shares beneficially owned by the 1^st Defendant.  Trusting her sister, the 5^th  Defendant did not question the reason for such an arrangement.

(2)  According to the 7^th Defendant, he was employed as a compliance officer of Pan Asia Payment Limited, a wholly owned subsidiary of China Smartpay, with a monthly salary of approximately HK$45,000 plus MPF.  He said he was in fact on the payroll of China Smartpay, and in effect employed by China Smartpay.  The 7^th Defendant alleges that he held a non-managerial role at China Smartpay and would routinely perform paperwork for China Smartpay and the 1^st  Defendant, who is and was at the material time a director of China Smartpay.  He had no knowledge of the business dealings between the 1^st Defendant and the Plaintiffs, and merely followed the instructions of the 1^st Defendant in arranging for the transfer of the subject shares to the 5^th and 6^th Defendants.

18.I do not consider that such a general statement made by the 5^th Defendant in only two paragraphs of her affirmation is sufficient to show a real prospect of success.  I do not think it is believable that the 5^th Defendant would have blindly followed the 1^st Defendant’s instructions without any discussion.  Notably, the 5^th Defendant had not produced any evidence of communication with the 1^st Defendant in support of her purported defence.  This is certainly surprising and appears to be a half-hearted attempt to raise a triable issue.

19.In relation to the 7^th Defendant, the Plaintiffs have produced WeChat messages showing that the 7^th Defendant had knowledge of and participated in arranging for the subject shares to be transferred into the GLAM accounts.  The WeChat messages also appear to suggest that the 7^th Defendant was involved in arranging for the Share Charges [B/202-203].  The 7^th Defendant did not file any reply affirmation to refute or explain these matters.  The contemporaneous documentary evidence certainly sits uncomfortably with the 7^th Defendant’s assertion in paragraph 21 of his affirmation that “I had no knowledge of the business dealings between D1 and the 1^st and 2^nd Plaintiffs”.

20.All in all, having considered all of counsel’s submissions and the evidence, I am not satisfied that the 5^th and 7^th Defendants have demonstrated a real prospect of success in their purported defence, nor are there any circumstances warranting the exercise of the Court’s discretion to set aside the Default Judgments. 

Conclusion

21.For these reasons, I shall dismiss the Summons, with costs to be paid by the 5^th and 7^th Defendants to the Plaintiffs, to be summarily assessed at HK$400,000.

22.I thank Ms So and Ms Tse for their assistance.

Ms Natalie So, instructed by Zhong Lun Law Firm LLP, for the 1^st and 2^nd Plaintiffs

Ms Tania Tse, instructed by Li & Lai Solicitors LLP, for the 5^th & 7^th Defendants