UNITED KESVICK LTD v. TSANG WING FAI AND OTHERS

HCA 804/2019

[2020] HKCFI 3021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 804 OF 2019

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D E C I S I O N

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1.  There are 4 summonses before me to amend the order and judgment of DHCJ Blair made on 3 January 2020. The need to amend arose out of a series of mistakes and omissions on the part of the Plaintiff’s solicitors when first having the order and judgment sealed; and further omissions discovered after the first 3 summonses were filed.

2.  I am satisfied that the application for amendment falls under the “slip” rule and the proposed amendments are all to reflect the true intentions of the Court when the order and judgment were first granted.  In substance,

(1)     They are to reflect the fact that the order and judgment were granted in default of defence instead of under Order 14, rule 3;

(2)     They define what “soc” meant; and

(3)     They set out in detail the terms of the order rather than incorporating certain paragraphs in the statement of claim by reference.

3.  The Plaintiff’s solicitors acknowledged their mistakes and omissions and have undertaken to this Court that they would not charge the Plaintiff or the estate of Chan Chung Han, also known as Chan Chung Hong, deceased for costs in relation to these 4 summonses and the related supporting affirmations.

4.  On the Defendants’ side, only Mr Tsang appeared this morning shortly before 9:30 am to give a copy of his submission (made on behalf of all Defendants) to my clerk and Mr Gray.  He seeks leave to answer the 3^rd affirmation of Mr Gray dated 24 November 2020 in support of the 3^rd summons.  He did not stay for the hearing.

5.  I have read Mr Tsang’s submission.  Mr Tsang gave reasons trying to query my decision dated 17 November 2020 relating to the Plaintiff’s garnishee order applications.  This Court would not re-open that decision. 

6.  Plainly the Defendants have had notice of today’s applications.  Nothing in Mr Tsang’s submission throws doubt on the appropriateness of the 4 summonses now before me.

7.  On the basis of the undertaking in paragraph 3, I give leave to the Plaintiff to withdraw the first 3 summonses and grant an order in terms of the 4^th summons.

HCA 804/2019

[2020] HKCFI 2922

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 804 OF 2019

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D E C I S I O N

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A. INTRODUCTION

1.  This is the application of the Plaintiff (“UKL”) for 2 garnishee orders nisi to be made absolute and for variation of 2 injunctions to enable payments out to meet the garnishee orders absolute.  The background is as follows.

2.  On 3 January 2020, Deputy Judge Blair gave leave to enter judgment in favour of UKL in default of defence from the Defendants.  He ordered the 3 Defendants to pay various sums of money to UKL.

3.  On 3 June 2020, UKL made ex parte applications for garnishee orders nisi, the garnishees being the Hang Seng Bank and Citibank.

4.  Master Tsui raised, amongst others, the following Requisition:

“Judgment was entered against D1, D2 and D3 on 3 January 2020. It was declared that they hold the sums in the specified amounts in the 1^st and 2^nd Defendants’ Joint Account and the 3^rd Judgment Debtor’s Bank Account on trust for P. See paras 3 to 5 of the Judgment.

In light of P’s beneficial ownership in the sums, can the bank accounts be garnisheed?

P is referred to para 49/1/41 of the White Book, Rong Wei v Chiu Sun Fai[2020] HKCFI 692 (paras 21 to 24) and International Automotive Components Group sro v Xuke Trading Ltd HCMP 546/2017, 19 April 2017 (paras 30-35).”

5.  UKL made representations by letter dated 22 June 2020.

6.  On 29 July 2020, this Court granted to UKL the 2 garnishee orders nisi and directed the applications to be disposed of on paper with written submissions.

7.  Upon this Court’s direction, UKL filed the summons for variation of 2 injunctions on 10 August 2020 to enable payment out.

8.  The Defendants (Mr Tsang, Mrs Tsang and Viceroy, respectively) have not filed any affirmation in opposition to the garnishee proceedings or the summons.

9.  Mr Tsang has written to inform the Court of his illness and asked that “any further High Court proceedings by the Defendants under Garnishee Order until [his] recovery from illness.”  The Court has informed him that there would be no oral hearing, and that he could show cause in opposition to the garnishee proceedings or lodge submission in writing.

10.  Mrs Tsang wrote to the Court on 10 September 2020, stating that she “solemnly, sincerely and truly affirm …” but she never affirmed:

(1)  She explained certain deposits into the Defendants’ bank accounts and a joint account of Mr Tsang and their son (“TYY”) as being for the benefit of TYY and repayments of loan from UKL.

(2)  She attacked the motive and propriety of action on the part of Ms Wong, the administratrix of the estate of Mr Tsang’s mother.

(3)  She stated that Mr Tsang was and is a serious cancer patient.  The Tsangs urgently needed money for expenses.

11.  I shall consider the learned Master’s requisition and the grounds raised in Mrs Tsang’s letter in turn.

B.  SERVICE

12.  At the outset, I wish to point out that UKL’s service was defective. The garnishee orders nisi were served on the banks and the 1^st and 2^nd Defendants on the same date, ie 10 August 2020.  This violated Order 49, rule 3 which requires service to be effected first on the garnishees and then at least 7 days later on the Defendants and at least 7 days have elapsed before the initial hearing fixed on 20 August 2020.

13.  On 18 August 2020, UKL’s solicitors (“HIP”) wrote to the Court claiming, amongst others, compliance with the rules as to service.  This was of course not valid compliance, although there was no evidence of HIP deliberately flouting the law.

14.  However, there cannot be any dispute that the banks have been served and so have the Defendants.  The banks remain neutral, save that Hang Seng Bank pointed out that one account (262-xxxxxx-002) was held in the joint names of Mr Tsang and another who was not a party to this action.

15.  HIP had informed the Defendants that they had 14 days from 10 August 2020 to show cause or to answer the summons.  There was no prejudice caused as the Defendants did not file any affidavit at all.

16.  From 10 August 2020 until the last set of submission from the Defendants on 10 September, there had been one full month.  I am satisfied that the Defendants have had sufficient time to consider the papers and to show cause/make submissions if they were minded to.  I therefore proceed to consider the present applications. 

C. LEGAL PRINCIPLES APPLICABLE TO GARNISHEE PROCEEDINGS

17.  A garnishee order is a statutory mode of enforcement available to a judgment creditor created under section 21 of the High Court Ordinance (“HCO”), Cap 4.  Under section 21(1):

“A sum standing to the credit of a person in a deposit account in an authorized financial institution shall, for the purposes of the jurisdiction of the Court of First Instance to attach debts for the purpose of satisfying judgments or orders for the payment of money, be deemed to be a sum due or accruing to that person and, subject to rules of court, shall be attachable accordingly, notwithstanding that any of the following conditions applicable to the account, that is to say—

(a) any condition that notice is required before any money is withdrawn;

(b) any condition that a personal application must be made before any money is withdrawn;

(c) any condition that a deposit book must be produced before any money is withdrawn;

(d) any condition that a receipt for money deposited must be produced before any money is withdrawn; or

(e) any other condition prescribed by rules of court,

has not been satisfied.” (underline added)

18.  Order 49, rule 1(1) of the Rules of the High Court provides that:

“Where a person (in this Order referred to as “the judgment creditor”) has obtained a judgment or order for the payment by some other person (in this Order referred to as “the judgment debtor”) of a sum of money amounting in value to at least $1,000, not being a judgment or order for the payment of money into court, and any other person within the jurisdiction (in this Order referred to as “the garnishee”) is indebted to the judgment debtor, the Court may, subject to the provisions of this Order and of any written law, order the garnishee to pay the judgment creditor the amount of any debt due or accruing due to the judgment debtor from the garnishee, or so much thereof as is sufficient to satisfy that judgment or order and the costs of the garnishee proceedings.”

19.  Even if the judgment debtor is not the beneficial owner of the debt/sum and was just holding it as trustee, the Court has jurisdiction to make a garnishee order: Deutsche Schahtbau-Und-Tiefbohrgesellschaft Mbh v Ras AL Khaimah National Oil Co [1990] 1 AC 295 (HL) (“the DSUTM case”).

20.  In that case, Lord Goff (delivering the majority judgment) rejected the argument that proof of the existence of beneficial ownership of the debt of a third party had the effect that the Court had no jurisdiction to make a garnishee order absolute.  He held that under Order 49, rule 1, all that has to be proved is that “any other person within the jurisdiction … is indebted to the judgment debtor” to found the court’s jurisdiction.  See DSUTM case, at 350D‑G.

21.  The next step is for the Court to exercise its discretion to decide whether to make the garnishee order absolute.

22.  If there are third parties who make claims to the funds in the judgment debtor’s bank account, Order 49, rule 6 applies.

“(1) If in garnishee proceedings it is brought to the notice of the Court that some other person than the judgment debtor is or claims to be entitled to the debt sought to be attached or has or claims to have a charge or lien upon it, the Court may order that person to attend before the Court and state the nature of his claim with particulars thereof.

(2)  After hearing any person who attends before the Court in compliance with an order under paragraph (1), the Court may summarily determine the questions at issue between the claimants or make such other order as it thinks just, including an order that any question or issue necessary for determining the validity of the claim of such other person as is mentioned in paragraph (1) be tried in such manner as is mentioned in rule 5.”

23.  If it were to be established under this procedure that a person other than the judgment debtor was legally entitled to the debt, that would be the end of the matter.  It appears however that the procedure under this rule applies where the garnishee suggests not that the debt is due to a third party, but that the debt is payable to the judgment debtor as trustee. If that was found to be so under the procedure laid down by the rule, or indeed otherwise, the Court would be bound to take that matter into account in exercising its discretion under rule 1.  No doubt it would normally not make a garnishee order absolute, but it would not be deprived of jurisdiction to make such an order if in the circumstances it was just to do so. (DSUTM case, at 351B-D)

D.  THE REQUISITION

D1.  Whether, in the light of UKL’s beneficial ownership in the funds, the bank accounts can be garnisheed

24.  In my view, the answer is “yes”.  See paragraphs 19 and 20 above.  In fact, section 21 of HCO deems those funds to be due to the judgment debtor, although the right to call upon the banks to repay remains with the judgment debtor.  The Court can issue a garnishee order to override the judgment debtor’s right for the purpose of enforcement.

D2.  Hong Kong Civil Procedure 2020, Vol 1, §49/1/41

25.  This passage in the White Book states that a trustee, who holds money settled by the judgment debtor upon trust to pay it to A, is not a debtor in respect of such money, even if the judgment creditor gets the settlement set aside as void, and the trustee directed to pay over to him the sum settled. 

26.  This passage is not applicable to the present circumstances because there has been no claim by the Tsangs that anybody but themselves were the owners of the money in the subject bank accounts.  They had never settled their money on trust to pay someone.

D3.  Rong Wei

27.  Rong Wei (and International Automotive) is in a series of authorities that developed recently on enforcement of default judgments involving proprietary claims, specifically by way of vesting orders.  The common facts in that series of authorities were that the plaintiffs were victims of email frauds who had transferred money into the bank accounts of the defendants.  The plaintiffs obtained default judgments, most often with a declaration that the defendants were holding the defrauded sums as constructive trustees for the plaintiffs.  Instead of garnishee orders, the plaintiffs sought vesting orders under section 52 of the Trustee Ordinance, Cap 29, to vest monies standing in the defendants’ bank accounts in the plaintiffs:

(1)  Some judges granted vesting orders, eg Minimax GMBH & Co Kg (Singapore Branch) v Gopom Products Ltd & anor, [2019] HKDC 760, Her Honour Judge Tsui; Wismettac Asian Foods, Inc v United Top Properties Limited & ors,[2020] HKCFI 1504, DHCJ Paul Lam SC.

(2)  Others refused, eg International Automotive Components Group s.r.o v Xuke Trading Ltd, HCMP546/2017 (19 April 2017, unreported), DHCJ Paul Lam SC; Chiu Jui Jung v Legend Dynamic Solution Ltd, [2019] HKDC 1701, Her Honour Judge Phoebe Man; 800 Columbia Project Company LLC v Hong Kong Bosing Trade Limited & anor, [2020] HKCFI 1293, Recorder Eugene Fung SC; Tokić, D.O.O. v Hongkong Shui Fat Trading Ltd & ors,[2020] HKCFI 1822, DHCJ Douglas Lam SC.

28.  Various reasons were given in the authorities regarding vesting orders, but I do not need to express any views here because UKL has not sought a vesting order. 

29.  It is important to note, however, that all the authorities referred to in paragraph 27 were in agreement that garnishee proceedings were viable for enforcement of the judgments therein involving proprietary rights. Specifically, the defendants therein were held to be constructive trustees because of their wrongdoing.

30.  Rong Wei, is distinguishable from the present case on the facts. The judgment creditor initially claimed but abandoned his proprietary claim over the funds in the bank account (§21).  He relied on a money judgment to seek and obtained a garnishee order (§22).  As rightly pointed out by HIP, Rong Wei is not an authority for the proposition that the court cannot grant a garnishee order over sums beneficially owned by the judgment creditor; it simply was not in issue.

31.  Rong Wei in turn referred to Banco de Chile v Yong Ming Tai Technology Trade Co Ltd[2019] HKCFI 1233).  In Banco de Chile, P obtained an injunction based on a proprietary claim against D3.  M, a victim of cyber fraud in another case, obtained judgment and a garnishee order absolute against D3.  However, M could not obtain funds from D3’s bank account because of P’s proprietary injunction.  M gave notice to P of the judgment and garnishee order absolute.  As D3’s funds were insufficient to meet both claims, M and P agreed to a pari passu division of D3’s funds.  The Court gave judgment to P in Banco de Chile and varied the injunction to enable payment out of D3’s funds to P and M.

32.  Again, Banco de Chile is not an authority for the proposition that the court cannot grant a garnishee order over sums beneficially claimed or owned by the judgment creditor.  The situation is more akin to the Court’s exercise of discretion under Order 49, rule 6 where it has received notice of competing claims over the judgment debtor’s money. 

33.  In the present case, unlike Banco de Chile, UKL was the party who obtained the injunction in the first place.  The Defendants were declared to be holding funds in certain frozen bank accounts for UKL.  UKL now seeks garnishee orders against the Defendants so as to take money out of the accounts protected by the injunctions.  The Defendants have been given the opportunity to oppose. I do not see why the Court cannot grant garnishee orders absolute if it is just to do so.

D4.  International Automotive Components

34.  In International Automotive Components, P used an originating summons to claim for money judgment, declarations and a vesting order against fraudsters.  The Court held that Ds were liable to account for the money as constructive trustees (§§14-15).  The Court held that money in D2’s bank account did not belong to D2 beneficially or any third party at all but P (§§33, 37). 

35.  P sought a direction for notice of the originating summons to be served on HSBC.  The Court declined, expressly doubting the proprietary of a vesting order sought against HSBC without going through the procedure of seeking a garnishee order absolute (§§19, 22, 29).

36.  It was stated, obiter, in International Automotive Components that it was only if the judgment creditor was not the beneficial owner of the funds in the bank account of which a garnishee order was sought that the Court would exercise its discretion to refuse making the garnishee order absolute.

“A garnishee order nisi will not and cannot otherwise affect the proprietary interest in the funds in the bank account in question. Hence, if it transpires that the judgment debtor is merely holding the monies in the bank account on trust in favour of a third party (who is not the judgment creditor), the court will not make a garnishee order absolute and will discharge the garnishee order nisi. If the judgment creditor is claiming proprietary interest over the bank’s right of set off, it is open for the judgment creditor to do so in the garnishee proceedings.” (§§31-34) (underline added)

I agree with this proposition.

D5.  Rulings as regards the Master’s Requisition

37.  Deputy Judge Blair has held that the monies standing in the respective Defendants’ bank accounts belonged beneficially to UKL.

38.  The injunction orders were sought at the commencement of this action to freeze, amongst others, the 2 subject bank accounts, which allegedly received monies misappropriated from UKL.  It would be self-defeating to tell UKL after judgment that no garnishee order will be granted to her for the same reason for which she sought the injunctions.

39.  The Court has jurisdiction and it is just to exercise its discretion to make the garnishee orders absolute, unless the Defendants can show valid grounds of objection.

E.  THE GROUNDS IN OPPOSITION

E1.  Explanations for deposits into the bank accounts

40.  Mrs Tsang’s letter stated as follows:

(1)  In respect of HK$6,176,286.10 (which corresponded to §26 of the statement of claim (“soc”), withdrawn on 28 December 2018), it was a loan which UKL had borrowed from Viceroy with interest.  It was reflected in the financial statements of UKL and the auditors had provided the report to Ms Wong.

(2)  In respect of HK$1,573,000 (which corresponded to §32 of soc, withdrawn on 30 March 2019), it was transferred from UKL’s account to the joint account of Mr Tsang and TYY (“the Tsang/TYY Account”) for the education support expenses of TYY.  It should have been paid in 2017 but was postponed to 2019 due to insufficient funds.

(3)  In respect of HK$1,887,600 (which corresponded to §32 of soc, withdrawn on 30 March 2019), it was transferred from UKL to the Tsang/TYY Account for the education support expenses of TYY.  It should have been paid in 2017 but postponed to 2019 due to insufficient funds.

The amounts in item (2) and (3) were transferred from the Tsang/TYY Account to Mrs Tsang’s account.

(4)  In respect of HK$2,000,000 (which corresponded to §32 of the soc, withdrawn on 29 April 2019), it was transferred from UKL’s account to the joint account of Mr and Mrs Tsang.

Ms Wong withdrew HK$750,000 and HK$1,950,000 from UKL’s account on 29 April and 2 May 2019, respectively. Mr Tsang was unclear about the matter.  He debited HK$2,000,000 from the UKL account to the joint account of Mr and Mrs Tsang and reported to the police on 29 April 2019.  The HK$2,000,000 is in “the frozen account” (probably meaning an account held by the police).

(5)  The Citibank account is Mrs Tsang’s personal account which was established in 1991 with good credit.  UKL has not provided enough evidence to prove that this account was involved with the estate.

41.  The effect of these explanations was that Mr Tsang, as a former executor of his mother’s estate, had distributed sums of money to his son pursuant to his mother’s will.  These explanations have in fact been put before DHCJ Blair and rejected by him: §§20-31 of the Ruling dated 3 January 2020.

42.  In short, Mr Tsang was removed as an executor and replaced by Ms Wong with effect from 13 August 2018.  Mr and Mrs Tsang were also removed as directors of UKL on 27 May 2019.  In other words, Mr Tsang did not have the capacity to distribute money to the beneficiaries of his mother’s estate on the respective dates of transfer of money. Notwithstanding that Mr and Mrs Tsang had remained as directors of UKL on the dates of transfer, it has not been shown that the transfers were for the benefit of UKL and were hence unlawful.

43.  As for Mrs Tsang’s personal account, even if it had not received any trust monies from the estate, UKL’s right to seek garnishee orders to meet the money judgment against her is not limited to such accounts but also extends to her personal account.

E2.  Lack of propriety of motive and action on the part of Ms Wong

44.  Mrs Tsang alleged that during the transition period from 22 January 2019, Ms Wong had acted with improper motive as she filed a number of lawsuits and injunction orders against the 3 Defendants.  Ms Wong’s hostility caused a significant loss to the beneficiaries under the estate.

45.  Mrs Tsang also claimed that Ms Wong has retired from her role as a partner of KPMG, resigned as administratrix on 30 September 2019 and resigned as director of UKL on 4 October 2019.  Her team of KPMG is still controlling and managing the estate of the deceased including UKL.

46.  With respect, even if what Mrs Tsang alleged were true, this is not the appropriate forum to decide those issues.  These garnishee proceedings are taken out by UKL as a judgment creditor and not by Ms Wong as ex-administratrix.

E3.  The Tsangs’ urgent need for money for expenses

47.  Mrs Tsang claimed that Mr Tsang was and is a serious cancer patient. They urgently needed living expenses, medical expenses and hire lawyers to respond to all litigation.  At present, they live on borrowings from relatives and request for defreezing of the bank account deposits and the personal Citibank bank account of Mrs Tsang.

48.  Without disrespect, the Tsangs were not at liberty to utilize UKL’s monies for their own needs.

F.  CONCLUSION ON GARNISHEE APPLICATION

49.  None of the explanations provided by Mrs Tsang formed good grounds in opposition.

50.  However, the account 262-xxxxxx-002 is held in the names of Mr Tsang and a person who is not a party to this action.  That person has not been served with the garnishee order nisi.  Accordingly, the garnishee order absolute in respect of the Hang Seng Bank accounts shall not apply to that account.  That account shall remain subject to the injunction order granted by Andrew Chan J on 7 May 2019 and eventually extended by DHCJ Blair on 3 January 2020.

51.  Further, in the garnishee order nisi in respect of the Hang Seng Bank accounts, the computation of outstanding debt included a sum of HK$2,786,970 with accrued interest.  However, UKL has given an undertaking to DHCJ Blair not to enforce HK$2,027,230 out of that sum pending delivery of the judgment of Marlene Ng J in HCMP 793/2019.  Accordingly, the computation of debt due and interest thereon should be reduced accordingly.

52.  Subject to the paragraphs 50 and 51, the garnishee orders nisi are made absolute.

G.  THE VARIATION SUMMONS

53.  The application to vary the injunction is for a proper purpose – to allow sums to be released to meet the garnishee orders absolute made and to give consequential directions for varying the amount to be frozen after receipt of funds from the garnishees: Rong Wei, §§27-28.  I grant the applications.

H.  ORDERS

54.  I order as follows:

(1)  Subject to the adjustment of figures in paragraph 51 and save that account no 262-xxxxxx-002 is excluded, the garnishee order nisi in respect of the Hang Seng Bank accounts be made absolute;

(2)  The garnishee order nisi in respect of the Citibank Bank be made absolute;

(3)  The two injunction orders be varied to satisfy the garnishee orders absolute granted in paragraphs (1) and (2) above; and

(4)  Costs of all applications are to be borne by the Defendants.

55.  I have considered the costs statement (which treated the variation application as part of the garnishee order applications).  Despite the legal issues raised by the Master and the Defendants’ opposition, to incur $256,740 on costs is, without disrespect, totally disproportionate to the issue at stake.  Compare to the usual $5,200 for each uncontested garnishee application granted by the Court.  I summarily assess the overall costs on a nisi basis at $100,000.

56.  I thank HIP for their assistance.

HCA 804/2019

[2020] HKCFI 616

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 804 OF 2019

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________________________

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R U L I N G

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1.  This ruling relates to a letter to the Court dated 5 February 2020 from Hugill & Ip asking whether paragraph 10 of the draft order submitted for approval on 7 January 2020 should be included in the order as made.  The question arises because it includes a claim for damages in the event that the documents referred to are not delivered up (see the underlined passage of paragraph 10 as set out in the letter).  I refused other similar relief relating to other aspects of the claim on the grounds that the application for damages etc was made too late. However, as pointed out in the letter, this particular relief was already included in the Summons.

2.  The 1st Defendant (who is unrepresented) has filed a careful letter on behalf of all defendants objecting on various grounds. His main point is that he has already delivered up the documents, a point which he raised during the hearing.

3.  I have dealt with this issue in paragraph 16 of the second judgment I gave on 3 January 2020:

16.  I shall give judgment as asked noting however that I have no doubt that the administratrix will not take up time or money on documents that are unnecessary to prove title and achieve a sale, because the 1st defendant, on the face of it, has given a reasonable explanation given the age of some of these documents and that may be enough.

17.  The order should therefore include the underlined words, but I confidently expect that those responsible for the administration of the estate will comply with both the letter and spirit of the judgment in this regard.

18.  The 1st Defendant also submits that no order at all should be made because the Administratrix has resigned, and has not been replaced. I do not know what current position is in this respect. However, I dealt with this aspect of the matter in paragraph 8 of the second judgment I gave on 3 January 2020. I have nothing to add to what I said there.

Written submission  by Hugill & Ip, for the plaintiff

Written submission by the 1st defendant

HCA 804/2019

[2020] HKCFI 159

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 804 OF 2019

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________________________

________________________

R U L I N G

________________________

1.  There are two applications before the court today. The first relates to an injunction granted on 6 September 2019 restraining the 2nd and 3rd defendants from disposing of certain assets. That was fixed to come on today some time ago with a time estimate of one day. That time estimate was set out in an order made by Mr Justice K Yeung on 13 September 2019. The second matter is the one which concerns the 1st defendant specifically. That is an application for default judgment to be entered against 1st, 2nd and 3rd defendants together with certain ancillary orders.

2.  The 1st defendant, as I shall explain, seeks to adjourn this hearing.  Although it is said on behalf of the plaintiff that he is in the habit of making such applications at the last moment, and indeed that is correct, the application is made under what for the 1st defendant are very difficult circumstances.  There is no doubt that among his health problems is a diagnosis of advanced lung cancer.  Unfortunately, the underlying dispute between him and his brother has given rise to numerous actions of which this is just one.

3.  The position so far as the timing is concerned is that the Statement of Claim was served on 2 October 2019.  There were then applications by the 1st and 2nd defendants for legal aid which imposed a stay which expired on 4 and 11 November respectively.  So on that basis, defences were due on 2 and 4 December respectively.  No defences were in the event served and indeed have still not been served.

4.  In those circumstances, the plaintiffs, acting in effect through the administratrix of the estate appointed by the court, not surprisingly seek to enter judgment in default.  The plaintiff is entitled to enter judgment in respective default of the defence without coming to court but only in respect of monetary claims. The claims made against the defendants include proprietary claims based on alleged duties as director and/or executor.

5.  On 23 December, a summons was taken out accordingly to enter judgment, including proprietary claims.  The 1st defendant contacted the court on 31 December, by which time he had received the plaintiff’s skeleton arguments and hearing bundles.  He says that he will not have time to read the material and prepare properly for today’s hearing.  He has also told me that apart from medical treatment, he has had to deal with a six-day trial in relation to another aspect of this matter which took place in November.  It is impossible not to sympathise with the 1st defendant in the circumstances that I have outlined.

6.  On the other hand, it is important that this estate is administered as quickly as possible and the affairs of the estate are wound up.  This particular action is relatively important in that regard because the plaintiff company is a holding company for assets of the deceased. 

7.  The position at present is that the plaintiff would be entitled without more to sign judgments for the monetary claims brought against the defendants.  No order of the court is required in that regard. The proprietary claims involve exactly the same calculations and numbers but if granted by the court will enable, among other things, tracing into assets.  These are all set out in the necessary detail in the Statement of Claim which, as I have said, the defendants have had since 2 October 2019.

8.  The situation is obviously not a happy one but the reality is that adjourning the matter today will simply lead to extra time and extra expense.  There has been no real indication by the 1st defendant or the other defendants as to a defence to these claims.  By defence I mean of course a defence in law.  It may very well be that the 1st defendant feels that he is morally justified but that is not something which the court can take into account.  The 1st defendant has put in along with his statement of 31 December certain schedules that can, in my view, be properly taken into account today.

9.  For all those reasons therefore the application for an adjournment is refused and the summons to enter default judgment will go forward today.  That is my ruling on that aspect of the matter.

HCA 804/2019

[2020] HKCFI 160

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 804 OF 2019

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R U L I N G

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1.  This is the plaintiff’s application to enter judgment in default of defence in respect of a claim against the defendants arising out of the estate of the 1st defendant’s mother.  The plaintiff company is an asset-holding company of her estate.  The 1st defendant is a director of the company and was executor of the estate; however, he was removed on 13 August 2018 by order of Mr Justice Wilson Chan and replaced by a KPMG partner as administratrix of the estate.

2.  Earlier this year, KMPG, in effect, became or provided majority directors of the plaintiff company.  There are now five directors and the 1st defendant and the 3rd defendant constitute two of them.  The 2nd defendant is the 1st defendant’s wife.  She and her husband are directors of the 3rd defendant company which, as I have said, is in turn a director of the plaintiff company.

3.  The claim was issued by writ on 7 May 2019 and a freezing injunction granted against the 1st defendant the same day by Mr Justice Andrew Chan in the total sum of $21.3 million.  The nature of the claim against the 1st defendant is, essentially, that moneys were wrongly applied by him either as director or executor giving rise to both monetary claims and proprietary claims against him by the plaintiff company.

4.  The Statement of Claim was served on 2 October 2019 and after a delay caused by an unsuccessful application for Legal Aid, time for the defence expired on 2 and 4 December 2019, respectively.  In between those two dates, the defendants were given notice of intention to enter judgment.  However, despite the matters that have been raised by the 1st defendant and the 2nd defendant today in a courteous and careful manner, the fact is that no defence has ever been put in.

5.  The way to have dealt with their concerns about the claim would have been to put in a defence.  There is no suggestion, even today, that the defendants are proposing to file a defence in circumstances that would move the action forward.  The plaintiff could, of course, have entered judgment for the liquidated sums it claims, but it wishes to obtain declarations for these allegedly misappropriated funds on the basis that they are held on trust so as to found a proprietary claim.  That is important, the plaintiff submits, because a proprietary claim, as opposed to a simple money judgment, would give a basis for a tracing claim should that issue ever arise. There is also a claim for delivery up of a certain type of deeds relating to two of the four properties held by the plaintiff company.

6.  The defendants are unrepresented and it is clear that the administration of their relatively modest estate has become entangled with a number of sets of legal proceedings.  The underlying dispute is between the 1st defendant and his younger brother and, very unfortunately, a mediation order by the Court of Appeal in previous proceedings did not achieve a settlement.  There is always time for a settlement to be reached between the various beneficiaries but that is not something which I can say any more about today.

7.  The position is further overshadowed by illness on the part of the 1st defendant who suffers from advanced lung cancer and is having difficulty, he explained, in meeting his medical expenses.  It goes without saying that the court has every sympathy with his position in very difficult circumstances but, nevertheless, has to apply the law as best it can.

8.  The position is that the 1st defendant applied for an adjournment on 2 December 2019 on the grounds that the administratrix had given notice of her resignation upon leaving KPMG and a replacement is yet to be appointed.  This is a pity coming so soon after her appointment in the first place, but there is no reason to suppose that the administration will be prejudiced in any way.  The evidence before the court is that various steps have been taken to ensure continuity.

9.  In any case, in response to the letter of 2 December 2019 which the 1st defendant sent to the court, the court indicated that an application to adjourn should be made by summons in the usual way. 

10.  A request for an adjourmment was made again on 30 December 2019 after the 1st defendant received the plaintiff’s skeleton arguments.  I gave my reasons earlier today for refusing an application for an adjournment and will not repeat what I said.

11.  I am, in any case, satisfied that the 1st defendant and, I should add, the 2nd defendant, are fully aware of the nature of these proceedings and have had the opportunity to express their position which they have done both orally and in writing.

12.  The nature of the dispute is, of course, very well known to them and was specified in detail in the October Statement of Claim.  I shall deal with each of the claims in respect of which the plaintiff seeks judgment in default by category as presented to me by counsel for the plaintiff. 

13.  Counsel for the plaintiff has also drawn my attention to the various authorities decided by the courts as to the proper approach where a claim contains a proprietary element in circumstances where the defendants have not filed a defence and, in particular, how the court should go about dealing with the matter in those circumstances.  I shall follow the approach in the authorities that have been cited to me.

14.  The first category of claim relates to the delivery up of title deeds to two of the four properties.  In short, the plaintiff maintains that the 1st defendant, as the previous executor of the estate and/or director of the plaintiff company, had possession of title deeds which are defined in the Statement of Claim at paragraphs 44 and 48, but despite requests has failed to produce them or return them. 

15.  It is important to note that this was, in fact, a part of the order of Mr Justice Andrew Chan made on 7 May 2019 when granting a freezing injunction against the 1st defendant.  The 1st defendant says that he has handed over all the documents that he has and cannot find the others.  The plaintiff says that it asked him to give a statutory declaration to this effect but without success. 

16.  I shall give judgment as asked noting however that I have no doubt that the administratrix will not take up time or money on documents that are unnecessary to prove title and achieve a sale, because the 1st defendant, on the face of it, has given a reasonable explanation given the age of some of these documents and that may be enough.

17.  I should, however, say that it has become clear during the course of the hearing today that the question of a sale of the two properties is a highly controversial one so far as the beneficiaries are concerned.  The court on this occasion cannot get into that aspect of the dispute but it is right that I should say that it is clear that the administratrix has a difficult task in this case in attempting to fulfil her duties.  One way or another, those duties have to be fulfilled and it is for the court to facilitate that, whilst at the same time trying to avoid any injustice that may be done to the defendants.

18.  In that regard, it is important to mention that in an affirmation of the administratrix who is, of course, appointed as an independent professional administrator, she does allude to an important practical point.  The affirmation is dated 6 May 2019 and was the affirmation that was placed before the judge in support of the plaintiff’s ex-parte application for the Mareva injunction.  She says at paragraph 97, and I quote:

“According to the will of the deceased, the defendant, that is the 1st defendant, appears to be entitled to 40 per cent of the estate. If the above properties are liquidated in the future, the defendant’s entitlement may exceed the amount that is currently claimed in this action. However, this is without taking into account any withdrawals made before my appointment as administrator to the estate which are for his personal benefit that should be returned to the plaintiff.”

19.  It is entirely correct that the 1st defendant under his mother’s will is entitled to 40 per cent of the estate.  That is an important point to bear in mind in the conduct of the administration.  It was debated at some length during the hearing, but I should record that the response given on behalf of the administrator was that it was difficult for the administrator to perform an account before knowing what the various debits and credits were.  I need say nothing more about that at present but it does arise again in relation to one other head of claim, in particular.

20.  So I come to the second category which relates to legal fees.  Here, there were four batches of payments which were made after 30 September 2013 but before 21 June 2018.  These payments totalled $2,786,970 and they were paid by the plaintiff company to a firm of lawyers as legal fees of the 1st defendant in three sets of proceedings.  The plaintiff was not a party to these proceedings.  The short point made on behalf of the plaintiff is that in using money from the plaintiff company in actions concerning the 1st defendant personally there was a breach of his fiduciary duty as director.

21.  The 1st defendant says that although the fees were paid to him personally, he was acting as an executor in the litigation.  That is his basic position.  However, the company is a separate entity and cannot simply be treated as a source of funds in that way. 

22.  It is important to state that this is subject to a ruling which is forthcoming but has not yet been handed down in an action involving another company known by the initials, OTIL.  In that regard, the plaintiffs will undertake not to enforce the judgment insofar as it relates to the first three payments in paragraph 23 of the statement of claim pending the judgment of Madam Justice Marlene Ng in HCMP 793/2018.  Subject to that, the plaintiffs are entitled to the relief sought.

23.  The third category contains what are described as initial unauthorised withdrawals.  These are set out in paragraph 26 of the Statement of Claim. They were withdrawals, payments and/or transfers which were made after the 1st defendant was removed as executor of the estate but before the appointment of the new directors.  So at that time the only directors of the plaintiff company were the 1st defendant and the 3rd defendant.

24.  The issues in relation to these payments are set out in some detail in the Statement of Claim in paragraphs 26 to 31.  The subject matter are repayments of an alleged loan advanced by the 3rd defendant to the plaintiff with interest, refund of a rent payment, various payments to the 1st defendant and/or the 3rd defendant which are unexplained, and payment of costs in proceedings which the plaintiff was not concerned with but which the 1st defendant was party to.  

25.  The total amount involved in this part of the claim is HK$15,401,037.72.  These debits were in favour of the 1st defendant, the 2nd defendant and/or the 3rd defendant directly or indirectly.

26.  The 1st and 2nd defendants say that 11 withdrawals relate to repayments of debits made by the defendants on the holding company’s account.  He says that these payments had to be made to avoid a forced sale.  The 2nd defendant has added to that by saying that the situation as regards to the loan was that this accrued interest at the request of the deceased and the 1 per cent monthly interest reflected rising property values at that time.

27.  She says further that the deceased provided an educational fund in her will for her two grandsons, that is the sons of the 1st defendant and his wife, who went to university in the United States and live in the United States.  However, that money was not sent to the sons at the time and would only be available when the property was sold.

28.  I was concerned to explore with counsel for the administrator whether the order could be claused in such a way as to defer enforcement of the order pending sale of the properties and distribution.  The point being that at that stage the ability to take an account of what may have been due to the 1st defendant under the will would have crystallised.  However, the 1st  defendant says, and of course I respect this, that the beneficiaries by which he means, I think, all the beneficiaries, are opposed to a sale at the present time and I do not think it is practical in those circumstances to seek to reflect in the order anything along the lines that I had in mind.

29.  There will have to be at some point a proper accounting but, equally, the administrator has to get on with the administration in the way that the administrator independently considers best.  This is plainly far from easy when the beneficiaries are as antagonistic to each other as, unfortunately, they appear to be in this case.

30.  The fourth and last category of withdrawals can be dealt with relatively quickly. These were three withdrawals which were made, efectively, by the 1st defendant after the new defendants had been appointed but without any participation on the part of those new directors.  The proceeds were then paid into the joint account of the 1st defendant and the 2nd defendant.  What the defendants say about this is that debits were made to the account without their consent, specifically, a debit of $750,000 by the administrator on 26 April 2019, then later moneys were also transferred by the administrator.

31.  The 1st defendant’s fundamental point as put to me today is that the properties remaining are worth a substantial amount, he believes are worth about $60 million, and he wishes to protect the property for his two sons.  That is a wholly understandable wish on his part, but the fact of the matter is that these withdrawals were made by him, not only from the plaintiff company account, but at a time when new directrors had been appointed to the company.  There cannot be any justification for that and in each of these cases the plaintiff is entitled to its declaration in relation to holding on trust.  It does not add to the monetary claims but it does, as I have said, give the foundation for a tracing claim should that need to be pursued by the administrators.

32.  The plaintiff’s skeleton argument contains at the end a form of draft order. Broadly, in my view, the plaintiffs are entitled to that subject to one exception.  There was a summons taken out on 30 December amending or seeking to amend the summons in various ways.  That was partly to add in further claims for damages, equitable compensation and an account of profits.  I do not accept that amendment.  It was applied for far too late.

33.  More generally, in these difficult circumstances, the issue is not so much, in my opinion, what further losses might be calculated by a commercial party bringing proceedings in a commercial transaction but, rather, what the numbers are including what is due to the 1st defendant in the context of this difficult administration.  That is my ruling.