Messrs BRUNO ARBOIT AND IAN ROBINSON, The Joint and Several Liquidators of CHUNG YING REMINBI EXCHANGE CO LTD v. HU YAN AND ANOTHER

CACV 262/2017

[2018] HKCA 507

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 262 OF 2017

(ON APPEAL FROM HCA NO 2401/2015)

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

1.  This appeal originated from a summary judgment application by the liquidators of Chung Ying Reminbi Exchange Company Limited [“the Company”]. Up till 26 July 2018, proceedings were brought and prosecuted in the name of the Liquidators. They obtained an order on 26 July 2018 from a master to amend the writ by changing the name of the Plaintiffs to the Company. For reasons to be given below, the master does not have the power to grant an order changing the identities of parties to this appeal (and she did not purport to do so). The Liquidators remain as Plaintiffs in this appeal.

2.  The Company was put into liquidation on the petition of its judgment creditor pursuant to an order of the Companies Court of 12 February 2014.  The Defendants are the children of Madam Leung.  The 1^st Defendant and Madam Leung were the directors and equal shareholders of the Company[1]. 

3.  The background facts are succinctly summarized by Deputy High Court Judge To [“the Judge”] in his judgment of 26 October 2017 at [8] to [10], which we gratefully adopt in this judgment:

“ 8.  The 1^st Defendant and her mother, Madam Leung (the “Mother”) were the sole directors and shareholders of the Company which carried on a foreign exchange business.  The 2^nd Defendant is the 1^st Defendant’s brother who also worked in the Company.  Prior to its incorporation on 21 March 2012, the business had been operated as a sole proprietorship business set up by the Defendants’ father in 1994.  It was succeeded by the Mother following the death of the Defendants’ father on 30 July 2010.  It operated licensed money exchange shops at ten different locations in Hong Kong, including one at Shop 22B in 22 Tsuen Wan Market Street (the “Tsuen Wan Market Shop”).  The registered office of the Company was in Sha Tsui Road in Tsuen Wan.

9.  Between 3 and 8 February 2013, the Defendants collected bags of cash in 14 tranches amounting to JPY 1,753,266,000 (the “Sum”) from Ms Zhou Yipei (“Zhou”) at Kowloon Shangri‑La Hotel.  They signed and issued 14 receipts confirming receipt of the Sum on behalf of the Company. According to these receipts, the Company contracted to exchange the Japanese Yen for Singaporean Dollars (“SGD”) on the dates specified on the receipts (the “Contracts”).

10.  On 8 February 2013, the Company paid Zhou a total of SGD 15,134,737 pursuant to some of the Contracts equivalent to 58% of the Sum, but did not perform the other Contracts.  On 16 September 2013, Zhou obtained judgment against the Company for the amount of SGD 10,971,393, being the balance due under the Contracts.  Upon Zhou’s petition, the Company was wound up on 12 February 2014.  The Plaintiff were appointed as its joint and several liquidators.”

4.  The Plaintiffs’ case is that the whole sum of JPY 1,753,266,000 had been misappropriated by the Defendants notwithstanding the Company’s part performance of its obligation in exchanging Japanese Yen for Singaporean Dollars.

5.  The Defendants’ case, as set out in their affirmations, was that they had actually put the whole sum in the safe of the Company and they had not misappropriated any part of it.

6.  The application of the Plaintiffs first came before a master.  On 6 March 2017, the master gave judgment in respect of JPY 736,829,638 (being the equivalent amount for which the Company did not pay Zhou in SGD) but granted unconditional leave to the Defendants to defend for the balance of the claim. 

7.  The Defendants appealed against the decision of the master in respect of the partial judgment entered in favour of the Plaintiffs.

8.  That appeal was heard by the Judge on 4 July 2017.  He handed down his decision on 26 October 2017, dismissing the appeal and upholding the order of the master, including the grant of unconditional leave to defend to the Defendants regarding the remaining claim.

9.  The Defendants appealed against the decision of the Judge.  As they were appealing against a summary judgment, leave is not required under Section 14AA of the High Court Ordinance.

10.  The Plaintiffs filed a Respondents’ Notice on 26 March 2018 seeking to vary the judgment by having summary judgment for the whole claim.  In substance, the Plaintiffs sought to cross-appeal against the grant of unconditional leave to the Defendants to defend the remaining claim. It is a cross-appeal against an interlocutory order.

11.  Unlike the position of the Defendants, the Plaintiffs need leave under Section 14AA before such a cross-appeal can be brought: see Ng Hong Ki v Leung Fong Kiu [2012] 1 HKLRD 435; Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 1) (2010) 13 HKCFAR 283.

12.  Those advising the Plaintiffs overlooked that requirement and did not seek leave for the cross-appeal to be brought.  Without leave, the cross-appeal cannot be entertained: Fok Hing (HK) Trading Ltd v Guna Wan-Indra trading as Bumipala Dhanadwipa CACV 74/2014, 4 July 2014; Wong Chi Kin v Commission of Inquiry [2015] 2 HKLRD 1106; Kwangtung Provincial Bank v Chung Sun Kwan CACV 64/2014, 15 August 2014; Lo King Yeung v Eddie Chu Hoi Dick CACV 192 and 193/2017, 23 November 2017.

13.  As mentioned, on 26 July 2018 solicitors for the Liquidators made an application before a master to amend the name of the Plaintiffs in this appeal.  In the skeleton submissions, counsel for the Plaintiffs referred to Order 20 Rule 3 as the rule pursuant to which the application for amendment was made.  Rule 3 applies to pleadings.  Pleadings are governed by Order 18 of the RHC and they are documents filed in court for identification of issues at the trial: statement of claim, defence and counterclaim, reply.  Thus, Order 18 Rule 4 provides that no pleading subsequent to a reply is to be filed without leave of the Court.  Pleadings are closed 14 days after the service of a reply, or in the absence of it, 28 days after the service of defence, see Order 18 Rule 20.  Further, Order 18 Rule 20A requires pleadings to be verified by a statement of truth.  

14.  In contrast, a notice of appeal is a document by which an appeal is brought.  It is not a document which delineates the scope of a trial.  It does not have to be verified by a statement of truth.  It is not a pleading. 

15.  Amendment of court documents can be made under Order 20 Rule 8.  The names of parties can also be corrected under Order 15 Rule 6.  But in respect of proceedings in the Court of Appeal, application for amendment of notice of appeal and correction of names of parties should be made to this Court instead of a master, see Order 59 Rules 7 and 14.  The powers of the Registrar of Civil Appeals (and a master acting in such capacity) in a civil appeal is set out in Order 59 Rules 6A and 9(3) and (4) and Practice Direction 4.1. These are all case management and administrative powers. Granting leave for amendment of notice of appeal or correction of the name of a party are not within the scope of these provisions. 

16.  Though the application was made by way of an application for amendment of the writ, the Court of First Instance (and a master acting in the capacity of a master of the High Court instead of the Registrar of Civil Appeals) cannot have the power to make an amendment which affects the course of an appeal. 

17.  There was no application in the Court of Appeal for the amendment of the title of the appeal.  

18.  Thus, we are of the view that order of 26 July 2018 cannot have any effect as regards the identity of the parties to this appeal. 

19.  Counsel referred to commentary in Hong Kong Civil Procedure 2018 at paragraph 6/1/15 which suggests that where liquidators sue on behalf of a company, the company’s name should appear as the Plaintiff in the title of the action instead of the liquidators.  However, there are cases where proceedings were instituted in the name of liquidator and it has costs implications: see Re Leco Watch Case Manufactory Ltd [2017] 2 HKLRD 388 at [14] and [15].

20.  In the present case, up to the lodging of the appeal and the respondent’s notice, proceedings were brought in the names of the Liquidators and prosecuted as such.  If the Court makes an order to change the name of the Plaintiff in this appeal at this stage, it would relate back to the commencement of proceedings.  We are not minded to entertain any such application before us when the Defendants were not given notice of the same and they have no opportunity to address us on the costs implications flowing from an order changing the names of the Plaintiffs in this appeal. 

21.  For the purposes of this appeal, including (as explained below) the application for leave to cross-appeal, we shall proceed on the basis that the Liquidators remain as Plaintiffs in this appeal.  

22.  Due to the failure to prosecute the appeal properly and non-compliance with unless order, the Defendants’ appeal was dismissed on 27 July 2018.

23.  After that, the Court drew the parties’ attention on 31 July 2018 to some authorities, including Ng Hong Ki v Leung Fong Kiu, supra.

24.  Realizing then that leave to appeal is necessary for the bringing of the cross-appeal, solicitors for the Plaintiffs took out a summons on 3 August 2018 seeking leave to appeal out of time. 

25.  In the 2^nd affidavit of the solicitor for the Plaintiffs of 3 August 2018 and the supplemental skeleton submissions of 3 August 2018, counsel and solicitor accepted responsibility for the oversight regarding the leave requirement.  The Plaintiffs accepted that leave should have been obtained for the cross-appeal.

26.  In the affidavit, the solicitor explained that those advising the Plaintiffs relied on a passage in Hong Kong Civil Procedure 2018 at para 59/6/1 to arrive at the wrong conclusion that a respondent’s notice seeking only to vary the judgment (a Rule 6(1)(a) situation) instead of the three specified situations discussed in that paragraph (Rule 6(1)(c) situation) would not be a cross-appeal. 

27.  With respect, the commentary in the same paragraph ended with a reference to the observations of Bokhary PJ in Common Luck Investment Ltd v Director of Legal Aid [2002] 3 HKLRD 81.  It was pointed out in that case that both Rule 6(1)(a) and Rule 6(1)(c) situations are in reality a cross-appeal, and it is only not so in Rule 6(1)(b) situation.  Common Luck, supra, was decided in 2002 and was cited and applied by the Court of Final Appeal in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 1), supra, which in turn was the authority cited in Ng Hong Ki v Leung Fong Kiu, supra.  This is not a new development in the law.

28.  Though we would accept that it was probably a mistake on the part of the lawyers instead of that of the Plaintiffs personally, this does not mean that the delay was excusable.  In Secretary for Justice v Hong Kong & Yaumati Ferry Co Ltd [2001] 1 HKC 125, the consequence of an inexcusable error on the part of the lawyers fell on the party. 

29.  In the present case, we cannot accept that the delay was excusable.  Hence, in accordance with the well-established approach of this Court, leave to appeal should only be granted if the Plaintiffs could demonstrate real prospect of success.

30.  It has repeatedly been said that an appeal against the grant of unconditional leave to defend has to overcome a high threshold, see Treewell Development v Tsang Chun Wah [2003] 4 HKC 401; Xpoly Recycling Ltd v Gold Leader Enterprises Ltd [2011] 4 HKLRD 230 and Greater China Capital Inc v Gbtimes Ltd [2018] 1 HKLRD 210. 

31.  We are troubled by the Judge’s approach in granting unconditional leave to defend at [45] of the judgment when he said:

“ For the above reasons, I find that the Plaintiff have made out a prima facie case that they are entitled to judgment, and that the Defendants have failed to show any bona fide defence or raise any triable issue. Though some of the Contracts had been performed by the Company paying Zhou about 58% of the amount due, the entire Sum was shown to have been converted. While there is no doubt that the Company performed some of those Contracts using its own funds, it does not necessary mean those funds came from part of the Sum. It would have been appropriate to enter judgment for the entire Sum. However, I would err in favour of the Defendants and adopt the same generous course taken by the master, ie to enter summary judgment to the extent of the outstanding amount of the Sum which the Company had failed to pay Zhou and to give unconditional leave to defend the balance. I therefore uphold the master’s decision and dismiss the appeal with costs.”

32.  That paragraph suggests that the Judge granted unconditional leave to defend despite being of the view that it was equally appropriate to enter judgment. That cannot be right.

33.  But at the same time, we also have difficulty with the reasoning of the Judge in coming to the conclusion that judgment could have been entered at [36]:

“ Mr Chan SC argued that as the Company had paid 58% of the Singaporean dollars due under some of the Contracts, the Sum must have been received by the Company. This is a possible inference. But as against the total lack of documentary evidence of receipt by the Company and the entry of the Sum into the Company’s fund flow conduit, a more compelling inference is that those payments were met by the Company’s other funds to partially discharge its obligations under some of the Contracts and that the Sum had been misappropriated.”

34.  It seems to us wrong in principle for the court in a summary judgment application to discount a plausible factual scenario based on a more compelling inference.  Moreover, with respect, we cannot see any justifiable basis, at the Order 14 stage, for the court to conclude that the more compelling inference was that the payments were met by other funds of the Company when no evidence has been adduced by the Company as to how those payments were funded.  After all, it was not a small sum of money: the Company paid Zhou a total of SGD 15,134,737.

35.  The master granted unconditional leave to defend.  Though the reasons for such decision was not before us, the Judge ultimately adopted the same course.

36.  We are not persuaded that the Plaintiffs have real prospect of success in overturning the grant of unconditional leave to defend on appeal. 

37.  For these reasons, we refused to grant leave to the Plaintiffs to cross-appeal against the grant of unconditional leave to defend.  The summons of 3 August 2018 was dismissed.

38.  It follows that the cross-appeal was also struck out. 

39.  Since the Defendants did not appear to resist the cross-appeal, we made no order as to costs in respect of the cross-appeal and the summons of 3 August 2018.