Top One International (China) Property Group Co Ltd and Another v. Top One Property Group Ltd and Others

HCA1244/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1244 OF 2009

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Before : Hon Fok J in Chambers (Open to Public)

Date of Hearing : 24 November 2010

Date of Judgment : 9 December 2010

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JUDGMENT

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A. The applications before the court

1.There are a number of interlocutory applications before me in this matter.  The first in time is the plaintiffs’ application to enter default judgment against the 1^st and 3^rd defendants (“the Default Judgment Application”).  This application is made pursuant to an unless order made by Registrar Au-Yeung on 12 July 2010 (“the Unless Order”).  Next, there is an application by the plaintiffs for damages to be assessed upon the court entering default judgment against the 1^st and 3^rd defendants (“the Assessment Summons”). 

2.These two applications were fixed to be heard on 20 October 2010.  However, shortly before that hearing, the 1^st and 3^rd defendants issued a summons applying for orders that, amongst other things, the Registrar’s order directing that their defence be struck out in the event of non-compliance with the Unless Order be set aside, alternatively that their defence be reinstated (“the Reinstatement Summons”). The 3^rd defendant also applies for leave to represent the 1^st defendant in certain legal proceedings in Chongqing, PRC (“D3’s Representation Summons”). 

3.When these applications came on for hearing before Sakhrani J on 20 October 2010, he ordered that they be adjourned for argument and gave directions in respect of the filing of evidence.

4.On 23 November 2010, the parties signed a consent summons to dispose of D3’s Representation Summons.  An order in terms was duly made at the commencement of the hearing and it is no longer necessary to consider that application.

B.      The background to the action

5.The background to the action is summarised in the Decision of Poon J dated 16 October 2009 whereby he continued certain orders that had been made by Kwan J (as she then was) on 22 May 2009 and Saunders J on 5 June 2009 in favour of the plaintiffs against the defendants.  I do not propose to repeat in this Judgment the background there set out by Poon J.  For convenience, I will adopt the definitions and abbreviations used by Poon J in that Decision.

6.As Poon J noted in his Decision (see §§24 & 25), the causes of action relied on by the plaintiffs against the defendants are procuring breach of the Share Charge and/or unlawful interference with contractual relations and dishonest assistance in breach of fiduciary duty and/or knowing receipt.  As against the 2^nd and 3^rd defendants, there is an additional cause of action based on breach of the Share Charge.  In a nutshell, the plaintiffs’ case is that, by virtue of the 1^st and 2^nd Transfers, the defendants wrongfully siphoned off the shares in Chongqing Dading, the security under the Share Charge, from the plaintiffs and the Noteholders, thereby causing them loss and damage.

C.      Circumstances leading to the Unless Order

7.At the time of the hearing before Poon J leading to the Decision dated 16 October 2009, the defendants were all represented by Messrs Peter Lau & Co (“PLC”).  On 19 February 2010, the 3^rd defendant filed a Notice to Act in Person giving a PRC address as his address for service.  On 23 February 2010, the 2^nd defendant also filed a Notice to Act in Person.  Also on 23 February 2010, PLC filed a summons for an order to cease to act as solicitors for the 1^st defendant and an order was made to this effect on 2 March 2010.

8.When the defendants ceased to be represented, three further applications made by the 1^st plaintiff against the 3^rd defendant relating to discovery and the attachment of particular assets of the 3^rd defendant were pending.  Also pending was an application by the 3^rd defendant for orders that he be reinstated as a director of the 1^st defendant and that the interim receivers of the 1^st defendant give an irrevocable undertaking that the 3^rd defendant have authority to continue to represent the 1^st defendant in proceedings in Hong Kong and Chongqing.

9.These applications were fixed to be heard by Poon J on 4 March 2010 but the 3^rd defendant did not attend at that hearing.  Instead, he sent his assistant to inform the court that he was ill.  Poon J adjourned the hearing to 17 March 2010 and directed the 3^rd defendant’s representative to inform the 3^rd defendant of the adjourned date for the hearing.

10.The 3^rd defendant did not attend at the hearing on 17 March 2010.  Poon J dealt with the applications before him and made various ancillary disclosure and costs orders against him (“the 17.3.10 Orders”) and dismissed his applications: see Reasons for Decision (No.2) dated 22 March 2010.

11.In the meantime, on 19 February 2010, the plaintiff issued a Case Management Summons (“CMS”).  This was served on PLC on 22 February 2010, when they were still on the record as the 1^st defendant’s solicitors, and was stated to be returnable on 12 April 2010.  At the hearing on 17 March 2010, Poon J granted leave to the plaintiffs to serve the orders made by him at that hearing, the CMS and all future orders, affidavits and summonses on the 3^rd defendant outside the jurisdiction at the address in the PRC stated in his Notice to Act (“the Order for Service Out”).

12.On 31 March 2010, the plaintiffs submitted the CMS and the Order for Service Out to the Registry for service to be effected on the 3^rd defendant under RHC Order 11 rule 5A.  On 12 April 2010, the plaintiffs also submitted the 17.3.10 Orders and three statements of costs to the Registry for service on the 3^rd defendant.  Further documents for service on the 3^rd defendant were submitted by the plaintiff to the Registry on 19 April 2010, 4 May 2010 and 7 May 2010.

13.None of the defendants appeared at the CMS on 12 April 2010.  Master Ko ordered that the CMS be adjourned to 14 June 2010 pending service of the CMS on him.

14.On 29 April 2010, the plaintiff’s solicitors sent a letter (“the Inquiry Letter”) to the 3^rd defendant at the PRC address in his Notice to Act by email and courier inquiring whether he still intended to defend these proceedings on behalf of himself and the 1^st defendant. The courier company delivering the Inquiry Letter informed the plaintiff’s solicitors that it was undeliverable.  A further attempt to send the Inquiry Letter by registered and ordinary post to the 3^rd defendant’s PRC address was also unsuccessful.

15.On 3 May 2010, the plaintiff issued a summons under RHC O.25 r.6 (“the 3.5.10 Summons”) seeking an order that the defendants answer the questions in the Inquiry Letter as to whether they intended to continue to defend the action and, if so, whether they would be instructing solicitors.

16.On 24 May 2010, the plaintiff applied for and obtained an order for substituted service on the 3^rd defendant (“the Substituted Service Order”).  This order provided that, in addition to the order of Poon J of 17 March 2010 regarding service (see §11 above), the plaintiffs be allowed to serve the 3^rd defendant by various other means including service:

(1) on BVI lawyers, Messrs Ogiers (“Ogiers”), acting for the 3^rd defendant in certain BVI proceedings;

(2) by three known email addresses for the 3^rd defendant;

(3) by two known facsimile numbers of the 3^rd defendant;

(4) at the registered office of a Hong Kong company, Beanburg International Development Co Limited (“Beanburg”), of which the 3^rd defendant was a director and 60% shareholder (“the Beanburg Address”); and

(5) at an address in Aberdeen shown in Beanburg’s 2009 Annual Return as the 3^rd defendant’s address (“the Aberdeen Address”).

17.On 28 May 2010, the plaintiffs served the CMS, the order of Master Ko adjourning the CMS to 14 June 2010 and the 3.5.10 summons pursuant to the Substituted Service Order.  One of the email addresses and one of the fax numbers proved ineffective and so the Substituted Service Order was amended on 8 June 2010 to remove those methods of service.

18.None of the defendants appeared at the adjourned CMS on 14 June 2010.  The Master again adjourned the CMS to 12 July 2010 for a third hearing and ordered that the 1^st and 3^rd defendants answer the questions raised in the 3.5.10 Summons within 14 days (“the 14.6.10 Order”).  The plaintiffs maintain that the 14.6.10 Order was served on the 3^rd defendant pursuant to the amended Substituted Service Order at one of the fax numbers and at the Beanburg Address and the Aberdeen Address.

19.Despite the 14.6.10 Order, no response to the questions was received from the 1^st and 3^rd defendants to the questions in the 3.5.10 Summons.

20.On 5 July 2010, the plaintiffs issued a summons returnable at the third adjourned hearing of the CMS that unless the 1^st and 3^rd defendants answered the questions in the 3.5.10 Summons within 7 days of service of the order to be made, the Defence of the 1^st and 3^rd defendants be struck out (“the 5.7.10 Summons”).  The plaintiffs maintain that the 5.7.10 Summons was served on the 1^st and 3^rd defendants pursuant to the amended Substituted Service Order at the Beanburg Address and the Aberdeen Address and on Ogiers.

21.The 1^st and 3^rd defendants did not attend at the third adjourned hearing of the CMS, which was also the date for the hearing of the 5.7.10 Summons, and Registrar Au-Yeung made the Unless Order in the following terms:

“(1) Unless the 1^st and 3^rd Defendants answer the questions set out in the Plaintiffs’ summons filed on 3 May 2010 within 7 days of the date of service of this Order, the 1^st and 3^rd Defendants’ Defence be struck out.

(2) In the event that the 1^st and 3^rd Defendants’ Defence be struck out as provided in paragraph 1 above, the Plaintiffs be at liberty to fix a date before a Judge for a half day hearing for Judgment to be entered against the 1^st and 3^rd Defendants.”

D. Events since the Unless Order

22.On 14 July 2010, the plaintiffs attempted to serve the Unless Order in the manner set out in the amended Substituted Service Order and they maintain it was successfully served at the Beanburg Address and the Aberdeen Address and on Ogiers.

23.The 1^st and 3^rd defendants did not comply with the Unless Order so that their Defence was automatically struck out.  The plaintiff’s solicitors proceeded to fix the date for the hearing of the application for default judgment on 20 October 2010.

24.On 7 September 2010, a Notice to Act for the 3^rd defendant was filed by Messrs L.H. Kwan & Co, his present solicitors.  On 15 October 2010, the 1^st and 3^rd defendants issued the Reinstatement Summons.

E. The 3^rd defendant’s excuse for non-compliance

25.At the time of the hearing before Sakhrani J on 20 October 2010, drafts of the 3^rd defendant’s Fourth and Fifth Affirmations were before the court.  The Fifth Affirmation was affirmed on 26 October 2010 and sought to explain the 1^st and 3^rd defendant’s non-compliance with the ancillary disclosure orders in the 17.3.10 Orders and the Unless Order.

26.The 3^rd defendant states that on 27 February 2010 he was admitted to hospital with a blood circulation insufficiency.  He therefore wrote to the court on 2 March 2010 to explain that he was unable to attend the hearing and authorised a Madam Du Lin to apply for an adjournment.  Although the court did adjourn the hearing to 17 March 2010, he had not been discharged from hospital by that date and Madam Du Lin’s permission to enter Hong Kong had expired so neither of them were able to attend. 

27.The 3^rd defendant states that he did not receive the Inquiry Letter.  He says that had he done so he would have answered the questions raised in it without delay.  In his Fifth Affirmation, the 3^rd defendant answers the questions raised in the Inquiry Letter, confirming his and the 1^st defendant’s intention to continue to defend the action and the fact they had already instructed Messrs L.H. Kwan & Co as their solicitors (see §21).

28.As regards the PRC address he gave in his Notice to Act, he maintains it was true and correct at the time that notice was given and that this was his matrimonial home.  However, he says that due to his heavy business commitments he had to travel frequently and did not usually reside at this address and, in fact, he did not have “a permanent place of stay at all times”.  For this reason, he asserts, his wife told the court officers that he did not reside there and refused to accept service for him.

29.As regards the various means of service in the Substituted Service Order, the 3^rd defendant says this:

“26. I was not aware of Master Ho’s Order. Despite the fact that services were effected by the above manner, I would like to tell the Court that for the following reasons none of them had successfully reached me:

(1) By courier to Messrs. Ogier: by April 2010 Messrs. Ogier had already ceased to act for me in the BVI proceedings. Hence they could not accept service on my behalf;

(2) For services effected by emails, those email accounts had been closed down and hence the emails sent by the Plaintiff’s solicitors were bounced back;

(3) For services effected by fax, I had stopped using those fax numbers for more than 1 year and hence I could not receive the Plaintiffs’ documents by fax; and

(4) For services effected by leaving at the office of Hong Kong Beanburg International Development Co. Ltd. and Wah Fu Estate, although I hold a HKID Card, I had not come to Hong Kong since end of 2009. Hence, I was unable to collect any documents delivered to those addresses.

27.     As a result, as a matter of fact I did not receive those documents.  Such documents include (a) [sic] the Further Disclosure Order, the Unless Order Summons and the Unless Order.  Had I noticed such Orders I would have taken steps to deal with the same.”

30.By his Sixth Affirmation, filed on 3 November 2010, the 3^rd defendant sought to comply with the ancillary disclosure orders in the 17.3.10 Orders.  He has also complied with the costs orders which were part of the 17.3.10 Orders.

F. The Reinstatement Summons

31.It was common ground between the parties that this summons should be considered first since, if the 1^st and 3^rd defendants’ Defence were to be reinstated, this would render the Default Judgment Summons and Assessment Summons academic.

F1. The applicable principles

32.The relevant legal principles governing the circumstances in which the court will extend time to permit compliance with an unless order were thoroughly analysed and discussed by Ribeiro J (as he then was) in Chan Chun Lung Allen & Anor v Ryland Limited & Ors, unrep., HCA4904/1996, 26.8.99 at §§38 to 47.

33.The test he applied was that laid down by Bokhary JA (as he then was) in PT Bank Pembangunan Indonesia (Persero) v Tan Eddy Tansil [1997] 1 HKLRD 57 at p.59E-G:

“The test to be applied here is, in my judgment, the one laid down by Sir Nicholas Browne-Wilkinson VC giving the leading judgment in the case of In re Jokai Tea Holdings Ltd [1992] 1 WLR 1196 when he said this at p.1203B:

‘In my judgment, in cases in which the court has to decide what are the consequences of a failure to comply with an ‘unless’ order, the relevant question is whether such failure is intentional and contumelious.  The court should not be astute to find excuses for such failure since obedience to orders of the court is the foundation on which its authority is founded.  But if a party can clearly demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances, such failure to obey is not to be treated as contumelious and therefore does not disentitle the litigant to rights which he would otherwise have enjoyed.’”

34.Thus, the relevant principles applied by Ribeiro J in Chan v Ryland were set out in §§45 to 47 of his judgment and are summarised below:

(1) The court will ask whether a defendant’s failure to comply with an unless order was “intentional and contumelious” or whether, on the contrary, he has been able “clearly [to] demonstrate that there was no intention to ignore or flout the order and that the failure to obey was due to extraneous circumstances”, keeping in mind that the court should not be astute to find excuses for such non-compliance.

(2) As with any other case in which a party approaches the court for an indulgence, it is incumbent on an applicant to adduce evidence upon which an exercise of discretion in his favour may be founded.

(3) Non-compliance is contumelious where it is the result of the litigant’s conscious and deliberate decision to ignore or disobey the court’s order in the absence of any extraneous excuse.  Such deliberate conduct may be contrasted, for instance, with cases where the litigant has made a serious effort to comply in good faith but has been unsuccessful through bad luck or incompetence or with cases where the litigant has not complied because of circumstances outside his control (including cases where his solicitor has negligently or otherwise missed the deadline though no fault of the litigant).

35.Ribeiro J declined to lower the threshold, a trend which he noted was detectable in some of the English authorities, in particular Hytec Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666 where, at p.1677, Auld LJ said:

“In my judgment, there is no need to confine the test to that of an intentional disregard of a court’s peremptory order, whether or not it is characterised as flouting, contumelious, contumacious, perverse, obstinate or otherwise. Such an intent may be the most usual circumstance giving rise to the exercise of this jurisdiction. But failure to comply with one or a number of orders through negligence, incompetence or sheer indolence could equally qualify for its exercise. It all depends on the individual circumstances and the existence and degree of fault found by the court after hearing representations to the contrary by the party whose pleading it is sought to strike out.”

He noted that PT Bank Pembangunan case was regarded as representing a binding precedent so far as the Court of First Instance was concerned (§40) and he did not consider that the Hytec approach “as yet to represent the law in this jurisdiction” (§44).

36.Mr Douglas Lam, counsel for the plaintiffs, submitted that, in the light of the Civil Justice Reform (“CJR”), the time had come to adopt the English approach in Hytec.

37.For his part, Mr William Wong, counsel for the 1^st and 3^rd defendants,[1] submitted to the contrary because, first, Hytec did not suggest that the threshold for refusing an extension of time had been lowered in the post-CJR era, and secondly because various authorities held that striking out a defence is a draconian sanction and, save where there has been contumelious disobedience with the court’s order, it is not part of the court’s function to punish the party who has failed to comply by making a striking out order.

38.In my view, Mr Lam is right in his submission.  It is noteworthy that, in Chan v Ryland, Ribeiro J simply said that the Hytec approach did not “yet” represent the law in this jurisdiction.  Since his decision in that case, in August 1999, the CJR has since come into effect.  There is now a trend towards the greater use of orders to specify automatic consequences of non-compliance and for placing the onus on a party guilty of non-compliance to seek relief from those consequences.  The rules themselves reflect this trend: see, for example, RHC O.25 r.1C (failure to appear at case management conference or pre-trial review).

39.To this end RHC O.2 r.4 now specifies that where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or order has effect unless the party in default applies to court for relief from the sanction within 14 days of the failure.  Relief is not automatic and RHC O.2 r.5 specifies the circumstances which the court shall consider on an application for such relief.

40.The various cases cited by Mr Wong in his skeleton submissions were all decided before the coming into effect of the Woolf Reforms or the CJR respectively.  Furthermore, John Ho v Desmond Bloom, unrep., HCA1369/2005, 23.5.06 and Luigi Benetton srl v Face Time International, unrep., HCA4135/1993, 24.11.95 were both cases involving the question of whether an unless order should be made, rather than whether time for complying with it should be extended.  As for the decision in Aqua-Leisure Industries Inc & Anor v Aqua Splash Ltd (No.2) [1999] 3 HKC 343, despite his reluctance, Keith J (as he then was) did strike out the defendant’s defence for non-compliance with RHC O.25 r.6(1).

41.In my view, the passage quoted above from Hytec is entirely consistent with the more pro-active case-management approach encouraged by the CJR and, in my view, the CJR has had the effect that the Hytec approach now reflects the approach that should be applied in this jurisdiction.  That is to say, although intentional and contumelious disregard of a court’s peremptory order may be the most usual circumstance leading to the refusal of an extension of time to comply with a peremptory order, the exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default.  As directed by RHC O.2 r.5, the court should consider all the individual circumstances including those listed in r.5(1) at sub-paragraphs (a) to (j).  Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted.  Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (RHC O.1A r.3) and on the court to do so by actively managing cases (RHC O.1A r.4(1)).

F2.    Should the 1^st and 3^rd defendants have relief from the sanction imposed under the Unless Order?

42.There is no appeal against the making of the Unless Order.  In my view, such an appeal would be without merit in any event.  I consider the Registrar was fully entitled to take the view that the 1^st and 3^rd defendants should be required to answer the questions set out in the Inquiry Letter and to impose the sanction she did.  Although striking out is a strong sanction, it is in keeping with the spirit of CJR and the duty on parties to assist the court to further the underlying objectives of the RHC.

43.Mr Wong submitted that the 1^st and 3^rd defendants’ non-compliance with the Unless Order was not intentional or contumelious and this is a question to which I shall return in a moment.

44.Mr Wong also submitted that the court’s discretion should be exercised in favour of relieving the 1^st and 3^rd defendants from the sanction of striking out.  In this context, he relied on a number of points.  He submitted that the striking out arose from the breach of the Unless Order which was made on 12 July 2010 and not from the breach of any other order.  Consequently, he submitted that 12 July 2010 was the starting point for an examination of whether the 1^st and 3^rd defendants conduct was such as to amount to intentional and contumelious conduct or a “perverse and obstinate resistance of authority” (per Sir John Megaw in In re Jokai Tea Holdings Ltd. [1992] 1 WLR 1196 at p.1207).  Mr Wong stressed the context of this application was a failure to answer, in effect, two simple questions the answers to which, he submitted, should have been obvious in the context because of the filing of the Notice to Act in person by the 3^rd defendant and the 1^st defendant’s solicitors’ ceasing to act.  He submitted that it would be proper to infer the 3^rd defendant did not intend to flout the Unless Order since compliance with it would be very simple and, therefore, this supported the veracity of the 3^rd defendant’s denial of knowledge of the Unless Order.

45.In addition to the above submissions, Mr Wong stressed that from 12 July 2010, the date of the Unless Order, to the date of the reinstatement summons, 15 October 2010, there was no or very little prejudice to the plaintiffs so far as carriage of the proceedings was concerned since they still had to prosecute the action against the 2^nd defendant who had raised more or less the same defence.  Finally, Mr Wong relied on the judgment of Lord Denning MR in Wallersteiner v. Moir (No.1) [1974] 1 WLR 991 at p.1007A-E to the effect that the court should not enter judgment by default which would afterwards be set aside on proper grounds being shown.

46.Whether the 1^st and 3^rd defendants’ non-compliance with the Unless Order was intentional and contumelious requires consideration of the 3^rd defendant’s explanations in his fifth affirmation.  In this context, I do not agree with Mr Wong that the court is confined to looking at the events that took place from 12 July 2010, the date of the Unless Order.  In my view, it is appropriate to look to the events which preceded the making of the Unless Order in order to determine what, if any, inferences may be drawn as to the reasons for the 1^st and 3^rd defendants’ default.

47.I have set out above the chronology of events leading to the making of the Unless Order.  Whilst I am prepared to accept that the 3^rd defendant was unable to attend the hearing on 4 March 2010 due to illness, I am unimpressed by his failure to take any steps to inform himself of the outcome of the hearing before Poon J on 17 March 2010 or to keep abreast of the subsequent developments in the action.  His explanation that his assistant’s travel permit had expired by 17 March 2010 does not excuse his total failure to take any steps to find out what happened at that hearing or thereafter.  Although the 3^rd defendant says that he was not aware of the hearing of the CMS on 12 April 2010, the CMS had been served on PLC when that firm was still on the record as solicitors for the 1^st defendant.  The 3^rd defendant was the sole representative of the 1^st defendant for the purposes of giving instructions to PLC and there is no evidence from PLC to indicate that (contrary to what one would expect) it did not inform the 3^rd defendant about the issue of the CMS.

48.The 3^rd defendant claims that he did not receive the Inquiry Letter or the Unless Order.  The history of the matters set out above demonstrates that the Inquiry Letter did not bounce back from two of the known e-mail addresses for the 3^rd defendant. It also demonstrates that the CMS, the order adjourning the hearing of the CMS and the 3.5.10 Order were sent to two of the known e-mail addresses for the 3^rd defendant, one of the fax numbers and at the Beanburg Address and the Aberdeen Address.  The 14.6.10 Order was sent to one of the fax numbers and also the Beanburg Address and the Aberdeen Address.  It is noteworthy that the 14.6.10 Order was also served on the 2^nd defendant at the Aberdeen Address, which is his residential address and the address given in his Notice to Act in person.  The 5.7.10 Summons was served on the 3^rd defendant at the Beanburg Address and the Aberdeen Address. Finally, in this context, I note that the Unless Order was served on the 3^rd defendant at the Beanburg Address and the Aberdeen Address and by service on Ogiers.

49.Given the multiple avenues of service adopted by the plaintiffs, it is for the 1^st and 3^rd defendants to explain to the satisfaction of the court why none of these methods of service would have been effectual to bring the Unless Order to his attention. This the 3^rd defendant has sought to do in his fifth affirmation (see §26).  As to his explanations there:

(1) I am prepared to accept that Ogier may have refrained from forwarding any other documents which were served on them to the 3^rd defendant.  However, it is tolerably clear, in my view, that their doing so would most likely reflect an instruction by the 3^rd defendant that they should not send documents to him that were unrelated to any matter other than that in which they were instructed on his behalf.

(2) Not without hesitation, I am prepared to accept that the 3^rd defendant may have closed down the e-mail accounts to which documents were sent by way of service.  On the other hand, the fact that the 3^rd defendant was closing down e-mail accounts which were previously used by him only supports an inference that he was actively seeking to avoid being contacted.

(3) Similarly, but with the same hesitation, I am prepared to accept that the fax numbers to which documents were sent were no longer used by the 3^rd defendant.  Again, the same inference applies in respect of the fax numbers as applies to the closed-down e-mail accounts.

(4) As regards the service at the Beanburg Address and the Aberdeen Address, I consider the 3^rd defendant’s explanation that because he had not come to Hong Kong he had been unable to collect any documents delivered to those addresses to be wholly inadequate to support a finding that he was not aware of the contents of the documents that were served at those addresses.  In my view, it would be most unlikely if service on the Aberdeen Address, which was the residential address of the 2^nd defendant, did not lead to the 3^rd defendant being aware of the contents of the various documents so served.  The documents relate to proceedings in which the 2^nd defendant is also a party. No evidence has been forthcoming from the 2^nd defendant to support a denial that service of documents on the 3^rd defendant at the Aberdeen Address did not bring the contents of the documents to the attention of the 3^rd defendant.  Even if the 3^rd defendant did not collect those documents because he was not in Hong Kong, it beggars belief that their contents would not have been relayed to him in the PRC.

50.It is noteworthy that the 3^rd defendant is careful to state in his fifth affirmation (at §27) that he did not “receive” the documents in question.  He does not expressly deny that he was aware of their contents and any such denial can only be said to be implied in his evidence.  But I do not consider that this implication is supported by the evidence as a whole.  Mr Wong submitted that I should draw the inference that the 3^rd defendant was not aware of the contents of the Unless Order because answering the questions posed would have been a very simple matter and the failure to do so could only indicate that he had not in fact been made aware of the Unless Order.  Again, I am not prepared to make this inference.  It seems to me that the 3^rd defendant’s failure to answer these very simple questions is equally consistent with his taking the view that his omission to do so would later be excused.

51.In the circumstances, I find that the 3^rd defendant was aware of the obligation imposed on him by the Unless Order.  It therefore follows that his failure to comply with the Unless Order must have been intentional.  Given the procedural history of the matter, I have no hesitation in also concluding that the failure to comply was contumelious.

52.Even if my conclusion that the 3^rd defendant’s default was not intentional and contumelious, I am satisfied that the steps taken by the 3^rd defendant from the time of his filing his Notice to Act in person on 19 February 2010 were such that he was embarking on a deliberate course to go to ground and avoid the consequences of the pursuit of the action against the 1^st defendant and him by the plaintiffs.

53.The provision of the PRC address by the 3^rd defendant reflects this attitude.  I agree with Mr Lam that it lies ill in the mouth of the 3^rd defendant to contend that he did not usually reside at that address and therefore could not receive documents served there, since it was he who gave the address as an address for service in the Notice to Act.  Given that the 3^rd defendant is a sophisticated businessman of means, his inability to maintain one channel of communication through which the plaintiffs would be able to contact him points strongly to the conclusion that he was seeking to evade that contact.  The explanation in his fifth affirmation (see §24) that he did not receive documents sent to the PRC address because he had to travel around the country and did not usually reside there does not explain why documents sent to him at that address were returned as being undeliverable.  The suggestion that his wife would simply refuse to receive documents addressed to her husband strains credulity.

54.I therefore agree with the plaintiffs’ submission that it is tolerably clear from the procedural history of these proceedings since at least February 2010 that the 3^rd defendant has played a systematic game of “hide and seek” in order to evade service of documents on him and compliance with orders, including the Unless Order.

55.All this leads to the conclusion that, regardless of whether the default was intentional and contumelious, the 3^rd defendant in any event actively sought to evade these proceedings.  By doing so, he abjured his responsibilities to assist the court in furthering the underlying objectives of the RHC in respect of this action. In my opinion, in the light of the CJR, that is an attitude which should not be countenanced by the court and, where a party is seeking an indulgence, is a matter which the court can and should take into account when considering whether or not to grant indulgence.

56.The conclusion that the default in compliance with the Unless Order was intentional and contumelious does not automatically mean that the 1^st and 3^rd defendants should not have relief from the sanction imposed.  This is but one of the factors which the court will take into account when considering whether or not to grant relief from sanctions under RHC O.2 r.5(1).

57.I turn to the specific sub-paragraphs of RHC O.2 r.5(1).  As for (a), I bear in mind that the court should always recognise that the primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties.  On the other hand, the interests of the administration of justice require that orders of the court be complied with and that parties be held to their obligation to assist the court in furthering the underlying objectives of the RHC.  Actively going to ground to evade the ongoing prosecution of proceedings does not assist to further the interests of the administration of justice.

58.As for (b), the Reinstatement Summons was issued on 15 October 2010.  This was more than 14 days after the failure leading to the sanction from which relief is sought.  I am not persuaded that the 3^rd defendant has provided a good excuse for the delay in question.  I have already concluded that he was aware of the obligation imposed on the 1^st and 3^rd defendants by the Unless Order through its service on him, so that the time for applying for relief began 14 days after the striking out on 21 July 2010.  The lateness of the application for relief together with the absence of good reason for the lateness is a factor which clearly weighs against the grant of relief.

59.As for (c) and (d), I have already found that the failure to comply was intentional but that, even if not, it was the result of a deliberate course of action to go to ground and avoid participating in the action.  I am not persuaded there is a good explanation for the failure to comply.  As for (e), the history of the matter set out above demonstrates that, at that time the sanction imposed by the Unless Order took effect, the 3^rd defendant was in breach of the 17.3.10 Orders.  I take into account the fact that he has now sought to comply with those orders but the weight of this factor is to some extent diminished by the fact that the compliance is necessarily self-serving in the context of this application.  As for (f), there is no question of the failure to comply being caused by the 1^st and 3^rd defendants’ legal representative.  As for (g), there would have been no difficulty for the 1^st and 3^rd defendants to comply with the Unless Order, except that the 3^rd defendant chose not to do so.

60.As for (h) and (i), I take into account the fact that the proceedings are at a relatively early stage in that trial date has not yet been fixed.  I also take into account that the specific failure was default in answering questions which were of no great difficulty for the 1^st and 3^rd defendants. Neither of these factors seem to me to be of significant weight.  Although the trial date has not yet been fixed, the Unless Order was not made in a vacuum and was part of a history of evasive behaviour on the part of the 3^rd defendant. As for the nature of the questions posed, I note that they are similar to those which led to the striking out of the defence in Aqua-Leisure Industries Inc & Anor v Aqua Splash Ltd (No.2) (see pp.345H-346C).

61.As for (j), I take into account the fact that, apart from the deprivation of an advantage which has come about by reason of the sanction imposed by the Unless Order, there is no or little substantive prejudice to the plaintiffs, save for wasted costs (which the 1^st and 3^rd defendants accepted they would have to bear) if the order to reinstate were made.  The fact that the action might proceed against the 2^nd defendant and that he raised arguments in his defence that the 1^st and 3^rd defendants would also be advancing if their Amended Defence were reinstated would be a factor which, in my view, would weigh in favour of granting relief.  However, this factor has been removed from the equation by reason of the plaintiffs’ undertaking[2] to the court in the following terms:

“In the event that the Court enters judgment against the 1^st and 3^rd Defendants, the Plaintiffs undertake to seek leave of the Court to withdraw their claims in this action against the 2^nd Defendant (without prejudice to the Plaintiffs’ rights to defend any counterclaim brought by the 2^nd Defendant).”

62.Taking all the matters I have referred to into account, I have ultimately come to the conclusion that I should not grant relief from the sanction imposed by the Unless Order in the present case.  I recognise that the striking out of the Amended Defence deprives the 1^st and 3^rd defendants of the opportunity of having their day in court and it is therefore a draconian sanction.  But in the light of my findings, it would be right to say that the 1^st and 3^rd defendants have brought this on their own heads.

G.      The Default Judgment Summons and the Assessment Summons

63.The consequence of the striking out of the Amended Defence of the 1^st and 3^rd defendants is that the allegations in the Amended Statement of Claim are deemed to have been admitted: see Hong Kong Civil Procedure 2011 Vol.1 at Notes 19/2/1 & 19/7/3.

64.The plaintiffs claim damages against the 1^st and 3^rd defendants and declaratory relief.  The 2^nd plaintiff also seeks the appointment of receivers in respect of its shareholding in the 1^st defendant. No evidence is admissible in respect of claims for liquidated and unliquidated damages (RHC O.19 rr.2 & 3).  For other claims (RHC O.19 r.7), the court will grant such relief as the plaintiff appears to be entitled to on his statement of claim.

65.As a preliminary point, Mr Wong raised a technical objection on the basis that the plaintiffs’ application for judgment was not made by way of summons as required by RHC O.19 r.7(3).  This point can only apply in respect of the declaratory relief and the appointment of receivers, since there is no requirement of a summons under RHC O.19 rr.2 to 5. In any event, the plaintiffs had issued the Assessment Summons in respect of the damages claims.

66.It does not seem to me that the absence of a summons is fatal to the plaintiffs’ application for default judgment for declaratory relief or for the appointment of receivers.  The purpose of the requirement under RHC O.19 r.7(3) is, in my view, to ensure that proper notice is given to the defendant of the plaintiffs’ intention to seek default judgement and to give the defendant an opportunity to attend and make submissions.  In the present case, given the procedural history, the 1^st and 3^rd defendants have had due notice of the plaintiffs’ intended application and have duly attended and made submissions in opposition.

67.I shall proceed therefore to consider the plaintiffs’ three heads of claim and the 1^st and 3^rd defendants’ grounds for resisting the entry of judgment for those claims.

G1.    The damages claim

68.The Assessment Summons seeks an order that damages be assessed, in the case of the 1^st plaintiff, against the 1^st and 3^rd defendants in the sum of RMB10 billion or the Hong Kong dollar equivalent.  It also seeks an order that damages be assessed, in the case of the 2^nd plaintiff, against the 1^st and 3^rd defendants in the sum of SGD59,531,754.75 or the Hong Kong dollar equivalent.

69.These are, on any view, substantial sums.  Mr Wong submitted that these claims, being for unliquidated damages, should be assessed in the usual way before a master rather than before this court on the basis of the allegations in the Amended Statement of Claim. This is the usual mode of assessment: see Hong Kong Civil Procedure 2011 Vol.1 at Note 19/3/2.

70.The claim to damages arises out of the transfer of the equity in Chongqing Dading from the 1^st plaintiff to the 1^st defendant.  By that transfer, the plaintiffs maintain that the value of Chongqing Dading was extracted from the 1^st plaintiff. So far as the claim for damages in the sum of RMB10 billion is concerned, this figure is based on a plea (in §16(c) of the Amended Statement of Claim) that “the Dading Group had been estimated to be worth over RMB10 billion according to an announcement made to the Singapore Stock Exchange” by a company known as Sino-Environment Technology Group Limited.

71.The value of the Chongqing Dading shares and the loss arising from the deprivation of that asset is lacking in precision and the court cannot realistically make an assessment at this stage.  Mr Lam candidly accepted that this was the position and it follows that this aspect must be directed to be assessed by a master in the usual way under RHC O.37 r.1.

72.Mr Lam maintained however that the 1^st plaintiff was entitled to damages in the sum of RMB200 million on the basis that this sum, which was the price of the undervalued transfer by which Chongqing Dading was transferred from the 1^st plaintiff to the 1^st defendant was never in fact paid: see Amended Statement of Claim §16(d).

73.It seems to me, however, that if the 1^st plaintiff’s claim for damages in respect of the loss to it of the Chongqing Dading shares as a whole should be assessed by a master, this element of the damages claim, which would be subsumed within an award for damages reflecting the value of those shares as a whole, should similarly be assessed by a master.

74.Finally, the 2^nd plaintiff’s claim for damages to be assessed in the sum of SGD59,51,754.75 is not ascertainable by reference to the pleading in the Amended Statement of Claim.  Nor was it addressed in Mr Lam’s skeleton argument or his oral submissions.  Accordingly, I consider that this claim to damages should also be assessed by a master.

G2. The appointment of receivers

75.The basis of the 2^nd plaintiff’s claim for the appointment of receivers was that the 3^rd defendant gave an undertaking that prior to transferring the Chongqing Dading shares to a company owned by him, which transpired to be the 1^st defendant, he would execute a charge over his shares of that company in favour of the 2^nd plaintiff on terms similar to the Share Charge.  The plaintiffs maintain that the undertaking amounted to an agreement by the 3^rd defendant to charge his shares in the 1^st defendant and that this agreement was sufficient to constitute an equitable charge over those shares.

76.It was on this basis that Poon J made an order appointing interim receivers over the 3^rd defendant’s shares in the 1^st defendant: see the Decision of Poon J dated 16 October 2009 at §§72 to 77.  Mr Lam submitted that it was appropriate for the interim receivership order to be made permanent and Mr Wong did not raise any substantive argument to the contrary on behalf of the 1^st and 3^rd defendants.

77.I am satisfied that it is appropriate to enter judgment for the relief claimed in paragraph 15 of the Prayer to the Amended Statement of Claim.

G3. The declaratory relief

78.In general, a declaration will not be granted when giving judgment by consent or without trial, e.g. where judgment is obtained in default of defence.  This principle is, however, a rule of practice and not of law and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled: see Hong Kong Civil Procedure 2011 Vol.1 at Note 19/7/14.

79.The plaintiffs claim declaratory relief that “any rights and interests acquired by [the 1^st defendant] under the Top One A Transfer Agreement (and any proceeds derived therefrom) were and are subject to the [2^nd plaintiff’s] prior equities, rights and interests under the Share Charge”.  The Top One A Transfer Agreement is the agreement whereby the 1^st plaintiff transferred all the equity in Chongqing Dading to the 1^st defendant for RMB200 million.

80.Mr Lam submitted that on the basis of the deemed admissions of the allegations contained in the Amended Statement of Claim, the 1^st defendant had notice of the 1^st plaintiff’s negative pledge so that anything it received under the Top One A Transfer Agreement was subject to the prior equities of prior chargees, including the 2^nd plaintiff.

81.Mr Wong submitted that it was not normal practice for the court to make a declaration without a trial by way of default judgment.  He submitted that there were allegations of dishonesty, unlawful procurement, dishonest assistance and knowing receipt and that therefore declarations to such effect should be left until after the trial and not granted by default.  He also referred to the fact that the plaintiffs have commenced proceedings in the PRC seeking to recover the Chongqing Dading shares and that the PRC court has granted a freezing order in respect of those shares.

82.For his part, Mr Lam countered that the plaintiffs did not seek declarations that the 1^st and 3^rd defendants had acted dishonestly or in any particular manner.  Instead, the declarations sought were merely a reflection of what was deemed to be admitted in the Amended Statement of Claim.  He also submitted that the freezing order granted by the PRC court was merely interim relief and that the Chongqing Dading shares remained with the 1^st defendant.  He acknowledged that a similar claim was being mounted in the PRC but contended that this fact should not deprive the plaintiffs of their entitlement to the declaratory relief sought in this action.  He maintained that the declaratory relief was necessary because it was the only meaningful relief the plaintiffs could get.  The shares had been transferred away and both the 1^st plaintiff and the 1^st defendant were claiming them in the PRC.  Ultimately, if in the PRC proceedings the 1^st defendant were successful in recovering those shares rather than the 1^st plaintiff, it would be necessary to establish that any interest the 1^st defendant acquired was subject to the 2^nd plaintiff’s interest.  Declaratory relief would also assist the 2^nd plaintiff to assert priority over other creditors of the 1^st defendant.

83.In my view, notwithstanding Mr Lam’s persuasive submissions, it would not be appropriate to grant the declaratory relief sought by way of default judgment.  In the absence of a judgment reached after hearing evidence, a declaration could be based only on unproved allegations and the court ought not to declare as fact that which might not have proved to be such, had the facts been investigated: Wallersteiner v Moir [1974] 1 WLR 991 per Buckley LJ at p.1029 and Patten v Burke Publishing Co. Ltd [1991] 1 WLR 541 per Millett J (as he then was) at p.544A.

84.In the present case, the plaintiffs are maintaining a claim in respect of the Chongqing Dading shares in the PRC.  If successful in those proceedings, the plaintiffs will not need the declarations sought by default in this action.  Furthermore, the plaintiffs’ claims for damages are based on the value of the Chongqing Dading shares on the footing they have been deprived of those shares.  Since the claim for damages will proceed to assessment in the usual way, it is difficult to see how it would be said that justice could not be done to the plaintiffs if the grant of declaratory relief by default were to be withheld.

85.In the circumstances, I decline to grant the declaratory relief sought by the plaintiffs by way of default judgment.  This does not, of course, mean that the plaintiffs cannot obtain the declarations, it merely means that they will have to prove their entitlement to them after adducing evidence in the usual way.

H. Disposition and costs

86.For the reasons set out above, I dismiss the 1^st and 3^rd defendants’ Reinstatement Summons.

87.In respect of the Default Judgment Application, I grant an order in terms of paragraph 15 of the Prayer in the Amended Statement of Claim.

88.I dismiss the Assessment Summons and direct instead that the plaintiffs’ claims for damages be assessed by a master.

89.The costs of the Reinstatement Summons should follow the event and I therefore make an order nisi that the 1^st and 3^rd defendants pay the plaintiffs’ costs of that application, to be taxed if not agreed.

90.As for the plaintiffs’ applications, I make an order nisi that:

(1)     the costs of the Assessment Summons be paid by the plaintiffs to the 1^st and 3^rd defendants, to be taxed if not agreed; and

(2)     as regards the costs of the Default Judgment Application, the 1^st and 3^rd defendants pay 50% of the plaintiffs’ costs, to be taxed if not agreed.

Mr Douglas Lam, instructed by Messrs Hogan Lovells, for the Plaintiffs

Mr Alan Kwong, instructed by Messrs Alan Ho & Co., for the 2^nd Defendant

Mr William Wong and Mr Adrian Lai, instructed by Messrs L.H. Kwan & Co., for the 1^st and 3^rd Defendants