WANGHAI DEVELOPMENT LTD (formerly known as CHANGHONG OVERSEAS DEVELOPMENT LTD) v. LEUNG YU FUNG

HCA 1860/2015

[2019] HKCFI 1628

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1860 OF 2015

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D E C I S I O N

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INTROUCTION

1.  In this case, the plaintiff sues the defendant, its former senior employee, for damages and compensation for deceit, breach of duties of fidelity and fiduciary duties owed to the plaintiff, breach of trust in misappropriating the plaintiff’s assets, and an account for the misappropriated assets.

2.  On 15 June 2018, a master[1] allowed the plaintiff’s application for striking out the amended defence and entered judgment in favour of the plaintiff. The terms of the order made by the master (“the order”) are as follows:

(1)  the amended defence dated 28 September 2017 be struck out;

(2)  the plaintiff be at liberty to enter judgment against the defendant as follows:

(a) the defendant do pay the plaintiff the sum of HK$56,774,689;

(b) interest at the judgment rate on all sums found due by the defendant at the judgment rate from the date of judgment until full payment;

(c) costs of this action to be taxed, if not agreed.

(3)  costs of the plaintiff’s application for striking out the amended defence and for entering judgment be to the plaintiff and be summarily assessed at HK$200,000.

3.  By a summons dated 7 May 2019 (“the summons”), the defendant seeks leave to appeal against the order out of time, and an order allowing the appeal and setting aside the order made by the master. The address given by the defendant on the summons is a residential address in Kwun Tong (“the Kwun Tong Address”).

THE PRINCIPLES

4.  Ms Sharon Yuen, counsel for the plaintiff, has helpfully referred me to Postwell Ltd v. Cheng Kap Sang[2], in which the principles concerning the exercise of the discretion in determining whether leave to appeal out of time should be granted are set out by DHCJ Wong Yan Lung SC. The court has to consider the following factors in determining in what way the discretion should be exercised:

(1)  the length of the delay and the reasons for the delay, in terms of firstly why the original time limit was not complied with and why the application for time extension could not have been made earlier[3];

(2)  the chance of the appeal succeeding if leave is given, and where the delay is substantial and inexcusable, the burden of the defendant to show merits is a very heavy one[4]; and

(3)  the prejudice to the other party if the application is granted[5].

5.  I would consider these factors in turn in the paragraphs below.

SUBSTANTIAL AND INEXCUSABLE DELAY

6.  The defendant should lodge an appeal against the order within 14 days after the order was made[6], but he did not do so. He only took out the summons on 7 May 2019, almost 1 year after the prescribed deadline. The delay is substantial.

7.  The defendant tries to explain the substantial delay by putting forward the following:

(1)  He is not familiar with the appeal procedures.

(2)  He understood from the telephone conversation with a solicitor of Deacons on 15 June 2018 that the hearing on that date would be re-fixed, and therefore he had been waiting for notice of the re-fixed hearing.

8.  None of these explanations is satisfactory.

9.  The defendant claims that he was under the impression that no order had been made in the hearing on 15 June 2018 and he was waiting for the adjourned hearing.  In my judgment, this allegation is unbelievable.  I am of the view that the defendant came to know the order on 15 June 2018 or shortly thereafter.

(1)  In the Affidavit of Ms Jean Lau Chi Yin[7], Ms Lau said that the hearing on 15 June 2018 was scheduled to commence at 10 am on that date. She contacted the defendant by calling his mobile phone at about 10:30 am and asked the defendant to come to the hearing. The defendant told Ms Lau that he wanted to cooperate with the plaintiff and did not want to do anything. Ms Lau asked the defendant whether he wanted the hearing to be adjourned, and the defendant said that he might not be able to come even if the hearing was adjourned. The defendant said he would let the court decide. At about 12:15 pm, Ms Lau called the defendant again and told him that the court had made the order.

(2)  The plaintiff has informed the defendant of the order by letters dated 15 June 2018 and 1 August 2018, and of the garnishee enforcement proceedings by letter dated 24 August 2018. All letters were sent to the Kwun Tong Address. There is no allegation, let alone evidence, saying that the defendant has not received any of these letters.

(3)  Ms Lau has prepared a note recording the telephone conversation between her and the defendant on 2 August 2018. On that date, Ms Lau called the defendant and informed him that the sealed order had been served on him by sending the same to the Kwun Tong Address. The defendant acknowledged that he could not pay the judgment sum, and said he had no issue with the plaintiff taking enforcement applications and would not oppose those applications. The defendant further said that he would not appeal against the order, and the only thing he worried was that the plaintiff might take out bankruptcy proceedings, since that would affect his daily life.

10.  Tolerance may be given to a party who is acting in person if the application or appeal lodged by him is only slightly out of time and he has made an effort to try to comply with the requirements laid down in the Rules of the High Court. However, it is entirely a different matter if the default of the rules is fundamental. A litigant in person cannot just turn a blind eye to the timetable laid down in the rules[8]. Here, the delay is substantial. There is no evidence showing that the defendant has ever made any enquiries to find out the appeal procedures. By merely saying that he is not familiar with the appeal procedures would not entitle him to leave to appeal out of time.

11.  In my judgment, the delay in bringing this appeal is substantial and inexcusable.

UNMERITIORIOUS APPEAL

12.  The plaintiff’s claim can be broadly summarized as follows:

(1)  When the defendant was under the plaintiff’s employment as the head of business department, the defendant abused his position and devised and implemented a fraudulent scheme to misappropriate the plaintiff’s funds for his personal benefit.

(2)  The defendant procured the actual sales of goods (“the actual sales”) by the plaintiff to its customers (“the actual customers”) on the condition that there had to be immediate or advance payment.

(3)  The defendant instructed the actual customers to deposit the purchase price of goods sold under the actual sales into bank accounts designated and controlled by him (“misappropriated funds”) immediately upon the completion of the actual sales.

(4)  To conceal his fraudulent receipt of the misappropriated funds and to procure delivery of the goods, the plaintiff falsified entries in the plaintiff’s accounting system and made forged sales orders, invoices, packing lists and receipt vouchers (“the forgeries”), showing some purported sales of the goods to some purported customers (“the purported customers”) on 30-day credit terms, and corresponding receipts of payments by the purported customers, where in fact:

(a) No purported sale took place;

(b) The goods in fact were already sold under the actual sales;

(c) The plaintiff received payments not from the purported customers but from third parties (who were possibly the actual customers) at the end of the 30-day credit period.

(5)  By pursuing the above, the defendant would be able to keep the misappropriated funds for his own use for 30 days. The defendant used the misappropriated funds to invest in highly leveraged financial products for his personal benefit.

13.  As a result of this fraudulent scheme, the plaintiff suffered loss and damage. It can be reasonably inferred that the total sum of the misappropriated funds received by the defendant or his designated payees under the fraudulent scheme amounts to no less than HK$56,774,689, which represents the outstanding balance of the purported receivables under the purported sales.

14.  The plaintiff’s claim is supported by the admission made by the defendant in his email dated 12 June 2015 to two directors of the plaintiff (“the email”), in which the defendant said:

“1) 犯事過程

約在2013年頭開始我對平常的業務操作生厭，並產生了歪念，就是借我司有賬期30天客户——AOHO ELECTRONICS LIMITED——的名義出貨予行內別的客户，而別的客户是按現金交易的，並按指示把貨款存到我指定的賬上，而我再在30天後把貨款存進長虹海外賬上，這個違規處理便給於我30 天的時間挪用資金。

而更錯的是，我把資金用在了抄賣高槓杆的恆生指數期貨，牛熊證上，由最初的幾萬，到幾十萬，再到最近的幾百萬一 天，輸了想返本，又再加大抄賣，已沒理性了，從而走到及做成今天的大錯。

違規操作到現在應該有3年多了，其實去年年中問題已浮現，我只是當時利用其他客户的回款掛到AOHO ELECTRONICS LIMITED 頭上，從而把問題蓋著，拖著……

2) 補救方法

A) 盡快完善前期所有未清供方,客户在系統及單據真實資料的存檔備檔。

B) 向親友籌集資金，每天均向公司賬上存款，有多存多，有小存小，從而盡量逐步降低公司損失。

C) 法律責任承擔，向警方自首，如實交代犯事情況，接受法律制裁。”

15.  I am of the view that nothing pleaded in the amended defence amounts to a reasonable defence to the plaintiff’s claim.

(1)  In §2 of the amended defence, the defendant refers to the alleged practice of the plaintiff to confirm with its banks the existence and details of all business and non-business receipts of payments, before recording the receipts as settling the accounts receivables (“沖帳處理”). In my view, this alleged practice, even if proved, cannot be a valid defence to the plaintiff’s claim. While the plaintiff’s claim is supported by the defendant’s admission in the email, I do not see how this alleged practice can make the defendant not liable to the plaintiff’s claim.

(2)  In §3 of the amended defence, the defendant claims that the figures of receipt vouchers in appendix B to the statement of claim are incomplete and not continuous, and hence he is unable to verify the sums claimed by the plaintiff. In my view, this is putting the cart before the horse. In the light of the defendant’s admission in the email, there can be no doubt that the defendant has perpetrated the fraudulent scheme against the plaintiff. That being the case, it is incumbent on the defendant to give full particulars of the misappropriated sums. Such particulars have never been produced by the defendant. It lies ill in his mouth to require the plaintiff to give these particulars.

16.  The defendant tries to rely upon an affirmation made by him on 7 May 2019 (“the affirmation”) in support of the summons. In this affirmation, he mentions that in the 2015 annual report of the plaintiff’s holding company, the auditors state on page 41 of the report that the plaintiff’s accounts are not complete. There is nothing in this point.

(1)  The affirmation cannot be admissible evidence in the appeal hearing[9]. There is no reason why the affirmation could be not adduced in the hearing below. There is no special ground for admitting the same as evidence in the appeal hearing.

(2)  The “page 41” has not been exhibited in the affirmation. It is not known what exactly has been written on that page.

(3)  For the reason set out in paragraph 15, the obligation of providing particulars of the misappropriated sums is on the defendant, not on the plaintiff.

17.  In my view, the amended defence does not disclose any reasonable defence to the plaintiff’s claim and ought to be struck out. In the circumstances, there is no reason to give the defendant leave to appeal out of time, for the appeal is bound to fail.

PREJUDICE TO THE PLAINTIFF

18.  The plaintiff has been taking active steps and incurred significant costs to enforce the order for almost 1 year, including garnishee proceedings and bankruptcy proceedings. If leave to appeal out of time is granted to the defendant, this would certainly delay the enforcement proceedings and is a real prejudice to the plaintiff.

DISPOSITION

19.  For the reasons set out above, the summons must be dismissed. I dismiss the summons.

20.  Costs should follow the event. I order that costs of the summons be paid by the defendant to the plaintiff forthwith and be summarily assessed. In the statement of costs provided by the plaintiff, the total amount of costs claimed by the plaintiff is HK$47,072. This is a very reasonable sum and I allow this in full.

21.  I thank counsel for the assistance provided to the court.