ROSY CLOUD VENTURES LTD v. SUN SHAOFENG AND ANOTHER

HCA 35/2020

[2021] HKCFI 2899

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 35 OF 2020

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DECISION

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1.  On 25 June 2021, I handed down the decision in this action. I dismissed the plaintiff’s appeal against Master Lai’s decision. I refused to grant summary judgment against the 1^st defendant and gave him unconditional leave to defend.

2.  By summons dated 8 July 2021, the plaintiff applies for leave to appeal against the decision.  I shall adopt below the defined terms used in the decision. 

3.  Following the guidance laid down by the Court of Appeal in Tsang Wing Kwai v Tsang Wing Fai [2018] 5 HKLRD 350, [2018] HKCA 759 at para 24, I gave directions for the lodging of written submissions.  Having read the submissions, I am satisfied that an oral hearing is not necessary and the summons is suitable for disposal on paper only.

4.  In the draft notice of appeal, the plaintiff puts forward four proposed grounds of appeal in paras 2 to 5.  It also contends in para 6 that, further or alternatively, the 1^st defendant should have been granted only conditional leave to defend.

5.  The plaintiff’s written submissions are not structured in such a way as to precisely follow the proposed grounds of appeal as they appear in the draft notice.  However, the substance of the submissions largely reflects the content of the draft notice.  The application for leave to appeal is made by way of the summons, which incorporates the draft notice of appeal.  For that reason, I consider that it is more appropriate for me to structure my discussion below by reference to the proposed grounds as they are enumerated in the draft notice of appeal. 

Legal principles

6.  The principles governing the threshold for granting leave to appeal are well established.  The applicant needs to show that the appeal has a “reasonable prospect of success” or there is some other reason in the interests of justice why the appeal should be heard: section 14AA(4) of the High Court Ordinance, Cap 4.  A “reasonable prospect of success” means an appeal with prospects that are more than “fanciful”, without having to be “probable”: SMSE v KL [2009] 4 HKLRD 125 at para 7. 

7.  In this context, the threshold encapsulated in the phrase “reasonable prospect of success” is no different from the threshold denoted by the commonly used phrases of “realistic prospect of success” or “arguable case”: Aggressive Construction Company Ltd v Data-Form Engineering Ltd HCA 2143/2008, 13 October 2009 at paras 6 and 7, citing Smith v Cosworth Casting Processes Ltd [1997] 1 WLR 1538.

8.  Mr Edward Chan, SC, representing the plaintiff with Ms Kate Poon, submits that the preference of the court is to grant leave to appeal unless the applicant has no arguable case, relying on Aggressive Construction at para 4.  Ms Queenie Lau, representing the 1^st defendant, argues that insofar as the submission seeks to suggest that there is some sort of presumption in favour of granting leave to appeal, that is not correct.  I agree with Ms Lau.  In Aggressive Construction, Deputy High Court Judge To made it plain, at para 8, that the burden is all along on the applicant to show an arguable case if his application is challenged.

The first ground

9.  Under the first ground, the plaintiff contends that I erred in deciding that the alleged oral agreement gave rise to an arguable defence in estoppel by convention. 

10.  The plaintiff says that I was correct when I did not find in the 1^st defendant’s favour that there was a triable issue regarding the existence of the alleged oral agreement.

11.  In any event, the plaintiff contends that there was no possibility of there being the alleged oral agreement on the evidence before the court.  It says so based on two matters. 

12.  First, on the 1^st defendant’s own admission, his only interaction with the plaintiff occurred on the date of the signing of the Transfer Agreement when he only had some casual conversation with Chan, the plaintiff’s representative.  Secondly, there was no averment or allegation by the 1^st defendant, whether in his defence or in his affirmations, that there was any oral agreement entered into through the agency of any person prior to the signing of the Transfer Agreement.  There was similarly no averment or allegation that Cho was acting as the plaintiff’s agent so as to bind the plaintiff to any alleged arrangement with the 1^st defendant.

13.  In the circumstances, even on the 1^st defendant’s own case, the plaintiff says that it is plainly impossible for the alleged oral agreement to have existed.  The alleged oral agreement being the basis of the estoppel by convention contended for by the 1^st defendant, there is no triable issue on that defence.  I therefore erred in finding that there was one.

14.  The plaintiff’s submission set out in para 10 above is a misreading of my decision.  I set out the 1^st defendant’s case on the alleged oral agreement in paras 34 to 35 of the decision.  Then, in para 77, I concluded that his factual case is at least believable and there are factual issues which ought to be tried.  The factual case obviously would include the alleged oral agreement.  It should therefore be plain that in the decision I have found that there is a triable issue regarding the existence of the alleged oral agreement. 

15.  As regards the contention that there was no averment or evidence that Cho was acting as the plaintiff’s agent so as to bind the plaintiff, it is a re-run of the submission made before me at the substantive hearing.  I dealt with it at paras 71 to 73 of the decision. 

16.  There is no dispute that the plaintiff signed the Receipt.  In this action, the parties are putting forward conflicting narratives as to why it had done so.  I found that this conflict can only be resolved at trial, instead of in a summary way: see para 62.  I proceeded to find that by reason of the fact that it signed on the Receipt, it is arguable that the plaintiff considered itself bound by the alleged oral agreement.  Looking at the matter this way, the issue of the existence of the alleged oral agreement is clearly arguable.

17.  In the plaintiff’s written submissions, there appears to be an attempt to downplay the significance of the Receipt.  Mr Chan submits that I was wrong to make up a triable issue on Cho’s authority “simply on the controversial basis that for some reason, [the plaintiff] had agreed to sign an acknowledgment that he received payment on a blank date” (emphasis added). 

18.  As I said in para 55 of the decision, the Receipt is arguably a significant piece of contemporaneous document which goes to support a material part of the 1^st defendant’s case.  It corroborates his explanation why he was prepared to sign the Transfer Agreement even though its express terms did not reflect the commercial bargain between the parties.  As such, the Receipt cannot simply be brushed aside when one considers the believability of the alleged oral agreement, as Mr Chan seems to have done in his submissions. On the contrary, it lends support to the 1^st defendant’s case that the plaintiff was bound by the alleged oral agreement when the Transfer Agreement and the Receipt were signed.

19.  Hence, whether the alleged oral agreement existed or not is an issue which ought to be tried.  It cannot be rejected outright now as argued by the plaintiff.

20.  This ground of appeal has no reasonable prospect of success. 

The second ground

21.  Under this ground, the plaintiff submits that I erred in law in principle in failing to consider the requirements of estoppel by convention as laid down in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569 at para 79.  I erroneously found that the 1^st defendant’s factual case is capable of giving rise to a defence as a matter of law.

22.  More specifically, I failed to consider the requirement that the 1^st defendant has to suffer detriment in order to ground a viable defence in estoppel by convention.  Here, the 1^st defendant had suffered no detriment because he in fact received the sum of HK$100 million as a result of signing the Transfer Agreement.  Any sum allegedly paid before that is past consideration and cannot amount to proper consideration for the Transfer Agreement.  I also failed to give proper consideration to the fact that the plaintiff had received no unjust benefit from the 1^st defendant since the alleged payment of RMB100 million was admittedly made to the companies designated by Cho and not made to the plaintiff.  It is therefore not inequitable for the plaintiff to enforce the Transfer Agreement. 

23.  It is part of the 1^st defendant’s factual case that the total amount of RMB100 million had been paid pursuant to the alleged oral agreement and that there was the 2016 Side Deal between the plaintiff and Cho: see paras 34, 35 and 38.  It would follow that if the 1^st defendant’s factual case is upheld, it is plainly arguable that the 1^st defendant had suffered detriment and it would be inequitable for the plaintiff to enforce the Transfer Agreement in its literal terms, without having regard to the existence of the alleged oral agreement. 

24.  Hence, estoppel by convention is an arguable defence in law based on the 1^st defendant’s factual case.

25.  I do not consider that there is any reasonable prospect of success in this ground.

The third ground

26.  Under this ground, the plaintiff submits that I erred in principle when I ruled that the issue of Cho’s authority is potentially arguable either way.

27.  I dealt with this issue in paras 71 to 73 of the decision.  I repeat my view in paras 16 to 18 above. 

28.  This ground is not reasonably arguable.

The fourth ground

29.  Under this ground, the plaintiff submits that I erred in principle when considering the two sets of contemporaneous documents relied on by the 1^st defendant. 

30.  As regards the Receipt, I erred in holding that it constitutes a piece of contemporaneous document that serves to corroborate or support a material part of the 1^st defendant’s case.  I also failed to recognise that the Receipt is not an accurate reflection of the 1^st defendant’s factual case as the sum of RMB100 million was not received by the plaintiff, but by the companies designated by Cho. 

31.  Further, while I was correct in observing that the Remittance Records, on their face, do not go to support the 1^st defendant’s assertions and that there were legitimate queries raised on his evidence in this regard, I erred in giving insufficient consideration to the lack of credible or satisfactory explanation from the 1^st defendant.  If I had done so, I would have properly appreciated the doubt on his credibility and the shadowy nature of his defence.

32.  In general, I dealt with the queries raised on the various aspects of the 1^st defendant’s evidence in para 70.  I asked myself whether the queries are such as to render the defence unbelievable.  I considered that that is not the case.  The doubts should be looked at and weighed against the entirety of the evidence, including most importantly the Receipt.  I arrived at the conclusion that the evidence has surmounted the “believability” threshold.

33.  In the circumstances, this ground is not reasonably arguable.

Conditional leave to defend?

34.  Lastly, the plaintiff contends that in light of the view I expressed in paras 53, 54, 64 to 69 of the decision, I should have granted only conditional leave to defend.

35.  I observed at para 69 that the queries set out in those paragraphs are legitimately raised on the 1^st defendant’s evidence, and, if not answered properly, would cast doubt on the credibility of his factual case. 

36.  However, it does not follow that just because there are queries on the evidence, a condition should invariably be imposed before a defendant can proceed to defend. 

37.  Having reviewed the evidence, I concluded at para 81 that this is not a case where the defence is a sham or the court is prepared very nearly to give judgment for the plaintiff. 

38.  No condition should therefore be imposed in the circumstances. 

39.  In the last paragraph of Mr Chan’s submissions, it is contended, as an alternative, that even if the defence of estoppel by convention is triable, it is plain and obvious that the 1^st defendant has been unjustly enriched by having received the HK$100 million at the expense of the plaintiff for ceding to him the debt owed by IRR for no consideration or benefit to the plaintiff at all.

40.  This ground does not appear in the draft notice of appeal.  In any event, it is not arguable for the reasons set out in para 23 above.

Conclusion

41.  None of the proposed grounds of appeal enjoy any reasonable prospect of success.  There is no other reason why the appeal should be heard.  I therefore dismiss the plaintiff’s summons seeking leave to appeal. 

42.  I order that the 1^st defendant do have costs of the summons, summarily assessed at $60,000.