CHE OI TAI v. CHEN CHIA CHIN

HCA 3219/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3219 OF 2002

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REASONS FOR DECISION

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1. In this action, the Plaintiff sues the Defendant in respect of an alleged loan in the sum of $1,000,000. The said loan was said by the Plaintiff to have been repaid by the Defendant by a cheque dated 1 November 2001 ["the Cheque"]. The Cheque was dishonoured when it was presented for payment on 7 March 2002. The Writ was issued on 22 August 2002. The Statement of Claim pleaded two causes of action, repayment of loan ["the loan claim"] and dishonoured cheque ["the cheque claim"]. On 25 October 2002, the Plaintiff took out a summons for summary judgment. On 15 May 2003, Master Au-yeung granted conditional leave to defend, the condition being that the Defendant shall pay the full amount of $1,000,000 into court within 28 days. On 29 May 2003, the Defendant appealed against such order.

2. The appeal was heard before me on 23 June 2003. After hearing submissions from counsel, I allowed the appeal and granted unconditional leave to the Defendant to defend. I now give my reasons for the decision.

3. The Plaintiff is an old widow of 73 years old. Her husband passed away about 8 years ago and she had 7 children. She was living in a public housing unit and her children provided for her maintenance and living expenses. She said she had accumulated a substantial saving over the years. One of her son is Mr John Liu ["Liu"]. He made his living by giving tuition on ballroom dancing. Liu had an intimate relationship with the Defendant between 1998 and February 2002. They cohabited together. The Plaintiff said she had expected the two to get married sooner or later.

4. The Plaintiff's case is that on several occasions, the Defendant borrowed monies from her to meet her cash flow need. The first loan was made on 29 June 1999 and it was in the sum of $520,000. The second loan was made on 5 May 2000 in the sum of $870,000. Those loans had been repaid. The third loan was the $1,000,000 which is the subject matter of this action. The sum was said to be advanced on 24 July 2000 by a cheque payable to a security broker in the name of Kongson Securities Limited ["Kongson"]. The Plaintiff said it was the Defendant who requested the cheque be made payable to that broker so that she could deposit the same into her account with the broker for her share transactions.

5. The Defendant did not repay the last loan and according to the Plaintiff, the Defendant said she was in difficulties. She issued a postdated cheque to the Plaintiff in March 2001. The cheque was dated 1 November 2001. As said, it was dishonoured upon presentation for payment in March 2002.

6. The defence case is set out in the Affirmations of the Defendant and her witness. She is now 50 years old and she was divorced since 1991. In 1998, she met Liu and had ballroom dancing lessons with him. They developed an intimate relationship and cohabited. The Defendant engaged in share speculation activities and maintained an account with Kongson. She made profit from time to time. Liu was interested. The Defendant said Liu asked her to allow him to participate in her share speculation. Due to the fact that Liu was indebted to banks, he did not use his own accounts to keep his monies. One of the persons whom Liu used as nominee was the Plaintiff, his mother.

7. Hence, the purported first loan was in fact Liu's participation in the Defendant's share speculation in 1999. The transaction was profitable and the Defendant paid another sum of $80,000 to the Plaintiff's account on top of the $520,000. The Defendant said the so-called second loan was only the use of her account to transfer funds for Liu from one nominee account (the Plaintiff's account at the Hang Seng Bank) to another (the Plaintiff's newly opened account at the Hong Kong Bank). It is common ground that the money was back into the Plaintiff's account within the same day.

8. In respect of the $1,000,000, the Defendant said in July 2000, Liu again wanted to participate in the Defendant's share speculation and procured his nominee, the Plaintiff, to issue a cheque in that sum in favour of Kongson and deposited the same into the Defendant's account with Kongson. This time the venture turned out to be unprofitable. The statements from Kongson showed that the value of the Defendant's share profolio dropped from about $8.75 million in July 2000 to $1.8 million in January 2001 and then to about $131,000 in July 2001. The Defendant said she ceased trading in stocks since September 2001.

9. The relationship between the Defendant and Liu turned sour and in March 2001, the Defendant wanted to separate from Liu. Liu became angry and accused the Defendant to be responsible for his loss of the $1,000,000 and demanded compensation. He also made threats and behaved violently towards the Defendant. The Defendant said under duress, she agreed to compensate Liu and issued a post-dated cheque under such circumstances. She put down the name of the Plaintiff as payee as Liu held his money in the account of the Plaintiff.

10. Liu made an affirmation in support of the Plaintiff's application. He denied using his mother's accounts and he denied having joint venture with the Defendant in her share speculation. Liu said he was not indebted to banks. He said he had his own bank and share trading accounts and he denied that the $1,000,000 was his own money. He confirmed that the sum was a loan by the Plaintiff to the Defendant. He said the two previous transactions were also loans by the Plaintiff to the Defendant. The post-dated cheque of 1 November 2001 was issued by the Defendant in March 2001 as repayment to the Plaintiff. He denied the Defendant's allegations of duress and said the two of them maintained a cordial relationship until February 2002. He referred to some trips with the Defendant during 2001 and January 2002 and produced some photographs taken on 22 December 2001.

11. In her 4th Affirmation, the Defendant produced evidence of Liu being sued by the Hong Kong Bank in High Court Action No. 9256 of 1999 for a sum of $970,000. The Defendant also explained why she still maintained a relationship with Liu after his duress caused her to issue the post-dated cheque.

12. In my view the case must go to trial and the Defendant should be granted unconditional leave to defend. The applicable principles in an Order 14 application are not in dispute. Both counsel referred to Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 and Re Safe Rich Industries Ltd, CACV No. 81 of 1994. The test is whether the Defendant has shown a believable defence. The assertions of a defendant have to be considered against the context and background which is either undisputed or beyond reasonable dispute. Mr Chan also cited the case of Bank Gemeinwirtschaft v London Garages [1971] 1WLR 149 at p. 160F to emphasize the last point in the context of a claim based on bill of exchange.

13. Mr Wong invited this court to adopt the approach laid down in Billion Silver v All Wide Investments [2000] 2 HKC 262. The Court of Appeal adopted the approach of the English Court of Appeal in Extraktionstechnik Gesellschaft Fur Analagenbau v Oskar (1984) 128 SJ 417. Watkins LJ said in that case,

"What is, in our judgment, abundantly clear is that justice cannot possibly be said to be done until the acute issues which have been raised upon the affidavits have been resolved in a contested action. There appears to be ammunition available to both parties capable of inflicting serious wounds. We would not presume to be capable of assessing the chance of success for one as opposed to the other."

14. Ribeiro J (as he then was) explained why it is necessary to examine the plaintiff's case at p. 268B to D,

"The judge held that some of these matters could be reasonably explained away but that others, which he did not identify, remained 'in the realm of suspicion and speculation'. However, this did not save the defendant from having terms imposed on it as a condition of allowing it to defend the case because the judge was not persuaded that such doubts raised the defence beyond the category of 'shadowy'.

With respect, this was not the correct approach to the exercise of the judge's discretion. The importance of there being doubts or suspicion as to the validity of the plaintiff's case is that such doubts detract from the plaintiff's right to summary judgment. It was not to the point to dismiss them on the basis that they did not improve the quality of the defence and 'raise it' beyond the category of 'shadowy'. If possibly genuine weaknesses were exposed in the plaintiff's case, this casts doubt on the plaintiff's right to invoke the summary procedure in the first place." (my emphasis)

15. If there were doubts or suspicion as to the plaintiff's case, the proper course to adopt is to give unconditional leave to defend (see also Wellship Co Ltd v Ngan Chung Leung, CACV 174 of 2002, 2 October 2002; Shandong Xixiakou Group v Wong Yim Kau, CACV 375 of 2002, 20 February 2003). The rationale is that in such circumstances, the defendant has shown that there are triable issues in respect of the plaintiff's entitlement to judgment.

16. In a nutshell, the defence case is that there was no loan by the Plaintiff and the cheque was issued as compensation to Liu (which he was not entitled to) and it was issued under duress. It is important to appreciate that two lines of defence were raised regarding the cheque claim. Lack of consideration and duress. If the Defendant succeeds on either, she would have a good defence.

17. Mr Chan stressed that there is a difference between the cheque claim and the loan claim. He submitted that even if the court entertained doubts as to the loan claim, such doubts could not assist the Defendant in respect of the cheque claim. He correctly reminded this court that the cheque embodied a separate promise given by the Defendant to the Plaintiff. He relied on Section 30 of the Bills of Exchange Ordinance Cap. 19 and argued that there is a presumption of consideration in the case of a cheque. The burden is therefore on the Defendant to show that no consideration had been given.

18. I accept that the burden is on the Defendant to show that the cheque was issued without any consideration. However, if the Defendant succeeds in showing that, I do not think Mr Chan suggested that the Plaintiff is still entitled to judgment. At the Order 14 stage, this court only has to ask whether the Defendant showed triable issues regarding the total lack of consideration for the cheque.

19. The defence case was that there was a joint venture between the Defendant and Liu in shares speculations and the venture had failed. Relationship turned bad and Liu procured the Defendant to issue this cheque to him when he had no entitlement to the same. Quite apart from the issue of duress, the question of lack of consideration had been raised squarely and fairly. In fact, it had been raised in the first substantive reply from the then solicitors for the Defendant to the solicitors for the Plaintiff. In a letter dated 21 August 2002. Messrs C Y Chan & Co replied on behalf of the Defendant to the letter before action written by the Plaintiff's solicitors and said,

"...your client is informed that this is not a simple loan transaction as alleged. Our client does not owe your client any money. The amount concerned is investment money on shares which had all lost already. ..."

"As far as ...the cheque ... is concerned, our client is looking into the matter and wonder why it was in your client's possession which may constitute criminal liability on yours after investigation. Certainly, our client had not given yours the cheque for such purposes as alleged."

20. Having considered all the evidence before me, I find nothing incredible in the defence case and certainly it was not inherently unbelievable. Since the case will go to trial, I should not express my views on the evidence more than necessary. Mr Chan had urged on this court a number of matters which, according to him, showed the defence case to be unbelievable. His strongest attack was on the defence as to duress and I shall deal with those later. He relied on those attacks to argue that if this court rejects the defence of duress, the defence of lack of consideration could not be sustained independently because the Defendant could not account for the issue of the cheque. I do not accept this submission. Quite apart from the question that the alleged threats of Liu could have caused the Defendant to issue the cheque even though they did not amount to duress as a matter of law, even assuming the Defendant shall fail to persuade the court at the trial that there were serious threats by Liu, she is still entitled to ask the court to consider her defence that no consideration had been given by the Plaintiff or Liu for the cheque. Bearing in mind the relationship between the Defendant and Liu at the material time, it is in my judgment not unbelievable that the Defendant issued such a cheque to Liu with no consideration if the court accepts her evidence as to the joint venture in share speculations and the relationship between her and Liu in the past.

21. On the defence of lack of consideration, the Plaintiff's case is that the cheque was given to her as repayment of the loan advanced by her. If one examines the evidence as to the alleged loan, there are doubts in at least a number of areas. I will just highlight them briefly. There is a dispute as to whether the money actually belonged to the Plaintiff or Liu. If one were to examine the origin of the sum of $1,000,000, a substantial portion of that could be traced back to the money in the Hang Seng Bank account in the name of the Plaintiff. That was an account opened on 14 June 1999 with a deposit of $3,500. Within two weeks thereafter, there were daily deposits around $40,000 to $50,000 until it accumulated to $525,850 on 29 June 1999. Mr Wong submitted that this pattern is hardly consistent with the picture of an old lady living in public estate with no independent means of income of her own. On 29 June 1999, a sum of $520,000 was withdrawn from that account allegedly as loan to the Defendant. The defence case is that it was Liu's money and the $520,000 was his participation in the Defendant's share speculation. There is indeed evidence showing Liu was being sued by the Hong Kong Bank and Liu had not responded to the same. Mr Wong had also referred me to the financial position reflected in the bank statements of the Defendant at the material time to show that she did not need any loan from the Plaintiff or others. In my judgment, the defence case that Liu had to use nominees to hide his assets from his creditors and the $520,000 was not a loan is not incredible.

22. After the $520,000 was deposited back into the Hang Seng Bank account on 13 January 2000, the sum remained there and further deposits ploughed in. It accumulated to $877,176.95 by 3 May 2000. On 5 May 2000, a sum of $870,000 was transferred out of that account to the Defendant's account. That was alleged by the Plaintiff to be the second loan. Again Mr Wong took me to the bank statements of the Defendant showing that she did not need such a loan. As mentioned, the same amount was transferred by the Defendant through her Hong Kong Bank account to the newly opened account in the Plaintiff's name at the Hong Kong Bank on the same day. Although the Plaintiff had tried to explain in her affirmation as to why the loan was immediately repaid, I think there must be a triable issue as to the nature of this transfer on 5 May 2000.

23. The $1,000,000 which is the subject matter of the present action was withdrawn from the Plaintiff's Hong Kong Bank account on 24 July 2000. From the Plaintiff's bank statement, it can be seen that she had to utilize her overdraft facilities with the bank to issue a cheque in that amount. Her current account balance was $39,230 on 22 July 2000. Although she had a fixed deposit in the sum of $1,006,089.34, that deposit did not mature until 5 September 2000. The Plaintiff is therefore suggesting that she advanced this loan to the Defendant by using overdraft facilities and this loan was in an amount which practically represented all her savings. Mr Wong again asked rhetorically how could that be consistent with an old lady having no means of income of her own. This is why the so-called first and second loans were significant. The Plaintiff tried to rely on these two earlier transactions (and the "repayments" by the Defendant) to explain her trust and confidence placed on the Defendant. Since the nature of the two earlier transactions are in doubt, the Plaintiff's case as to the $1,000,000 loan becomes suspicious. Further, since the money in the Hong Kong Bank account came from the Hang Seng Bank account, there is at least a triable issue as to whether the $1,000,000 belonged to the Plaintiff or Liu.

24. The defence version as to share speculation could explain why Liu would withdraw the money by using the overdraft facilities in order to seize upon the opportunity presented in the stock market in July 2000. In my view, the nature of the transfer of funds by the cheque dated 24 July 2000 is another triable issue which this court cannot resolve in an Order 14 application.

25. Another problem with the Plaintiff's case of loan and repayment thereof by the cheque is the lapse of time between the maturity of the cheque and its presentation for payment. The cheque was not presented for payment until four months after it was matured. The Plaintiff had given an account for such delay and the Defendant had another version. It is a matter for the trial judge as to which version the court will accept.

26. Mr Chan submitted that these were only collateral issues as far as the cheque claim is concerned. In the present context, I do not think it is useful to analyse the matter by classifying the triable issues as collateral issues or main issues. In my judgment, in a summary application of this nature, the court should look at the matter on the round to see if the Defendant could successfully persuade the court that the matter should go to trial. If there are bona fide doubts on the Plaintiff's entitlement to judgment, the Defendant should have leave to defend.

27. On the facts of the present case, having regard to all the evidence before me, I am of the view that there are possible genuine weaknesses in the Plaintiff's case of a loan advanced by her to the Defendant and the defence case of lack of consideration is eminently arguable. I also reject Mr Chan's submission that the Defendant has not showed triable issues in respect of the loss of the $1,000,000 in the joint venture. I accept Mr Wong's submission that the Defendant did not confine her case on joint venture to the speculation on the Citic Ka Wah shares.

28. Regarding the defence of duress, Mr Chan submitted that the assertions of the Defendant were inconsistent with the cordial relationship between the parties subsequent to the issue of the post-dated cheque, the absence of report being made to the police by the Defendant, the endorsement by the Defendant at the back of the cheque and the lack of reference to duress in the letter of 21 August 2002. The Defendant has provided some explanation for the apparent reconciliation. There was reference to "potential criminal and civil liabilities on the possession of the cheque" in a letter dated 21 August 2002 (although it was a letter headed "without prejudice", both parties accepted that if there is any privilege attached to it, it has been waived). As I see it, all these matters are more relevant to the question whether the defence is to be believed than whether the defence is believable. I am not convinced that the defence of duress is incredible.

29. In the circumstances, the Defendant should have unconditional leave to defend and the appeal was therefore allowed accordingly. I propose to give leave for the publication of these Reasons for Decision and if parties have comments as to that, they should be sent to the court within 5 days from the handing down of these reasons.