STRONG OFFER INVESTMENT LTD v. NYEU TING CHUANG

FACV 21/2006

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 21 OF 2006 (CIVIL)

(ON APPEAL FROM CACV NO. 384 OF 2004)

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REPORT  TO
HONG KONG  COURT  OF  FINAL  APPEAL

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1.  The order of the Court of Final Appeal (“CFA”) dated 30 March 2007 directs:-

“if the parties are unable to agree [the correct figure of the judgment debt in HCA 10541/2000 after removing any element of compound interest therefrom], within two months of 13 March 2007, they have liberty to apply to a single judge of the High Court for him … to determine such figure which will be reported to this court for the entry of judgment accordingly” (para. (b)).

2.  The said judgment debt totalled $41,220,569.84 (exclusive of interest and costs).  The parties have been unable to agree on the amount to be reduced.  The plaintiff therefore makes this application pursuant to the above direction.  This is the report to the CFA.

Background Facts

3.  The plaintiff was a licensed money-lender which provided credit facilities to the defendant, the former customer of a stockbroker which was closely related to the plaintiff.

4.  When the defendant defaulted repayment, the plaintiff commenced legal proceedings, and obtained judgment against him.  The defendant’s appeals to both the Court of Appeal and the CFA failed.

5.  However, in the appeal to the CFA, the defendant raised, for the first time, an argument that compound interest had been charged against him without proper basis.  The impropriety was accepted by the plaintiff, which resulted in the CFA’s above direction (and other related relief).

The Post-CFA Proceedings

6.  The Court of First Instance made an order on 6 September 2007 for the discovery of documents by the plaintiff regarding the defendant’s margin accounts.

7.  It should be noted that, at trial, the defendant accepted that he had received (albeit allegedly belatedly) all the documents relating to his share trading, such as the bought notes and sold notes and the daily transaction reports.

8.  In an affirmation dated 14 March 2008, the defendant says (among other things) he no longer has any of those documents apart from those discovered in the action (which, because of the issues then raised, were not fully discovered by the plaintiff).

9.  Similarly, the plaintiff affirmed that neither it nor its related stockbroker company now possesses the full set of documentation.

10.  Consequently, by the time of this hearing, it is common ground the full set of documentation is no longer available.

The Issues

11.  In its written statements filed pursuant to the directions given by the Court of First Instance, the plaintiff contends that:-

(a)     the principal debt was (1) $17,713,692.40 for the margin account M3001 as at 7 January 1999, and (2) $9,207,400.42 for the margin account M3480 as at 30 December 1998 (sub-total $26,921,092.82);

(b)    the amount of simple interest payable was (1) $8,637,987.09 as at 7 January 1999 for M3001, and (2) $4,021,177.97 as at 31 December 1998 (sub-total $12,659,165.06).

The total of sub-para. (a) and (b) above is $39,580,257.88.  The amount to be reduced from the judgment debt is therefore $1,640,311.96 ($41,220,569.84 - 39,580,257.88).

12.  The defendant disagrees with the plaintiff’s above contentions.  His stance is, in short, that the court is not yet ready to prepare a report, and will never be ready unless there is a material change of circumstances.  That stance arises from the history of the proceedings since the CFA judgment (summarised above).

13.  Several reasons are put forth by the defendant in support of his stance.  Because neither he nor the plaintiff possesses all the relevant documents, the parties are unable to present their respective case for the purpose of reporting to the CFA.  To find out the precise amount of the debt, all relevant documents are required.  This is particularly so because:-

(1)     the plaintiff’s calculations overlook the compound interest highly likely to have already been charged against the defendant prior to 8 January 1997 (the commencement of the debt period pleaded in the amended statement of claim) (the defendant commenced trading through M3001 since 10 May 1995);

(2)     there were apparent inconsistencies and inaccuracies in the documents made available by the plaintiff.

14.  An example of para. 13(2) above is set out in the letter of Messrs. Grant Thorton, the defendant’s specialist:-

“the definition of ‘date’ is unclear among the different documents.  The Calculation referred the ‘Date’ in [the daily transaction report] as ‘Settlement Date’.  The Bought and Sold Notes showed two dates, namely ‘Transaction Date’ and ‘Settlement Date’.  However, … [the ‘Date’ as shown on [the daily transaction report] against the ‘Settlement Date’ on the available Bought and Sold Notes do not match with each other … ” (para. (2)(v) thereof).

It is however fairly accepted during the hearing the discrepancy worked in the defendant’s favour in the example given in the letter (delay in recording the purchase of 1 million shares).  The other example is the omission of 3 sale transactions (admittedly not substantial in amounts) from the daily transaction reports.

Should a Report be Prepared ?

15.  The CFA’s direction was given after the defendant’s CFA appeal was dismissed.  The CFA order has been perfected in April 2007.

16.  At the time of the making of the CFA’s direction (for a report to be prepared), it can be inferred that the difficulties set out above were unknown to, and not anticipated by, the court or the parties.

17.  What appears to have been intended is a “vouching” exercise, similar to what sometimes happens in the taking of an account.  Hong Kong Civil Procedure 2008, Vol. 1 describes the practice as follows:-

“The accounting party will generally be directed to lodge his account, duly verified by affidavit … and to serve copies on the other parties concerned. … In a simple case the vouchers may be ordered to be exhibited to the affidavit: otherwise it is generally ordered that each party permit inspection of all relevant documents in their possession or power relating to the account, to enable the opposing parties in effect to carry out an audit, and so that any necessary verification of the account can be dealt with out of court.

The opposing parties will then file a notice of objections, or an affidavit setting out their contentions with regard to the account, so that it can be seen what issues require determination by the court.  It may also assist the court to have the parties’ respective contentions summarised in the form of a Scott Schedule … ” (emphasis supplied) (para. 43/3/1).

In the present case there appears no need for verifying affidavits, and none has been made.  But otherwise a generally similar approach seems to be apt.

18.  I am not in a position to speculate what the CFA would have done if the above difficulties had been known at the time; nor is this relevant for present purposes.  But the dismissal of the appeal must mean that the judgment entered against the defendant has been upheld by the CFA.

19.  By reason of the above matters, I agree with the plaintiff that the CFA’s direction presupposes the existence of a judgment debt.

20.  Such being the case, if the defendant’s stance were to be accepted, the judgment debt, which has been determined by the CFA to be valid and subsisting (subject to the direction of reduction), will become forever incapable of enforcement.

21.  That cannot possibly be the result intended by the CFA.  I therefore have no hesitation in rejecting the defendant’s stance.

22.  By way of footnote, it may be that in extreme cases, there is valid reason for concluding that a report is not ready to be prepared.  Two examples are, one, both parties (including the plaintiff) fail to present an amount of reduction, or, two, the amount of reduction presented by both parties is obviously excessive or inadequate.  What the plaintiff has done here comes nowhere near the above examples.

Can a Report be Prepared?

23.  As stated above, it is common ground that the plaintiff’s documentation is not complete or totally accurate.

24.  The defendant has refused to put forth any amount of reduction, insisting that the matter is wholly not yet ready.  The most he is prepared to say about this is:-

“… if this Court is minded to approach matters by reference only to the material currently available, [the defendant] disputed the figure to [be removed from] the judgment debt [It should] be considerably higher than that conceded by the Plaintiff” (para. 30, defendant’s skeleton argument).

25.  There are at least two ways of approaching the matter.

26.  The first is to examine the available documents and determine the amount of reduction, taking into account the possible margin of error which may result from the discrepancies or inaccuracies referred to by the defendant.

27.  The other is to determine the amount of reduction based purely on the plaintiff’s calculation.

28.  Neither approach will produce an amount which is totally accurate.  But I conclude that the second approach is more appropriate.

29.  First, the court is not obliged to formulate a case for a litigant, especially if that litigant does not wish the court to do so.  In the present case, the defendant argues that any amount of reduction is arbitrary; this is because (so he argues) unless the full set of documents have been examined, the amount of compound interest charged cannot be properly ascertained. 

30.  More importantly, the defendant has been given more than adequate opportunity to present his case.  The plaintiff filed and served its written statements in October 2007 (about 6 months before this hearing).  The plaintiff’s affirmation disclosing it does not possess all the documents was filed earlier (in September 2007).  The plaintiff even went to the trouble of obtaining an order in February 2008 directing the defendant (among other alternatives) to:-

“insofar as it is possible on the material available, [put] forward his case as to the appropriate calculation on the interest to be removed and reduced from the judgment debt … ”.

31.  This being the defendant’s deliberate choice, it is only fair the risk of the court disagreeing with his choice rests with him.

32.  Reliance has been placed by the defendant on the discovery order of 6 September 2007 as showing that the margin account documents from 10 May 1995 to 7 January 1999 are also relevant to my determination.

33.  This argument is misconceived for two reasons:-

(a)     “relevance” for the purpose of discovery of documents is different from “relevance” in other context: see, for example, Hong Kong Civil Procedure 2008, Vol. 1, para. 24/2/10 quoting the observations in O Co. v. M Co. [1996] 2 Ll. Rep. 347;

(b)    interlocutory orders involving the exercise of a discretion do not ordinarily constitute any issue estoppel (a proposition apparently adopted in the defendant’s skeleton argument in another context): Mullen v. Conoco Ltd [1998] QB 382, 390-1.

34.  I should note that the plaintiff has benevolently offered a total reduction of $2 million out of prudence (an error margin of about 3% above the calculated amount) if the court finds that to be necessary.  I do not consider it necessary or appropriate to adopt this sum.

35.  Finally, the defendant has during the hearing said that, when his skeleton argument mentions:-

“the figure to [be removed from] the judgment debt [It should] be considerably higher” (see para. 24 above),

the “higher” amount is something in the region of $5 million (that is, about 39.7% of the simple interest calculated by the plaintiff (see para. 11(b) above)).  This sum is excessive considering the magnitude of the errors so far discovered (see para. 13 and 14 above) and the total amount of simple interest arrived at by the plaintiff (about $12.6 million).

36.  By virtue of the above matters, I will report to the CFA that I determine the amount to be removed from the judgment debt to be $1,640,311.96.

37.  It is not entirely clear if I have the power to deal with the costs of this hearing.

38.  The parties have put forth submissions on costs on the assumption I have power to deal with the matter.  The plaintiff seeks the costs of this hearing.  The defendant argues, on the other hand, these costs should form part of the costs of the CFA appeal (for which an order has already been made by the CFA).

39.  I do not agree with the defendant’s argument.  It may have substance if the matter had remained “non-contentious”.  But once it has become full-blown litigious, the matter has in effect taken on a life of its own. 

40.  For this reason, if it is within my power to report to the CFA, I conclude that the costs of this hearing (from 25 July 2007 at the latest) should be paid by the defendant to the plaintiff to be taxed if not agreed.