TAYLOR JOHN CHARLES v. FRANCIS ANTHONY RAGUSA

DCCJ 2163/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2163 OF 2014

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DECISION

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1.  The writ of summons herein was issued on 5 June 2014. The plaintiff at first obtained a default judgment on 4 August 2014. Later, by a consent order dated 6 March 2015, the default judgment has been set aside. The plaintiff filed his statement of claim on 15 May 2015. The defendant filed his defence on 13 August 2015. The plaintiff then filed his reply on 10 September 2015. After more than 1 year, on 27 October 2016, the plaintiff issued a summons (“the Order 14 Summons”) under Order 14 of the Rules of the District Court (“RDC”) applying for summary judgment against the defendant. The Order 14 Summons is supported by the plaintiff’s 2^nd affirmation dated 3 November 2016 (“the supporting affirmation”).

The parties’ respective cases

2.  The plaintiff’s case as per his statement of claim is as follows:-

(a)  On 15 October 2010, pursuant to an oral agreement (“the 1^st Oral Agreement”) reached on or shortly before 15 October 2010, he transferred to the defendant a personal loan of USD100,000 (“the 1^st Loan”) to enable the defendant to pursue a business venture (“the Business”).

(b)  According to the terms of the 1^st Oral Agreement, the 1^st Loan was to be repaid “upon the success of the Business or in any event the Business did not commence, immediately; and in any event, the loan would become due and owing as a lump sum within a reasonable period of time.”

(c)  Shortly before entering into the 1^st Oral Agreement, the defendant made a representation to the plaintiff to the effect that the defendant “had put into place “bulletproof procedures” which would ensure success and that the Business could not fail”, and “as a result of these “bulletproof procedures”, the Business would either succeed or not commence at all.” (“the 1^st Misrepresentation”)  The representation was made with the intention that the same would be relied upon.  Induced by and acting in reliance on the 1^st Misrepresentation, the plaintiff entered into the 1^st Oral Agreement and advanced the 1^st Loan.

(d)  Shortly after the 1^st Loan, the plaintiff entered into the 2^nd Oral Agreement with the defendant.  The loan to be advanced to the defendant under this agreement was USD20,000, which would be provided and would be repaid under the same terms of the 1^st Oral Agreement and the 1^st Loan.

(e)  Shortly before the conclusion of the 2^nd Oral Agreement, the defendant repeatedly made representations to the plaintiff to the effect that the Business could not fail due to the same “bulletproof procedures” that the defendant had previously put in place and that the Business would either succeed or not take place (“the 2^nd Misrepresentation”), with the intention that the same would be relied upon.

(f)  Induced by and acting in reliance on the 2^nd Misrepresentation, the plaintiff entered into the 2^nd Oral Agreement and transferred HKD150,000 (which, according to the plaintiff, is equivalent to USD20,000) to the defendant on 21 December 2010.

(g)  The falsity of the 1^st and the 2^nd Misrepresentations is that there was no “bulletproof” procedure in place; and if a procedure was in place, it was not “bulletproof”.

(h)  The defendant made the 1^st and the 2^nd Misrepresentations fraudulently in that he knew that they were false or was reckless, not caring whether they were true or false.

(i)  Further or alternatively, if contrary to the plaintiff’s primary case, the 1^st and the 2^nd Misrepresentations were not made fraudulently, the plaintiff would rely upon s 3 of the Misrepresentation Ordinance (Cap 284).

(j)  Further or alternatively, a reasonable time having elapsed since both the 1^st and the 2^nd Loans were advanced, the loans are now due and owing.

(k)  In his letter to the plaintiff dated 15 February 2011, the defendant stated that the Business was unsuccessful and had been discontinued, and the defendant confirmed his commitment to return USD120,000 to the plaintiff.

3.  In his defence, the defendant denies the existence of the 2 oral agreements.  The defendant admits that he has received USD100,000 and USD20,000 from the plaintiff, but the money is the plaintiff’s investment in a Nairobi gold deal in Africa and not loans from the plaintiff.  The defendant avers that he has never made the said misrepresentations as alleged by the plaintiff.

4.  For the reasons set out below, I am of the view that the plaintiff’s application for summary judgment cannot succeed for there are some fundamental problems in the application.  Since this case would go to trial, I refrain from expressing any view on the substantive merits of the parties’ respective cases.

The principles

5.  In Li Chuen Kwai v Po Lam Construction Development Ltd. (HCA 2376/2013, 24 September 2014), DHCJ Wilson Chan (as he then was) summarized the principles relating to applications under Order 14, which include:-

“11.  As far as the plaintiff’s claim is concerned:

(1)  An application for summary judgment must be supported by an affidavit verifying the facts on which the claim is based [Order 14, rule 2(1), Rules of the High Court].

(2)  The Statement of Claim must be good and complete in itself; any defect or omission in the Statement of Claim cannot be corrected or supplemented by the plaintiff’s affidavit. If the defect is one of substance, the application for summary judgment will be dismissed [see: Hong Kong Civil Procedure 2014 at Practice Note 14/1/5].

(3)  This means that an Order 14 application has to proceed on the case as pleaded, and it is those facts (as pleaded) which have to be verified on affidavit.

(4)  Where the assertions in the plaintiff’s affirmation constitute a material deviation from the plaintiff’s pleaded case, the plaintiff will have failed to verify his claim as pleaded, and summary judgment should not be granted [Lin Jan v Long Xiaobo, HCA 1516/2012 (Judgment dated 4/09/2013)].

(5)  Equally, summary judgment will not be granted where the plaintiff’s affidavit evidence is materially different from and inherently inconsistent with his/her case in the Statement of Claim [see: Sin Yuk Hung v Sin Tung San, HCA 474/2013 (Judgment dated 18/12/2013)].”

6.  Recently, in Chu Wen Jing Jennifer v Sin Hon Wai (HCA 10/2016, HCA 6/2016 and HCA 121/2016, 14 November 2016), Mr Recorder Stewart Wong SC said:-

“25.  It is clear from the above provisions that a summary judgment can only be granted on the basis of facts as verified by the plaintiff in the affidavit in support, and, the case being defined and bound by the statement of claim, such facts must be confined to those facts as pleaded therein. If no triable issue or other reasons for trial are shown by the defendant, then the court is entitled to accept those facts which have been pleaded, and verified on oath, as proven facts as between the parties, and to give summary judgment thereon.

26.  But where the application for summary judgment is based not on facts pleaded in a statement of claim and verified on oath by or on behalfof a plaintiff, the application falls outside the requirements of the provisions in Order 14 and cannot be granted thereunder.  ......”

7.  Further, by reason of Order 14 rule 1(2)(b), an action including a claim by the plaintiff based on an allegation of fraud is outside the ambit of Order 14.  This is the well-known “fraud exception”.

8.  As to the fraud exception, Rogers VP in Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 said:-

“19.  The wording of O.14 r.1(2)(b) makes quite clear that what is excluded is an action where there is a claim which is based on an allegation of fraud. Two matters are clear from that. The first is that there may be one or more claims in the action and the rule envisages that one of the claims may not be based on an allegation of fraud but another may be. In those circumstances it is clear that an application for summary judgment under O.14 will not lie. Secondly, the rule is not confined to excluding actions in which one of the claims is a claim for damages for fraud, what is excluded is any action where there is a claim in respect of which the underlying allegations on which the claim is based constitute an allegation of fraud. It is clear that if r.1(2)(b) applies there is no jurisdiction for the court to entertain an application for summary judgment.” (Emphasis added)

9.  Recently, Pacific Electric Wire was followed by the Court of Appeal in Zimmer Sweden AB v KPN Hong Kong Ltd [2016] 1 HKLRD 1016.  In Zimmer Sweden AB, Yuen JA said:-

“18.  In my view, having regard to the cases discussed above, the following points are clear.

(1)  The court should determine whether “the fraud exception” applies at the time when the application for summary judgment is heard. Therefore the court should not be restricted to a consideration of the statement of claim only, but should examine all relevant materials existing at the time of the hearing, including subsequent pleadings and the affidavits. ......

(2)  Having regard to all the relevant materials, the question to be asked by the court is “does this action include a claim for which an allegation of fraud would have to be made by the plaintiff in order to establish or maintain that claim?” If the answer is affirmative, “the fraud exception” is engaged and the court has no jurisdiction to hear the summary judgment application, even if the plaintiff seeks to hive off that claim from another claim (eg for dishonoured cheque) for which summary judgment would have been available. That consequence follows from the wording of “the fraud exception” (Pacific Electric Wire at [19]).” (Emphasis added)

1^st problem - material deviation between the statement of claim and the supporting affirmation

10.  The first problem in the plaintiff’s application is the material deviation between the statement of claim and the supporting affirmation.

11.  The case as pleaded by the plaintiff in the statement is that the 2 loans would be repaid “upon the success of the Business or in any event the Business did not commence, immediately; and in any event, the loan would become due and owing as a lump sum within a reasonable period of time.”

12.  However, in the supporting affirmation, the plaintiff said:-

“4. In brief, it is my contention that the Loans were repayable on demand, and were called in on 15 February 2011 after the Defendant informed me that his business venture had failed (SOC at §16). ......” (Emphasis added)

13.  Nothing in §16 of the statement of claim suggests that the 2 loans are repayable on demand.  Indeed, the plaintiff has not made this suggestion at anywhere in the statement of claim.  As to when the 2 loans would be repayable, what has been pleaded by the plaintiff in the statement of claim are those summarized in paragraph 11 above.

14.  The case put forward by the plaintiff in the statement of claim is that by reason of the 2 misrepresentations, the plaintiff is entitled to have damages.  Further or alternatively, a reasonable time having elapsed since the advancement of the 2 loans, and the 2 loans are now due and owing.

15.  The case put forward by the plaintiff in the supporting affirmation is that the 2 loans are repayable upon demand, and since the demand has been made, the 2 loans are now due and owing.

16.  Clearly, the case pleaded in the statement of claim and the case advanced in the supporting affirmation are entirely 2 different cases.

2^nd problem - no affirmation verifying the facts as pleaded in the statement of claim

17.  In the supporting affirmation, the plaintiff said:-

“1.  I am the Plaintiff in this action and make this affirmation in support of my application for summary judgment against the Defendant on the grounds that I verily believe there is no defence to my claim notwithstanding the Defendant have filed his Defence on 15 August 2015.”

18.  RDC, Order 14 rule 2(1) requires:-

“An application under rule 1 must be made by summons supported by an affidavit verifying the facts on which the claim, or the part of a claim, to which the application relates is based and stating that in the deponent’s belief there is no defence to that claim or part, as the case may be, or no defence except as to the amount of any damages claimed.” (Emphasis added)

19.  Although the plaintiff has stated in the supporting affirmation that in his belief there is no defence to his claim, he has not verified the facts on which his claim is based, ie, the facts pleaded in his statement of claim.  He has not done so in §1 of the supporting affirmation, and has not done so at anywhere in the supporting affirmation.

20.  The plaintiff has failed to satisfy the requirement of verifying the facts by affidavit laid down in RDC Order 14 rule 2(1).

3^rd problem - the “fraud” exception

21.  According to the statement of claim, the plaintiff’s primary case is fraudulent misrepresentations made by the defendant.  Clearly, this action includes a claim for which an allegation of fraud would have to be made by the plaintiff in order to establish or maintain that claim.  Accordingly, the fraud exception applies.  The plaintiff is not entitled to invoke the Order 14 procedures to apply for summary judgment.

4^th problem - Delay

22.  A plaintiff has to invoke the Order 14 procedures within a reasonable time if he verily believes that the defendant has no defence to his claim.  He bears the burden of explaining any delay in taking out the application for summary judgment.  If there is no reasonable explanation for the delay, the court may dismiss the application on the ground of delay alone.  This is the approach taken by Mr. Commissioner Hooper in Timur Jaya Co Ltd v United Asia Trading Co (a firm) [1980] HKLR 768, in which the learned commissioner said at pp.771-2:-

“It clearly stated in [McLardy and Slateum 24 QBD 504] that the view taken by the judges and masters at that time was that the intention of O.14 r.1 was that the plaintiff should apply within a reasonable time after the appearance of the defendant. If however the plaintiff makes his application after "the ordinary time" the onus was on him to show that the delay is justifiable under the special circumstances of the case. It was not disputed by Pollock B. in his judgment that the primary intention of the rule may be that in the ordinary course of things an application should be made before a defence had been delivered. I think in considering a matter of this sort one should take into consideration that an application should only be made where the plaintiff or someone on his behalf can swear an affidavit that he verily believes that there is no defence to the claim. This he should be able to do, in the ordinary course of things, before any defence has been filed.

It does seem to me to be an abuse of this particular process, if a plaintiff delays without making an application under O.14 in the ordinary course time, and where not only having failed to make such an application, he has consented to an extension of time for filing the defence, and in these circumstances he then applies some 25 days after the defence was filed for judgment under O.14. In my view Mr. Lau is quite right that this application has been brought after the ordinary time, and the onus is on the plaintiff to show that the delay is justifiable under the special circumstances of this case. There is nothing in the affidavits to show that the delay is justifiable in the present case. On this ground alone I allow the appeal and set aside the order of the Registrar.” (Emphasis added)

23.  Recently, Timur Jaya was applied by B Chu J in Simsen Capital Finance v Jiang Quanlong (HCA 1461/2015, 16 March 2017).

24.  For the purpose of applying for setting aside the default judgment obtained by the plaintiff, the defendant filed his 3^rd affirmation on 23 February 2015, in which the defendant has set out the scope and nature of his defence to the plaintiff’s claim.  In other words, when the plaintiff filed his statement of claim on 15 May 2015, the plaintiff had already known the defence put forward by the defendant.  If the plaintiff verily believes that there is no defence to his claim, he should have applied for summary judgment shortly after serving the statement of claim on the defendant.  But he has not done so.

25.  The defendant filed his defence on 13 August 2015.  Having seen that pleading, the plaintiff must know the exact defence relied upon by the defendant.  If the plaintiff verily believes that there is no defence to his claim, he should have applied for summary judgment shortly after seeing the defence.  But he has not done so.

26.  The plaintiff only took out the Order 14 Summons on 27 October 2016, more than 1 year after the filing of all the pleadings.  In my judgment, there is a long delay in taking out the Order 14 Summons.  The plaintiff has not offered any satisfactory explanation for the delay.

27.  The unexplained delay is another hurdle in the plaintiff’s application for summary judgment.

Dismissal with costs

28.  By reason of the aforesaid, the plaintiff’s application cannot succeed. If the only problem in the plaintiff’s application is the 4^th problem, I would give the defendant unconditional leave to defend.  However, due to the 1^st, the 2^nd and the 3^rd problems set out above, the plaintiff’s application is not within the ambit of Order 14.  Accordingly, in accordance with Order 14 rule 7, the Order 14 Summons should be dismissed with costs.

Disposition

29.  For the reasons above, I dismiss the Order 14 Summons with costs to the defendant forthwith, to be taxed if not agreed.  There be a certificate for counsel for the hearing of the Order 14 Summons before me.

30.  I thank Mr Gormley and Mr Chan for the assistance rendered to this court.