EARTH GROUP LTD v. GLOBALMAX GROUP LTD AND ANOTHER
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DCCJ 2155/2019
[2022] HKDC 945
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 2155 OF 2019
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BETWEEN
| EARTH GROUP LIMITED | Plaintiff | |
and | ||
| GLOBALMAX GROUP LIMITED | 1st Defendant | |
| LEE YAN LAM | 2nd Defendant | |
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Before: His Honour Judge Harold Leong in Chambers
Date of Hearing: 17 June 2022
Date of Decision: 13 September 2022
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DECISION
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1. This is an application for leave for appeal by the 1st and 2nd defendants (“the defendants”) against the Decision of this court dated 27 April 2022 (“the Decision”). The defendants also apply for stay of execution for the Decision until the disposal of this Summons etc.
BACKGROUND
2. The background of the dealings between the parties was stated in detail in the Decision and needed not to be repeated here.
3. Suffice to say that this is a simple case of breach of contract: the plaintiff sold some machines and goods to the 1st defendant, which did not pay, and the 2nd defendant, as the sole shareholder and director of the 1st defendant, removed the relevant machines and goods (“the Machines”) to another place unknown to the plaintiff.
4. A writ was issued and subsequently default judgments were entered against the 1st and 2nd defendants. A charging order was made absolute on the beneficial interest of a property owned by the 2nd defendant (“the Property”).
5. The defendants have applied to set aside the Default Judgment and the Charging Order. Master Maurice Lam has given the order that, inter alia, that:-
(a) the final judgment against the 1st defendant be set aside on the condition that it pays a sum of HK$710,000 into court;
(b) the final judgment against the 2nd defendant be set aside unconditionally; and
(c) the Charging Order Absolute be discharged with no order as to costs.
6. The plaintiff has appealed against this decision to this court.
7. This court gave the following orders in the Decision:-
(a) The Order of Master Maurice Lam dated 13 September 2021 be set aside;
(b) The final judgment entered against the 1st defendant and the 2nd defendant on 31 July 2019 be set aside on the condition that the 1st and 2nd defendants jointly or severally paid a sum of HK$1,139,462 into court within 28 days of this order;
(c) On compliance with paragraph above:
(i) the Charging Order: Notice to Show cause dated 21 October 2020 and Charging Order Absolute dated 19 June 2020 and amended on 12 October 2020 be discharged;
(ii) The 1st and 2nd defendants do have leave to file and serve their Acknowledgements of Service within 7 days of the payment into court;
(iii) The 1st and 2nd defendants do have leave to file and serve their Defence and Counterclaim (if any) within 28 days thereafter; and
(iv) The plaintiff do have leave to file and serve its Reply and Defence to Counterclaim (if any) within 28 days thereafter.
8. The defendants now seek leave to appeal against the Decision and for the stay of execution of the same.
LEGAL PRINCIPLES
9. The legal principle is trite and is stated under Section 63A of the District Court Ordinance (Cap 336) and needed not be repeated here.
THE GROUNDS OF APPEAL AS STATED IN THE DRAFT NOTICE OF APPEAL
Ground 1
10. Under ground 1(a), (b) and (c), in short, Mr Ngai, the counsel for the defendants, argued that the 2nd defendant claimed that since:-
(a) she only removed the machines after default judgment was obtained and not before;
(b) that she was removing the machines not to evade liability but because the 2nd defendant could no longer pay rent of the premises;
(c) that the 2nd defendant removed the Machines not in the capacity as the director of the 1st defendant but in her personal capacity; and
(d) that the Machines still remained the property of the 1st defendant.
The 2nd defendant has a good “corporate veil” defence and the court should not impose any conditions on the 2nd defendant’s leave to defend.
11. My view is that these are all the 2nd defendant’s bare assertions she now raised, and such claims can only be tested at trial and not by the court conducting a “mini-trail” at this stage.
12. When one distilled all the undisputed facts down to a simple story, this is a case of a person incorporating a company and then using that company to purchase goods which it failed to pay, and then that person, as the sole director and shareholder of the company, took the goods away to an unknown place away from the potential creditor.
13. There is no dispute that a company is an artificial person under the law which obviously lacks the arms and legs of a real person to remove any goods within its premises. The goods were instead physically removed by the sole shareholder and director of the company.
14. The question is: irrespective of when, why or under what capacity that the sole shareholder and director now claimed she removed the goods, would she be able to raise the “corporate veil” defence and escape liability?
15. I agree with Mr Poon, counsel for the plaintiff, that this case may display some classic features of a fraudulent scam in obtaining goods and then closing the company. Thus, there must be a good prima facie case for an argument to pierce the corporate veil.
16. As for the argument whether the plaintiff has adequately pleaded for “lifting the corporate veil”, this has been already raised in the first hearing. I have already considered this in the Decision, which stated “whether this was adequate pleading for “lifting of the corporate veil” or not would be a matter of legal argument. The court should not be involved in a mini-trial on such matters at this stage.”
17. Indeed, Mr Ngai’s argument would only go so far to suggest that the plaintiff’s pleadings were inadequate and thus the 2nd defendant had “a real prospect of success” at this stage, the court must take into all circumstances of the case when imposing any “such terms that it thinks just…” (Order 13, r 9), including the fact that the plaintiff may have every opportunity to “perfect” its pleadings in the future should leave to defend be allowed.
18. In ground 1(d), the defendants argued that the court has erred in concluding that the 2nd defendant evaded service.
19. I have discussed in details under paragraphs 14-32 in the Decision. The gist is that they decided to ignored “registered mails” by not collecting them from the post office. The 2nd defendant tried to give an explanation for this behaviour which was not accepted by the court. Thus the court found the default judgment to be regular.
20. The defendants sought to argue that this behaviour is not “evading” service but simply “ignoring” service.
21. I see no relevance in such an argument. The question to was whether the default judgment was regular or not, and whichever way one wished to describe the defendants’ behaviour, the answer would be the same: the default judgment was regular.
22. Ground 1(e), (f) and (g) appeared to challenge the court’s consideration when imposing the conditions for leave to defend. The defendants argued that the protection of the interest the plaintiff (eg risk of an empty judgment) should not be a consideration. Mr Ngai did not take the court to any law or precedent to show how the court’s discretion in imposing these terms should be fettered in such manner.
23. Indeed, Order 13 r 9 allows the court to impose any “…such terms as it thinks just…” which must mean that the court should balance the interests of and justice for both parties when considering such terms.
24. In the case of Creasey v Breachwood Motors Ltd [1992] BCC 638 which concerned an attempt to evade enforcement of judgment by transfer of assets, the court there also raised a justification in lifting the corporate veil. In setting aside the default judgment, that court also impose a similar condition of payment into court.
Ground 2
25. Ground 2 concerns the 1st defendant’s case.
26. Mr Ngai argued that the court failed to consider whether the 1st defendant has a “good” defence. The 1st defendant’s defence has already been raised in the first hearing and the court has considered this and addressed its findings and considerations in paragraphs 38-40 of the Decision. This court clearly did not accept that the 1st defendant has a “good” defence but may have some merit to show “a real prospect of success”.
27. The remaining paragraphs of ground 2 are similar to the grounds raised on behalf of the 2nd defendant regarding “evading service” and the court’s consideration of the interest of the plaintiff. I need not repeat my views again.
28. More importantly, in both grounds 1 and 2, Mr Ngai did not put forward any grounds that the court has erred in any specific finding of facts or application of law in the Decision: he simply disagreed with the court’s decisions and sought to re-hash the same arguments already heard and considered by this court. As such, there are no merits in both these grounds.
Ground 3
29. This ground concerned with the wordings of paragraph 44 of the Decision in particular that the 1st and 2nd defendants were ordered to “jointly or severally” pay a sum of HK$1,139,462 into court.
30. The use of the word “or” clearly does not make any sense, especially when the discussions in the Decision above concerned the piercing of the corporate veil so it must follow that the court is not concerned with the exact contribution from each defendant as long as there is a total payment into court of HK$1,139,462.
31. Therefore, this is plainly a typo. The court would not have ordered each defendant to each and severally pay HK$1,139,462, which would mean that the court may receive a total payment of HK$2,278,924.
32. The proper term is, of course, “jointly and severally”. This typo can plainly be dealt with under the “slip rule” by way of a corrigendum, and should not be a ground for appeal.
33. Mr Ngai also argued that the court “ought to have specify” the exact contribution by each defendant.
34. I cannot see how the court can perform an exercise in apportionment of liability/quantum at this stage and, of course, Mr Ngai has again failed to show how the court has erred in any specific finding of facts or application of law in this respect.
Ground 4
35. Mr Ngai argued that the court has erred in ordering the discharge of the Charging Order on condition that both defendants comply with the payment order, because the Charging Order does not concern with the 1st defendant, and further that because the 2nd defendant has no knowledge of the charging order proceedings, the Charging Order “ought to” be discharged with imposing any condition.
36. Again, I think this ground of appeal is entirely misconceived. The Decision has already addressed the findings of the court regarding service of court documents. I cannot see how the “knowledge or otherwise” (or, at best, claimed “knowledge or otherwise”) of the 2nd defendant was relevant. Mr Ngai, again, simply disagreed with the decisions of the court and was seeking to re-argue the case. These are not proper grounds for appeal.
Ground 5
37. This is an argument on the costs order.
38. Mr Ngai argued that the court erred in failing to consider that the defendants are at least partially successful in their application to set aside the default judgment.
39. It is trite that the court has absolute discretion in awarding costs including all the circumstances of the case including the conduct of the parties and the merit of the defence. This was the plaintiff’s appeal against the order by Master Maurice Lam on 13 September 2021. The appeal was successful and the order by the Master Maurice Lam was set aside. The Decision has clearly discussed the circumstances of this case and the conduct of the defendants, including their repeated evading (or ignoring) of service.
40. I cannot see why the court cannot exercise its discretion in awarding the costs of the hearing before Master Maurice Lam to the plaintiff. There is no merit to this ground for appeal.
Order
41. This court fails to see how the 1st and 2nd defendants’ appeal has “a reasonable prospect of success” nor that “there is some other reason in the interest of justice why the appeal should be heard”. As such, the 1st and 2nd defendants’ application for leave to appeal is dismissed.
42. There be a corrigendum to amend the wordings of paragraph 44 of the Decision dated 27 April 2022 to read:-
“The final judgment entered against the 1st defendant and the 2nd defendant on 31 July 2019 be set aside on the condition that the 1st and 2nd defendants jointly and severally pay a sum of HK$1,139,462 into court with 28 days of this order.”
43. This is a simple case of simple breach of contract and money owed after failure to pay for good delivered. Money is still being owed and one may raise a suspicion that the defendants are simply trying to stall the legal proceedings.
44. Nevertheless, as a generous gesture regarding the application for stay of execution, the court would exercise its discretion to allow a stay of the orders specified in paragraphs 44, 45 and 46 of the Decision dated 27 April 2022 until the date of this decision, that is, that the time limit set under such orders should run from the date of this decision.
45. Costs of this application be to the plaintiff, with certificate for counsel. The plaintiff shall lodge and serve a summary bill of costs within 28 days and the defendants shall lodge and serve a summary list of objections within 28 days thereafter, and the costs shall be assessed summarily on paper.
| ( Harold Leong ) | |
| District Judge |
Mr Jackson Poon, instructed by B Mak & Co, for the plaintiff
Mr Lawrence Ngai, instructed by Chung & Kwan, for the 1st and 2nd defendants