WONG SEE YIN v. TIN WAN TUNG AND ANOTHER

CACV 160/2016

[2018] HKCA 799

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 160 OF 2016

(ON APPEAL FROM APPLICATION TO SET ASIDE A

STATUTORY DEMAND NO. 11 OF 2016)

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J U D G M E N T

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Hon Yuen JA:

1.  This is an appeal from a Decision of Anthony Chan J made on 29 June 2016 (“the Decision”) refusing the application of Mr Wong See Yin (“Mr Wong”) to set aside 2 Statutory Demands (“the SDS”) served on him on 4 March 2016.

2.  Mr Wong filed a Notice of Appeal from the Decision on 25 July 2016.

3.  There were also 2 summonses¹ to adduce fresh evidence which we considered de bene esse.  Those summonses were issued in August 2017.  The materials sought to be adduced have been mostly overshadowed by the event of Wilson Chan J’s Judgment in HCA1801/2010 and HCA167/2011 given on 25 May 2018 which is referred to below.   

Background

4.  To understand the present Judgment, it is necessary to set out the background of the relevant disputes briefly.

5.1.   Mr Wong is a certified public accountant. 

5.2.   Mr Tin Wan Tung (“Mr Tin”) was the owner of a flat (Flat 27) of a building in Kwun Tong.  The property was free of incumbrances. 

5.3.   A company by the name of Full Pacific Development Ltd (“FPD”), which was controlled by Mr Pong Park Kaw (“Mr Pong”) was the owner of another flat (Flat 17) in the same building.  That property was also free of incumbrances. 

5.4.   Mr Donovan Chan Chuen Keung (“Mr Chan”) was the owner of another flat (Flat 24) in the same building.  However his property was subject to mortgage.  

The Representations

6.1.   According to Mr Tin and Mr Pong², at the end of 2007 and before 24 January 2008, Mr Wong made various representations³ to them which may be summarized as follows:

(1)   Mr Wong would set up an asset management company (“the ASM”) with a net asset value of HK$10 million;

(2)   Mr Tin and FPD could invest in the ASM by injecting their respective properties at a nominal value of $800,000 each, for which they would each be allotted 8% of the shares in the ASM; the injection of those properties would facilitate the ASM’s raising of finance from banks and listing on the Singapore Stock Exchange; 

(3)   the ASM would be listed on the Singapore Stock Exchange in 1 year’s time;

(4)   after such listing, the ASM could help Mr Tin and FPD raise monies for their construction projects on the mainland and/or Hong Kong;

(5)   after the injection of properties, Mr Tin and Mr Pong could continue to occupy Flats 27 and 17 respectively rent-free.

6.2.   Mr Chan was present but did not take further part after it was found that he had a low credit rating and his property was already subject to mortgage. 

6.3.   Mr Wong denied he made those misrepresentations.  He alleged that on the contrary, it was Mr Tin and Mr Pong who had deceived him into thinking they were people of financial substance.

Agreements

7.  On 24 January 2008, a document was signed by each of Mr Tin and FPD (“the Vendors”) whereby their respective properties were agreed to be sold to Matrix Wealth Ltd (“MW”), a company controlled by Mr Wong, for $800,000, and 8% of the shares in that company were to be transferred to each of the Vendors.  There was no reference to rent-free occupation, but according to the Vendors, Mr Wong re-assured them that his representations were still valid and need not be included in the document.

8.  The Vendors then entered into agreements for sale and purchase dated 7 March 2008 of their respective properties to MW.  Both vendors and purchasers were represented by the same firm of solicitors.  Mr Tsang Chiu Wing (“Mr Tsang”), a clerk of that firm, was responsible for handling the transactions.  According to Mr Tin and Mr Pong, the transactions were dealt with quickly, and the explanation given by Mr Tsang was cursory.  In the part provided for “Tenancy Agreement” in both Sale and Purchase Agreements, there was written “NIL”.

Assignments

9.  By assignments dated 17 March 2008, the two properties were assigned to Fully Fortune (Asia) Ltd (“FFA”), another company controlled by Mr Wong, with MW as confirmor.

Mortgage

10.1.   On 13 June 2008, FFA mortgaged the two properties to HSBC. 

10.2.   On 9 November 2009, FFA mortgaged the two properties to Wing Lung Bank after discharging the HSBC mortgage. 

10.3.   On 2 August 2010, FFA mortgaged the two properties to Dah Sing Bank after discharging the Wing Lung Bank mortgage.  The mortgage to Dah Sing Bank remains undischarged⁴.  In fact, the bank has commenced Order 88 proceedings in DCMP2538/2016⁵.  DCMP2538/2016 was transferred to the High Court and became HCMP78/2017.  On 23 May 2017, Dah Sing Bank obtained monetary judgment of $1.7 million odd against FFA and Mr Wong, and its claim for possession was adjourned to a date to be fixed before the trial judge of HCA167/2011 and HCA1801/2010 for further directions.

Tenancy Agreements

11.  Meanwhile in September 2008, Mr Wong requested the Vendors to sign tenancy agreements in respect of the respective properties that Mr Tin and Mr Pong had continued to occupy.  According to Mr Tin and Mr Pong, he told them that they did not actually need to pay rent, but that it was an accounting requirement, and that if they did not sign the agreements, the ASM could not be incorporated or raise finance for the Vendors’ projects.  Mr Tin and Mr Pong thereupon each signed a tenancy agreement dated 4 September 2008 whereby FFA purportedly let Flat 27 to Mr Tin and Flat 17 to Mr Pong respectively, for a term of 2 years from 1 October 2008, at $6,500 pm.  No rental deposit was paid. 

Subsequent events

12.  More than a year since the assignment of the two properties, no ASM with a net asset value of $10 million had been set up by Mr Wong; there was no listing in Singapore or elsewhere; neither Mr Tin nor FPD had been allotted any shares in an ASM; and no finance had been provided for Mr Tin’s and FPD’s projects.    

HCA1801/2010 and HCA167/2011 (the consolidated action)

13.1.   On 9 December 2010, FPD issued a writ against Mr Wong, MW and FFA in HCA1801/2010.

13.2.   On 31 January 2011, Mr Tin issued a writ against the same defendants in HCA167/2011.

13.3.   On 4 December 2013, these two actions were consolidated.  The causes of action included fraudulent, reckless and/or negligent misrepresentation, total failure of consideration and unjust enrichment.  

14.  The trial, which took 16 days, was heard before Wilson Chan J earlier this year.  Mr Tin, Mr Pong and Mr Chan gave evidence for the plaintiffs, as did Mr Wong for the defendants, and other witnesses were called by either side.  FFA and MW did not participate at the trial as they had been wound up on 11 August 2017⁶.

Judgment in the consolidated action

15.1.   In a Judgment dated 25 May 2018 (“the Judgment in the consolidated action”), the judge gave judgment for the Vendors.  He found Mr Tin⁷, Mr Pong⁸ and Mr Chan⁹ to be truthful witnesses, whereas Mr Wong was defensive, evasive and not credible¹⁰, and his evidence was “often confusing, contradictory and always changing; so little weight should be given”¹¹. 

15.2.   For reasons set out in his detailed judgment, the judge found that the representations made by Mr Wong were false and were likely to have induced a reasonable person in the position of Mr Tin and Mr Pong (for FPD) to enter into the 24 January 2008 documents¹² and its precursor¹³, the Agreements for Sale and Purchase, and the Assignments.  He further found that the false representations were made fraudulently¹⁴. 

15.3.   Having considered the viva voce evidence of Mr Tsang, the judge also found the documents prepared by the solicitors’ firm had been explained and signed quickly, and the explanation of the documents could not have been thorough¹⁵.

15.4.   The judge also rejected as illogical Mr Wong’s evidence regarding the execution of the tenancy agreements¹⁶.

16.  In conclusion, the judge gave the following relief (among other things):

-   declaratory relief that FFA was holding the Vendors’ respective properties as bare trustee;

-   declaratory relief that the Vendors were the sole legal and beneficial owner of their respective properties and in actual possession and occupation of the same;

-   rescission of the two documents dated January 2008, the Agreement for Sale and Purchase and the Assignment for each of the properties;

-   an order that the defendants do all such necessary acts and execute all such necessary documents so as to transfer the legal and beneficial title of the properties to Mr Tin and FPD respectively;

-   an order that Mr Wong indemnify each of the Vendors against losses incurred arising from the mortgage to Dah Sing Bank and various legal proceedings¹⁷;

-   finally, and importantly for the purposes of this appeal, the defendants’ counterclaim against each of the Vendors be dismissed.

CACV238/2018

17.  On 19 June 2018, Mr Wong filed a Notice of Appeal against the Judgment in the consolidated action.

18.  The liquidators of MW and FFA have not filed a notice of appeal against the Judgment in the consolidated action. 

The SDS

19.  The present appeal (CACV160/2016) is however concerned with Anthony Chan J’s Decision in respect of the SDS.

20.1.   On 26 April 2013, Louis Chan J had made an order in both actions (not yet consolidated) that costs be paid by Mr Wong forthwith in favour of Mr Tin and FPD in respect of certain interlocutory proceedings.  There was no appeal from this order. 

20.2.   The bills of costs were taxed on 28 April 2014.  Mr Wong’s application for review was refused on 25 November 2014¹⁸. Allocaturs, in the case of Mr Tin in the sum of more than $560,000 and in the case of FPD, in the sum of more than $300,000, were issued on 2 March 2016.

20.3.   Mr Wong’s summons to stay the execution of the costs orders and an appeal against costs were dismissed by Wilson Chan J on 17 January 2017.

21.1.   Meanwhile, on 4 March 2016, Mr Tin and FPD had issued the two SDS against Mr Wong in the sum of the respective Allocaturs.

21.2.   On 18 March 2016, Mr Wong applied to set aside both SDS.  Essentially, he invoked Rule 48(5) Bankruptcy Rules which provides that the court may set aside an SD if the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt specified in the SD.  

22.  The application to set aside the SDS was fixed for a call-over hearing on 29 June 2016.

The judge’s decision in the application to set aside the SDS

23.  Anthony Chan J, whilst acknowledging that it was a call-over hearing, nevertheless held that full arguments had been ventilated before the court.  He noted that the debts arose from court orders which the bankruptcy court will generally not look behind, and dismissed the application to set aside the SDS. 

24.  However it would appear that the judge did not consider whether Mr Wong had at that time a bona fide cross-claim based on substantial grounds which equals or equals the amount of the costs orders. This was a ground to set aside an SD under Rule 48(5)(a) Bankruptcy Rules, and it was, with respect, incorrect for the judge to think that this issue could be left for argument at the hearing of the petition¹⁹. Indeed this was the reason why the Court of Appeal dismissed²⁰ the Vendors’ application for security for costs of this appeal.

25.  Meanwhile on 9 September 2016, a bankruptcy petition²¹ was served.  Subsequently Ng J adjourned the hearing of the petition pending the Judgment in the present appeal. 

Appeal

26.  Mr Wong’s submissions to this court boil down to one argument - that he still has a bona fide and substantial counterclaim equal to or exceeding the sums in the SDS²², because he has appealed Wilson Chan J’s order dismissing the counterclaim.  He submits that the SDS should be set aside or stayed pending the hearing of his appeal.

Discussion

27.  It is clear that this appeal must be dismissed.  When Anthony Chan J was dealing with the application to set aside the SDS, there was still an existing counterclaim which the judge should have considered before dismissing the application.  However the situation now is that after a 16 - day trial in which viva voce evidence was received on disputed facts, the counterclaim has been dismissed after a trial on the merits.  The order dismissing the counterclaim is final unless and until it is overturned on appeal.  The Rules of Court expressly state that the filing of an appeal from a judgment or order does not generally operate as a stay of that judgment or order: Order 59 Rule 13(1)(a) Rules of the High Court.  No stay has been obtained by Mr Wong.  If, in due course Mr Wong is made bankrupt, the appeal against Wilson Chan J’s Judgment may still be pursued if his trustee in bankruptcy so decides.  But unless and until there is such an order overturning the dismissal of the counterclaim, there is no existing counterclaim which can form the basis of Mr Wong’s application to set aside the SDS.

Order

28.  The appeal should be dismissed with costs.  As Mr Tin was legally aided, his costs should be taxed in accordance with Legal Aid Regulations.  As a matter of completeness I would add that both summonses to adduce fresh evidence were primarily to keep the court apprised of events which occurred after Anthony Chan J’s Decision, although some of the documents may not, strictly speaking, have been necessary or relevant.  That being the case, I would make the order sought in both summonses, but make no order as to the costs of those summonses.

Hon Kwan JA:

29.  I agree with the judgment of Yuen JA.

Hon Au J:

30.  I agree with the judgment of Yuen JA.