HI-WATT INTERNATIONAL ENTERPRISES LTD v. MULTI-LUCK DEVELOPMENT LTD AND ANOTHER

HCMP 1327/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1327 OF 2006

(ON AN INTENDED APPEAL FROM HCA 4305 OF 2001)

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REASONS FOR JUDGMENT

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1.  These are my reasons for refusing to grant the 1st defendant extension of time to appeal .

Extension of time to appeal

2. On 22 February 2006 Chung J gave judgment to the plaintiff for the sum of $1,256,603.59 together with interest and costs.  The judgment was sealed on 20 March 2006.  Reasons for the judgment was handed down on 26 May 2006. 

3. Under the High Court Rules a party who wishes to appeal against the judgment has 28 days from the date of the sealed judgment to appeal.  That 28 days expired on 18 April 2006. 

4. On 22 June 2006 the 1 st defendant’s solicitors wrote to the plaintiff’s solicitors asking for consent to file and serve the notice of appeal out of time. 

5. On 30 June 2006 the plaintiff’s solicitors refused the request.  The 1 st  defendant’s solicitors issued the present summons on 4 July 2006 for extension of time to serve the notice of appeal.

Length of delay

6. There was a substantial delay of six weeks between 18 April 2006 which was the last day for the service of the notice of appeal and 4 July 2006 when the present application was issued. 

Reason for the delay

7. I accept that the 1 st defendant might not be able to provide for the substantial grounds of appeal by 18 April 2006 when the judge had not given his reasons for the judgment.

8. I would have been more sympathetic to the 1 st  defendant on this ground if not for an additional factor which had occurred in this case.  On 22 March 2006 the plaintiff issued a statutory demand requesting the 1 st  defendant to pay the judgment sum.  This was not complied with and the petition to wind up the 1 st  defendant was presented on 24 May 2006.  With this development, it is simply not acceptable for the 1 st  defendant to say that ‘we still could not serve the notice of appeal because we do not have the reasons of the judgment’.  It was wrong for the 1 st  defendant not to protect its position prior to the expiration of the appeal period.  The 1 st defendant could still have served the notice of appeal with an express indication that it may be supplemented by further grounds upon the receipt of the reasons for judgment.  At the very least the defendant could have informed the plaintiff in advance of the expiration of the appeal period of its intention to appeal.

9. The 1 st defendant was obviously aware of the time limit to file the notice of appeal and it had taken a considered decision not to file the notice of appeal.

10. In any event there was further delay between 26 May 2006 when the reasons were handed down and 4 July 2006 when the present application was issued.  There was a delay of 37 days.

11. The reasons given by the judge were not lengthy and even taking into account the extra time that counsel who was newly instructed might need to prepare the case there is still unjustifiable delay in making the application. 

Merits of the appeal

12. What is more important, in my view, is that the 1st  defendant has not shown that it has a real prospect of success at the appeal. 

13. The plaintiff’s claim is based on a settlement of accounts between the parties which was in writing and signed by the parties on 3 April 1996.  There was a further acknowledgment by the 1st defendant of this debt by another agreement dated 19 April 2001.  The judge at paragraph 12 of the reasons stated that

‘ There was no dispute whether the Apr 96 accounts a mounted   in law to a real account stated was also a matter of construction of the   document: Chitty on Contracts (2004) 29 th Ed., para. 29-191 (pp. 1748-9 ), text to nn. 1042-1053.   Having examined the contents, I am satisfied that the Apr 96 accounts amounted to a real account stated. ’

14. The relevant part of Chitty stated that

 ‘ “A real account stated” is one in which the account includes items on both sides and the parties have agreed that there shall be a set-off and only the balance shall be payable.   The “... several items of claim are brought into account on either side, and, being set against one another, a balance is struck and the consideration for the payment of the balance is the discharge of the items on each side.”  Though such an arrangement has been regarded as quasi-contractual, it is more properly described as “a promise for good consideration to pay the balance”; and the con­sideration is valid and the settlement is binding even though some of the debts may be statute-barred, or otherwise unenforceable.  Fraud, however, will permit the questioning of an account stated.

“The essence of an account stated [in this third sense] is not the character of the items on one side or the other, but the fact that there are cross items of account and that the parties mutually agree the several amounts of each and, by treating the items so agreed on the one side as discharging the items on the other side pro tanto, go on to agree that the balance only is payable... Nor can it be material...

whether the balance of indebtedness is throughout, as it must be at the end, in favour of one side.” ’

This passage emphasises the binding nature of a true accounts stated and the only exception in which such an account stated can be reopened is that of fraud. 

15. The defence was that the figures in the accounts were wrongly stated and that there was misrepresentation by the plaintiff on the true position of the parties.  The judge rejected the evidence of the 1 st defendant’s witnesses.  He dealt with the defence case as follows :

‘ 17. The defence witnesses’ version of events at trial was very different from the way in which the defence case was pleaded. In essence, it was not that the accounts between the plaintiff and the defendant needed to be verified, but was simply that:

(a) the defendant “hardly carried on any business” at all;

(b) hence, the defendant simply could not have incurred any liability;

(c) the defendant signed the Apr 96 accounts because, at the time, Wu and Liang were wrongly accused of having improperly appropriated huge amount of funds for their personal use and Wu was willing to sign any document to avoid the accusation.

Further, when Wu testified, he said that, even by the time of the May 01 letter, he still had not checked the defendant’s books and accounts and he still regarded the Apr 96 accounts were accurate.

18. I pause to note that Wu admitted in his testimony he probably had seen the defendant’s account ledger (see para. 10(2) above) before he signed the Apr 96 accounts on the defendant’s behalf.

19. The defence case regarding alleged misrepresentation was changed in a material way.  Originally, it was pleaded that Kong fraudulently misrepresented that the trial balance was accurate in order to induce the defendant to sign the Apr 96 accounts.  That was amended after February 2006 to allege that the misrepresentation was made by either Kong or a Mr. Su.

20. I considered the defence testimony to be inherently incredible.  First, it is unbelievable that an experienced businessman would sign documents (that is, the Apr 96 accounts and the May 01 letter) which in effect were an acknowledgement of indebtedness when such debts never existed in fact.  Further, the version of events testified to was inconsistent with the defendant’s pleaded case.

21. The case relating to the alleged misrepresentation was also rejected.  I noted that the change in this part of the pleading followed the filing of Kong’s witness statement dated 10 February 2006 in which he basically refuted any improper conduct on his part.   Such a change was more consistent with the making up of a case to tally with how events developed.’

16. Mr. Lee, counsel for the 1 st defendant at this application but not below, stated that he would not challenge the judge’s rejection of the defence’s evidence.  Nonetheless the ground of appeal that was put forward was that the judge had erred in holding that there was a real account stated between the parties.  The only specific ground that was relied upon by Mr. Lee was the charging of interests by the plaintiff which he said to be unjustified.  First he referred to the Notes of Financial Statements of the audited accounts of the plaintiff in which it was stated advances by the plaintiff to the 1 st defendant were ‘interest free’.  He then relied on two debit notes and submitted that they were ‘sham’ debit notes because in one of them which was dated 30 June 1994 there was calculation of interest from 30 June 1994 to 31 December 1994.  He submitted that the person who prepared the 30 June 1994 debit note could not possibly foresee the amount of interest that would be charged after 30 June 1994.

17. The issue on interest was determined at the trial.  The judge stated that

‘ 25. For completeness, I should also mention that the defence has raised additional arguments regarding:-

(1) the charge for 2 sums of interest;

(2) ——

There is no need to go into the details suffice it to say I agreed with the plaintiff’s submissions and disagreed with those of the defence regarding these matters.’

18. The written closing submissions of counsel were supplied at this hearing.  On the question of interest free advances, Mr. Au, counsel for the plaintiff’s written submission was :

‘ However, it is submitted that such evidence does not assist D1’s case and/or issufficient discharge D1’s burden of proof. Notwithstanding this evidence as set out in paragraph 47 above, there is overwhelming evidence to show thatsince 1994, the parties must have agreed to have interest charged at 12% per annum (and thus 1 % per month) on outstanding debts:

(1) P’s financial statements for the years 1994 [B/137] and 1995[B/203] clearly show that P adopts the policy of charging interest on outstanding debts owed by related companies at 12% per annum.

(2) Such interest rate is consistent with the one set out in P’s 1 st  and 2 nd Interest Debit Notes.

(3) P repeats paragraphs 25 and 26 above.’

19. On the Debit Note, his submission was

‘ 51. P does not quite understand Dl’s point on this. If D1 is saying that this note is thus forged, it has not been properly and squarely pointed out by D1 or put to the witness. Mr. Deng was only asked whether he knew if there was any reason to it (Mr. Deng fairly said he did not know as a matter of fact, as he was not involved. There could in practice many reasons for doing this, for example, it was backdated for accounting purpose. P further repeats paragraph 32 above and submits that this should not be viewed adversely against P.)  In any event, any such allegation (if allowed to be made) is without any basis or justification:

(1) D1 has never disputed the authenticity of the document.

(2) More importantly, the original of this note is in D1’s own possession.

(3) If one were to forge such document, why made such an obvious mistake, why not dating it 31.12.94 or later?

52. By reason of the aforesaid alone, the mere fact P’s 1 st  Interest Debit Note was dated 30.06.94 does not enable D1 to discharge its burden of proving that there is no entitlement or agreement to charge interests.

53. In the premises, D1 has failed to prove the allegation that there was no agreement to charge interest or that P was not entitled to so charge the interest.’

20. In this application, apart from repeating the argument that entries relating to the interest charged were wrongly stated in the account, Mr. Lee has not shown why the judge’s acceptance of the plaintiff’s case on this issue was wrong. 

21. The 1 st defendant has not demonstrated that it has a real prospect of success in the appeal.

Prejudice

22. Further, the plaintiff has since the sealing of the judgment commenced winding-up proceedings against the 1 st  defendant.  It obviously would be prejudiced if time is given to the 1 st defendant to appeal against the order. 

Conclusion

23. Taking all the circumstances into account the application for time was refused with costs to the plaintiff.