WONG YAN YAN AND ANOTHER v. HUI MAN FAN CINDY aka HUI MIU AND OTHERS

DCCJ 778/2021

[2024] HKDC 424

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 778 OF 2021

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BETWEEN

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REASONS FOR DECISION

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I. INTRODUCTION

1.  Before me was the 3^rd defendant’s summons (the “Summons”) to set aside default judgment entered against it on 3 June 2021 (the “Default Judgment”). The Summons (1) involved the question of when the change of the address of the registered office is regarded as effective for the purpose of service and (2) showed the importance of stating clearly whether the service is effected under Order 10 rule 1 or section 827 of the Companies Ordinance (Cap 622).

2.  At the end of the hearing this morning, I allowed the Summons and ordered that:-

(1) The Default Judgment be set aside.

(2) Leave be to the 3^rd defendant to file and serve defence and counterclaim, if any, within 28 days.

(3) Leave be to the plaintiffs to file and serve reply and defence to counterclaim, if any, within 28 days thereafter.

(4) There be no costs on the Summons.

3.  Here are my reasons.

4.  The procedural history and the plaintiffs’ claim have been set out in my decision handed down on 18 January 2024 [2024] HKDC 116 when I was dealing with the 1^st – 4^th defendants’ summons to dispute the Court’s jurisdiction. I shall not repeat the same here, and shall adopt the same abbreviations and definitions here. Suffice to say that the plaintiffs plead that the Representation was false and was fraudulently made, because Shenzhen Club No 2 had never been set up as represented. The plaintiffs further plead that the 1^st – 4^th defendants “acted in concert appearing to be running ordinary or actual business… did not set up ‘Shenzhen Club No 2’… with no intention to perform the Contracts…” . Based on these, paragraph 22 of the Statement of Claim pleads:-

“In breach of the 1^st defendant’s Representation (whether fraudulently or otherwise) and/or the Contracts, the 1^st, 2^nd, 3^rd and/or 4^th defendants had and received the plaintiffs’ said Total Sum without or without corresponding consideration or failed to return the said Total Sum to the plaintiffs.”

5.  The plaintiffs claim specifically for refund from “the 1^st, 2^nd, 3^rd and/or 4^th defendants” of the Total Sum.

II. GROUNDS IN SUPPORT OF THE SUMMONS

6.  In its affirmation in support of the Summons, the 3^rd defendant sets out the following grounds:-

(1) The service of the writ of summons was invalid because the address of the registered office had been changed on 10 February 2021 from Ricky Centre Address to Flat S, 18/F, Block 2 Goldfield Industrial Building, No 144 Tai Lin Pai Road, Tsuen Wan, NT (“Goldfield Address”), prior to the service at Ricky Centre Address on 24 February 2021. (“Service Ground”)

(2) The 3^rd defendant is not privy to the Contracts between the plaintiffs and the 2^nd defendant.

(3) The plaintiffs are not entitled to refund of the Total Sum because lack of distribution of dividends was not a total failure of consideration, given that there had been no profits and thus no dividends, and in such circumstances, failure to distribute dividends was not a total failure of consideration.

(4) The plaintiffs repudiated the Agreement by the notice of rescission issued on 19 June 2020.

7.  For the Service Ground, the issue was when the change of the address of the registered office from Ricky Centre Address to Goldfield Address became effective. If it became effective before the service, then the service would be irregular and I ought to set aside the Default Judgment, but if it became effective only after the service, the service is regular and I should then consider the merits of the defence.

8.  Section 658 of the Companies Ordinance (Cap 622) provides that:-

(1) “A company must have a registered office in Hong Kong to which all communications and notices may be addressed.

(2) The intended address of a company’s registered office stated in the incorporation form registered in respect of the company is to be regarded as the address of its registered office with effect from the date of its incorporation until a notice of change in respect of the address is delivered to the Registrar under subsection (3).

(3) If the address of a company’s registered office is changed, the company must deliver to the Registrar for registration a notice of the change in the specified form within 15 days after the change.” (emphases added)

9.  This means that the change of the address is only effective upon the notice of change is delivered to the Companies Registrar.

10.  In the present case, the notice of the change (Form NR1) was filed only on 1 March 2021, and the service of the writ was effected by way of ordinary post. However, it is not clear from the affirmation of service whether the service was effected pursuant to section 827 of the Companies Ordinance or Order 10 rule 1. The difference is this: if it is effected pursuant to the former, evidence would have to be produced to satisfy the Court as to when an ordinary post would have reached the address, and that time would be the date of effective service: see Hong Kong Civil Procedure 2024 Vol 1 para 10/1/18. If the service is effected pursuant to Order 10 rule 1, then the deeming provision under rule 1(3) that service is deemed effective within 7 days after the post would mean absent any evidence of earlier knowledge of the writ, the service would be deemed effective 7 days after the post.

11.  Here, the affirmation of service does not provide any evidence as to when the ordinary post would have reached the address. On the contrary, the affirmation of service specifically stated the affirmant’s opinion that the writ would have come to notice of the 3^rd defendant within 7 days after the post, which are wording along the line of Order 10 rule 1(3). Thus, in my view, the service was effected 7 days after the post on 24 February 2021, that is, 5 March 2021 (excluding Saturday and Sunday in-between: see Order 3 rule 2(4)). This was after the effective change of the address of the registered office by way of filing of Form NR1 on 1 March 2021. Thus, the service was irregular, and I ought to set aside the Default Judgment.

12.  For completeness sake, even assuming that the service was regular, I would still set aside the Default Judgment on merits. The plaintiffs’ claim against the 3^rd defendant appeared tenuous to me:-

(1) There were no particular as to how the 3^rd defendant “acted in concert” as pleaded, and the 1^st – 4^th defendants’ evidence that 許社輝 (being 監事 of the 3^rd defendant) was responsible for the entire negotiation process of the Contracts (as mentioned above) does not assist the plaintiffs, because (a) the negotiation process was irrelevant because not part of it was pleaded as related to any conspiracy or the 3^rd defendant acting in concert; and (b) the Contracts were eventually contracts between the plaintiffs and the 2^nd defendant only.

(2) It appeared groundless for the plaintiffs to claim against the 3^rd defendant for the refund of the Total Sum when the Total Sum was, even on the plaintiffs’ own case, received by the 1^st and 4^th defendants only. Here, I note that the claim against all the defendants, as appears in paragraphs 22 and 23 of the Statement of Claim, is the refund of the Total Sum, but not damages. Thus, even if I assume that the plaintiffs have a good case against the 3^rd defendant on conspiracy, the cause of action of conspiracy against the 3^rd defendant could only be damages, because the 3^rd defendant never received the Total Sum.

13.  Therefore, if the service were regular, I would be satisfied that there is a real prospect of success of the 3^rd defendant’s defence, and would still set aside the Default Judgment.

14.  In setting aside the Default Judgment, I was fully aware of the inordinate delay from the service (March 2021) until the Summons filed on 13 July 2023. The 1^st defendant, on behalf of the 3^rd defendant, alleged that the Default Judgment only came to notice on 1 March 2023 when a debt collection agent sent the 1^st defendant an image of the Default Judgment on 24 February 2023 whereupon the 1^st defendant instructed solicitors to search the court file and obtain the Default Judgment on 1 March 2023. However, back on 21 June 2021, the plaintiffs’ solicitors delivered by hand a demand letter against the 3^rd defendant to the Goldfield Address with a copy of the Default Judgment attached to it, and that demand letter was received by a man coming out of the office telling the serving clerk that the responsible person of the 3^rd defendant was not in office and he would tell the responsible person afterwards. That man also signed on a copy of the said letter to acknowledge receipt. There is no traverse from the 3^rd defendant about this receipt. On balance, in my view, the 3^rd defendant had notice of the Default Judgment in June 2021.

15.  At the hearing, the representative of the 3^rd defendant explained that she was not in Hong Kong during that time and the two years thereafter, and thus the Default Judgment was just put on a table in the office for 2 years. I do not accept this explanation because the 3^rd defendant must have had arrangement with the recipient to ensure that she should be informed of at least important documents such as legal documents. If she really did not make such arrangement and would be content not to be informed of any important documents when she was not in Hong Kong, the 3^rd defendant only had itself to blame.

16.  Despite the delay, given that the service was irregular, and in any event there is a real prospect of success in the 3^rd defendant and the plaintiffs’ claim would have to proceed further as it involves the other defendants, I would still have set aside the Default Judgment. However, I would award no costs given such delay.

17.  Further, given the delay, I think it appropriate to award no costs on the Summons.

III. ORDER

18.  In the circumstances, and having heard parties’ submissions on the timeline for filing pleadings, at the end of the hearing, I made the order as set out in paragraph 2 above.

Ms Kitty Tsang, instructed by Paul Kwong & Co, for the 1^st and 2^nd plaintiffs

Ms Hui Man Fan Cindy, Sole Director, represents the 3^rd defendant, appeared in person

DCCJ 778/2021

[2024] HKDC 116

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 778 OF 2021

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DECISION

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I.  INTRODUCTION

1.  Before me is the 1^st – 4^th defendants’ summons (“D1-4’s Summons”) to dispute the Court’s jurisdiction under Order 12 rule 8 of the Rules of the District Court (“RDC”) and/or to stay the plaintiffs’ action on the ground of forum non conveniens. The 1^st to 4^th defendants were all along represented by solicitors until 2 days before the hearing when the 1^st and 3^rd defendants filed notice to act in person and 1 day before the hearing when the 2^nd and 4^th defendants filed notice to act in person.

2.  Since all the documents have been prepared in English and the plaintiffs’ submissions are also prepared in English (given that when the same were filed, the notices to act in person had not yet been filed), I find it appropriate to prepare this Decision in English, with direction that an interpreter be arranged to explain this Decision in Cantonese to the 1^st defendant (representing herself and the 3^rd defendant) and the representative of the 2^nd and 4^th defendants.

II.  PROCEDURAL HISTORY

3.  On 22 February 2021, the plaintiffs issued the writ of summons specifically endorsed with Statement of Claim. On the 1^st and 3^rd defendants are within jurisdiction, while the 2^nd and 4^th defendants are out of jurisdiction in the PRC.

4.  On 24 February 2021, the plaintiffs’ solicitors properly served a sealed copy of the writ of summons on the 1^st defendant.

5.  As regards the 3^rd defendant (the only other defendant within jurisdiction), also on 24 February 2021, the plaintiffs’ solicitors posted a sealed copy of the writ of summons by ordinary post addressed to the registered office of the 3^rd defendant as appeared in the record of the Companies Registry at that time, namely, Unit 2, 20^th Floor, Ricky Centre, No 36 Chong Yip Street, Kwun Tong, Kowloon, Hong Kong (the “Ricky Centre Address”).

6.  On 3 June 2021, upon the plaintiffs’ application as there had been no notice of intention to defend filed, the Default Judgment against the 3^rd defendant was entered.

7.  The entire action had since been a lying dog sleeping until 27 February 2023 when the 1^st – 4^th defendants’ solicitors filed a Notice to Act, although the plaintiffs had not applied for any leave to serve out on the 2^nd and 4^th defendants.

8.  On 6 April 2023, the 1^st – 4^th defendants’ solicitors filed a Notice of Intention to Proceed.

9.  On 13 July 2023, D1-4’s Summons was filed.

III.  PLAINTIFF’S CLAIM

10.  According to the Statement of Claim, the 1^st defendant was and is the actual, ultimate owner of the 2^nd, 3^rd and 4^th defendants. The plaintiffs claim that on a date before 30 November 2019, the 1^st defendant introduced to the plaintiffs a business plan of the 2^nd defendant, 3^rd defendant and/or 4^th defendant for setting up a “Shenzhen Club No 2” (the “Shop”), and made a representation (the “Representation”) to them that the business plan was real.

11.  The plaintiffs plead that induced and in reliance upon the Representation, each of the plaintiffs entered into a contract dated 30 November 2019 (the “Contract”) with the 2^nd defendant on, among others, the following terms:-

(1)  Upon payment of CNY50,000, the plaintiff would be entitled to enjoy preferential rights of 1% dividend out of the monthly turnover of Shenzhen Club No 2.

(2)  The plaintiff shall receive her respective share of 1% dividend once every 3 months to be payable on every 20^th day of that calendar month.

12.  About the same time, in performance of the Contract, each of the plaintiffs paid the CNY50,000 into an account designated by the 1^st defendant which was controlled or belonged to the 4^th defendant. On 13 December 2019, the 4^th defendant issued receipts of acknowledgment of the payments to the plaintiffs.

13.  The plaintiffs plead that the Representation was false and was fraudulently made, because Shenzhen Club No 2 had never been set up as represented. The plaintiffs further plead that the 1^st – 4^th defendants “acted in concert appearing to be running ordinary or actual business… did not set up ‘Shenzhen Club No 2’… with no intention to perform the Contracts…” As a result, in mid-2020, the plaintiffs “informed the 1^st defendant and rescinded the Contracts”. Thereafter, according to the plaintiffs, the 1^st defendant requested the notice of rescission to be reduced into writing, and subsequently, further requested that the notice of rescission would be effective only upon 3 months’ time. The plaintiffs acceded to all these requests, and on 25 September 2020, the 2^nd defendant confirmed the receipt of the plaintiffs’ notices of rescission of the Contracts.

14.  On 25 December 2020, upon the lapse of the 3 months since the receipt of the notices, the plaintiffs still had not been refunded the CNY100,000 or the HKD equivalent of HK$114,942.52 (the “Total Sum”).

15.  The plaintiffs claim in paragraph 22 of the Statement of Claim:-

“In breach of the 1^st defendant’s representation (whether fraudulently or otherwise) and/or the Contracts, the 1^st, 2^nd, 3^rd and/or 4^th defendants had and received the Plaintiffs’ said Total Sum without or without corresponding consideration or failed to return the said Total Sum to the plaintiffs.”

16.  The plaintiffs claim specifically for refund from “the 1^st, 2^nd, 3^rd and/or 4^th defendants” of the Total Sum, but do not claim for damages as an alternative if refund is not granted.

IV.  1^ST – 4^TH DEFENDANTS’ CASE

17.  There is no draft defence provided. In their affirmation in support (prepared by their solicitors back then), the 1^st – 4^th defendants aver that:-

(1)  The 1^st defendant did not make the Representation.

(2)  The 1^st defendant is not the actual owner of the 2^nd defendant.

(3)  The 3^rd defendant is not a privy to the matter.

(4)  The Shop did commence business in November 2019 and thus if there were any Representation, the Representation was not false.

(5)  The Shop, however, had not made any profit since commencement of business.

(6)  The Total Sum was paid for the rights for 1% dividend and for RMB60,000 electronic coupons. There is no total failure of consideration and thus the Total Sum is not refundable.

V.  D1-4’s SUMMONS: DOES THE COURT HAVE JURISDICTION?

18.  D1-4’s Summons has two limbs: one is to dispute jurisdiction under Order 12 rule 8 and the other to ask the Court to stay the action on forum non conveniens. I shall deal with the first limb first.

19.  Both the 1^st and 3^rd defendants are within jurisdictions, thus falling within Order 11 rule 1(a) of RDC. From the plaintiffs’ case as described above, it was because of the 1^st defendant’s Representation that the plaintiffs entered into the Contracts with the 2^nd defendant, and it is because of the Contracts with the 2^nd defendant that the plaintiffs made payment of the Total Sum to the 1^st and 4^th defendants. It is the plaintiffs’ case, as appears from the Statement of Claim, that the 1^st – 4^th defendants, acting in concert, had and received the Total Sum (although I have to say that how it is the case is not particularly clear and/or lacks particulars, which is not a matter I have to deal with here). Thus, I think the claim falls within Order 11 rule 1(c) of RDC, and thus, the Court has jurisdiction.

VI.  D1-4’s SUMMONS: FORUM NON CONVENIENS

20.  In respect of forum non conveniens, first and foremost, I note that while D1-4’s Summons asks the Court to stay the present action in favour of 深圳前海合作區人民法院, in the affirmation in support, the 1^st – 4^th defendants do not name any such court, and in any event there is no evidence to explain why the present action should be litigated in 深圳前海合作區人民法院. The evidence only tries to explain why a PRC Court is a more appropriate forum. It is trite that the applicant for a stay on forum non conveniens has to name the foreign court in favour of which the action should be stayed, and needless to say, there must be evidence to explain why that specific foreign court is more appropriate: see Greenwood Ltd v Pearl River Container Transportation Ltd & another, CACV 27/1994, 25 May 1994. This in my view is sufficient for me to dismiss D1-4’s Summons.

21.  In any event, I am prepared to deal with the specific grounds raised by the 1^st – 4^th defendants in their supporting affirmation , namely:-

(1)  One 許社輝 (being 監事 of the 3^rd defendant) (who represents the 2^nd and 4^th defendants before me) was responsible for the entire negotiation process of the Contracts and the negotiation and the signing of the Contracts were carried out in the PRC. (“Ground 1”)

(2)  The Shop had commenced and had been operating in Shenzhen, and evidence in relation to the commencement and operation would be from persons residing in the PRC. (“Ground 2”)

(3)  The Shop was located in Shenzhen, and any evidence of commencement of the Shop would naturally come from the PRC. (“Ground 3”)

(4)  The accounts of the Shop are prepared in accordance with the PRC laws and regulations. (“Ground 4”)

(5)  The Contracts are governed by the PRC law. (“Ground 5”)

22.  The law is well settled. I shall apply the following statement of the legal principles approved by the Court of Final Appeal in SPH v SA (2014) 17 HKCFAR 364 at §51:-

“1. The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action ie in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum ('appropriate' in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3. If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceedings has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4. If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court's satisfaction that substantial justice will be done in the available appropriate forum.”

23.  I should therefore examine the Grounds raised by the 1^st – 4^th defendants to determine whether Hong Kong is not the natural and appropriate forum and the PRC Court (whichever court the 1^st – 4^th defendants intend to mean) is a clearly and distinctly more appropriate forum. To answer this question, I have to examine which forum has the most real and substantial connection with the action. The burden is on the 1^st – 4^th defendants.

24.  In respect of Ground 1, I do not see why the negotiation process and signing of the Contracts is relevant. From the defendants’ case, nothing turns on the negotiation process and the signing of the Contracts, while the plaintiffs’ complaint is the false Representation made by the 1^st defendant prior to the Contracts. In any event, the mere fact that a witness, even a main witness, is resident in the PRC has long gone as a significant factor in the determination of the appropriateness of the forum, in the light of the readiness of people residents in the PRC crossing the border to Hong Kong. Further and in any event, the alleged main witness 許社輝, as I said, attended the hearing before me acting for the 2^nd and 4^th defendants. There appears no difficulty for him to come to Hong Kong.

25.  In respect of Grounds 2 and 3, I do not see why the fact that the commencement and the operation took place in the PRC would mean that the evidence has to be, or has to be better, received in a PRC Court. In fact, in the affirmation in support, the 1^st – 4^th defendants exhibited some photos to show that the Shop had commenced business and was operating. Further, even if live witnesses resident in the PRC would be necessary, as I said above, this is not a significant factor in my consideration.

26.  In respect of Ground 4, this seems to be a defence in relation to the lack of dividends. The 1^st – 4^th defendants’ case is that since there have been no profits, there have been no dividends, and thus, failure to distribute dividends is not a total failure of consideration. However, the 1^st – 4^th defendants have not explained how the PRC laws and regulations would affect the understanding of the figures of the accounts (for example, a profit would otherwise mean a loss, and a loss would otherwise mean a profit). Still further, if the PRC laws and regulations would be relevant, I see no difficulty from the evidence that a PRC opinion on this matter would be insufficient. Thus, I do not think Ground 3 would be a factor to show that the PRC courts would have a more real and substantial connection with the matter.

27.  Insofar as the accounts are to be produced to show that the Shop had indeed commenced business and had been operating, the accounts themselves would be sufficient. There seems to be no need to consider the effect of the PRC laws and regulations.

28.  In respect of Ground 5, even assuming (without finding) that the Contracts are governed by the PRC law, there is no explanation as to how the PRC law would affect the understanding of the simple texts of the Contracts. In fact, no evidence has been produced to say that certain words or clauses of the Contracts should be interpreted in certain ways due to certain PRC laws. In any event, the Courts in Hong Kong from time to time receive PRC opinion on contracts governed by the PRC law where necessary. I do not see this governing law would be a significant factor in determining which forum is more natural and appropriate.

29.  During the hearing, the 1^st defendant (also representing the 3^rd defendant) and 許社輝, the representative of the 2^nd and 4^th defendants, made oral submissions to me, which I have considered and which, I think, basically are regurgitation of the grounds above with no new points raised.

30.  I am aware that in determining which forum is a natural and appropriate forum, it is not a mechanical exercise to consider the above grounds separately. I should consider them cumulatively as well. However, having done so, I am still not satisfied that the grounds, whether cumulatively or singularly, are sufficient to satisfy me that the Hong Kong Court is not the natural and appropriate forum, and that PRC court (whichever court the 1^st – 4^th defendants would intend to mean) is a clearly and distinctly appropriate forum in favour of which the present action should be stayed.

31.  Therefore, I shall dismiss D1-4’s Summons.

VII.  ORDER

32.  In the circumstances, I order that D1-4’s Summons be dismissed with costs to the plaintiff to be summarily assessed, with certificate for counsel, payable forthwith. I heard submissions from the 1^st to 4^th defendants on the statement of costs provided by the plaintiffs. I summarily assess it to be HK$120,000.

Ms Kitty Tsang, instructed by Paul Kwong & Co, for the 1^st and 2^nd plaintiffs

The 1^st to 4^th defendants appeared in person