Kwok Kwong Pang v. Shum Kit Man Alan

HCA 675/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 675 OF 2013

BETWEEN

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J U D G M E N T

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Introduction

1.This is an application by the Defendant to set aside the default judgment entered into against him on the basis that no notice of intention to defend had been given.

2.The writ of summons in this case was issued by the Plaintiff on 23 April 2013.  The Plaintiff is suing the Defendant for the repayment of a loan said to have been advanced by the Plaintiff to the Defendant.  The writ was served by the solicitors of the Plaintiff on 24 April 2013 by inserting a sealed copy within a sealed envelope through the letter box of Flat C, 21^st Floor, Block 7, Maywood Court, Kingswood Villa, Tin Shui Wai, Yuen Long, New Territories (“Kingswood Address”).  No notice of intention to defend was filed.  The Plaintiff sought and was granted default judgment for the amount claimed and interest on 14 June 2013. 

3.In July 2013, the Plaintiff commenced garnishee proceedings against Hang Seng Bank Limited and a garnishee order nisi was issued.  According to the Defendant, he got wind of the present proceedings only when, on about 7 August 2013, he was alerted by the staff of Hang Seng Bank of the ongoing garnishee proceedings for the freezing of his bank account.  The application to set aside the default judgment was filed on 27 August 2013, the Defendant having taken some time to seek legal representation.

4.The Plaintiff, the Defendant and one Ms Connie Pun are the main protagonists in the drama that leads to this action.  The Plaintiff and the Defendant each has his own different version of what had happened between them.  I shall set them out below.

THE PLAINTIFF’S CASE

5.Ms Pun is someone the Plaintiff came to know through a business friend in October 2012.  Ms. Pun told the Plaintiff that she worked for McKenzie International Limited (“McKenzie”).  At the invitation of Ms Pun, the Plaintiff visited the office of Ms Pun at Flat A, 13/F, Hung Wai Industrial Building, 3 Hi Yip Street, Yuen Long (“Yuen Long Address”) in early November 2012, but he saw the sign of Ellens Group Limited there.  Ms Pun said McKenzie was one of the companies of the Defendant.  Ms. Pun also told the Plaintiff that the Defendant, her boss, did a lot of business at the Yuen Long Address. Subsequently, Ms. Pun, on behalf of McKenzie, and the Plaintiff, on behalf of Wang Fat Hong Industrial Limited (“Wang Fat”), a business owned by the Plaintiff’s brother and a friend of the Plaintiff and which is run by the Plaintiff, entered into a number of contracts for Wang Fat to manufacture and supply swimwear and undergarments to McKenzie.  The Plaintiff went to the Yuen Long Address a second time on 17 January 2013 when he and his colleagues were shown around the premises.  The Plaintiff saw ten odd workstations and many sewing machines at the back office and he took some photos of this area of the office.

6.Before this second visit, there was a meeting between the Plaintiff and the Defendant on 16 January 2013, when Ms Pun was also present.  This took place at The Hong Kong Convention and Exhibition Centre and a trade show was going on there that day.  At the meeting, the Defendant represented to the Plaintiff that Ms Pun was authorized to act for and on behalf of the Defendant in all future business dealings between the Plaintiff and the Defendant.  Despite having met the Defendant, the Plaintiff does not have a name card of the Defendant.

7.On about 31 January 2013, Ms Pun, acting on behalf of the Defendant, requested the Plaintiff to lend the Defendant the sum of USD162,000.00, at the interest rate of 36% per annum and against the security of a transferable letter of credit.  Ms. Pun said the Defendant was in urgent need of cash for his business.  An oral agreement was made by Ms Pun on behalf of the Defendant with the Plaintiff for this loan, pursuant to which the Plaintiff remitted a sum of RMB1,006,830.00 into the bank account of the Defendant held with China Construction Bank Corporation Shenzhen Branch on 1 February 2013.  On the same day, the Plaintiff received a copy of the letter of credit that was meant to serve as security for the loan (“LC”).  Wang Fat was stated as “Second Beneficiary” on the LC while the “First Beneficiary” was Ellens Fashion International Co Limited, a company of the Defendant. 

8.The Defendant failed to repay when the loan fell due.  A letter before action was issued by the Plaintiff’s former solicitors on 15 April 2013 and this was followed by the issue of the writ in the present action.

THE DEFENDANT’S CASE

9.The Defendant’s case is that he has never met the Plaintiff or he does not recall any meeting with the Plaintiff.  The Defendant also denies having represented to the Plaintiff or any one that Ms Pun was his agent, or having borrowed any sum from the Plaintiff.

10.Ms Pun was a former employee of the Defendant’s group of companies (“Ellens Fashion Group”), but at the material time, she was running her own company McKenzie.  Ms. Pun resigned from the Ellens Fashion Group in around April 2012 to spend more time on McKenzie but she continued to assist the Ellens Fashion Group in sourcing products from manufacturers.  The Defendant has not specified the capacity in which Ms. Pun provided such assistance.  McKenzie shared the office space at the Yuen Long Address with Ellens Fashion Group pursuant to a licensing agreement.  The company search record of McKenzie has been produced by the Defendant to show that Ms Pun is the sole shareholder and the sole director of McKenzie.  Since the record is an annual return of McKenzie made up to 7 December 2010 only, before the Plaintiff came to know Ms. Pun, what the position was as at the material time is unclear. 

11.On or about 31 January 2013, Ms Pun asked the Defendant for a favour by letting her remit a sum of approximately RMB1,000,000 into the Mainland China bank account of the Defendant as she had to pay a Mainland China supplier.  The Defendant agreed to do so and let her have his account number with China Construction Bank Shenzhen Branch.  On 1 February 2013, the sum of RMB1,006,830.00 was deposited by the Plaintiff into the RMB account of the Defendant.  The Defendant then made several payments out from this RMB account in accordance with the instructions of Ms Pun, totaling almost the same as the amount deposited by the Plaintiff.

12.As for the signs at the Yuen Long Address, the Defendant has produced a photograph showing that the only sign there is one that reads “ELTEX 雅迪集團”.  Since the same sign was there in November 2012, the Defendant disputes the Plaintiff’s claim that he saw the sign of Ellens Group Limited at the Yuen Long Address.  The Defendant has not accounted for the relationship between “ELTEX 雅迪集團” and the Ellens Fashion Group.

13.In respect of the Plaintiff’s allegation that the LC was meant to serve as security for the personal loan from the Plaintiff to the Defendant, the Defendant regards that as a fabrication, particularly in view of the fact that the Plaintiff is only a staff of Wang Fat.  Rather, Wang Fat was named on the LC because, at the recommendation of Ms Pun, the Defendant decided to source the goods ordered by a German customer of Ellens Fashion Group from Wang Fat. Therefore, the LC has nothing to do with the alleged personal loan made by the Plaintiff to the Defendant.

14.The parties are not in dispute as to the questions that I have to decide.  They are (1) whether the default judgment is regular or irregular; (2) if the default judgment is regular, does the Defendant have a real prospect of success on the merits of his defence; and (3) should a condition be imposed on the Defendant if the matter is to go to trial.

Is the default judgment regular?

15.According to the Plaintiff, before the writ was served, a search of the records of the Companies Registry was carried out and the Defendant was found to be the director and shareholder of nine companies, seven of which were still in operation.  The residential address of the Defendant as shown from the records of the Companies Registry was the Kingswood Address.  Further, in an annual return personally signed by the Defendant on 18 August 2011 (the annual return is also made up to 18 August 2011) and filed in respect of Ellens Fashion International Company Ltd (“2011AR”), a company in which the Defendant was the sole shareholder and sole director, the address of the Defendant is stated to be the Kingswood Address.  The name of an alternate director appears on the 2011 AR, that of Shum Yau Sang, and the residential address given for him is also that of the Kingswood Address.

16.It should be noted that the registered office of Ellens Fashion International Company Limited is stated as an address in Central in the 2011 AR and not the Yuen Long Address.  It is not clear whether the Plaintiff’s solicitors had done similar searches against the other eight companies of the Defendant, but the Defendant has not suggested that a different picture applies in the case of his other companies.

17.In addition, a search at the Land Registry was done by the Plaintiff’s solicitors in respect of the Kingswood Address.  The records of the Land Registry show that the property at the Kingswood Address was at one time held by Shum Wan Man, Shum Yau Sang and Tsang Sau Lan jointly.  This property was assigned in August 2010 to Mulan Investment Limited and subsequently there were two other assignments, one in January 2011 and the other in February 2011, to other parties.

18.As mentioned in the above, a sealed copy of the writ of summons was inserted into the letter box of the Kingswood Address.  The letter before action was also sent to the Kingswood Address.  Relying on the principles enunciated in the cases of The Hong Kong Mortgage Corporation Ltd v Ching Kit Yu and Anor HCMP 2226/2002 (unreported, 15 April 2003), HRA Investments Ltd v Lee Yik KwongDCCJ 1291/2005 (unreported, 14 May 2007) and Aggressive Construction Company Ltd v Yick Wai CheongHCA 1889/2008 (unreported, 29 June 2009), the Plaintiff takes the view that there had been service of the writ at the usual or last known address of the Defendant under Order 10 rule 1(2)(b).

19.The Defendant disputes the Plaintiff’s entitlement to regard the Kingswood Address as the usual or last known address of the Defendant.  It is the Defendant’s suggestion that the premises at the Kingswood Address were once the property held jointly by Shum Wan Man, Tsang Sau Lan and Shum Yau Sang, respectively the elder brother, mother and father of the Defendant, and although the Defendant used to reside there, he moved to his current address at 1/F, Block F, Tourmaline Villa, Kam Tin, Yuen Long, Hong Kong (“Tourmaline Address”) when the property was sold by his family in August 2010.  With the record showing such sale by the Shum family, the Defendant puts it that the Plaintiff ought to have known that the Kingswood Address was not the current address of the Defendant.

20.As for the records kept by the Companies Registry, the Defendant explained that he inadvertently failed to update his residential address with the Companies Registry.  The Defendant has also produced two D2B Forms dated 12 August 2013 to show that he has updated the record of the Companies Registry as regards his residential address as director of Ellens Fashion International Company Limited and Ellens Fashion (Hong Kong) Company Limited, two of his companies.  There is no evidence to show that the updating has been done in relation to the other five companies of the Defendant that are still in operation.  In the case of Ellens Fashion International Company Limited, there is also no evidence to show that the residential address of the alternate director, Mr Shum Yau Sang, has been updated.  It is of note too that the effective date of the new residential address of the Defendant, as recorded in the two D2B Forms filed in respect of the two companies mentioned above, is 12 August 2013.

21.In the opinion of Mr Edward Chan, there is simply no reason for the Plaintiff to rely on the Kingswood Address as the usual or last known address of the Defendant. In the 2^nd Affirmation of the Defendant, a copy of the name card of the Defendant shows that the Yuen Long Address is printed on it.  Further, according to the evidence of the Plaintiff, he had been to the Yuen Long Address twice and there is mention in the Affirmation of the Plaintiff that he was told by Ms Pun that her boss did a lot of business at the Yuen Long Address. Mr Edward Chan therefore questioned why the writ of summons was not served at the Yuen Long Address either in lieu of the Kingswood Address or in addition to it which, in his opinion, would be what prudent solicitors would have done for their clients, and in serving only at the Kingswood Address, the Plaintiff should be responsible for the risk of the writ not reaching the Defendant.

22.Mr Edward Chan also retorted the suggestion of the Plaintiff that the Defendant had been evading service intentionally by not updating the record at the Companies Registry when he moved out of the Kingswood Address, since the Defendant could not have foreseen the dispute he now has with the Plaintiff back in 2010.  The issue with the service, as Mr Edward Chan put it, is that the Plaintiff is the victim of the mistake of his solicitors and there is no fault on the part of the Defendant.  Given that the property at the Kingswood Address has changed hands three times, Mr Edward Chan contended that there is not a shred of evidence to suspect that the Defendant had continued to reside at the address as a tenant. I should mention that Mr Edward Chan had been at pains in pointing out that the failure to file annual returns is a very common omission that is merely punishable by a small fine.

23.It is clear from the The Hong Kong Mortgage Corporation Ltd case that “last known address” means the address last known to the plaintiff.  It matters not that there may be more than one last known address, or the address was not one made known to the plaintiff by the defendant, see HRA Investments Ltd case.  In particular, in the HRA Investments Ltd case, the plaintiff’s reliance on a 1993 record (for service carried out in 2005) was considered justifiable since the issue was whether the address was a residential address of the defendant last known to the plaintiff and not whether such address might or might not have been the defendant’s residential address. 

24.The Defendant has never been recorded as an owner of the property at the Kingswood Address, but the records at the Lands Registry do not tell you who the occupants are.  The change of hands in the ownership of that property is therefore, as suggested by the Plaintiff, inconclusive as to whether the Defendant was or was not residing there at any point of time.  On the other hand, there are the records at the Companies Registry which are meant to be updated regularly, through the statutory requirements for the filing of, inter alia, annual returns and notices of change in the particulars of directors.  It is noteworthy that although the 2011 AR was filed in 2011, after all the three assignments of the property at the Kingswood Address had taken place, the Kingswood Address was still given as the residential address of not only the Defendant, but also that of his father who was once one of the joint owners of the Kingswood Address property.  Default in filing annual returns may be a fairly common occurrence, but it is nonetheless an infraction of the law. What we have here is however not a mere default in the timely filing of annual returns, but the giving of false information.  If, as the Defendant suggests, he had moved out from the Kingswood Address to the Tourmaline Address when the Shum family sold the property in 2010, I do not think the giving of the address in the 2011 AR could be explained away as mere oversight or inadvertence.

25.I also do not think the Plaintiff should be faulted for not serving the writ at the Yuen Long Address.  The fact that the Yuen Long Address is printed on the name card of the Defendant is of no help to the Defendant.  If, as the Plaintiff says, he does not have a name card of the Defendant, then he will have no knowledge of this piece of information.  If the Defendant is to be believed and the parties never met, then the Plaintiff will not have a name card of the Defendant.  Furthermore, by the Defendant’s own evidence, the only sign there is that of “ELTEX 雅迪集團”, a business that on its face has nothing to do with the Defendant or Ms Pun. The information imparted by Ms Pun about her boss doing a lot of business at the Yuen Long Address is also neither here nor there.  If the setup at the Yuen Long Address is clearly one of an office of the companies of the Defendant, that would have been obvious to visitors.  On the other hand, if one goes to an office which bears the sign of a business concern that one has no dealing with and is given a name card by the person he meets there that does not tally with the name on the sign, reliance on the public records at the Companies Registry is by far a safer course to take than attempting service at such office premises with rather dubious occupancy or placing trust in what one had been told by someone who had turned out to be not as trustworthy as one had originally thought. 

26.That being the state of affairs, even though there is also the Yuen Long Address, I take the view that the Plaintiff is entitled to rely on the Kingswood Address as the last known address of the Defendant.

27.Even if the Plaintiff has proved his compliance with Order 10 rule 1(2)(b), it is still open to the Defendant to show that he had no notice of the writ and hence the presumption under Order 10 rule 1(3)(a) does not apply, with the result that the default judgment should be set aside.  Referring to the cases of Ng Kwok On and Anor v Rich Legend Ltd & Ors DCCJ 3474/2006 (unreported, 21 September 2007), HRA Investments Ltd, supra and Aggressive Construction Company Ltd, supra in support, Mr Robert Chan pointed out that the Defendant has to explain by convincing or compelling evidence why the writ was not brought to his knowledge and the court is not bound to accept a bare assertion of no knowledge without any supporting evidence or documents.

28.Mr Edward Chan put it to me that the court is entitled to decide whether the Plaintiff knew that the address was not the address of the Defendant at the time of the purported service, in which case the presumption of the writ coming to the knowledge of the Defendant within 7 days will be rebutted.  On this point, he relied on the cases of Cosec Nominees Ltd v Lau Hong Ming [2001] 2 HKLRD 581 and Philip Securities v Lam Chi Bin Stanley HCA 16645/1999 (unreported, 20 November 2001).

29.In the Cosec Nominees case, it was not in dispute that the defendant had moved out of his former address at Hang Fa Chuen and that an address in Shenzhen was given in the updated record at the Companies Registry of the residential address of the defendant as a director of a company involved in another court action with the plaintiff.  On the plaintiff’s argument that the defendant must have knowledge of the writ through his solicitors in the other action, DHCJ Poon (as he then was) accepted the defendant’s explanation that he was only informed by his solicitors of the writ when he returned to Hong Kong about a month later after the service of the writ, as otherwise the defendant’s solicitors would be guilty of professional misconduct and possibly of aiding and abetting the defendant’s perjury, having assisted the defendant in preparing an affirmation stating something contrary to what had actually happened.

30.In the Philip Securities case, the affidavit of service in support of the application for default judgment deposed to the purported service of the writ by inserting the same through a letter box at a Hennessey Road address (“Address”).  The defendant explained that the plaintiff was aware that the Address was that of his company, as well as the fact that his company had moved to a new place in Tsimshatsui.  The defendant also said that other addresses had been given to the plaintiff for correspondence, and the plaintiff had indeed sent letters and statements to the defendant to those other addresses.  There was also evidence that the managing director of the plaintiff had visited the new office of the defendant, that this managing director had been given a name card of the defendant on which the new address was stated, and that despite the close contacts between the staff of the plaintiff and the defendant well after the default judgment was entered, the defendant was not informed about the issue of the writ nor the judgment entered.  DHCJ Lam (as he then was) indicated, at paragraph 9, that he was entitled to take into account the aforesaid matters in deciding whether the plaintiff knew that the address was no longer the address of the defendant at the time of the purported service and if the plaintiff was aware that the defendant was no longer at that address at the time of service, that could not be a proper address for service because the plaintiff could not properly authorize an affidavit of service to be sworn in compliance with Order 10 Rule 1(3)(b)(i) deposing to the belief that the writ would come to the knowledge of the defendant within 7 days.  In that case, evidence showing that there was no post box at the Address was also accepted and so it was found that the plaintiff did not even come within Order 10 Rule 1(2)(b).

31.The explanation proffered by the Defendant for not having notice of the writ is a simple one.  He did not have notice of the writ because of his having moved away from the Kingswood Address in 2010 when the property was sold by his family.  He did not give any reason why he still gave the Kingswood Address as the residential address of himself and that of his father in the 2011 AR when, by his own account, they had all moved out.  There is also the effective date of the new residential address given in the two D2B Forms filed by the Defendant just months ago for updating the record of two of his companies which indicates that, contrary to what is stated in the affirmation of the Defendant made on 26 August 2013, the Tourmaline Address was not his residential address between August 2010 and August 2013. 

32.To justify a finding that the Plaintiff knew the Kingswood Address was not the address of the Defendant, I will have to find that the Plaintiff should have known that the previous joint owners of the Kingswood Address property were family members of the Defendant and also that they had all moved out upon the sale of the property in August 2010.  There is simply no basis for me to impute such knowledge on the part of the Plaintiff.  On the contrary, even after the updating done by the Defendant in August 2013, the residential address of Shum Yau Sang on record is still the Kingswood Address, which suggests the continuous residence of the Shum family there.  There is no reason to blame the Plaintiff for relying on the public announcement of the Defendant, through the records at the Companies Registry, that subsequent to the changes of ownership of the property at the Kingswood Address, that address is still to be regarded as his residential address.  This is similar to what had happened in the cases of HRA Investments, supra and Aggressive Construction Company Ltd, supra where the challenge raised by the defendants regarding the effectiveness of the service of the writ of summons at the residential address kept at the Companies Registry was refuted by the court.

33.Is there any other evidence in support of the explanation given by the Defendant?  In the cases of Sinokawa Investment (Holdings) Ltd v Li Chun[2006] 3HKLRD 441 and HRA Investments Limited, supra, there were discussions on what sort of evidence would be helpful in establishing the lack of knowledge of the service of the writ of summons or the entry of default judgment.  Utilities bills were considered “cogent evidence” in the Sinokawa case while assignments, tenancy agreements, utility bills, other invoices, management fee debit notes were regarded as “the usual documents that one would expect an occupier to have in relation to his residential address” in the HRA Investmentscase.  In the present case, the Defendant has not produced any utility bills or correspondence relating to his claim of residence at the Tourmaline Address since August 2010. 

34.In the case of Bank of China (Hong Kong) Ltd v Cheung King Fung [2007] 1 HKLRD 462, Tang JA (as he then was) clearly stated, in paragraph 33, that the court is not bound to accept a defendant’s assertion in his deposition, no matter how improbable.  The explanation given by the defendant in that case for not having received the writ was found to be not only unsatisfactory, but incredible, and hence the judgment entered was considered regular.

35.The Defendant in this case has not produced anything to support his claim that he was not aware of the service of the writ by the Plaintiff.  The records at the Companies Registry, notwithstanding the recent updating, still indicate that, at the time of the service of the writ, the Defendant was still residing at the Kingswood Address.  The absence of compelling or convincing evidence from the Defendant is resounding.  I am therefore not prepared to accept the bare assertion of the Defendant that the writ as served did not reach him.  The default judgment is thus a regular judgment.

Merits of the Defendant’s case

36.The parties are in agreement that if the default judgment is a regular judgment, the Defendant has to show a meritorious defence that has a real prospect of success.  Discussions on the applicable principles can be found in The Decurion [2012] 1 HKLRD 1063, at paragraph 11:

“(1) It is clear that the applicable principle in deciding whether time should be extended is to look at all relevant matters and consider the overall justice of the case. A rigid mechanistic approach is not appropriate……There are two conflicting principles at play. First, a party being required to observe the procedural rules, the default of which may result in judgment being entered against it. Second, a party should not be deprived of an adjudication on the merits due to a procedural default unless there is prejudice to the other party which cannot be compensated by cost. These two principles are not absolute. A rigid application of the first principle may lead to dismissal of actions without consideration of whether the defendant has been prejudiced by the default. But, the Court has treated the existence of such prejudice to be crucial and often decisive. Likewise a rigid application of the second principle without exception may enable a wealthy litigant to flout the rules. The resolution of these two conflicting principles is to consider all the circumstances of the case and not confine the decision to the application of a universally applicable rule of thumb……

(2) I do not consider the approach has been drastically changed by the introduction of the Civil Justice Reform in Hong Kong since 2 April 2009.  An expeditious disposal of a case has to be considered together with the equally salutary objective of ensuring fairness between the parties.”

37.The Defendant has not provided a draft Defence, but the gist of his case can be clearly discerned from the two affirmations filed, and which I have summarized in paragraphs 9-13 above.  Mr Edward Chan submitted that, at the very least, questions about the authority of Ms. Pun to transact as agent of the Defendant, whether the Defendant borrowed USD162,000 or its equivalent in RMB or any sum from the Plaintiff and if so, the terms of the loan emerged from the affirmations filed by the Defendant.  He also challenged the credibility of almost all aspects of the Plaintiff’s case to very great detail.  These include for instance the very passive attitude of the Plaintiff in not confronting the Defendant despite being owed such a substantial debt and the unjustifiable claim of relying on the LC as security for the personal loan. 

38.Mr Edward Chan stressed that all these issues cannot be resolved by the reading of affirmations and it is not my task to conduct a mini trial on affirmations.  Apart from the alleged meeting on 16 January 2013, there had been no direct communication between the parties.  Furthermore, as a large part of the communications between Ms Pun and the Plaintiff took the form of electronic messages (“QQ messages”) which were often not only very short but also devoid of pertinent details, Mr. Edward Chan went through a number of the QQ messages and put forward an interpretation of their contents that is consistent with the Defendant’s version of what had truly happened between the parties.

39.On the side of the Plaintiff, Mr Robert Chan conducted a similar exercise, but of course with the different aim of convincing me that the information in the affirmations should be interpreted in support of the Plaintiff’s case.  He also gave his view on almost every aspect of the defence advanced, including in particular the lack of credible evidence that Ms Pun did not have actual or apparent authority from the Defendant and the lack of conviction of the Defendant’s claim that the meeting between the parties never took place or that there had never been any loan of money from the Plaintiff to the Defendant. In addition, he described the failure of the Defendant to adduce affidavit evidence from Ms Pun as a glaring omission.  In his opinion, the fact that so many questions cannot be answered by the affirmations of the Defendant points clearly to the conclusion that the Defendant is not able to demonstrate a meritorious defence.

40.How an assessment on the merits of the defence is to be made where there are competing assertions as to fact was considered in the case of Choi Chung Bun Vincent v Australia China Holdings [2011] 3 HKLRD 622.  McWalters J observed, at paragraph 29 of the case that:

“……where assessing the merits of a defence requires judges to embark upon an assessment of the credibility of competing evidence, courts have cautioned against conducting a trial on affirmations whose deponents’ claims have been untested by cross examination.”

The learned judge considered that in such a case, the question to be asked is whether what the defendant says has no real prospect of success.

41.Apart from the fact that there had been the remittance of a sum of RMB1,006,830.00 by the Plaintiff into the bank account of the Defendant held with China Construction Bank Corporation Shenzhen Branch on 1 February 2013, there is no agreement at all between the parties on what had truly happened.  What I have before me are indeed conflicting statements from the parties and no useful purpose will be served for me to set out the arguments of the parties in any greater detail.  Suffice it to say that without an assessment of the credibility of the competing evidence of the parties, it is difficult to say that the defence advanced has no real prospect of success.  Important issues like whether there had been a meeting between the parties and if so, what was exchanged during this meeting, whether the Defendant had represented to the Plaintiff that Ms Pun had authority to act on his behalf and what was the true nature of the payment made by the Plaintiff to the Defendant have to be determined. 

42.The different versions of the parties about what actually happened are both probable.  It may well be the case that only the Plaintiff is telling the truth, but it is also probable that both the Plaintiff and the Defendant were victims of the fabrications of Ms Pun, and that the Defendant had been unwittingly involved in the deceit masterminded by Ms Pun herself.  Without the benefit of a trial where the credibility of all the evidence that has been or may subsequently be adduced can be properly tested, it would not be open to me to say that the Defendant has no real prospect of success.  After going through all the affirmations before me, I take the view that overall justice would not be served if the matter is not allowed to go to trial.  The default judgment should therefore be set aside.

Should any conditions be imposed?

43.On this point, the parties are again in consensus on the applicable legal principles – that the court can exercise its discretion to impose a condition on the defendant in the event it orders the matter to go to trial (see Ng Kwok On case, supra) and that there must be something specific about the conduct of the defendant which warrants the imposition of a condition (see L & M Specialist Construction Ltd v Wo Hing Construction Co Ltd [2000] 3 HKLRD 262).

44.In the opinion of Mr Robert Chan, the present case is akin to Bank Austria Aktiengesellschaft v Sukamto [2002] 1 HKC 232 where a condition was imposed when the defendant was found to have evinced an intention to evade service.  He asked me to take heed of there being a real risk that should the Plaintiff succeed at trial he would be left with an empty judgment or that the Defendant will evade legal liability to the Plaintiff, given the past record of not updating his particulars with the Companies Registry and the fact that the Defendant has still not provided any evidential proof that the Tourmaline Address is the current residential address of the Defendant or that the Defendant can be found at the Yuen Long Address.

45.On the part of Mr Edward Chan, he urged me to bear in mind the following passage from the judgment of Ribeiro JA (as he then was) in the L & M Specialist case:

“In my view, it must be rare that a payment into court is made a condition of setting aside a judgment……However, there is a certain logical tension between a court deciding that the defendant has real prospects of succeeding in his defence and the court considering at the same time that the defence is in shadowy realms. While I do not consider such an outcome impossible, I would expect it to be exceedingly rare…”

In light of the above passage, Mr Edward Chan reminded me that the imposition of a condition can only be justified in very rare circumstances.  He then went on to explain why there is nothing in the conduct of the Defendant that could justify a condition to be imposed on setting aside the default judgment.  In doing so, he reiterated his view that the problem with the service arose solely from the fault of the Plaintiff’s solicitors in relying on an outdated filing in respect of one of the companies of the Defendant.  He emphasized that the present summons were taken out by the Defendant without delay and no prejudice would be caused to the Plaintiff or to third parties if the default judgment were to be set aside.  Other than not updating the records at the Companies Registry, Mr. Edward Chan contended that there was no improper conduct on the part of the Defendant.  It is his suggestion that when compared with the cases considered in Wai Kam Foo Daniel v Wai Kam Wah RaymondHCA 957/2010 (unreported, 23 November 2011), it will be clear that the conduct of the Defendant is not of the same category as those which would justify the imposition of any condition.

46.In addition, Mr Edward Chan pointed out that the risk of empty judgment is something that any plaintiff has to face.  Furthermore, should the circumstances warrant, it is open to the Plaintiff to seek a Mareva injunction.  There is thus no reason to put the Plaintiff in a more favourable position than any other plaintiffs by allowing him to have security of costs or otherwise.

47.It is clear from the case of Po Kwong Marble Factory Limited v Wah Yee Decoration Company Limited[1996] 4 HKC 157 that the court has unfettered power in imposing conditions when setting aside a default judgment, whether it is a regular or irregular judgment.  The various cases analyzed in the Wai Kam Foo Danielalso demonstrate that whether a condition should be imposed depends on all the relevant circumstances of the case. 

48.I note that in Desirable International Fashions Ltd (in liq) v Chiang Shi Chau HCA7069/1995 (unreported, 18 June 1997), a case considered by Master Ng (as she then was) in the Wai Kam Foo Danielcase, Waung J did refuse to impose a condition on the foreign defendant because that would allow the plaintiff to obtain through the back door of an irregular judgment what it could only obtain after a successful Order 11 application and Mareva Injunction Order.  In that case, the learned judge was rather critical of the plaintiff’s conduct both in obtaining default judgment for an excessive amount despite the plaintiff’s own admission that some of the items should not be claimed, and in effecting service at a place where it knew that the defendant had left and then entering default judgment on the basis of such underhand service.  There was also an expression of concern that professional solicitors dealing with the matter could have allowed service to be effected at the problematic address and even worse to have allowed an affidavit of service to be filed which they must know to be untrue.

49.There is nothing like what the plaintiff in the Desirable case had done in the many other cases that were considered in the Wai Kam Foo Danielcase where conditions had been imposed upon the setting aside of default judgment (see Po Kwong Marble Factory Limited v Wah Yee Decoration Company Limited, supra, Bank Austria Aktiengesellschaft v Suwardi Sukamto, supra, Sinokawa Investment (Holdings) Ltd v Li Chun supra, First Castle Limited v Wong Chun KitHCA6872/2000 (unreported 19 June 2003) and Liu Chong Hing Bank Ltd v Union World [2004] 1 HKC 622).  Rather, the courts in such cases had reasons to be concerned with the conduct on the part of the defendants, in particular the extent that they had contributed to what went wrong in terms of service.  For example, a condition of payment in had been imposed where the evidence showed an intention to evade service on the part of the defendant (see Bank Austria, Sinokawa Investment and First Castle Limited), or where there had been substantial delay in applying to set aside the default judgment and not providing any defence to the plaintiff’s claim (see Liu Chong Hing Bank).  In the exercise of the discretion to impose conditions, the courts in these cases were also not hampered by the fact that the plaintiffs had not sought any Mareva injunctions.

50.In the present case, there has not been a substantial delay in applying for the default judgment to be set aside after the Defendant came to know about the proceedings brought against him, and I accept the Defendant’s explanation that it took him some time to seek legal representation.  However, I can hardly accept the suggestion that the Plaintiff’s solicitors were to blame for relying on an outdated record on the Companies Registry.  The truth of the matter is reliance was placed on a record that had been updated incorrectly by the Defendant, and so far there is no explanation from the Defendant on how such a mistake came to be made, or that there is no intention on the part of the Defendant to mislead anybody.  I should add that there is grave doubt as to whether the Plaintiff can safely rely on the claim that the current residential address of the Defendant is the Tourmaline Address. 

51.There has been no underhand conduct on the part of the Plaintiff.  His reliance on the record of the Companies Registry is something that a reasonable man in his position would do.  In the Po Kwongcase, supra, a condition of payment in was imposed although the default judgment obtained was irregular.  In describing the cause of the defective service as the result of the defendant having virtually disguised its registered office (at paragraph 11 of the judgment), the Court of Appeal saw it necessary to guard against a very real risk that any judgment which the plaintiff company may ultimately obtain would be an empty one.

52.The risk that the Plaintiff in the present case may get only an empty judgment is also a real one.  Nothing has been provided in support of the claim that the Defendant is residing at the Tourmaline Address.  The updating of the record at the Companies Registry has been done in respect of two only of the seven operating companies of the Defendant.  In any event, the updating done in respect of the two companies of the Defendant does not correspond with the account of the Defendant about his having moved to the Tourmaline Address since August 2010.  There is also no updating of the record of the residential address of Shum Yau Sang.  I therefore order that the default judgment be set aside and the garnishee order nisi be discharged on condition of the payment into court of USD81,000 by the Defendant within 21 days, and the Defendant shall have leave to file and serve its notice of intention to defend and its Defence within 14 days thereafter. 

53.One other thing I need to deal with is the directions sought by Mr Robert Chan in the course of his submissions.  His request is that if I am to find that Ms Pun had no authority to act on behalf of the Defendant and that there had been no loan from the Plaintiff to the Defendant, there should be directions that Ms Pun be added as a secondary party and that a cause of action be added against her.  Mr Edward Chan objected to such request on the ground that procedures are available to the Plaintiff for so doing should he see the need for it.  As there has been no finding on the matters referred to, the requested directions are not forthcoming.

Costs

54.As for costs, Mr. Edward Chan agreed that if the default judgment is regular, the Defendant should bear the costs of the setting aside application, but he submitted that the Plaintiff should bear the costs of resisting the setting aside application.  He drew my attention to the cases of Dao Heng Bank v Chan Chiu Cheung HCA 6653/1996 (unreported, 3 April 1997) and Welson International Limited v Jebson Investments Limited HCA 2620/2008 (unreported, 29 June 2010).  As regards Plaintiff’s reliance on the case of Ko Sin Yun v Chan Chuen [2007] 1 HKLRD 324, he asked me to take note that the principle that a defendant should bear the costs of the application to set aside an irregular default judgment on ground of there being a meritorious defence was only meant as a pronunciation of the general rule rather than something cast in stone.

55.There was no issue of irregularity of the default judgment entered in the Dao Heng Bank and Welson cases.  This is not so with the present case.  The Defendant had maintained that the default judgment was irregularly obtained and the Summons taken out were based on this specific ground.  There is thus no reason why the Plaintiff should be penalized for resisting the application.  I can also see no other reason for departure from the principle that the party seeking indulgence of the court has to pay the costs.  I therefore grant a costs order nisi that the costs of the application to set aside and the costs of the hearing be to the Plaintiff in any event to be taxed if not agreed.

Mr Robert Chan, instructed by Cheng & Wong, for plaintiff

Mr Edward Chan, instructed by K L Leung & Co, for defendant