E2-CAPITAL (HOLDINGS) LTD v. TO KIN KEUNG

HCA338/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 338 OF 2006

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JUDGMENT

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Background

1. This appeal from Registrar Chan concerned with a Chinese agreement dated 25 May 2004 signed by the defendant and the agreement reads as follows :

「	本人陶建強身分證號碼、住址[乃某淘大花園個住址]，為金匯集團，撤銷對陶建東經濟控告一事，願意無條件承擔港元二百萬元款項之責任，雙方協定，若本人及陶建東可協助公司追討，並[本來是『或』字，但改為『並』]取回其在內地合資企業外方的所應得款項，或[本來是『和』字，但改為『或』]權益(款項約四百萬元)，則金匯集團可免去上述陶建強願意承擔的款項責任。」

下文則用手寫出抵押支票，即兩張揸打銀行支票號碼，並有一見證人，以上之款項或權益有一個「*」號，「*」號在下文解釋為：

「	指西安合資企業外方股權轉讓追討款項，或追回外方股份事項。」

2. The two cheques mentioned therein were tendered by the defendant to the plaintiff’s side on the same date.  The address given by the defendant as his residential address (emphasis added on the word “residential”) i.e. the Amoy Gardens address.  This address turned out to be not the residential address of the defendant.  It was an address of a flat owned by the defendant’s mother and sister and the defendant said the same was leased out since May 2005.  There is no evidence and the defendant did not condescend upon particulars as to what happened between the date of the agreement and the leasing out in May 2005.

3. In any event the defendant did not live there.  Although the defendant was a businessman travelling between Hong Kong and the mainland frequently, according to him he spent at least two-third of his time each year staying in Hong Kong.  The question posed by the plaintiff in this respect was where the defendant lived when he was in Hong Kong; where did he stay overnight?

4. The defendant eventually gave an address at Po On House, which is a public housing estate, and by the government’s recent policy, it was sold to two persons by the names Mr Yeung and Madam Luk.  What was their relationship with the defendant?  The defendant did not say.  We could only gather from the plan that the flat was about 46.56 square metres and, obviously, we do not know how and where the defendant slept overnight in this small flat.  Anyway, that was the defendant’s version and he did not explain why he gave the Amoy Gardens address as his residential address and did not give the Po On House as his residential address and why, after May 2005, he did not inform the plaintiff his change of address since the premises has already been leased out by his mother and sister to a tenant.

5. The second cheque, dated 30 December 2005, for the sum of $1.7 million, was presented on 4 January 2006 and was dishonoured.  The plaintiff received a notice of dishonour from the bank.  According to the defendant he was also informed by the bank and he therefore telephoned the plaintiff the next day on 5 January 2006.  That was the first telephone conversation and it was with a Mr Kenny Wong of the plaintiff.

Parties’ dispute as to content of the conversation

6. I will decide the case according to what the defendant believes to be the facts, for the moment, of course, without taking in or believing everything he said if there are suspicious, illogical or unreasonable circumstances.

7. According to the defendant he was informed that the presentation of this cheque was just an accounting procedure of the plaintiff’s company, being a listed company in Hong Kong.  The defendant did not inquire further as to what accounting procedure would require the plaintiff to present the cheque for payment.  In any event the defendant then knew the cheque was presented but dishonoured.

8. The writ was then issued and served by post on 17 February 2006, i.e. about a month later, and also by insertion into the letterbox at the Amoy Gardens address on 16 March 2006.  When no acknowledgement of service was filed judgment was entered on 12 April 2006.  The defendant says he was only aware of the proceedings when judgment was served on him at his business address at AIG Tower and he took out a summons on 17 June 2006 to set aside the judgment.  Learned Registrar Chan granted only conditional leave to the defendant to set aside the judgment and the condition imposed by him was that the defendant should pay into court of the full amount claimed in the action herein i.e. $1.7 million.

Regular service?

9. The defendant therefore appealed against that decision before me now.  The first question to decide is whether the service of the writ was a regular service.  To me it was a regular service because it was served on the last known address of the defendant by the plaintiff.  It was last known address because the address was given by the defendant himself.  Although the defendant, obviously, in this case has a business address and had given that address, according to him, to the plaintiff, the address given by the defendant as his residential address was the Amoy Gardens flat in the agreement.

10. In the affirmation filed by the defendant it was quite obvious that the defendant did not say that he told the plaintiff that he did not live there and that it was not his correspondence address at all.  He did not, as I have said, inform the plaintiff after May 2005 that that flat actually was leased out by his mother and sister to a tenant already.  When the writ was served by post on the defendant at that address, the defendant, according to his immigration record, was in Hong Kong, i.e. within the jurisdiction.  The additional services through the letterbox on 16 March 2006 was also regular except the defendant was not within the jurisdiction incidentally on that day since he had left Hong Kong on that very day, 16 March 2006, until the time he came back on the same day.  In other words, he was within the jurisdiction for some time before he departed Lo Wu terminal and came back through the same terminal that day until he departed Hong Kong again on 22 March 2006 through the airport.

11. The plaintiff’s service clerk deposed as to the time of the service.  But then, according to this travel record of the defendant, apparently he did not apply for a more detailed record showing the time of his departure and arrival time on that very day.  So it is not certain from this record alone whether, at the time of insertion into the letterbox, he was within the jurisdiction or not within the jurisdiction.  For the purpose of this appeal I assume that incidentally at the time of insertion into the letterbox he had already left Hong Kong.  But that would not affect the end result of my decision since the service by post of the writ was at a time when he was within the jurisdiction and it was a regular service according to the last known address given by the defendant himself.

12. That should be the end of the matter for service but the authorities cited by Mr Lawrence Ng, counsel for the plaintiff, indicated the legal procedure is that even if service for some other purposes is irregular, the court still has to decide whether the writ was brought to the attention of the defendant.

DID THE DEFENDANT KNOW THIS ACTION?

13. In this respect the defendant agreed that he phoned Kenny Wong again for the second time when he was told later on by his sister that the tenant informed the sister, who then in turn informed the defendant, that there was a letter from a solicitors’ firm addressed to the defendant.  He phoned Kenny Wong and, according to the defendant at least, he inquired what it was all about.  According to Kenny Wong, he said that the defendant asked him whether the plaintiff was suing him.  For that part of the contention of Kenny Wong, the defendant had never denied the same.  Accordingly, the common ground between the parties was that the defendant had inquired from the plaintiff, represented by Kenny Wong, as to whether the plaintiff was suing him.  According to the defendant, he said Kenny Wong’s answer was that again, it was just an accounting procedure of the plaintiff’s listed company and there was nothing for the defendant to worry about; the plaintiff’s solicitors would take no further action.

14. Be that as it may, whether it is believable or not, the natural inference is the plaintiff’s solicitor had already taken an action but it was just that he would not take further action.  What action did he take so far?  The defendant was not interested to know after he heard that it was an accounting procedure.

15. The defendant himself is a businessman.  An accounting procedure that was taken, not by the financial controller of the company, nor by the auditor or independent accountants of the plaintiff but by a firm of solicitors — I think it goes without saying that a firm of solicitors would deal with legal matters and not accounting matter.  Why, in an accounting procedure, would a firm of solicitors be handling the matter?  All this was not explained by the defendant who, apparently, is not interested to know.  In other words, the defendant’s version is quite unbelievable and incredible.

16. Taking what the defendant has said I think it is quite obvious that he knew the plaintiff was suing him and that it must be in respect of the cheque. It was because of the sequence of events :

(1)	he has given a cheque to the plaintiff;
(2)	the plaintiff presented it and it was dishonoured in January that year, just a month before;
(3)	he was informed by his bank the cheque was dishonoured.

He then phoned up Kenny Wong to inquire why they presented the cheque.  He was informed it was an accounting procedure.  He did not inquire any further what accounting procedure required them to present a cheque and to have it dishonoured.

17. He was then aware that a firm of solicitors sent him a letter, addressed to him, and to his mind the question would be whether the plaintiff was suing him by instructing a firm of solicitors which certainly must be on this cheque.  Thus he inquired from Kenny Wong.  He was told it was just an accounting procedure and he did not inquire any further.  To my mind, the irresistible inference is that it was the plaintiff’s solicitors, through a procedure, who was requiring the defendant to “account” to them the debt due and owing by the dishonoured cheque.  I take the words “accounting procedure” mentioned in the telephone conversation to be an action requiring the defendant to account for the debt due and owing.  In other words, the defendant was fully aware, to my mind, that an action has already been taken; a writ has been issued to recover the dishonoured cheque’s amount.  It totally baffles me as to why the defendant, being a businessman, was not interested to retrieve that letter of the plaintiff’s solicitors.  After all, it was a letter addressed to him and I come to the firm conclusion that the defendant was actually evading service of the writ by his own explanation.  Of course, here I do not rely on Kenny Wong’s version, although I would say, comparing the two affirmations, that Mr Wong’s affirmation is more credible, at least at this stage, even without cross-examination.

18. In respect of evasion of service, Mr Ng for the plaintiff cited the case of Barclays Bank of Swaziland v. Hahn [1989] 1 WLR 506, a decision of the House of Lords.  Lord Brightman said in his speech at page 519H that “the defendant must be within the jurisdiction at a time when the writ is served”.

19. Mr Ng submitted that that is not the end of the matter because the House of Lords went on to consider whether the defendant had knowledge of the existence of the writ.  The facts of that case are in fact very similar to the case before me.  There the plaintiff’s agent inserted a copy of writ in a sealed envelope through the letterbox.  The defendant’s caretaker told the defendant that a man had called at the flat that afternoon and pushed through the letterbox an envelope addressed to him.  On receiving this news the defendant decided not to go to the flat or to pick up the envelope.  The House of Lords had no hesitation to find that the defendant had knowledge of existence of writ and thus the service was regular.  Lord Brightman said at 511H to 512A :

“

Why did the defendant take such care to stay away from the envelope?  Obviously an important envelope because it was, to his knowledge delivered by a special messenger.  Why did he not open the envelope or ask his wife to open it?  Because he knew perfectly well what it contained.  There is no other conceivable reason nor was the defendant’s counsel able to suggest one.”

20. Leung JA, as he then was, in the case of Chu Kam Lun v. Yap Lisa Susanto [1999] 3 HKC 378 said in the Court of Appeal, a case cited by Mr Ng, that :

“	Other authorities have held that service is effective when proceedings are brought to the notice of the defendant and not mere delivery of the writ to the last known address of the defendant.”

21. As I have said before, it is my decision that the defendant knew perfectly well that the plaintiff was suing him and therefore he was aware of the letter together with the writ enclosed therein.

Defence

22. Having decided that it is a regular service then the next consideration is whether the defendant has shown any real prospect of success in his defence.  He raised two defences;one is duress, the other performance, i.e. that he has already performed according to the Chinese agreement and therefore there is no consideration for the cheque thereof.

(1) Duress defence

23. In respect of duress, the defendant’s version is that his brother To Kin Dong was arrested in the Mainland at the information of the plaintiff and he wanted to secure his release.  He was threatened there and then at the plaintiff’s office and issued these two cheques in order to secure his brother’s release.  Subsequently, after the cheque was tendered his brother was released in May 2004, except that we do not know in this case, and Miss Winnie Tsui, counsel for the defendant, has no instructions as to the whereabouts of this Mr To after he was released : did he come back to Hong Kong, or did he stay in the Mainland?  Obviously, Miss Tsui submitted that Mr To has a high risk of being arrested again in the Mainland.

24. I think it is common ground that for regular default judgment the defendant must show a real prospect of success, which is absent in this case.  Mr Ng relied on the phrase in the agreement that the defendant “願意無條件承擔港元二百萬元款項之責任”.  However, this is not unconditional, as far as I understand the whole document.  Apparently the cheque was given on two mutual conditions.  On the part of the defendant he would have to assist the plaintiff either in retrieving all the money he had invested in the Xian joint venture company or to recover all his rights in that joint venture agreement, i.e. either money he had invested or the shares which, apparently, were transferred by the defendant’s brother to a third party.

25. On the part of the plaintiff the cheque was said to secure the withdrawal of the allegations made by the plaintiff’s company against the defendant’s brother in order that he would be released from his arrest, which must be the effect of the construction of this agreement.  Therefore the defendant said “I signed the said Chinese agreement under coercion and duress (inflicted by the plaintiff upon me and my elder sister who was present at that time through the wrongful detention of To Kin Dong).  As such I am advised and verily believed that the said Chinese document (as with the said cheques) is invalid and unenforceable and the plaintiff’s claim herein is devoid of merit”.

26. It is not my task today to decide who is speaking the truth and who is not — the plaintiff of course strenuously denied duress — my task is to assess whether there is a real prospect of success on all the facts given before me and, in particular, whether after the release from arrest was administered, the defendant had taken steps to avoid the agreement.  Mr Ng then cited the case of Pao On v. Lau Yiu Long [1980] AC 614 PC in which Lord Scarman said at page 635B-E that :

“

Duress, whatever form it takes, is the coercion of the will so as to vitiate consent...  In determining whether there was a coercion of the will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it (emphasis is made on the last phrase whether after entering the contract he took steps to avoid it).”

27. Apparently the defendant did not take any steps to avoid it until the judgment was entered against him and at the time when he applied to set aside the judgment.  There was no other action taken by him to avoid it.

28. I do not want to refer to the written decision of the learned Registrar since this is entirely a rehearing (although I must appreciate the learned Registrar’s industry in reducing his decision into writing).  To my mind the real prospect of success is very dim in this case.  And that is all I want to say in order not to prejudice the trial.  The learned Registrar has decided it is a case of conditional leave and there is no cross-appeal from the plaintiff’s side.

(2) Performance

29. The other bone of contention, of course, is whether the defendant has performed according to the terms of the undertaking.  One side said one thing, the other side said another.  Again, it is not trial on affidavits but one thing is very sure, as pointed out by Mr Ng for the plaintiff and that is the defendant was reporting to the plaintiff on the progress of works, at least between 19 February 2005 up to 29 May 2005.  Mr Ng asked rhetorically if he had already fulfilled his performance there and then why he should keep on reporting the progress to Kenny Wong.  Further the defendant has not condescended upon particulars as to when he allegedly had fulfilled his promises in the undertaking.  All in all I do not find the defendant to have established a case of real prospect of success.  The learned Registrar has already decided conditional leave should be given and he ordered the full sum of $1.7 million to be paid into court.

The condition

30. The defendant in this appeal submitted that it amounted to depriving him of defending the action because he is not a person of means.  He produced two accounts, one a savings account with the Hong Kong Bank and the other with the same bank but jointly held with one Madam Cheung of a different address.  The second one shows an overdraft; there was no money in it; it was only evidence of debt due and owing under that account to the bank but it is not quite apparent from that statement as to what collateral was used to secure that overdraft facility, if any.  I will come back to the collateral given by these two persons to the bank in order to secure this overdraft facility.

31. The other savings account shows quite a number of entries of enormous amounts, say, on 14 March last year there was a deposit of $500,000 which was taken out immediately on the same day.  I also notice that up to 16 May there was a balance of $291,000-odd but on the next day there was a transfer out online of two sums of $160,000 and $120,000.  In other words, it was just 17 May 2007, less than two months ago.  There was a drastic withdrawal of money since then, reducing the account to a little bit less than $5,000 on 26 June 2007.  The defendant of course did not explain in the affirmation how this savings account is operated and where the money comes from, or why there were enormous withdrawals in the past two months, which must be the time when the writ was served and judgment was entered.  The defendant said he has no other assets apart from these two accounts.

32. Mr Ng submitted that in respect of the suspicious circumstances of this case, and the fact that the defendant was avoiding service, it is entirely correct for the learned Registrar to order the full sum to be paid into court and he cited a number of authorities to support that contention.  To start with he cited Law Kok Hung v. Tse Ping Man [1999] 4 HKC 397 in which Yuen J, as she then was, said at 406E that :

“	the circumstances surrounding the question of service and why things went wrong in that regard would be considered by the court and efforts made by the defendant to avoid service in one of the circumstances in this case the court should consider.”

33. In that case Yuen J also said :

“	Giving a correspondence address rather than an actual residential address is always indicative of an intention to cover one’s tracks.”

34. Mr Ng then cited four further authorities in support of his contention that unfettered discretion to impose conditions would include a consideration of whether the defendant was trying to evade service.  The fifth case cited was Liu Chong Hing Bank Limited v. Union World (HK) Limited & Ors [2005] 1 HKC 20 a decision of the Court of First Instance and the Court of Appeal.  In that case Rogers VP said words to the effect that if there is an irresponsible conduct on the part of the defendant the court would take that into account in considering the condition to be imposed.  In that case the 6^th defendant therein, as a guarantor, gave an address in San Po Kong as his residential address but claimed he had never resided there.  Deputy Judge Longley found his conduct irresponsible.  Rogers VP referred to the judge’s finding of irresponsible conduct of the 6^th defendant.  He said that that left the judge in no doubt that he should impose a condition, namely the payment of the balance of moneys owed into court.

35. I accept Mr Ng’s submission that the defendant’s conduct in the whole proceedings can only be described as irresponsible and evasive and, therefore, I consider that the decision to impose a condition of payment into court of $1.7 million is a correct decision in this appeal.

36. That being the case and this is a rehearing of the whole application to set aside the judgment, I have the jurisdiction to impose further conditions as an additional measure after hearing further submissions from counsel.

[Court heard submissions from counsel]

37. Apart from the payment into court, which no doubt Miss Tsui will ask me for some time to pay that in, since the defendant probably will have to raise this sum of money from other sources, when he himself said that, at this moment, has not got that amount of money, the additional conditions I impose are as follows :

The defendant should disclose on affidavit within 7 days, by 4 p.m., Thursday, 12 July 2007, the following matters :
(1)	his actual place of residence in Hong Kong, apart from Po On House and, in particular, whether he has stayed at the address stated in the other bank account jointly held with one Miss Cheung (that is in King’s Road), which was blacked out, and if he has stayed at that address to disclose that full address.  In other words, he must say specifically whether Po On House is the only address he will stay in for two-thirds of the time whenever he was in Hong Kong;
(2)	all other landed properties owned or jointly owned by him in Hong Kong or elsewhere, and, in particular, in the Mainland;
(3)	all other properties or assets, each one of them being more than HK$10,000 up to a total of $1.7 million;
(4)	what happened to all the accounts he had with Standard Chartered Bank before;
(5)	whether he has any other bank accounts in the Mainland or elsewhere other than Hong Kong.

38. I propose that he will have to file and serve an affidavit by 4 p.m. Thursday, 12 July 2007.  I will be minded to give a little more time for him to raise $1.7 million sum, say, 14 days hereof.

[Discussion re time to file affidavit.]

39. I think 168 hours will be sufficient for the defendant to file an affidavit.  After all it was his case that he has no other assets at all so I do not know why 168 hours would not be sufficient for him just to put in an affidavit to tell us where his assets are if he has any.  The time of 7 days is more than enough.

40. The defendant through his counsel asked for 28 days to effect payment into court.  I consider that 14 days is sufficient since he has been aware of the judgment since last year and the decision of the learned Registrar was some time earlier this year.  Therefore, he was asked by this order, dated 28 February this year, to pay $1.7 million into court.  Although he appealed against that decision, and there is no guarantee he would succeed in the appeal, he must, in the meantime, have a plan as to what he will do if the appeal is dismissed to get the amount of $1.7 million.  So I think 14 days in addition to those dates between 28 February this year should be sufficient for him to raise $1.7 million.  If he could not raise it within 14 days he could not raise it within 28 days.

Adducing further evidence

42. In respect of the application to adduce further evidence, there was also an objection from Mr Ng for the plaintiff that in the fourth affirmation, from paragraphs 8 to 11, the defendant disclosed two matters in respect of the incident when he tape recorded them.  There was an application before Deputy Judge Gill on 28 June, that is a few days ago, to produce a CD recording of that conversation and a transcript thereof and Deputy Judge Gill had already refused and dismissed that application.  I agree with Mr Ng that paragraphs 8 to 11 is not a reply by the defendant to the affidavit of the plaintiff, but an additional matter and that matter has already been adjudged upon to the effect that the defendant is not allowed to adduce that part of the evidence.  To my mind, therefore, that part must be res judicata.  I have no jurisdiction to re-open that decision and the only course open to the defendant is to appeal against it.

43. As to the explanation of why the CD was only retrieved recently when the CD apparently was made then and there at the time of the conversation years ago, there was no explanation on affidavit.  Miss Tsui told me from the Bar table that her instructions were that the defendant stored the CD in a flat in Shenzhen owned by his sister.  That was misplaced, and they could not find it until recently.  I find that explanation a bit surprising since this is an important piece of evidence and he should have endeavoured hours and hours in finding it when he was sued and he should not leave it until two years afterwards.  Be that as it may, it has already been decided and therefore I have no jurisdiction to admit that part of the evidence and the only course is to accede to the request of Mr Ng that that part of the affidavit should be deleted for the purpose of this hearing.

44. The other application, according to Miss Tsui, is a different application to adduce a fifth affirmation concerning the minutes of meetings of the plaintiff.  In fact, strictly speaking, it is the minutes of the board meeting of a joint venture company held on 23 July 2004, allegedly signed by the plaintiff’s representatives.  The defendant wants to adduce that piece of evidence to show that the plaintiff did not go on with the joint venture company, not because the defendant did not perform his undertaking according to the said Chinese Agreement of 25 May 2004.  Apparently, according to the minutes, it was because of the fact that the joint venture agreement was at a loss for a number of years and in 2004 the losses were RMB8.4 million.

45. The other thing he wanted to present was an action to press him to buy out the plaintiff in the joint venture company in the Mainland.  I asked Miss Tsui why the defendant could not say all these things earlier and the explanation was the minutes were, as he said in the affirmation, only given to him recently in Xian.  However, the defendant did not condescend on particulars as to why he could not obtain it earlier from Xian, but only recently and from whom.  He obtained the minutes of the board meeting of the joint venture company apparently with which he was not so directly involved, apart from the fact that he obviously had to perform those undertakings, according to the said Chinese Agreement.

46. Therefore I cannot be convinced that the defendant has fulfilled the three basic requirements laid down in Ladd v. Marshall.  The minutes also obviously came into existence shortly after 23 July 2004.  Why the defendant could not obtain them until only recently, how recently, and how he managed to obtain it in Xian and from whom were questionable.  All this was not disclosed and therefore, according to the authority I refuse to admit this part of the evidence in the appeal, which came at the 11^th hour at the last minute.  The admission of such a piece of evidence would only have the effect of adjourning the present hearing until another date, as the plaintiff would obviously like to reply to this part of the new evidence.  This summons of the defendant is also dismissed with costs to the plaintiff.