XCHRX CHAN KAM CHEONG v. ZHANG SABINA SOI FAN

HCA 12863 of 1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12863 OF 1998

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J U D G M E N T

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1. This is an appeal from the order of Master Jones given on 4th February 1999 that the Defendant do pay into court in an interest bearing account the sum of HK$8,460,000.00 within 28 days. The Master gave conditional leave to the Defendant to defend these proceedings.

2. The Plaintiff's claim against the Defendant is for the sum of HK$8,466,000.00 which is a claim on a debt due and owing by the Defendant in respect of four loans given by the Plaintiff to the Defendant. There is an alternative claim on a dishonoured cheque drawn by the Defendant for the sum of HK$8,000,000.00.

3. According to the Plaintiff, the four loans sued on were all granted pursuant to oral agreements made between the Plaintiff and the Defendant. These are as follows:

(1) the agreement for the first loan was made on or about 20th June 1998. This was for the sum of HK$1,000,000.00. On 20th June 1998, a cheque for that sum was drawn by Ricco Metal Co. Ltd. ("Ricco"). The Plaintiff alleges that Ricco is his company, he owning 95% of the shares therein and the other 5% owned by his sister. This sum was said to be repayable on or before 25th June 1998.

(2) the agreement for the second loan was made on or about 23rd June 1998. This was for the sum of HK$2,000,000.00. On 23rd June 1998, the sum of HK$2,000,000.00 was transferred by Ricco to the bank account of the Defendant with Sin Hua Bank Limited. This sum was said to be repayable on 25th June 1998.

(3) the agreement for the third loan was made on or about 24th June 1998. This was for the sum of HK$3,468,000.00. On 24th June 1998 this sum was transferred by Ricco to the account of Chiu Sik Kin with Sin Hua Bank Limited. This sum was said to be repayable on or before 30th June 1998.

(4) the agreement for the fourth loan was made on or about 26th June 1998. This was for the sum of HK$1,998,000.00. On 26th June 1998, a cheque for that amount was drawn by Ricco and made payable to Ming Fung Securities Limited. This cheque was deposited by the Plaintiff into the account of Ming Fung Securities Limited with Wing Hang Bank Limited.

4. The total amount of the four loans was HK$8,466,000.00. I would observe that in the evidence that has been filed there is no written documentation in respect of these loans. These were all granted pursuant to oral agreements. I would observe also that no security or other collateral was provided for the grant of these loans by the Plaintiff to the Defendant. There is some dispute in the evidence as to how many times the Plaintiff met the Defendant before the grant of these loans. But even on the Plaintiff's own case, he first met her only at the end of May 1998.

5. It is also the Plaintiff's case that the Defendant gave the Plaintiff a cheque dated 25th June 1998 drawn by Shiu Yick Precious Metal Co. Ltd. for the sum of HK$3,000,000.00 made payable to Ricco in purported repayment of the first and second loans totalling HK$3,000,000.00. This cheque was dishonoured on presentation for payment. There is no dispute that Shiu Yick Precious Metal Co. Ltd. is one of the Defendant's companies.

6. According to the Plaintiff, on or about 3rd July 1998, the Defendant informed the Plaintiff that she would have HK$8,000,000.00 in her account shortly and would settle part of the total loan by way of telegraphic transfer to Ricco on 6th July 1998. A telegraphic transfer form was produced in evidence showing instructions by another of the Defendant's companies to Standard Chartered Bank to remit HK$8,00,000.00 by telegraphic transfer to Ricco. The transfer did not materialise.

7. The Plaintiff says that every time a cheque was dishonoured he would ring up the Defendant and she would later send him another cheque to keep him from suing. Also produced was a cheque dated 13th July 1998 drawn by the Defendant for the sum of HK$8,000,000.00 and made payable to the Plaintiff. This is the cheque sued on in the Plaintiff's alternative claim in these proceedings. This was presented for payment but was dishonoured.

8. On the Plaintiff's case, subsequent to 13th July 1998 another cheque was given by the Defendant also for HK$8,000,000.00. This was drawn by another of the Defendant's companies, Generations International Limited, made payable to the Plaintiff and dated 17th July 1998. This later cheque was also presented for payment but was dishonoured.

9. The Defendant's case is that she has not borrowed any money at all from the Plaintiff. She denies the existence of the alleged loans. She is a businesswoman in, inter alia, commodities trading. It is her case that she met Mr. Kwong Wui Chun ("Kwong") at about the end of April 1998 through a Mr. Michael Tse, the managing director of a listed company called Asia Aluminum Holdings Limited ("AA"). Kwong was the Chairman of AA. Around the end of April 1998, she had lunch with Kwong and the Plaintiff was also present. Kwong introduced the Plaintiff as his employee and his representative in Ricco a trader in commodities. It is her case that Kwong told her in the presence of the Plaintiff that he was the 100% owner of Ricco, in effect saying that the Plaintiff was his nominee in Ricco. She also learnt that Kwong held controlling shares in AA in his own name and also through a BVI company called Viewlink Assets Limited ("Viewlink"). She knew that Kwong's businesses had liquidity problems and that her assistance was required. She says that in May 1998, she assisted AA and Kwong to obtain re-financing of loans and documents have been produced to support this.

10. It is her case that by early June 1998, she had already rendered assistance to Kwong. She then began to explore with him business opportunities. One of these was a proposal in early June 1998 to acquire with him the controlling interest in China Entertainment Television Broadcast Limited to the extent of US$34,000,000.00 and to share the costs with him equally. On his suggestion she approached L. P. Lammas as the consultant. It was agreed between her and Kwong that each of them would lay out HK$1,000,00.00 as initial expenses for the acquisition. That is why the cheque for HK1,000,000.00 by Ricco dated 20th June 1998 was deposited into her account.

11. As regards the HK$2,000,000.00 deposited into her account on 23rd June 1998 by Ricco, she has produced her bank passbook showing that the same was deposited on 23rd June 1998. She says that on 22nd June 1998 Kwong asked her to do him a favour. He had lost HK$2,000,000.00 betting on the World Cup and had to make payment to some parties but he could not properly use Ricco's account to do so. He asked her to do him a favour by allowing him to put in the HK$2,000,000.00 into her account to pay out to his creditors. She agreed. On receipt of that sum and in accordance with the request of Kwong, she caused to be transferred to the account of one Hung Yuk Kwan the sum of HK$1,815,000.00. The remaining HK$185,000.00 was given by her in cash as requested by Kwong. She withdrew HK$150,000.00 cash from her account and used HK$35,000.00 cash which she had with her to make up the total sum of HK$185,000.00 which she handed to Kwong's friend in cash.

12. As to the sums under the third and fourth loans alleged by the Plaintiff, she denies ever having heard of Chiu Sik Kin and she denies any dealing directly or indirectly with Ming Fung Securities Limited. She denies ever having requested the Plaintiff or anyone to deposit money to Chiu Sik Kin or Ming Fung Securities Limited.

13. As regards the dishonoured cheques, the Defendant's case is that during her business dealings with Kwong he offered to sell her 7.5% of Viewlink's holding in AA, namely 48,750,000 shares at a favourable price of HK$1.25 per share. This was favourable as the market price at that time was about HK$1.90 per share. It was an agreement in principle subject to proper formalities being completed through solicitors. She says that on or about 20th June 1998, Kwong and Mr. Michael Tse met her in her office. Kwong told her he was being pressed by M. O. Holdings Ltd. to repay a loan in the sum of US$8,062,000.00 due that day. This loan agreement has been produced in evidence. As she had agreed in principle to purchase the shares in AA, Kwong asked for her assistance by letting him have some cheques to show to M. O. Holdings Ltd. to assure it that he would be receiving money in due course so that it would be willing to wait for repayment. On the assurance that these cheques would only be used to show to his creditors and would be exchanged later for cheques to be used for payment of the AA shares on completion, she agreed to assist Kwong. At that time she believed that the sale of the AA shares would go through so she agreed. At Kwong's request, she issued four cheques from her account and her company's account and dated them as requested by Kwong and gave them to Kwong who then left her office with Mr. Michael Tse. Of the four cheques given to Kwong, all were dated, signed and with the amount inserted according to Kwong's request. The payee was left blank at the request of Kwong.

14. It is the Defendant's case that none of cheques relied on by the Plaintiff was in repayment to him of any loan. Also the telegraphic transfer request form, she says, was not in part payment to the Plaintiff of any loan. The Defendant's case on the telegraphic transfer request form is that she learnt at the end of June 1998 from business friends in Beijing that there was cause for concern on the ability of Kwong to keep his word. It was pointed out to me in the course of submissions that the deal for the purchase by her of the AA shares fell through eventually by the end of July 1998. But as at early July 1998 she was still keen on acquiring the AA shares at the very favourable price. The Defendant says that as a test of Kwong's ability to keep his word without openly challenging his integrity, she told Kwong on or about 3rd July 1998 that she would be willing to prepare an immediate transfer of HK$8,000,000.00 to him if he could arrange for all the relevant share certificates in AA to be deposited with her solicitors by 5p.m. on 3rd July 1998 as stakeholder pending formal completion. As Kwong was in need of financial assistance, he agreed and asked that the funds be transferred to Ricco. It was in those circumstances that the telegraphic transfer request form was prepared on 3rd July 1998. As Kwong failed to deliver the shares certificates to her solicitors, the telegraphic transfer request was immediately halted.

15. Also produced in evidence by the Defendant was a copy of a cheque for HK$31,120.000.00 drawn by Generations International Limited dated 20th July 1998 made payable to Kwong. The amount of HK$31,120,000.00 is equivalent of US$4,000,000.00 at the exchange rate of US$1 - HK$7.78 or half of the approximate purchase price of the AA shares at US$8,000,000.00.

16. Are the Defendant's assertions believable? It is crucial to the Defendant's case, in my view, that the Plaintiff was in fact acting as a nominee of Kwong. This is purely an issue of fact. The Plaintiff denies this and is annoyed by this allegation.

17. The Defendant's case is to a certain extent corroborated by her accounts clerk Mr. Yeung Siu Keung who has filed an affirmation in these proceedings. He produced copies of three cheques passed to Kwong at the end of June 1998. The office copies of these cheques, namely the two for HK$8,000,000.00 each and the one for HK$31,120,000.00 show clearly that the payee's name was left blank. Yeung also confirms that in early August 1998 he retrieved from the offices of AA three copies of cheques, two of HK$8,000,000.00 and one of HK$31,120,000.00 together with the original of the HK$31,120,000.00 cheque which the Defendant tore up and threw away after retrieval. The HK$31,120,000.00 cheque was made payable to Kwong.

18. What is significant is that of the retrieved copies of the three cheques, there are signatures and initials on the photocopies. The Plaintiff has said in evidence that he signed the photocopies in respect of the two HK$8,000,000.00 cheques but not the photocopy of the HK$31,120,000.00 cheque. Sir John Swaine, S.C. for the Defendant, has submitted that the signature on that photocopy of the HK$31,120,000.00 cheque (which is denied by the Plaintiff to be his) is strikingly similar on a visual comparison to the signature on the photocopy of the HK$8,000,000.00 cheque dated 17th July 1998 (which is admitted by the Plaintiff to be his). I agree. No explanation is proferred at this stage for this striking similarity. The Plaintiff's response is that both the Defendant and Yeung are lying.

19. The Defendant's assertions are, in my view, corroborated to a certain extent by Yeung. Her assertions are believable in my view. Whether they are believed or not is a matter to be sorted out at trial with the benefit of cross-examination and pre-trial discovery including interrogatories.

20. The principles applicable to Order 14 applications are well-known and clear. It is useful to bear in mind what Godfrey J. (as he then was) said in Unic Co. v. Centus Development Ltd. [1988] HKC 643 at 647:

"The power to give summary judgment under Order 14 is intended to apply only to cases where there is no reasonable doubt that the Plaintiff is entitled to judgment and where therefore it is inexpedient to allow the Defendant to defend for mere purposes of delay: see Jones v. Stone [1894] AC 122.

As a general principle, where a Defendant shows that he has a fair case for defence or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have unconditional leave to defend. Leave to defend must be given unless it is clear that there is no real substantial question to be tried, or that there is no dispute as to the facts or law which raises a reasonable doubt that the Plaintiff is entitled to judgment. Order 14 is not intended to shut out a Defendant who can show that there is a triable issue applicable to the claim as a whole from laying his defence before the court, nor to make him liable in such a case to be put on terms of paying into court as a condition of leave to defend."

21. It has been also said that it is a not a proper course for the court to embark at this stage on a mini-trial of the action on affidavit evidence. It was also helpfully said by Godfrey J.A. in the Court of Appeal in the case of Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 at 228:

"Unless it is obvious that the defence put forward by the Defendant is 'frivolous and practically moonshine, Order 14 ought not to be applied': see Codd v Delap [1905] 92 LT 510, per Lord Lindley at 511."

22. There has been a great deal of affidavit evidence put in on behalf of the Plaintiff and the Defendant. I should, of course, not embark on a mini-trial of the action on affidavit evidence. In my judgment triable issues have been shown.

23. On the alternate claim on the dishonoured cheque, a triable issue has also been raised as to whether the Plaintiff can sue on the cheque dated 13th July 1998 instead of pursuing his claim on the cheque dated 17th July 1998 for the same sum of HK$8,000,000.00 against Generations International Limited if indeed it was to replace the earlier cheque in the same sum of HK$8,000,000.00. This depends on the intention of the parties. This is also a matter for trial.

24. As I have held that there are triable issues which ought to go to trial, I do not think it is desirable that I should express a view on the other submissions of counsel on the strength of his case and the weakness of his opponent's case. All these matters will have to be resolved at trial. The Defendant is, in my view, entitled to unconditional leave to defend.

25. The appeal is allowed. The order of Master Jones made on 4th February is set aside and I order that unconditional leave to defend be granted to the Defendant. The judgment that has been entered is to be set aside. The costs of the hearing before Master Jones to be costs in the cause. Costs of the appeal to the Defendant in any event with certificate for two counsel.