TSE SHIU HOI v. SUN BO

HCA 1095/2019

[2021] HKCFI 2351

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1095 OF 2019

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DECISION

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INTRODUCTION

1.  On 23 September 2019, final judgment was entered against the defendant in default of notice of intention to defend for the sum of HK$15 million with interest.  By summons dated 11 November 2019, the defendant applied for the judgment to be set aside.  On 10 June 2020, Master Kenneth Lee set aside the judgment unconditionally. 

2.  This is the plaintiff’s appeal against the master’s decision. 

3.  An appeal from a master to a judge under Order 58, rule 1(1)  of the Rules of the High Court is by way of re-hearing.  I should treat the summons as if it came before me for the first time: Hong Kong Civil Procedure 2021 at 58/1/2.

4.  In this appeal, Mr Jonathan Chang, SC, leading Ms Sheena Wong, appeared for the plaintiff.  His primary submission was that the judgment was a regular judgment.  Mr Chang advocated that the principle set out by the Court of Appeal in Honour Finance Co Ltd v Chiu Mei Mei [1989] 2 HKLRD 146 is binding and applies.  Given that the writ was sent by registered post to the defendant’s usual and last known address when he was within the jurisdiction, the judgment, Mr Chang submitted, was a regular one.  He further submitted that the defendant’s case does not have a real prospect of success. 

5.  On the other hand, Mr Chang accepted that if Honour Finance should not be followed and that the defendant succeeds in showing that he had no actual notice of the writ before the judgment was entered, the judgment would be an irregular one and should be set aside.

THE PLAINTIFF’S CASE

6.  The plaintiff’s statement of claim and his opposing affirmation reveals the following case.

The claim

7.  The plaintiff’s cause of action is a straightforward one.  He says that on 16 January 2019, at the defendant’s request, he lent to the defendant a sum of HK$15 million, as the latter needed it for investment purposes.  The loan was repayable on demand.  It was not interest-bearing.  The plaintiff had since requested the repayment of the loan on several occasions.  On or about 22 May 2019, the plaintiff’s solicitors issued a demand letter to the defendant.  But the defendant has failed to repay the loan.  The plaintiff proceeded to issue the writ on 19 June 2019.

Service of the writ

8.  It is not in dispute that the defendant is the chairman of Core Economy Investment Group Limited, a Hong Kong listed company, which has a principal place of business at Suites 04 & 05, 19/F., Harbour Centre, 25 Harbour Road, Wanchai (“the Company Address”).

9.  On 21 June 2019, the plaintiff’s solicitors sent the writ to the defendant at the Company Address by registered post.  According to the post office records, the post was delivered on 24 June 2019.

10.  The defendant has confirmed that he was in Hong Kong from 14 to 29 June 2019.

11.  No acknowledgment of service was lodged within the prescribed deadline.   Final judgment was entered on 23 September 2019.

12.  The plaintiff contends that the Company Address was the defendant’s usual and last known address, he was in Hong Kong when the writ was delivered, and the plaintiff has duly complied with Order 10, rule 1(2)(a).  Hence, relying on Honour Finance, the plaintiff says that the judgment was a regular one and that is so whether or not the defendant had actual notice or knowledge of the writ when the judgment was entered.

THE DEFENDANT’S CASE

13.  In support of the setting aside application, the defendant made two affirmations.  He also relied on an affirmation made by Ms Cheung Hoi Ue, the financial controller and company secretary of Core Economy.  In gist, the defendant says that he did not have notice of the writ until 8 October 2019, ie after judgment was entered.  The judgment was therefore irregular and ought to be set aside.  Even if the judgment was a regular one, the defence has a real prospect of success and the judgment should still be set aside.

The defence

14.  The defendant came to know the plaintiff in January 2019 through the introduction of a Mr Wu Kai.  Wu and the defendant had been business acquaintances.  In the course of their business dealings, Wu was indebted to the defendant in the sum of about HK$60 million.

15.  In January 2019, the defendant requested Wu to make some repayment.  Against this background, Wu introduced the plaintiff to the defendant and told the defendant that the plaintiff had agreed to pay on Wu’s behalf the sum of HK$15 million as a partial repayment of the debt. 

16.  This the plaintiff did on 15 January 2019.  He gave a cheque in that sum to the defendant on Wu’s behalf.  He confirmed to the defendant that the cheque was a repayment to reduce Wu’s indebtedness to the defendant.  At that meeting, the plaintiff did not mention anything about the sum being a loan to the defendant or that it being repayable on demand. 

17.  The defendant therefore says that the sum was not a loan as now alleged by the plaintiff and he is not liable to repay at all. There has been no loan agreement or any documentary evidence in support of the plaintiff’s allegation.

Notice of the writ

18.  The defendant frequently travels overseas and often stays for extended periods in the United Kingdom and Australia.  He is often away from Hong Kong.  He only returns to Hong Kong when he has company or personal business to attend to here.  Notwithstanding that he is the chairman of Core Economy, even when he is in Hong Kong, he does not regularly attend the Company Address.  In fact, he seldom goes to the company unless there is any specific business which he needs to conduct. 

19.  On 24 May 2019, the defendant was in Macau.  He received a WeChat message from Cheung, which was a photocopy of an unopened envelope from the plaintiff’s solicitors.  The defendant instructed Cheung to open the mail.

20.  The defendant was shocked to see the letter dated 22 May 2019 from the plaintiff’s solicitors purportedly demanding repayment of the sum of HK$15 million.  The defendant immediately sent a WeChat message to Wu to protest and enquire what was going on.  Wu agreed to make enquiries with the plaintiff for him.  The WeChat messages exchanged on 24 May 2019 were exhibited to the defendant’s affirmation.

21.  The defendant then travelled to Dubai on 30 May 2019.  He returned to Hong Kong from London on 13 June 2019 in order to attend the annual general meeting of Core Economy which was held on the following day.

22.  On 19 June 2019, unknown to the defendant, the plaintiff issued the writ.

23.  On 20 June 2019, the defendant had dinner with Wu and the plaintiff in Hong Kong to discuss some investment opportunities. The plaintiff did not make any mention of the demand letter or the writ during the dinner.  (These facts are accepted by the plaintiff, who explained that the dinner was a social gathering occasion.)

24.  It would be recalled that the writ was sent to the Company Address on 21 June 2019.  The defendant was in Hong Kong from 14 to 29 June 2019.  He only attended the company once in the month of June, on 14 June when the AGM took place.

25.  After that, the defendant was out of Hong Kong travelling to a number of places.  In September 2019, he was in Hong Kong for some time.  But he did not return to the Company Address at all.  In late September 2019, he travelled to Sydney.

26.  On 8 October 2019, whilst in Sydney, he called Cheung to discuss some business matters.  He requested Cheung to check the mail which had been accumulating in his office as he had not returned for several months. 

27.  Cheung opened the mails.  She then saw the writ and the judgment.  The defendant immediately asked her to pass the documents to his solicitors.  Upon seeking legal advice, the defendant took out the setting aside application on 11 November 2019.

28.  Mr Chan Chi Hung, SC, who appeared with Mr Derek JY Chan for the defendant, did not accept that the Company Address was the defendant’s usual or last known address.  But even assuming that it was, his primary submission was that the defendant has adduced cogent and detailed evidence showing that he did not have notice of the writ until 8 October 2019, which was after the signing of the judgment. 

29.  On the applicable legal principle, Mr Chan submitted that the correct test for service of a writ by registered post is whether it had been brought to the defendant’s notice and not whether it had been delivered to the defendant’s last known address.  He relied on a long line of first instance decisions in support of the “actual notice” test, including Sinokawa Investment (Holdings)  Ltd v Li Chun [2006] 3 HKLRD 441 at para 15; Cosec Nominees Ltd v Lau Hon Ming [2001] 2 HKLRD 581 at 588C; Phillip Securities (HK)  Ltd v Lam Chi Bin Stanley [2002] 1 HKC 432 at paras 12-14. Mr Chan also relied on the Court of Appeal decision in Bank of China (Hong Kong)  Ltd v Cheung King Fung [2007] 1 HKLRD 462 at paras 35-41.

30.  In the circumstances, the judgment was irregular and ought to be set aside.

DISCUSSION

31.  The first issue is whether the judgment was a regular one.  The parties disagree on the correct test which I should apply when determining whether a judgment was a regular or irregular one in the context of Order 10, rule 1(3)(a).

The correct test

32.  The plaintiff submits that where a plaintiff has delivered the writ in compliance with the rules, it amounts to effective service and a judgment obtained in default of notice of intention to defend would be a regular judgment.  This is so regardless of whether the defendant had actual notice or knowledge of the writ prior to the entering of judgment. 

33.  As noted at the outset, the plaintiff relies on Honour Finance in support of this test, which I shall refer to as the “mere delivery” test.  Mr Chang emphasised that this test as laid down by the Court of Appeal is binding on this court, notwithstanding the contrary view expressed by the English Court of Appeal in Forward v West Sussex County Council [1995] 1 WLR 1469 at 1476A-1477E. 

34.  As regards the long line of first instance decisions in Hong Kong which applied the “actual notice” test instead of the “mere delivery” test (including Sinokawa Investment and Cosec Nominees), Mr Chang argued that they were incorrectly decided and should not be followed.

35.  In my view, Mr Chang’s submission is untenable.  As a matter of principle and on the authorities, the correct test is the “actual notice” test.

36.  Mr Chang has devoted almost two-thirds of his written submissions discussing the authorities in this area.  I hope I can be forgiven for not going through all his arguments.  It is unnecessary to do so.  The answer can safely be found in the decisions in Phillip Securities and Bank of China.

37.  In Phillip Securities, Deputy High Court Judge Lam (as Lam PJ then was)  undertook a review of the relevant statutory provisions and the case law, including the House of Lords decision in Barclays Bank of Swaziland v Hahn [1989] 1 WLR 506, Forward and the long line of Hong Kong first instance cases, deciding in favour of the “actual notice” test.  His lordship came to the clear view that Forward should be followed and that service by registered post and by insertion through letter box took effect when the defendant had notice of the proceedings and not on mere delivery: paras 12-14.

38.  In relation to Mr Chang’s main submission that Honour Finance, being a Hong Kong Court of Appeal decision, remains binding on first instance courts, his lordship rejected the same argument at para 13:

“Whilst it is my duty to follow the decision of the Court of Appeal in Hong Kong even if it is in conflict with a decision of the English Court of Appeal, what I face with is more than just a conflict between the two decisions. As mentioned, there is a substantial number of local first instance decisions plus an endorsement by the Court of Appeal in Chu Kam Lun of the principle enunciated by the English Court of Appeal in Forward. The authority of Honour Finance is also weakened by its inconsistency with the House of Lords’ decision in Barclays Bank of Swaziland v Hahn [1989] 1 WLR 506. In these circumstances, I do not see any reason why I should not adopt the construction of O10 r 3(a)  laid down in Forward.”

39.  Furthermore, subsequent to Phillip Securities, the Court of Appeal in Bank of China clearly applied the “actual notice” test, instead of the “mere delivery” test expounded in Honour Finance. In that case, the plaintiff sent the writ to the defendant’s business address by registered post.  The defendant did not deny receipt of the letter at that address but sought to explain that she herself had not seen the writ.  Tang JA found her explanation unsatisfactory.  The court was therefore not satisfied that she did not have notice of the writ at the material time: paras 35-40.

40.  The Court of Appeal’s ruling was then set out in para 41:

“Since we are of the view that she had not shown that she had no notice of the writ at the material time, the judgment must on any view be regarded as regular.”

41.  It is plain from the above that the court applied the “actual notice” test in that case.  There, delivery of the writ was established.  If the “mere delivery” test had been the correct test, that fact alone would have been sufficient to dispose of the appeal.  It would not have been necessary for the court to consider at all whether the defendant had notice of the writ.

42.  Hence Bank of China is in conflict with Honour Finance.

43.  In light of the analysis undertaken in Phillip Securities and the ruling in Bank of China, I do not agree with Mr Chang’s submission that I am bound to follow Honour Finance.  

44.  In conclusion, the correct test is the “actual notice” test set out and adopted in Forward, Phillip Securities and Bank of China.  That is to say, service by registered post and by insertion through letter box took effect when the defendant had notice of the proceedings and not on mere delivery.

Did the defendant have actual notice of the writ?

45.  The burden is on a defendant to produce convincing and cogent evidence to show that he had no notice of the writ or proceedings before the judgment was entered.  How much evidence is required must depend on the circumstances of the particular case: Bank of China at para 34.

46.  Having reviewed the affirmation evidence, I am of the view that the defendant has discharged the burden. 

47.  First, the objective fact is that the defendant is the chairman of a Hong Kong listed company.  It is his evidence that he travels extensively and unless there is a special need, he does not return to Hong Kong.  And, more relevantly, he does not attend the company unless there is business which he needs to conduct there.  That helps to explain why he did not manage to see the mail enclosing the writ and sent to the Company Address in June 2019 in a timely manner.  This is a piece of evidence which the plaintiff would have no knowledge about and would not be in a position to comment or rebut.  What the defendant says is not inherently implausible.  It is also noteworthy that he appeared to be able to put down in detail his travel itinerary during the relevant months in 2019 in support of his allegation.

48.  Second, his allegation that he was not aware of the writ until Cheung opened the mail for him on 8 October 2019 is confirmed by Cheung herself.  She is the financial controller and company secretary of Core Economy.  She has no apparent connection with the dealings between the plaintiff and the defendant.  As such, her evidence should be given due weight.

49.  In her affirmation, Cheung gave a straightforward account of how she came to open the mails addressed to the defendant and sent to the Company Address.  As the company secretary, she is mainly responsible for secretarial works of the company, including drafting and issuing announcements, liaising with the directors on governance matters and preparing agenda for directors’ meetings.  When mail is received addressed to the defendant care of the Company Address, the mail would be left in the defendant’s office unopened.  If the defendant had not returned to the office for quite a long time, he would some time direct Cheung to open the accumulated mail and authorise her to see the content. 

50.  On 24 May 2019, Cheung noticed an envelope from Messrs TC Lau & Co addressed to the defendant.  As she noticed that Core Economy had no business connection with the law firm before, she informed the defendant forthwith via WeChat.  She was then directed by him to open the mail. 

51.  Then, on 8 October 2019, the defendant phoned her to discuss some business matters.  He requested her to open his mails.  It was only then that Cheung found out that the mails contained the writ and the judgment.

52.  As a matter of analysis, it is notable that on the one hand, Cheung took the initiative to alert the defendant of the law firm mail in May 2019 but on the other hand, she apparently did nothing about the mail coming from the same law firm which was received in the following month. There was no explanation in her affirmation as to why she did not immediately inform the defendant of the June mail.  In fact, she did not even say whether she was aware of the mail back in June in the first place.

53.  It is trite that in a setting aside application, the burden is squarely on the defendant to adduce evidence to show that he had no notice of the proceedings.  This is a matter about which the plaintiff would usually have no knowledge.  The court invariably has to look to the defendant himself to give a proper account with convincing details if details are called for in the light of the factual circumstances.

54.  The gap in Cheung’s evidence has initially given me pause about the veracity of the defendant’s allegation.  The whole crux of the matter turns on whether the defendant did or did not know about the mail enclosing the writ which was delivered to the Company Address in June 2019. Cheung could have been more forthcoming and explicit about the circumstances back then.

55.  On the other hand, Mr Chan stressed that Cheung is not the defendant’s personal secretary.  Cheung is the company secretary of the listed company.  She is a certified public accountant.  It seems clear from her affirmation that she is not tasked with the general responsibility of opening the defendant’s mail while he is away.  She has her own duties within the company.

56.  In the end, I consider that Mr Chan’s point is a valid one.  Cheung did make it clear in her affirmation that in general she would open the mails for the defendant at the latter’s request.  It seems tolerably clear from the overall factual context that it was not part of her general job duty to check the defendant’s mails from time to time.  In the circumstances, I am prepared to accept her evidence that she only opened the mail containing the writ on 8 October 2019 and that the defendant was made aware of it on the same day.

57.  Thirdly, Mr Chan made a further point in support of the above conclusion.  He submitted that it is inherently improbable that the defendant would have ignored the writ or allowed judgment to be entered if in fact he had notice of it.  Back in May 2019, when he received the demand letter, he immediately took steps to ask Wu to resolve the situation. That is supported by the contemporaneous WeChat messages.  There is therefore no good reason why he would just ignore the writ in June if he had notice of it. Instead, as soon as he found out about the writ and judgment on 8 October 2019, he approached his lawyers for advice. 

58.  I think it is a fair point, which is corroborated by documentary evidence.  It reinforces the conclusion that the defendant had actual notice only on 8 October 2019. In this regard, I note that the summons was taken out one month later, accompanied by the supporting affirmations.

59.  In sum, I am satisfied that the defendant has shown that he had no notice of the writ or the proceedings until 8 October 2019. That is after judgment was entered against him.  The judgment was therefore an irregular judgment.

60.  Mr Chang accepted that in these circumstances, the judgment should be set aside.  I would therefore uphold the master’s order.

Does the defence have a real prospect of success?

61.  Given my ruling, it is not necessary for me to consider the merits of the defence.  However, I would state that if I am wrong and the judgment was a regular one, I would still uphold the master’s decision as I am satisfied that the defence has a real prospect of success.  My brief reasons are as follows.

62.  The case primarily turns on the credibility of the parties.  The loan alleged by the plaintiff simply took the form of a cheque.  So far the plaintiff has not adduced any documentary evidence in support.  On the defendant’s case, the sum was paid by the plaintiff on behalf of Wu as a partial repayment of the debt owed by Wu to the defendant.  Similarly, there has been no contemporaneous documentary evidence in support of the allegation around the time of the transaction.  There were the WeChat messages exchanged in May 2019.  But I take note that the messages were sent after the defendant received the demand letter from the plaintiff’s solicitors.

63.  The outcome of the case is very much dependent on whose evidence is likely to be accepted and the factual disputes cannot really be resolved properly on affidavits alone.  In such a case, in determining whether the defendant has a real prospect of success, the proper question to ask is whether the defence “could well be established”: Hong Kong Civil Procedure 2021 at 13/9/14.  Here, I would answer the question with a “Yes”.

ORDERS

64.  In light of my conclusion in para 60 above, I order that the appeal be dismissed.

65.  I make the following costs order nisi. The defendant do have costs of the appeal.  The legal principles applicable in the present case are well-established and the factual issues involved are straightforward.  I would therefore grant a certificate for junior counsel only. The defendant has already lodged his statement of costs.  The plaintiff should within 14 days from the date of handing down lodge and serve his list of objections, if any, not exceeding two pages.  The costs will be summarily assessed on the papers after the deadline.

Mr Jonathan Chang, SC and Ms Sheena Wong, instructed by TC Lau & Co, for the plaintiff

Mr Chan Chi Hung, SC and Mr Derek JY Chan, instructed by Ma Tang & Co, for the defendant

HCA 1095/2019

[2020] HKCFI 997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1095 OF 2019

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BETWEEN

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DECISION

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Introduction

1.  This is an application by the defendant to set aside the default judgment obtained by the plaintiff against him on 23 September 2019 (“Judgment”) for money lent in the sum of HK$15 million with interest. 

2.  The defendant admitted the receipt of the HK$15 million from the plaintiff but denied any loan agreement.  The defendant’s case is that the sum was agreed to be a repayment by the plaintiff on behalf of one Mr Wu Kai (“MrWu”) to the defendant. 

3.  In this application, the defendant contends that:

(1) the Judgment is irregular in that the writ was not validly served on the defendant at the time the Judgment was entered; and

(2) in any event, the defendant has a real prospect of success in defence of the plaintiff’s claim. 

4.  On the other hand, the plaintiff contends that:

(1) the Judgment is regular;

(2) in any event, the defendant failed to show merits that he has real prospect of success in defending the plaintiff’s claim; and

(3) even if the Judgment is irregular, it should not be set aside or should only be set aside on conditions. 

5.  The application was originally fixed to be heard on 2 March 2020 but was adjourned because of the general adjournment of court proceedings (GAP).  Upon invitation by the court, the parties agreed that the application be determined on paper without an oral hearing.  This is the court’s determination of the defendant’s application. 

The issues

6.  There are therefore 3 main issues before me, namely:

(1) whether the Judgment is regular or irregular (Issue 1);

(2) if the Judgment is irregular, should it be set aside and if so whether conditions should be imposed (Issue 2); and

(3) if the Judgment is regular, did the defendant have a real prospect of success on the merits of his defence (Issue 3). 

7.  Mr Billy Ma, counsel for the Plaintiff, also raises a preliminary procedural objection about an irregularity in the defendant’s summons. 

Procedural irregularity

8.  Mr Ma submits that while the defendant complains that the Judgment is irregular, the relevant irregularity is however not specified in the summons itself.  This has offended O 2 r 2(2) of the Rules of High Court (Cap 4A), which provides that:

“Application to set aside for irregularity (O 2, r 2)

…

(2) An application under this rule may be made by summons or notice of motion and the grounds of objection must be stated in the summons.”

9.  Hong Kong Civil Procedure 2020 Vol 1 at §13/9/20 also provides that:

“(3) Mode of application - The application is made by summons to the master.

If it is desired to set the judgment aside for any irregularity, the irregularities must be specified in the summons (O 2, r 2(2)).”

10.  The plaintiff submits that for such ground alone, the defendant’s contentions on irregularity of the judgment should be rejected.  Further, it is argued that such omission should be “taken into account” in assessing the defendant’s case and credibility. 

11.  The latter contention can be dealt with quickly.  Given that it is a technical complaint about the form and contents of the summons, I do not see how the alleged omission could be taken into account in assessing the defendant’s case or credibility. 

12.  As regards the alleged irregularity, Mr Chan Chi Hung SC (with Mr Derek Chan), counsel for the plaintiff, submits that the summons was issued under O 13 r 9 to set aside the Judgment entered in default, which does not stipulate any express requirements for the form or contents of the summons.  With respect, I think although no specific form is prescribed by O 13 r 9, O 2 r 2(2) expressly provides that the grounds of objection should be stated in the summons to set aside for irregularity. 

13.  However, I agree with Mr Chan that the purpose of O 2 r 2 is to adequately inform the other party of the grounds of objection relied upon.  In this case, this purpose is served by the supporting affirmations filed on the defendant’s behalf which make clear the defendant’s contention that there was no effective service of the writ and that the Judgment is liable to be set aside as of right for that reason.  The failure to adhere to a prescribe mode or form of application is at most an irregularity that the court may waive under O 2 r 2 and does not render the application a nullity: Ling Yuk Sing v Secretary for Civil Service [2010] 3 HKLRD 722 at [6]. 

14.  In Ling Yuk Sing, an application to vary a costs order nisi should have been made by summons or motion pursuant to O 32 r 1(1).  However the application in question was made instead by letter.  The Court of Appeal held that by O 2 r 1(1), non-compliance with the prescribed mode of application, was at most an irregularity and did not render the proceedings a nullity, given that no resulting prejudice had been shown. 

15.  I think the same principle applies in this case.  It is plain from the supporting affirmations filed on the defendant’s behalf that he contends the Judgment is irregular because service of the writ was ineffective.  The plaintiff all along had notice of such grounds and he was able to deal with such contentions in his affirmation in reply.  The plaintiff has not suggested that he has suffered any prejudice, whether substantively or procedurally: see also Wai Kam-Foo Daniel v Wai Kam Wah Raymond HCA 957/2010 at [29] – [31]. 

Issue 1: Regular or irregular judgment

Procedural history

16.  The plaintiff issued the generally endorsed writ of summons against the defendant on 19 June 2019.  The defendant is the chairman of Core Economy Investment Group Limited (“Core Economy”), a listed company (SEHK: 339) which has a principal place of business in Hong Kong situated at Suites 04 & 05, 19^th Floor, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong (“Company Address”).  The writ of summons was served at the Company Address by registered post on 21 June 2019.  The letter has not been returned by the post office through the dead letter service.  The post office’s track and trace service shows that the letter was delivered on 24 June 2019.  The defendant did not file any acknowledgement of service.  The plaintiff therefore applied for and obtained the Judgment against the defendant on 23 September 2019.  The Judgment was then served on the defendant by post on 24 September 2019.  The defendant made the present application to set aside the Judgment on 11 November 2019. 

The defendant’s case

17.  The defendant’s case is that he travelled out of Hong Kong frequently and did not return to the Company Address regularly, and needed only attend the office when there was specific business to conduct.  As a general practice, mail addressed to the defendant at the Company Address would accumulate on his desk at the Company Address, and would from time to time be opened upon the defendant’s request by Ms Cheung Hoi Ue (“Ms Cheung”), a certified public accountant and the financial controller and company secretary of Core Economy.  This is corroborated by the evidence of Ms Cheung. 

18.  On 24 May 2019, while in Macau, the defendant received from Ms Cheung a WeChat message which was a photocopy of an unopened envelope from the plaintiff’s solicitors.  The defendant instructed Ms Cheung to open the mail and send it to the defendant by WeChat.  This is corroborated by Ms Cheung. 

19.  The defendant was shocked to find a demand letter dated 22 May 2019 from the plaintiff’s solicitors for repayment of the sum of HK$15 million.  The defendant immediately sent a WeChat message to Mr Wu to protest and enquire what was going on.  Mr Wu replied by WeChat message that he did not know what was happening and agreed to make enquiries.  

20.  The defendant was in Hong Kong from 14 to 29 June 2019.  However, he only attended the Company Address once in the entire month of June, on 14 June 2019 when the AGM took place. This is corroborated by Ms Cheung. 

21.  On 19 June 2019, the plaintiff issued the writ in this action. 

22.  On 20 June 2019, the defendant had dinner with Mr Wu and the plaintiff in Hong Kong to discuss some other investment opportunities.  As the plaintiff accepts, the alleged loan to the defendant and the issuance of the writ was not mentioned at the dinner. The defendant therefore assumed that Mr Wu had already resolved the matter with the plaintiff. 

23.  The plaintiff’s solicitors arranged service of the writ by registered post on the next day, 21 June 2019. 

24.  From 29 June 2019 onwards, the defendant was out of Hong Kong most of the time.  He was in Hong Kong from 13 September 2019. 

25.  The Judgment was entered on 23 September 2019 and served by post on 24 September 2019. 

26.  The defendant flew to Sydney on 28 September 2019.  On 8 October 2019, while the defendant was in Sydney, he gave Ms Cheung a call at the Company Address to discuss business matters.  During the call, he requested Ms Cheung to check the mail accumulated at his office as he had not returned for several months.  It was only then that Ms Cheung opened and discovered copies of the Judgment and the writ.  The defendant then asked Ms Cheung to pass the documents to his solicitors.  This is corroborated by Ms Cheung.  

27.  The defendant submits that if he had received any notice of the writ, he would have taken immediate action to deal with the matter as he did when he received the demand letter.  Once he discovered the Judgment, he promptly sought legal advice which resulted in the present application. 

The law

28.  As a starting point, O 10 r 1(1) provides that a writ must be personally served.  O 10 r 1(2) provides an alternative mode of service by sending a copy of the writ by registered post to the defendant’s usual or last known address. 

29.  Proof that a letter has been properly addressed, pre-paid and posted to the proper address of the person to be served and not returned through the post office undelivered to the addressee affords prima facie evidence that it has been duly delivered to the addressee: see Hong Kong Civil Procedure 2020 Vol 1 at §10/1/12. 

30.  In the present case, there seems to be no or no serious dispute that the Company Address was the defendant’s usual or last known address. 

31.  However, the test for service of a writ by registered post is whether it had been brought to the defendant’s notice and not whether it had been delivered to the defendant’s last known address: see Sinokawa Investment (Holdings) Ltd v Li Chun [2006] 3 HKLRD 441 at [15]; Cosec Nominees Ltd & Another v Lau Hon Ming [2001] 2 HKLRD 581 at 588C; Chu Kam Lun v Yap Lisa Susanto [1999] 3 HKC 378 at 382C. 

32.  Where there has been proper service, a defendant who claims he has not received the writ must provide convincing evidence.  The burden of proof is on the defendant to show that the proceedings were not brought to his notice: see Hong Kong Civil Procedure 2020 Vol 1 at §10/1/23.  

33.  When a defendant deposes that he has not received the writ through the post, the court has little option but to believe this save when there is sufficient material to cast doubt upon the defendant’s credibility to enable the court to disbelieve him (which is a matter of evidence dependent on the circumstances of the case): see Hong Kong Civil Procedure 2020 Vol 1 at §13/9/5. 

34.  However, this does not mean that the court must accept a defendant’s assertion no matter how improbable.  A defendant is required to provide convincing evidence.  How much evidence is required must depend on the circumstances of the particular case: see Bank of China (Hong Kong) Ltd v Cheung King Fung [2007] 1 HKLRD 462 at [33] and [34]. 

Analysis

35.  As stated above, the defendant has explained in some detail the reason why the writ and the Judgment had not immediately come to his notice although the same were posted to the Company Address.  His case is supported by Ms Cheung. 

36.  The plaintiff has made a number of criticisms about the defendant’s case. 

37.  First, the plaintiff argues that there is only the defendant’s self-serving allegation that he travelled out of Hong Kong frequently.  In application of this kind, one should exhibit Immigration Department’s travel records, but none is exhibited here. 

38.  I think whilst the defendant’s frequent absence from Hong Kong is part of the relevant background, it is not the main reason why the defendant claims he had not had notice of the writ at the material time.  The defendant in fact admits he was in Hong Kong when the writ was served by registered post (on 21 June 2019) and actually delivered to the Company Address (on 24 June 2019).  The main reason put forward by the defendant (and confirmed by Ms Cheung) is that, as a matter of practice, he seldom went back to the Company Address unless there was specific business to conduct.  As a result, letters would accumulate on his desk, which would only from time to time be opened by Ms Cheung upon the defendant’s request. 

39.  I also think there is force in the Mr Chan’s submission that as the defendant has frankly admitted as part of his travel history that he was in Hong Kong when the writ was served, one might ask rhetorically: why lie about his other travel history and not about his presence in Hong Kong on the most crucial dates? 

40.  The plaintiff further submits that as the defendant’s own evidence shows, previously, the demand letter of the plaintiff’s solicitors dated 22 May 2019 had been successfully sent to the defendant at the Company Address and came to the his actual notice on 24 May 2019 when Ms Cheung noticed an envelope from lawyers, it “must follow” that once the writ had been successfully delivered to the Company Address, Ms Cheung had also alerted the defendant about the same. 

41.  I agree with the defendant that this seems to be a non-sequitur, as one does not follow the other.  Further, Ms Cheung has confirmed that she did not find the envelope with the writ until the defendant asked her to check his mail on 8 October 2019.  

42.  The plaintiff further argues that the defendant’s allegations regarding Mr Wu are neither here nor there, and do not assist his case in denying his actual notice of the writ at the relevant time.  The defendant however, argues that such evidence is highly relevant because the defendant’s protests to Mr Wu form part of the background and shows the inherent improbability that the defendant would ignore the writ if he in fact had actual notice of it. 

43.  I think the defendant’s alleged dealings with Mr Wu is relevant to explain why he believed that the situation had been resolved between Mr Wu and the plaintiff after his receipt of the demand letter.  It forms part of the background which supports the defendant’s case that he would not ignore the writ if he in fact had actual notice of it. 

44.  In conclusion, I think the defendant has discharged the burden of showing by convincing evidence that the writ did not come to his attention until 8 October 2019 and the Judgment is therefore liable to be set aside as of right. 

Issue 2:Exercise of discretion on irregular judgment

The law

45.  It is well-established that even if the judgment is irregular, the court is not bound to set aside the same.  As expounded by the Court of Appeal in Russell Peter Brown & Ors v Edward Eugene Lehman (CACV 119 of 2012, 29 July 2016), Barma JA (at [28]) stated that: -

“Where a default judgment is irregular, it is usually said that it will be set aside ex debito justitiae. Mr Barlow submits that this means that it must be set aside. However, it was established in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1996] 4 HKC 157 that the court retains a residual discretion to decline to set aside an irregular default judgment, or to impose terms when setting it aside, where the circumstances of the case call for such a course to be taken.”

46.  The court will not shut its eyes to the surrounding circumstances and why things went wrong and there is a residual discretion to impose terms for setting aside an irregular judgment having regard to the parties’ conduct: see Po Kwong Marble Factory Ltd [1996] 4 HKC 157 at 161C – G, 162E – F.  These include, for example, (1) the defendant’s method of virtually disguising its registered office, (2) real risk of empty judgment, (3) the defendant giving the plaintiff an address at which it could not be found or forwarded correspondence, (4) evading service, and (5) substantial delay before applying to the court to set aside the judgment: see Hong Kong Civil Procedure 2020 Vol 1 at §13/9/10.

Analysis

47.  The plaintiff submits that this is a suitable case for the court to exercised its residual discretion to refuse to set aside the Judgment, or to impose conditions, because of four reasons. 

48.  First, the plaintiff argues that the defendant has failed to state the irregularities in the summons.  I have dealt with this point above in the context of the preliminary objection.  The deficiencies in the summons have caused no prejudice to the plaintiff.  It has nothing to do with whether the Judgment should be set aside and if so whether conditions should be imposed. 

49.  Secondly, the plaintiff argues that as the defendant has accepted that the writ had been delivered to the Company Address, the defendant only had himself to blame for allowing the writ to “sleep” in the said address.  There is “real risk of empty judgment”;

50.  The defendant has explained as a matter of practice, he seldom returned to the Company Address.  I think the defendant cannot be blamed merely for maintaining his usual business habit.  On the other hand, the plaintiff has provided no basis for the assertion that there is somehow a real risk of empty judgment. 

51.  Thirdly, the plaintiff argues that the defendant had been “evasive” about receiving court document.  

52.  I agree with the defendant that there is no basis to suggest that the defendant was evading service.  Indeed, if the defendant was keen to evade service of anticipated legal proceedings from the plaintiff, he would not have dined with the plaintiff on 20 June 2019. 

53.  Fourthly, the plaintiff argues that the defence is shadowy.  As explained below under Issue 3, however, I think the defendant has shown a meritorious defence. 

54.  There is therefore no basis to justify refusal to set aside or the imposition of any condition. 

Issue 3: Meritorious defence

55.  In view of my above conclusions, the point does not strictly arise for determination. In deference to counsel’s arguments, however, and in case I am wrong in holding that the Judgment is irregular, I shall indicate my views below.  

The law

56.  It is trite that if the default judgment is a regular one, the defendant in order to set aside the judgment has to show that he has a real prospect of success on the merits of the case.  To do so, he must satisfy the court that his case and the evidence that he adduces in support of it is potentially credible and carries some degree of conviction.  Thus, the court must form a provisional view of the probable outcome of the action: see Hong Kong Civil Procedure 2020 Vol 1 at §13/9/20. 

The plaintiff’s case

57.  The plaintiff’s case is that prior to the making of the loan, he had known the defendant as a business investor for about two years.  The defendant was known to the plaintiff as the chairman of Core Economy. 

58.  The circumstances of the making of the loan as stated in the plaintiff’s affirmation is as follows:

“On or about 16th January 2019, the Defendant came with one Mr Wu Kai(吳凱) to my office at the address stated above. The Defendant requested me for a loan of HK$15,000,000.00 as he needed it for his own investment purposes. I promised to lend him the money and gave him a cheque. The loan was meant to be repayable on demand as there was no requirement for the Defendant to pay me any interest. A copy of the cheque I have given to the Defendant is now produced and shown to me marked "B".

59.  The plaintiff says that at the time of making the loan, there was no mention of Mr Wu owing any money to the defendant.  There was no request from Mr Wu that the plaintiff should repay the sum of HK$15 million on behalf of Mr Wu to the defendant.  The loan was a straightforward loan by the plaintiff to the defendant. 

60.  The plaintiff also relies on Seldon v Davidson [1968] 1 WLR 1083^[1] which held that when a person admits to receiving money in circumstances in which the presumption of advancement does not apply, the burden is upon the recipient to explain why the money should not be repaid as, prima facie, it is repayable on demand.  The Plaintiff argues that in the present case, as presumption of advancement does not apply, and there is no dispute that the defendant had received the said HK$15 million, the money should be repayable on demand. 

The defendant’s case

61.  The defendant’s case is that he came to know the plaintiff in about January 2019 through the introduction of Mr Wu who was a business acquaintance of the defendant.  In the course of their business dealings, Mr Wu was indebted to the defendant for his investments in a listed company.  As of early January 2019, Mr Wu was indebted to the defendant to the tune of around HK$60 million. The defendant therefore requested Mr Wu to make some repayment of his outstanding indebtedness.  

62.  Mr Wu introduced the defendant to the plaintiff and told the defendant that as Mr Wu had close business dealings with the plaintiff, the plaintiff had agreed to pay on Mr Wu's behalf the sum of HK$15 million for the purpose of repaying part of Mr Wu's indebtedness to the defendant. 

63.  On 15 January 2019, Mr Wu brought the defendant to the plaintiff’s office.  The plaintiff gave the defendant a cheque of HK$15 million dated 16 January 2019. 

64.  At the meeting, the plaintiff did not mention or suggest to the defendant that the sum was a personal loan to the defendant or that it was repayable on demand.  Instead, the plaintiff confirmed that the cheque was a repayment to the defendant made on behalf of Mr Wu to reduce Mr Wu's indebtedness to the defendant. 

Discussion

Seldon v Davidson

65.  With respect to Mr Ma, I think his reliance on Seldon v Davidson (and the line of authorities following it) is misplaced. 

66.  First, the incidence of burden of proof is not the most pertinent issue before me.  Instead, the question that I have to decide is whether, after taking into account all the relevant evidence and circumstances, the defendant has shown a real prospect of success in the present case. 

67.  Secondly and more importantly, the Court of Final Appeal refused to follow Seldon v Davidson in the case of Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (2015) 18 HKCFAR 364. 

68.  In Big Island, the plaintiff claimed repayment of loans from the defendants.  The defendants admitted the receipts of the money but denied that they were loans and claimed that they were paid by the plaintiffs to them pursuant to various fund exchange agreements.  In the end, the trial Judge rejected both the plaintiff’s case on loans and the defence case on fund exchange agreements.  In that context, the plaintiff relied on Seldon v Davidson and argued that given that the trial Judge had rejected the parties’ respective cases, and given that receipt of the payments was admitted, the burden of proof was on the defence to show on a balance of probabilities that the payments were gifts, in settlement of an existing debt, in return for cash or something of the sort.  Accordingly, since the defence could not discharge the burden of proof, judgment should have been entered in favour of the plaintiff. 

69.  Their Lordships were unanimously of the view that the appeal should be dismissed simply because on the facts, the trial Judge should have found the defence proved.  However, the Court of Final Appeal proceeded to discuss Seldon v Davidson.

70.  After a comprehensive review of the authorities and their reasoning, Sir Anthony Mason NPJ (with whom Ribeiro PJ, Fok PJ and Chan NPJ concurred) held that Seldon v Davidson was wrongly decided.  His Lordship stated (at [106] - [108]): -

“106. It follows that the reasoning in Seldon v Davidson is flawed, that it is inconsistent with earlier English authority and with Australian authority. That circumstance in itself is enough to justify the conclusion that the decision should not be followed in Hong Kong and that the presumption of an implied obligation to repay from the fact of payment to a stranger cannot be supported. Further, I am not persuaded that, as a matter of policy, recognition of such a presumption has anything to commend it. The making of a bare payment to another may in the nature of things be explicable by reference to a wide variety of possibilities. To my mind, the probability that there is an obligation to repay the amount is not so strong that it should become the subject of a presumption, even a presumption of fact as Stevens J held it to be in Zheng v Qiu. It is the making of the payment in the circumstances which surround it that will enable appropriate inferences to be drawn, in the light of any relevant traditional presumption. In such a situation it is preferable to avoid the making of a presumption and leave the character and effect of the payment to the drawing of inferences. Presumptions lend themselves to tactical ploys in litigation; it is better that parties be encouraged to present the totality of their case, particularly in cases arising out of commercial transactions.

107. There are cases in Hong Kong where the courts have applied or referred to Seldon v Davidson without subjecting it to critical scrutiny — see Mak Ka Hing v Pang Ming Chung (where judgment for the plaintiff was justified on the findings made by the Deputy Judge who disbelieved the defendant) and El Vince Ltd v Wu Wen Sheng (where Seldon v Davidson was distinguished). Likewise, in England, Seldon v Davidson has been applied or referred to uncritically — see, for example, Clark v Mandoj, Patel v Mirza and Chapman v Jaume.

108. As there is nothing in these cases which provides additional support for the reasons that led to the conclusion reached in Seldon v Davidson, I consider that it should not be followed in Hong Kong.”

71.  In the circumstances, at the trial of this case, the burden will be upon the plaintiff to establish all the elements of his claim, including that the payment of HK$15 million was in fact in the nature of a loan as he alleges.  However, such incidence of the burden of proof does not change the fact that, in this application to set aside the Judgment, the defendant still has to show that he has a real prospect of success on the merits of the case. 

The evidence

72.  Taking all the evidence in context, I am of the view that the defendant has satisfied the test.  His case and the evidence he adduced, especially when compared with those of the plaintiff, is potentially credible and carries sufficient degree of conviction.

73.  To start with, there is some inherent problems in the plaintiff’s case as presently presented. 

74.  The bone of contention in this case is the nature of the receipt of the HK$15 million.  As the plaintiff alleges that the money was paid as a loan, the circumstances under which the loan was negotiated is of fundamental importance.  However, in this regard, the plaintiff’s case is notably scant in particulars.  For example, while the plaintiff’s case is that the loan was “repayable on demand”, the plaintiff does not expressly allege that there was any mutual agreement that the HK$15 million was an interest free loan repayable on demand.  Instead, his evidence is only that: -

“the loan was meant to be repayable on demand as there was no requirement for the Defendant to pay [the plaintiff] any interest.” (emphasis added)

75.  Further, there is force in the defendant’s argument that the plaintiff’s assertion tthat the loan was said to be for the defendant’s “investment purposes” and was “repayable on demand” also defies logic.  If the defendant truly required a loan for investment purposes, it is inconceivable that he would obtain a loan that was to be repayable on demand.  This is because it would mean that the plaintiff could have demanded repayment the following day if he wished, thus defeating the entire purpose of a loan. 

76.  On the other hand, the defendant’s case that the receipt was in the nature of a repayment is to certain extent supported by the circumstances surrounding the defendant’s receipt of the demand letter in May 2019 and contemporaneous exchange with Mr Wu over WeChat (which has been discussed above in the context of service). 

77.  The plaintiff has made a number of criticism about the defendant’s case.  For example, the plaintiff criticized the defendant for not producing any document or communication record with the plaintiff to show or record that the said HK$15 million was a repayment by Mr Wu.  However, I think the same criticism can be made against the plaintiff that he has also failed to produce any documentary record to show any discussion or agreement about the alleged loan. 

78.  The defendant also argues that it is dubious that the defendant has not asked or procure Mr Wu to prepare an affirmation (or at least written statement) to support his case in this regard. 

79.  It is trite that where a person without explanation fails to call as a witness a person who he might reasonably be expected to call, it is open to the court to infer that that person’s evidence would not have helped that party’s case.  The same principle would apply to a failure without proper explanation to produce a document or other real evidence that a party might reasonably be expected to disclose: see O'Donnell v Reichard [1975] VR 916, 929, Li Sau Keung v Maxcredit Engineering Ltd [2004] 1 HKC 434, 443E, South China Securities Ltd v Lam Kwen Yuen [2012] 5 HKLRD 524 at [70].

80.  I agree that Mr Wu is certainly an important witness in this case as he played a central role in both the plaintiff’s version of a loan and the defendant’s version of repayment of a loan.  In the circumstances, while it can be said that the plaintiff might reasonably be expected to call Mr Wu as a witness, it is also arguable that the plaintiff should also approach Mr Wu and ask him to give evidence on the plaintiff’s behalf.  There is after all no evidence that Mr Wu is particularly close to any one of them.  In the circumstances, I am not prepared to draw any adverse inference in this regard. 

81.  Having considered all the evidence in the round, I am satisfied that the defendant has shown a meritorious defence. 

Disposition

82.  In the above circumstances, I will order as follows:

(1) the Judgment is set aside unconditionally;

(2) the defendant do file and serve his defence within 28 days from the date hereof. 

Costs

83.  In Cosec Nominees Ltd, Deputy Judge Poon (as he then was) set aside an irregular judgment unconditionally.  His Lordship noted that by the time the defendant’s second affirmation was filed, all matter relied on had been disclosed.  As a result, it was unreasonable for the plaintiffs to have opposed the application.  He therefore held that the costs up to the date of the second affirmation be costs in the cause, and costs thereafter (including the costs of the hearings) be to the defendant. 

84.  I will respectfully adopt the same approach.  In this case, I think after the filing and service of the first round of affirmations on the defendant’s behalf, the plaintiff should not have continued to oppose the summons.  I therefore order that:

(1) those costs up to the filing of the affirmations on behalf of the defendant on 11 November 2019 (including the costs of perusal of the said affirmations) be costs in the cause; and

(2) costs incurred thereafter including the preparation of the written submissions for this paper disposal be to the defendant.

85.  The application is not particularly complicated and not a lot of papers were involved.  Without disrespect, I do not think it justifies the involvement of two counsel.  I will therefore grant a certificate for one counsel. 

86.  Having considered the statement of costs provided by the defendant and the statement of objections by the plaintiff, I order such costs to be summarily assessed and allowed at $350,000 to be paid forthwith. 

87.  Lastly, it remains for me to thank counsel for the assistance provided to the court. 

Mr Billy N P Ma instructed by T C Lau & Co for the plaintiff

Mr Chan Chi Hung, SC and Mr Derek J Y Chan instructed by Ma Tang & Co for the defendant