FIRST SHANGHAI INVESTMENTS LTD. and Another v. QUON SHIU SHUNG

1995, No.A1150

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

-----------------

----------------

--------------

R U L I N G

--------------

1. This summons is for :

(i) the judgment in default of defence against the defendant dated 27th May 1995 to be set aside;

(ii) leave to be given to the defendant to enter a defence and counterclaim within 21 days; and

(iii) the prohibition order of Master Woolley dated 20th March 1996 to be set aside.

2. Giving leave to set aside a regular judgment is a matter for the discretion of the Court. In exercising its discretion, the Court is entitled to look at the circumstances leading to the judgment in default of defence being filed and also - and this is the most important consideration - whether the defendant has shown that he has a serious defence to the plaintiffs' claim.

3. In so far as the circumstances leading to the entry of the default judgment is concerned, the defendant's conduct was not such as to evoke any sympathy from this Court. He had instructed solicitors to file a notice of intention to defend. They had done so. He was kept informed by his solicitors about the extensions of time they had obtained to file his defence. He was left in no doubt as to the need to file a defence and the fact that his solicitors would take no further steps on his behalf unless he put them in funds. He did not do so but left for the United State of America. Even though the defendant may not have heard that judgment had been entered against him until he visited Hong Kong in March this year, it can have been little surprise to him that the plaintiffs had taken this step.

4. Despite my lack of sympathy for the defendant, in regard to this aspect of his conduct, I am aware that the paramount consideration is whether he has disclosed a defence that carries some degree of conviction.

5. The essence of the defendant's case is that a schedule relating to a "Budget and Cashflow Forecast", which was exhibited as QSS-9, submitted to Lao Yuen Yi, the managing director of the 1st plaintiff, in October 1994 formed the basis of an agreement between the plaintiffs and Shanghai International Capital Limited whereby -

(i) Transactions already transferred to Shanghai International Capital Limited from the Bank of China would be acquired by the plaintiffs.

(ii) Shanghai International would establish a Banking Syndication Division for the plaintiffs.

The defendant alleges that it was intended that the agreement would be reduced into writing and negotiations were continuing between the parties for the drawing up of a formal consultancy agreement. It is the defendant's contention that notwithstanding the fact that a formal agreement had not yet been signed, a contractual relationship had arisen with the plaintiffs by virtue of an offer accepted by conduct. He had, inter alia, been provided with an office on their premises on 15th November 1994, been given a business card representing that he was managing director of the Bank's Syndication Division, been provided with an American Express Card bearing the name of the 1st plaintiff and had received funds from the plaintiffs. In return he says he had worked for the plaintiffs on transactions set out in the Budget and Cashflow Schedule and other transactions listed in a letter subsequently sent by Messrs Livasiri & Co. on 13th February 1995.

6. If I had had solely to determine whether the defendant had shown that he had a real prospect of success in establishing that the plaintiffs were aware of the existence of Shanghai Industrial Capital Ltd. before 15th November 1994 and intended to enter a contractual relationship with that company, I would have found that the defendant had failed to discharge that burden. One would have expected to see reference to Shanghai International Capital Ltd. in the relevant documents such, for instance, as the "Budget and Cashflow Forecast", the correspondence between Baker & McKenzie and the plaintiffs, the internal documents of the plaintiffs and the draft consultancy agreement. There was no such reference. The absence of reference to Shanghai International Capital Ltd., coupled with the defendant's poor record for honesty, most clearly evidenced in his affidavit in support of an application for a Mareva injunction in High Court Case No.A994 of 1995, would have led me to conclude that the defendant had no real prospect of establishing this contention.

7. The existence of a contractual relationship between the plaintiffs and Shanghai International Capital Ltd. is however only one of the defences which, Miss Cruden has argued, are open to the defendant. I do not intend to deal with each of those suggested defences but only one that I consider particularly significant, namely, the suggestion that the defendant performed services for the plaintiffs between 15th November 1994 (when he moved into their offices) and 7th February 1995 (when he received the letter of termination) for which he is entitled to remuneration on a quantum meruit basis. It does not appear to be disputed that during this period, he produced the document headed "Merchant Banking Division Budget for the period from November 1994 to June 1995" which is dated 17th November. There is also no dispute that after he was excluded from the plaintiffs' offices, there were found, among the documents in his office, documents relating to a number of transactions, (see Exhibit QSS-16 Livasiri & Co's letter of 13th February 1995 to K.B. Chau & Co). These are transactions upon which the defendant alleges he was working for the plaintiffs.

8. Mr Thomson invites me to conclude that because of the defendant's lack of frankness on other matters, in particular in his affidavit in High Court Action No.A994 of 1995 in relation to the China Finance Trust and Investment Corporation, I should conclude that the work on the other transactions was being carried out by the defendant not for the plaintiffs but for himself or others, in particular Shanghai International Capital Ltd. As Mr Thomson put it, "the defendant had an agenda of his own".

9. It is true that the defendant has not produced the documentation in question and shown that it relates to business being solicited on behalf of the plaintiffs, but he is not in a position to do so as the documents are with the plaintiffs. What appears to me important for the determination I must make is that some of the documentation retained by the plaintiffs appears to relate to institutions which appear in the defendant's "Budget and Cashflow Forecast" (QSS-9), which was submitted to the plaintiffs in October. The defendant has therefore given a forecast to the plaintiffs in October 1994 that he could obtain business from these institutions for the plaintiffs, and documentation relating to transactions with the same institutions was later found in his office in February 1995. It may also be significant that despite the fact that the Deposit Agreement with China Finance Trust and Investment Corporation (QSS-17) was entered into by Shanghai Industrial Capital Ltd., the Budget and Cashflow Forecast of October 1994 (QSS-9) had forecast that a transaction in exactly the same amount, US$105 million, would or might be available for the benefit of the plaintiffs. The fact that the defendant appears to have been working on transactions that resemble transactions which the plaintiffs were told in the Budget and Cashflow Forecast might be available for its benefit lends at least some degree of conviction to the defendant's assertion that between 15th November 1994 and 7th February 1995 he was performing work for the plaintiffs for which he might expect remuneration. I consider it an issue upon which there should be a trial.

10. I am therefore satisfied that this is a proper case for the judgment to be set aside, but that in the light of the defendant's previous conduct in these proceedings and his conduct in High Court Case No.A994 of 1995, the setting aside should be conditional upon his paying the sums that constitute the current judgment debt into court or providing some other security for that sum to the satisfaction of the plaintiffs.

11. I now come to the question of this wording of my order. I do express the view at this stage that I would be sympathetic to a request that payment in should be made before the expiry of the current prohibition order or at least before the expiry of any extensions to the current prohibition order.

[Submission]

Court :

(1) I make an order in terms of the draft submitted by Mr Watkins as I have amended it.

(2) I extend the Prohibition Order of Master Woolley of 20th March 1996 extended by me on 19th April 1996 to midnight on 1st May 1996 (i.e. the end of 1st May 1996).

(P.K.M. Longley)

Deputy Judge of the High Court