HOME EXPRESS LTD v. 黃景兆及另一人

HCA 192/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 192 OF 2006

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J U D G M E N T

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1.  This is the 1^st Defendant’s appeal against the order of Master Au-yeung on 26 June 2006 granting summary judgment to the Plaintiff in the sum of HK$41,179,438 with interest and costs.

2.  The Plaintiff’s case as disclosed in the Statement of Claim is that the Plaintiff advanced sums totaling some $48 million to the 1^st Defendant pursuant to a written agreement made on 25 March 2003; and that the 1^st Defendant made certain repayments, leaving a balance of $41,179,438 still due and owing.  The evidence suggests that the loans were made through some 32 remittances to various different entities in mainland China (“PRC”).

3.  The Plaintiff is a BVI company.  Mr Jin Shuming (“Mr Jin”) is its sole director and shareholder.  Mr Jin is apparently a person who has businesses and is well-connected in business circles in the PRC.

4.  The 1^st Defendant is a director and chairman of a listed company in Hong Kong.  There is no evidence of what the business of the Plaintiff was, or of any prior relationship between the Plaintiff/Mr Jin and the 1^st Defendant.  The Court has not been told the purpose for which the loans were allegedly advanced.

5.  There was no security for the loan, although the 2^nd Defendant was to be the guarantor.  The loan agreement expressly provided that no interest was payable.  The proper law of the contract was Hong Kong law.

6.  The Plaintiff relies on documents admittedly signed by the 1^st Defendant acknowledging receipt in respect of the remittances.  I say “in respect of” because the remittances were not made to the 1^st Defendant.  Rather, the Plaintiff’s case is that the remittances were made to various third parties on the instructions of the 1^st Defendant’s staff.  There is no evidence that the 1^st Defendant was connected in any way with the recipients of the remittances.  The 1^st Defendant denies that the person who allegedly gave instructions was a member of his staff.

7.  The 1^st Defendant has filed a Defence in which the 1^st Defendant denied that the Plaintiff has advanced any money to the 1^st Defendant.  The 1^st Defendant also denied the Plaintiff’s allegation that the 1^st Defendant made partial repayment of the loan.  In short, his case is that the loan agreement and all the associated documents are a sham.

8.  The 1^st Defendant’s case is that he was a friend of the 2^nd Defendant for over 20 years and he only signed the loan agreement and the receipts to enable Mr Jin to avoid foreign exchange control in the PRC so that Jin could remit money to Hong Kong for making investments.  The 2^nd Defendant has made an affirmation in support of the 1^st Defendant’s version.  He produced an appointment letter [委托書] dated 25 March 2003 which stipulated that the Plaintiff appointed the 1^st Defendant to acquire a listed company and that as expenses for the acquisition, the Plaintiff was to lend HK48 million to the 1^st Defendant interest-free for a period of 90 days.  It is common ground that there was no acquisition of a listed company.  The 1^st Defendant’s case is that he signed the appointment letter as one of the documents to facilitate Mr Jin’s scheme to bypass foreign exchange control.  The 2^nd Defendant also explained that he was prepared to assist Mr Jin, and also to get the 1^st Defendant to assist, because he wanted to establish a good relationship with Mr Jin to pave the way for many business opportunities with him in the future.

9.  As to how these loan agreement and receipts would assist Mr Jin in such a scheme, the 1^st Defendant places reliance on the opinion of a lawyer with the China Commercial Law Co. Guangdong.  This opinion is sought to be adduced subsequent to the judgment of the learned Master.   Although Mr Chan for the Plaintiff objected to the adducing of the evidence on the ground of relevance, he helpfully indicated that he would not object to the evidence if it is relevant to the question whether the 1^st Defendant’s version is credible.  As I see it, the evidence is relevant.  One of the grounds on which the Master apparently placed some reliance was the fact that the moneys forming the loan advances were transferred within the PRC.  She remarked that “exchange control was not apparently evoked” (sic).  According to the opinion of the China lawyer, one of the ways in which foreign exchange regulations can be evaded was [套匯].  This involves the person who wishes to avoid foreign exchange control making payment within the PRC for the indebtedness of a third party in RMB, in exchange for the receipt of Hong Kong dollars in Hong Kong under arrangement made by that third party.  In the instant case, many of the 32 remittances were apparently made in the PRC for goods sold and delivered.  The opinion, if accepted, would show that this fact is not inconsistent with these payments being part of a scheme to avoid exchange control.  I would accordingly admit the evidence for the purpose of this appeal.

10.  The facts are thus hotly contested.  The Plaintiff seeks to persuade the Court that notwithstanding the existence of issues of fact, this is a proper case for summary judgment.  In these circumstances, there is no dispute that the question I ask myself is whether the 1^st Defendant’s case is credible.  If so, he must be given leave to defend.  If not, the Plaintiff is entitled to summary judgment.

11.  Before me, Mr Chan focused his attack on the credibility of the 1^st Defendant’s case by relying on the evidence of partial repayment.  Mr Chan’s point is that if the Court finds the 1^st Defendant’s denial that he made partial repayment to be incredible, it must follow that the Court must reject the 1^st Defendant’s entire version as unbelievable.

12.  The evidence of partial repayment comprised mainly of what Mr Chan calls a “blow-by-blow account” from a member of Mr Jin’s staff, namely, Mr Yu Jing, underpinned by (a) contemporaneous records in the form of monthly phone bill recording the existence and duration of calls made by Mr Yin to the 1^st Defendant over a number of days in December 2004, and (b) the failure on the part of the 1^st Defendant to adduce evidence to contradict Mr Yu’s evidence.

13.  In his affirmation filed on 9 May 2006, the 1^st Defendant had denied making any repayments.  He stated that he had not obtained any loans and therefore did not make any repayment.  Mr Yu made an affirmation on 12 July 2006 in which he deposed to meeting the 1^st Defendant on 22 December 2004 and accompanying him to the Head Office of the Hongkong and Shanghai Banking Corporation at which the 1^st Defendant withdrew some money and handed to Mr Yu cash in the sum of HK$900,000.  Mr Yu deposed to having deposited $700,000 out of the money he received on that day into a savings account of a company called Noble Asia Enterprises Limited (“Noble Asia”) with DBS Bank and having given a receipt to the 1^st Defendant on 23 December 2004.  There were two other repayments deposed to by Mr Yu which allegedly took place on 27 December 2004 and 20 January 2005.  These repayments were said to have been made by direct remittances to Noble Asia’s account with DBS Bank.  In his affirmation, Mr Yu deposed to having made a number of telephone calls and sent a short message from his mobile telephone to the 1^st Defendant’s mobile telephone during this period.  He produced monthly statements of his mobile telephone bill which supported his version.  Prior to the hearing of the Order 14 summons before the Master, solicitors for the Plaintiff invited the 1^st Defendant to make disclosure of his bank statements with the Hongkong and Shanghai Bank and of his mobile phone records.  These were all rejected by the 1^st Defendant.

14.  Mr Chan submitted that the only possible inference that the Court can draw from the evidence of Mr Yu as supported by the telephone bill and the 1^st Defendant’s reticence is that the 1^st Defendant simply could not rebut the Plaintiff’s allegation and must have been lying in his denial that he made repayments.  At the very least, the Court should require the 1^st Defendant to pay the amount claimed into Court as a condition for granting leave.  Mr Chan made the point that the 1^st Defendant had had ample opportunity to put in evidence from the Hongkong and Shanghai Bank to support his denial, both before and after judgment was granted by the Master, and also drew forensic support from the fact that the 1^st Defendant provided detailed evidence in other respect such that his failure to deal with Mr Yu’s evidence was all the more significant.

15.  Having carefully considered the evidence before me with the benefit of Mr Chan’s powerful submission, I am not persuaded that the 1^st Defendant’s version is incredible or that the 1^st Defendant should be deprived of a trial.  This being an Order 14, it is trite that the Court should not embark upon anything like a trial on affidavits and it is not its role to make findings of fact.  It suffices for present purposes to indicate that in determining whether the 1^st Defendant’s case is credible or not, the Court must have regard to the whole of the evidence; and this being supposedly a commercial transaction, the Court must consider whether the respective party’s case accords with commercial sense and inherent probabilities.  In my view, seen from that perspective, the evidence before the Court leaves many important questions unanswered.  As noted above, the Plaintiff is a BVI company.  There is no suggestion that it was in the business of lending money.  Why it decided to lend very substantial amounts of money to the 1^st Defendant interest-free and with no security other than the guarantee of the 2^nd Defendant is unexplained.  The manner in which the loans were advanced, namely remittance to various entities in the PRC with apparently no connection with the 1^st Defendant is also unexplained.  One of the documents relied on as evidence of remittance shows that RMB 6 million was remitted by a company called 中盛偉僑國際投資控股有限公司and was received by a company called萬地房地產開發有限公司 [“萬地”].  However, Mr Jin, in his statement, not only averred that 萬地 was the remitter (rather than recipient) of the money, but deposed to萬地 as a company which had business with his companies in Beijing.  Whilst I see the force of the points made by Mr Chan on behalf of the Plaintiff and the cogency of the evidence regarding repayments, I think it would be wrong in the circumstances to drive the 1^st Defendant from the judgment seat without a trial.

16.  I have considered the question whether I should impose conditions.  Where, as here, there are important features of both the claim and the defence which are unexplained and disturbing, the Court should not make tentative assessments of the respective chances of success of the parties or of their good or bad and faith and should not on such an examination impose condition for granting leave to defend: In Extraktionstechnik Gesellschaft Für Anlagenbau MbH v Oskar (1984) 128 SJ 417, Watkins LJ stated:

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To try to expose a defendant’s vulnerability to the imposition of a condition by artificially regarding a plaintiff as though he were a defendant served no useful purpose and was capable of being misleading.  The same applied to tentative assessments of respective chances of success, and relative strengths of good or bad faith, in a case where both sides had a great deal of explanation to make of apparently questionable conduct, including the swearing of affidavits.  It was proper to look first the defence in isolation, to see whether there was a lack of good faith or whether the defence was a sham.  But if one of those flaws in the defence was found, the decision as to the imposition of a condition could not properly be made before an examination was also undertaken of the plaintiff’s case, having regard to any attack made on it by affidavit.  If that examination aroused suspicions that the claim might be made in bad faith, that there was something shadowy about it, or that it might be tainted with illegality, no measuring, however approximate, of the respective degrees of possible bad faith should be made, nor should any opinion be expressed, however tentative, as to which case appeared to be stronger at that time.  The present case was a classic instance in which, in principle, the court should give unconditional leave to defend.  There were features of both claim and defence, as so far explained, which were disturbing because they bore the appearance of falsity and disreputable business dealings.”

This approach was endorsed by the Court of Appeal in Billion Silver Development Ltd v All Wide Investment Ltd [2000] 2 HKC 262.

17.  In the event, I would allow the appeal, set aside the order of the Master and grant unconditional leave to defend.  I would make an order nisi that the costs of the appeal be to the 1^st Defendant in any event and that the costs of the hearing before the Master and of the Order 14 summons be in the cause.

18.  This leaves paragraph 3 of the Notice of Appeal by which the 1^st Defendant seeks to have leave to amend the Defence to plead illegality.  As I understand from Mr Shum, the defence of illegality is sought to be put forward as an additional (rather than alternative) reason for denying liability.  In particular, the 1^st Defendant is maintaining that there was no loan, and is not seeking to put forward a wholly inconsistent case that there was a loan which was tainted with illegality.  Mr Chan opposes the application to amend not because the Plaintiff would suffer any prejudice by reason of the amendment, but on the basis that the plea of illegality is unsustainable and the Court should not permitted an amendment which is futile.  At the hearing, I voiced my doubt as to the usefulness of the defence.  It seemed to me that if the 1^st Defendant successfully refutes the allegation of a loan, he would not need to establish illegality.  Nevertheless, I am not prepared to find that the defence would either be futile or has no chance of success.  I would grant leave to amend, and make an order nisi that the costs of and occasioned by the amendment to the Plaintiff in any event.

19.  I have already indicated that I would grant the 1^st Defendant leave to file and serve the affirmation filed on 20 December 2006 exhibiting the opinion of the China lawyer.  I make no order as to the costs of that summons, with liberty to the parties to apply within 14 days to vary or ask for a different order.