Eds Wellness Holdings Ltd v. Shum Yeung

HCA 1775/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1775 OF 2012

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D E C I S I O N

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1.Summary judgment has been entered against the defendant in this action. The defendant now seeks to set aside the judgment.

BACKGROUND

2.The plaintiff (“EDS”) was and is a Cayman Island company listed in Hong Kong.  It wholly owns Blu Spa (Hong Kong) Limited (“Blu Spa”), which was incorporated in Hong Kong.

3.The defendant (“Shum”) is an established businessman and property developer in the Mainland.

4.By a sale and purchase dated 30 April 2010 (“the SP Agreement”), Shum agreed to sell and Blu Spa agreed to purchase 70% of the issued share capital of Vertical Signal Investment Limited.  That was a BVI company which owned various lands in the Mainland.  Behind the deal was indeed the sale and purchase of part of a property development of Shum in Guangzhou.  The contract price was HK$80,000,000.  Completion should take place after all the conditions precedent set out in the SP Agreement have been satisfied, which should in any event be no later 30 August 2010 (what was defined as the “Long Stop Date”).

5.Upon the signing of the SP Agreement, and pursuant to that, Blu Spa paid the defendant HK$45,000,000.

6.The contracting parties then entered into a series of agreements during the period between August 2010 and April 2012 whereby the Long Stop Date was extended.

7.The background up to this stage is uncontroversial.

8.In April 2012, the contracting parties allegedly entered into a deed of termination of the SP Agreement (“the Termination Deed”). The Termination Deed provided for a schedule of repayment of the consideration paid pursuant to the SP Agreement.  Upon signing of the Termination Deed, Shum allegedly repaid the first sum of HK$4,500,000.

9.The schedule of repayment has since been varied by a series of alleged agreements between the parties during the period between July and August 2012 (“the Repayment Extension Agreements”).  The repayment deadline was last extended to 14 September 2012.  Shum is said to have failed to pay the balance of the indebtedness and the same remains outstanding.

10.In September 2012, Blu Spa commenced the present action to claim the outstanding balance of the amount payable by Shum with contractual interest.  Messrs ONC Lawyers (“ONC”) acknowledged service of the writ on behalf of Shum, indicating intention to contest the proceedings.  The statement of claim was filed in September 2012.

11.By summons filed on 3 October 2012, Blu Spa applied for summary judgment, which was adjourned for argument.

12.The parties allegedly entered into deeds in November 2012 for settling the present action; but these did not form the basis of claim in the present action.

13.By a deed dated 29 January 2013 (“the Deed of Assignment”), Blu Spa assigned and transferred to EDS all its rights and interest in and to the Termination Deed and the Repayment Extension Deed.  Notice of the Deed of Assignment was issued to Shum in January 2013, which was acknowledged by ONC.  Repayments by Shum apparently continued and, since the Deed of Assignment, were apparently re-directed to EDS.  The repayment eventually stopped by mid-2013.

14.The statement of claim herein was then amended in July 2013 whereby Blu Spa was substituted by EDS as the plaintiff.  EDS resumed the adjourned summary judgment proceedings.

15.On 6 September 2013, DCHJ B Chu entered summary judgment against Shum for the sum of HK$39,127,500 with interest and costs (“the Judgment”).

16.To enforce the Judgment, EDS has since obtained 2 garnishee orders nisi in respect of the bank accounts of Shum, and 2 charging orders nisi in respect of certain landed property and shares of Shum respectively during the period between September and October 2013.

17.By summons filed on 4 November 2013, Shum applies to set aside the Judgment and to stay the charging order and garnishee proceedings mentioned above.  By his affirmation in support, Shum, amongst other things, denies having instructed ONC to act for him or to conduct the proceedings in this action, and that ONC did so without his knowledge or authority.

18.In view of Shum’s allegations, EDS enquired with ONC, which indicated their then stance that they should intervene to state their version of events by affidavit in Shum’s application. EDS took a similar view as it was not privy to the dealings between Shum and ONC, and the issue of ONC’s authority could not be resolved without the involvement of ONC.  EDS’ solicitors and ONC were prepared to sign a consent summons for such purpose.  However Shum refused to consent.

19.EDS therefore took out its summons in November 2013 for the joinder of ONC, which was heard on 14 January 2014.  Shum, through his solicitors, maintained his opposition.  The master eventually dismissed the application.

20.Returning to Shum’s application, the parties then filed their respective affirmations, including those of Shum’s solicitor and Lee Chan Wah of EDS.  They ended with the 2^nd affirmation of Shum’s solicitor filed in reply on 24 February 2014.

21.However 2 days later, Shum’s solicitor filed his 3^rd affirmation.  EDS then took out its summons 2 days before the hearing, applying for leave to file a further affirmation[1].  The application is opposed, and for such purpose, Shum put in his solicitors’ further affirmation on the day of the hearing[2].

22.Hence the summonses by Shum to set aside the Judgment and by EDS to file the 9^th affirmation of EDS respectively for determination.

DISCUSSION

23.Blu Spa took out the application for summary judgment on the basis that Shum has no defence to the claim.  In support, it produced a series of correspondence between its solicitors and the then solicitors for Shum[3] in this respect in September 2012.  The repayments by Shum to Blu Spa and, after the Deed of Assignment, to EDS were all documented.  No evidence had been filed in opposition.

24.The transcript of the hearing before DHCJ B Chu records that counsel for EDS indicated his understanding that the application would not be opposed; and the solicitor (of ONC) appearing for Shum explained that no evidence would be filed in opposition; and it would be for the court to enter judgment as she deemed fit.  The Judgment was entered.

25.Shum seeks to impeach the Judgment on the following grounds:

(1)  He has never signed the Termination Deed and the Repayment Extension Agreements.  It was one Ivy Chan (“Chan”) who had forged his signature on these documents.  Chan was a director of Blu Spa and EDS.

(2)  When he became aware of the writ served on him, Chan allegedly admitted to him the forgery.  At her request and out of compassion, he agreed to leave the matter and the present action to her to handle.

(3)  He has never made the repayments to Blu Spa or EDS.  It was Chan who made the repayments out of her own money.

(4)  He has never instructed or met ONC as his solicitors in the present action.  ONC were engaged by Chan.

(5)  He occasionally telephoned Chan about the progress of the matter but paid little attention to the proceedings in his action.

26.EDS says Shum’s application must be dismissed on the following grounds:

(1)  ONC must have been authorised to act for Shum even on his own allegations.

(2)  Even on his own allegations, Shum was content for the Termination Deed to be performed or implemented; and continued to leave the matters to Chan to handle the matter on his behalf, notwithstanding the discovery of the forgery.

(3)  In any event, this court is functus officio; and has no jurisdiction to set aside the Judgment.

Authority of ONC

27.Whether ONC had the authority to act for Shum would depend on whether Chan had the authority to so instruct them.  Authority in this context included actual and apparent authority.  Mr Ho, appearing with Mr Kwong, submits that the burden is on Shum to substantiate the alleged lack of authority.  This is especially true, when EDS was not privy to what transpired between Shum, Chan and ONC.  EDS is not reasonably expected to adduce affirmative evidence to defend ONC’s authority to act for Shum, except for what was apparent to EDS as his opponent in this action.  This must be right in principle.

28.Contemporaneous correspondence between the relevant parties and documents were produced in respect of the authorisation of Chan to handle the litigation for Shum.  In particular, there were on the one hand an alleged letter of authorisation by Shum to Chan in late September 2013 together with a copy of Shum’s identity card for such purpose, both bearing the alleged signatures of Shum.  On the other hand, there were 2 alleged written statements by Chan confessing that she had engaged ONC in the absence of authorisation by Shum.  According to Shum, the signatures on the letter of authorisation and copy of his identity card were all forgeries by Chan.

29.There is nothing from Chan to contradict the allegations of Shum concerning what transpired between them.  Having said that, I do see the basis for the contention that Chan had authority of Shum in handling the matter including instructing ONC on his behalf, even according to Shum’s own case.

30.Notwithstanding the alleged confession of Chan, Shum agreed to leave it to Chan to handle the legal proceedings.  Allegedly the thought then was that Chan might continue making the repayments or that she would try to convince Shum’s opponent to drop the case.  Be that as it might, the fact was that Chan was effectively held out as having the authority to handle the litigation in which Shum is the named defendant.  Amongst others, engagement of legal representative for such purpose was not actually or apparently excepted.

31.As to the alleged statements of confession by Chan, the first one was dated 7 March 2013.  That was some 6 months prior to the summary judgment application.  According to that statement, Chan confessed that she instructed ONC in the name of Shum to conduct this action without Shum’s authorisation.  She undertook to cause his opponent to drop the case by 26 March 2013.  The second statement of confession was dated 26 April 2013, which was still more than 4 months prior to the summary judgment hearing.  By that statement, Chan gave a similar undertaking to cause his opponent to drop the case; only that this time deadline was extended to 15 May 2013.

32.In other words, Shum was aware that ONC were on record his solicitors in this action.  Yet on the basis of the first alleged statement of confession, Shum made the conscious decision to allow the situation to continue with knowledge about the alleged wrongdoing of Chan and her unauthorised engagement of ONC on his behalf.  He maintained that further, notwithstanding Chan’s apparent failure to fulfil her undertaking as per her first alleged statement of confession and hence the extended undertaking as per her second alleged statement.

33.As mentioned, Shum is an established businessman in property developments.  He had the knowledge, reason and means to obtain legal advice.  For instance, in concluding the SP Agreement, he received legal advice and was represented by no other but his current solicitors in this action.  Nevertheless, he somehow decided not to take any action, but continued to clothe Chan with the authority, actual and apparent, to act on his behalf.

34.Contemporaneous correspondence between ONC and Chan and Shum were disclosed by the 2^nd affirmation of Shum’s solicitor on 24 February 2014.  They demonstrate how ONC has conducted the litigation up to the hearing of the summary judgment application.  A few more of such contemporaneous correspondence is now revealed.  This brings me to the 9^th affirmation of Lee Chan Wah, which EDS applies to file and to rely on.  As mentioned, EDS’ application is opposed and argued during the hearing.

35.By this latest affirmation, EDS seeks:

(1)  to produce a letter and enclosures from ONC dated 27 February 2014;

(2)  to produce Blu Spa’s public announcements concerning Chan’s resignation in 2012;

(3)  to produce registers of directors and shareholders of Blu Spa and EDS concerning Samantha Keung (“Keung”)’s resignation in 2012; and

(4)  to set out notable events revealed by the correspondence between ONC and Chan previously produced by Shum (mentioned above).

36.As far as ONC’s letter dated 27 February 2014 (§35(1) above) is concerned, one needs to understand how it came about.

37.Following the unsuccessful attempt to enable ONC to intervene and, as a party, to set out by way of affirmation how they came to undertake the representation of Shum, the parties proceeded with the filing of their respective affirmations for Shum’s present application.  That concluded with the 2^nd affirmation in reply from Shum’s solicitor dated 24 February 2014.

38.By then, Shum’s solicitors had also written to the court, stating his client’s case and requesting for the transcript of the hearing before DHCJ B Chu as well as the written submissions and list of authorities filed for that hearing.  This caused the learned judge to seek comments from the parties and ONC.

39.On 26 February 2014, and without leave of the court, Shum’s solicitor filed his 3^rd affirmation further to his last affirmation in reply mentioned above.  Besides producing the transcript of the hearing before DHCJ B Chu, he also produced the recent correspondence with the court mentioned above.

40.There came the letter from ONC dated 27 February 2014, which was addressed to Shum’s solicitors but copied to EDS’ solicitors as well as the court.  In the letter, ONC explained how they came to undertake to act for Shum upon the instruction of Chan and the written authorisation by Shum mentioned above.  As to the alleged forged signatures of Shum on those documents, ONC claimed no knowledge and made no comment.

41.Appended to ONC’s letter were a few more emails among ONC, Chan and Shum in October 2012. On the face of these few emails, Chan actually forwarded to Shum[4] ONC’s draft affirmation and amended draft affirmation proposed to be filed by Shum in opposition to EDS’ application for summary judgment.  At the end of October 2012, Chan also forwarded to Shum the draft deed of settlement between Blu Spa and Shum.  In November 2012, ONC received from Chan the deed apparently signed by the parties, including Shum.

42.In the circumstances, ONC says that Shum was apparently aware of their acting for him at all material times.  Had Shum had any objection to that, he could and would have revealed that to them.  In the absence of that, ONC continued to act on the belief that Chan had been duly authorised to give instruction on his behalf.  It would now be for Shum to consider recourse against Chan as a matter between them, if she indeed had no such authority.

43.On the one hand, this letter really served as ONC’s substantive response, which was brought about by the recent letter from Shum’s solicitors to the court in February 2014.  On the other hand, ONC probably could have done so earlier.  They chose not to do so, even when they replied to the court 2 days before in relation to Shum’s request for transcript of the hearing before DHCJ B Chu.  Having said that, I accept that EDS or its solicitors had no control over that; and the latest letter from ONC simply did not exist for production earlier.  What needs to be considered now is whether allowing EDS to refer to that letter would cause any prejudice to Shum.  Indeed, by his 4^th affirmation, Shum’s solicitor suggests that his client lacks the opportunity to respond to ONC’s latest letter.

44.As mentioned, it is Shum’s burden to substantiate his allegations and to set out what transpired between him and ONC or Chan.  The reliance on the documents already disclosed by the previous affirmations as evidence of Chan’s authority, and thus ONC’s authority, to act for Shum is nothing new.  Only that these few emails among ONC, Chan and Shum appended to ONC’s letter were somehow not among those disclosed by Shum in any of the previous affirmations filed on his behalf.  It is perhaps only this fact about these few emails that Shum really needs to respond to.  ONC’s letter was actually addressed to Shum’s solicitors.  Shum had the time, at least since the letter.  Shum’s solicitor came up with his 4^th affirmation, which however is silent in this particular respect.

45.In this latest affirmation, EDS also refers to the correspondence between ONC and Chan, which were produced by the earlier affirmation of Shum’s solicitor (§35(4) above).  EDS highlights certain events revealed by the correspondence, which demonstrated how ONC had conducted Shum’s case.  This gives rise to no new assertion or evidence.  The reference to the specific correspondence could have been made in the course of submission anyway.

46.The other aspects of this latest affirmation from EDS (§§35(2) and (3)) relate to the position of Chan and Keung in Blu Spa and EDS.  This relates to Shum’s contention that it is not open to ONC or EDS to rely on the authority of Chan to instruct ONC on his behalf at the material times.  The basis for the allegation is that EDS or ONC knew that Chan (and Keung) was the driving force on Blu Spa (and EDS)’s side, and that she could not possibly give instruction on behalf of Shum without conflict of interest at the material times.

47.It is said that Chan’s husband is a consultant of Messrs SH Chan & Co, who claimed to have acted for Shum.  He approached ONC to take up the conduct of this case for Shum.  At the material times, ONC acted for Dutfield International Group Co Ltd (“Dutfield”), a company belonging to Chan and her husband, in another action, HCCL 11/2003, which is not related to Shum.  In the course of the negotiation for settlement of this action in October 2012, EDS’ solicitors suggested that Dutfield guaranteed the indebtedness and repayment by Shum.  Chan and Keung were also instrumental to the conclusion of the Deed of Settlement between the parties.  It is also said that ONC looked to Chan, not Shum, as their client.  They looked to Chan for payment of legal fees.

48.Issue is also taken in respect of ONC’s advice for Shum to consent to the substitution of EDS as the plaintiff in this action, whilst EDS (as opposed to Blu Spa) did not have a cause of action until the Deed of Assignment after the commencement of action.

49.It is common ground that Chan used to be a director and a member of the management of Blu Spa. But EDS pointed out after the current management took over in early 2012, Chan ceased to be a member of the management[5] and resigned as a director of EDS in early March 2012.  Chan also formally resigned from the directorship in Blu Spa in December 2012.  As to Keung, she was never a director of Blu Spa or a substantial shareholder of EDS at the material time[6]; and she resigned from the management[7] at the same time as Chan did.  Now by the latest affirmation, EDS seeks to produce the public announcements by Blu Spa evidencing these facts.  They are public records and raise no new assertions[8].

50.In response, Shum’s solicitor by his 4^th affirmation questions these public announcements as being selective disclosure on EDS’ part.  The basis for the criticism is that no reference was made to Chan’s husband, who was, among other positions, a co-founder and director of Blu Spa.  Reference is made to the prospectus of Blu Spa and a public announcement of the Hong Kong Stock Exchange about the imposition of a public censure on Chan and her husband in 2007.

51.How such materials about Chan and her husband constitute a relevant response to the documents newly produced by EDS is unclear.  Mr Ho submits that if reference to these documents is intended to support the case of Shum that Chan’s husband or Dutfield were involved in the alleged fraud on Shum, one would have expected that to be already made by way of earlier affirmations filed on his behalf.  I tend to agree.

52.That ONC acted for Dutfield at the material times in another unrelated action is neither here nor there.  According to the correspondence, the guarantee issue arose in the course of the parties’ negotiation for settlement of the present action.  EDS’ solicitors advised ONC of their understanding that Dutfield had agreed to provide guarantee for Shum’s indebtedness as a principle debtor; and suggested that in default of repayment by Shum, Dutfield should on demand become liable to make immediate repayment.  Chan confirmed that Dutfield would provide the guarantee.  How ONC is said to have put themselves in a conflict between the interest of Dutfield and Shum is not immediately apparent.

53.The correspondence also shows ONC’s advice in respect of the application for substitution of Blu Spa by EDS as the plaintiff.  On the basis that ONC ought not to have advised to consent to the application, this goes to the prudence of a step taken by the legal representative in the conduct of the proceedings.  Without more, this is not prima facie reflection of conflict of interest.

54.As far as EDS’ application to file the 9^th affirmation of Lee Chan Wah is concerned, I agree with Mr Ho and accede to the application.  As far as the merit of Shum’s application to set aside the Judgment is concerned, I can see the force of the arguments advanced on behalf of EDS.  But I need not conclude on that, because Shum has opted for the procedure which in my view is flawed. This goes to the jurisdiction of this court to set aside the Judgment.

Jurisdiction

55.In his first affirmation in support, Shum asks to set aside or appeal the Judgment[9]. Curious as such stance may be, Shum obviously opted by his summons to seek to set aside the Judgment.  The summons does not specify pursuant to which rule the jurisdiction of the court to set aside a judgment obtained and sealed under O.14 is invoked.

56.The order in respect of the Judgment has been drawn up and sealed.  The court of first instance in the present case has apparently become functus officio: see Andayani v Chan Oi Ling [2000] HKC 233 at 237D-E, per Keith JA; Ampittia Inc B-Tech (Holdings) Ltd [2001] 2 HKC 574 at 579C-F, per DHCJ Kwan (as she then was).  This is so, even in a case where the judgment or order is said to have been obtained by fraud: see Kwan Chui Kwok Ying & Anor v Tai Wai Chun, CACV 194/2002 (13 December 2002) at §15, per Woo JA, which was followed in Moores Rowland & Anor v Grant Thorton & Ors, HCA 1126/2010 & HCA 735/2010 (8 June 2012) at §§23; 27, per DHCJ Lok.  For the purpose of impeaching the Judgment on the ground of fraud, Shum would have to appeal or to bring a fresh action.

57.Ms Wong for Shum tries to defend the adoption of the present procedure by relying heavily, and solely, on the Estate of Ng Fook, HCCA 22/1996 (1 December 1997) per Waung J.  In that case, the notification of the caveator’s legal aid application was filed and copied to the executor’s solicitors prior to the hearing of the executor’s summons.  Without notifying the master of that and the automatic stay of proceedings, the executor pushed for the hearing as scheduled in the absence of the caveator.  The master ordered the caveat to be struck out.  Months later, the caveator applied to set aside the order.  The application was dismissed. The caveator appealed to the judge in chambers.

58.The learned judge allowed the appeal; and in doing so, made the following points:

(1)  Because of the legal aid stay, the order of the master striking out the caveat should not have been made; and the master could be said to have no jurisdiction to do so.

(2)  The order was made ex parte and by way of default of argument by the absent party, whose absence was brought about by the legal aid application and the expectation of its general consequence of automatic stay.

(3)  It was abuse of process on the part of the executor to proceed to obtain the order regardless of the above.

(4)  In the circumstances, the order being null and void was what the court has inherent jurisdiction to set aside, instead of allowing abuse to be further perpetuated by insisting on the procedure of appeal for the purpose of impeaching such an order.

59.It is obvious that the case of Ng Fook was very much a case of its own peculiar facts.  It does not come close to be analogous to the circumstances of the present case, even on the basis of the alleged fraud on Shum and the alleged lack of authority of ONC in representing Shum or appearing for him at the summary judgment hearing.

60.In view of the nature of the summary judgment application, the court was presumably, as she had to be, satisfied with the materials in support of the claim before judgment would be given.  In the circumstances prevailing at the time of the hearing, that the court would enter judgment was not surprising.  It cannot be said that the Judgment was entered by consent or default[10].

61.After the hearing, the solicitors for Shum submitted a further District Court case of 黄金海對潤資有限公司及另一人, DCEC714/2006 (19 March 2012).  In particular, refer to paragraph 12 of the judgment whereby it was held that even in case of a regularly obtained judgment, it should be set aside if the defence has a reasonable (or real, to be precise) prospect of success.

62.Being referred to is the principle governing the setting aside of a default judgment[11], which the court does have jurisdiction to consider.  What happened in the present case was a summary judgment after the defendant has on the face of record entered appearance and indeed appeared during the hearing, albeit choosing not to oppose.  The circumstances are materially different from the case cited.

63.In the circumstances, merits aside, Shum’s application suffers from procedural flaw in that this court has become functus officio, the Judgment could not be impeached other than by way of appeal or fresh action.

CONCLUSION

64.I allow EDS’ application to file the 9^th affirmation of Lee Chan Wah as aforesaid.  For the procedural flaw alone, Shum’s application must be dismissed.  I so order, with costs of Shum’s summons and EDS’ summons to EDS, to be taxed, if not agreed, with certificate for 2 counsel.  In the absence of application in 14 days to vary, this costs order shall become absolute.

65.I thank counsel for their assistance.

Mr Ambrose HO, SC and Mr Alan KWONG, instructed by Anthony Siu & Co, for the plaintiff

Ms Priscilla WONG, instructed by Fung Wong Ng & Lam, for the defendant

[1]  The 9^th affirmation of Lee Chan Wah.

[2]  The 4^th affirmation of Ng Ngai Man Raymond.

[3]  Messrs SH Chan & Co., which Shum also denies having engaged to act for him.

[4]   At what is believed to be Shum’s personal email address [email protected]. It is noted that Shum owns 2 Hong Kong companies: E In International Group Ltd and E In Properties Ltd.

[5]  As director, vice chairman, authorized representative and compliance officer.

[6]  Holding less than 1% of the issued share capital by the end of the first quarter of 2011.

[7]  As chief executive officer.

[8]  See §§23-28 of the 8^th affirmation of Lee Chan Wah.

[9]  §45.

[10]  Though somehow the order contains the preamble that the order was made upon no notice of intention to defend and application for summary judgment.

[11]  The major part of the decision concerned whether service was valid and effective and thus regularity of the default judgment obtained.