Luen Tat Watch Band Manufacturer Ltd v Li Shu Chung (Also Known As “Ken Li”)

CourtCourt of First Instance (Hong Kong)
Judgment Date04 June 2020
Neutral Citation[2020] HKCFI 984
Subject MatterCivil Action
Judgement NumberHCA1039/2018

HCA 1039/2018

[2020] HKCFI 984




ACTION NO 1039 OF 2018




(also known as “Ken Li”)


Before: Hon K Yeung J in Chambers

Date of Hearing: 25 September 2019

Date of Decision: 4 June 2020




A. The application

1. This is the hearing of the Summons dated 15 November 2018 (the “Setting Aside Summons”) taken out by the defendant (“Ken Li”) for an Order that the default judgment sought by the plaintiff (“Luen Tat”) by summons dated 14 August 2018, (the “Summons for Default Judgment”) and entered on 26 September 2018 (the “Default Judgment”) be set aside. The issues before me are whether the purported service of the Writ of Summons (the “HCA 1039 Writ”) pursuant to Order 10, rule 1(2)(b) was regular, and if not, whether the Court has the jurisdiction to impose terms when setting aside the Default Judgment, and if so, whether terms should be imposed in the exercise of the Court’s discretion in all the circumstances of the case.

B. The affirmatory evidence

2. There are before me the following affirmations:

(a) 3 affirmations of Ng Ka Hou (“Ng/1”, “Ng/2” and “Ng/3”) on service of the HCA 1039 Writ and the Summons for Default Judgment;

(b) the affirmation of Ms Li Sin Man Seline (“Seline Li” and “SL/1”) in support of the Summons for Default Judgment;

(c) Ken Li’s 1st and 2nd affirmations (“KL/1” and “KL/2”) in support of the Setting Aside Summons;

(d) Seline Li’s 2nd affirmation (“SL/2”) in reply to KL/1 and KL/2; and

(e) Ken Li’s 3rd affirmation (“KL/3”) in reply to SL/2.

C. Facts

3. Seline Li and Ken Li are sister and brother. Their father was Mr Lee Sai Nam (the “Father”).

4. According to SL/1, the Father was a traditional Chinese entrepreneur. He built in his life time a successful family business. He was the founder of Luen Tat as well as the Luen Tat group of companies (the “Group”).

5. Since about 2008, Ken Li started to develop dispute with the Father. Ken Li is said to have committed a series of wrongs against Luen Tat. One of them is the alleged misappropriation of HK$28 million from Luen Tat (the “$28m Dispute”). As things turned out, that has become the subject matter of the present action.

6. Prior to and round about the time when the present action was commenced, the parties had been and were involved in a number of legal actions. HCCW 497/2009 (“HCCW 497”) was one of them. In that action, the Father through a corporate vehicle presented a petition for the winding‑up of Luen Tat. Ken Li was the 1st respondent, and Luen Tat the 3rd.

7. HCA 1711/2009 (“HCA 1711”) was another of those actions:

(a) In HCA 1711, the Father[1] was the plaintiff by original action and the 1st defendant by counterclaim, Ken Li the 1st defendant by original action and the plaintiff by counterclaim, and Seline Li the 3rd defendant by counterclaim;

(b) The subject‑matters of the claim were (1) the beneficial ownership of the shareholding in Luen Tat and a company within the Group called Pat Tat Trading Co (“Pak Tat”), and (2) the ownership of the Group’s profits and monies, and in particular, whether, as the Father contended, it was the Father who decided in his sole discretion how the profits from the Group would be distributed, or whether, as Ken Li contended, it was a matter of legal entitlements to the profits of the Group at specific sharing ratios pursuant to a series of oral agreements reached over the years;

(c) The $28m Dispute featured in HCA 1711. Ken Li did not dispute having received that amount. His defence and counterclaim were that pursuant to an alleged oral agreement with the Father, he was entitled to the Group’s profits in the total sum of about HK$53.6 million, and the amount of HK$28 million was partial distribution of those profits[2];

(d) The trial of HCA 1711 took place before Deputy Judge Simon Leung. The Father’s claim was allowed and Ken Li’s Counterclaim dismissed. As summarized by the learned Deputy Judge at §§199, 216 and 217 of his Judgment dated 9 December 2015:

“ 199. Ken argued that he had caused a total sum of HK$28 million to be paid out of the group to his personal account as his profits entitlement, which were arranged with Seline’s knowledge subsequent to the October 2008 meeting. The Father said that that was misappropriation of Luen Tat’s money, and the sum of HK$28 million used to form part of his claim against Ken. The claim was dropped to avoid complication as the same should now be matter for Luen Tat’s liquidators.

216. It comes to where a view could be formed as to which side’s version was true. I do so, after considering the extensive analysis of the evidence and submissions by counsel, including those specifically discussed above. All considered, I prefer the evidence adduced on behalf of the Father’s side, and accept his case as fact. I reject Ken’s case that he was at any material time the beneficial owner of Luen Tat or Pak Tat. I find as a matter of fact that Ken (and Joseph) holds the shares in Luen Tat and in Pak Tat both on trust for the Father.

217. I find as a matter of fact that the profits distribution had at all material times been a matter of the Father’s discretion. No realistic view could be taken in favour of any of the alleged profits sharing agreement in isolation. I reject all of them. The alleged profits sharing agreement, if at all existed, would not have been binding or enforceable against the Father, who was in position to change his mind. The claim by Ken on the basis of alleged entitlement to the profits of the group arising out of the alleged profits sharing agreements fails.”

(e) Ken Li lodged an appeal against the learned Deputy Judge’s decision (in CACV 2/2016, (“CACV 2”)). The part of his appeal against the dismissal of his Counterclaim has subsequently been abandoned, and the part against the Father’s claim dismissed by the Court of Appeal. As summarized by the Court of Appeal:

“ 2.33 Before the Judge there was an issue concerning the profits from the business which is no longer pursued by Ken. But it has an important bearing on the overall assessment of the case …

2.34 The Judge found in favour of the Father that the distribution of profits was a matter of the Father’s sole discretion and not a matter of legal entitlement of the parties pursuant to any specific agreement.

3.1 Although Ken lodged an appeal against the judgment on the Father’s claim and his counterclaim, shortly before the hearing of this appeal, Ken amended his notice of appeal to abandon his appeal on counterclaim. A consent summons dismissing the counterclaim was presented and made an order of the Court …”

(f) The $28m Dispute was also mentioned by Deputy Judge To in his judgment dated 27 November 2017 in HCCW 497 (whereby he allowed the petitioner’s application for inter alia discharge of the appointment of the joint and several liquidators). At §§74 of the judgment, the learned Deputy Judge observed that:

“ Ken’s misappropriation of $28 million

74. As was found in the Main Action, Ken caused Seline to pay $28 million from Yuen Hing to his personal accounts on the excuse that it was part of the $53.6 million of the Company’s profits kept by Yuen Hing. The court found that the excuse was false as there was no such profit kept in Yuen Hing’s account; the Father had never admitted that there was such sum in Yuen Hing’s account; and that Mazars’ calculation on which Ken’s excuse was based was misconceived. The court noted that ‘the claim was dropped to avoid complication as the same should now be matter for [the Liquidators]’. The court also dismissed Ken’s counterclaim for the balance of $25.6 million from this sum of $53.6 million. Ken appealed against the dismissal of his counterclaim but then abandoned it and was ordered to pay indemnity costs. On the basis of these findings, there was simply no such sum of $53.6 million profit kept in the account of Yuen Hing. Accordingly, Ken had misappropriated the sum of $28 million from Yuen Hing, which he caused Seline to pay to him. However, the Liquidators took no action against Ken to recover this sum.”

8. Prior to the commencement of the present action, in February 2019, Messrs Joseph S.C. Chan & Co (“JSCC”) on behalf of Luen Tat issued a number of pre‑action letters to Messrs K & L Gates (“KLG”). According to Seline Li[3], KLG had been “the solicitors for Ken Li, in respect of various affairs concerning [Luen Tat] (including the misappropriation of HK$28m million by Ken Li”. KLG were indeed the solicitors on record for Ken Li in CACV 2[4] and HCCW 497 (at least in so far as the hearing before Deputy Judge To on 13 July 2017 was concerned[5]).

9. The HCA 1039 Writ was issued on 7 May 2018. As I have mentioned above, the claim relates to the $28m Dispute. Luen Tat seeks thereby a declaration that Ken Li holds the sum of HK$28 million on constructive trust for Luen Tat, an order for repayment and/or account of the same, all necessary account, and equitable compensation.

10. Under cover of a letter dated 7 May 2018, JSCC sent to KLG a copy of the HCA 1039 Writ. KLG was asked whether they had instructions to accept service on behalf of Ken Li. No reply has been received from KLG.

11. According to Ng/1, a copy each of the HCA 1039 Writ was enclosed into a sealed envelope addressed to D and inserted (1) on 1 June 2018 into the letter box of an address at Ma Wan, the New Territories (the “NT Address”)[6], and (2) on 2 June 2018 into the letter box of another address at Tsim Sha Tsui (the “TST Address”)[7]...

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