SHANDONG XIXIAKOU GROUP CORPORATION v. WONG YIM KAU

CACV 375/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 375 OF 2002

(On appeal from HCA 9758 of 1999)

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JUDGMENT

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Hon Yuen JA (giving the judgment of the Court):

1. This is an appeal from a decision of Chu, J. dismissing the Defendant's appeal from a decision of Master Kwan of 11 June 2001 (in which Master Kwan dismissed the Defendant's summons dated 2 March 2001 to set aside the decision of Master Yuen of 28 January 2000) and refusing an extension of time for the Defendant to appeal from Master Yuen's said order.

Procedural background

2. The background against which the above applications were made can be summarized briefly. The writ was issued on 14 June 1999. A defence containing a bare denial was filed on 19 July 1999.

3. The Plaintiff issued Order 14 proceedings. On the return date 10 November 1999, Master Lung gave directions. The hearing was adjourned to 28 January 2000 before Master Yuen.

Master Yuen's order

4. Before Master Yuen on 28 January 2000, solicitors on the record for the Defendant appeared and asked orally for an order that they cease to act for him, on the basis that they could not contact the Defendant for instructions. The Defendant had been in detention on the mainland since 12 November 1999.

5. Master Yuen refused the solicitors' oral application to cease to act and proceeded to deal with the matter substantively. The solicitor present made no submissions.

6. Master Yuen then gave leave to defend conditional upon payment into Court by the Defendant of the full sum claimed within 14 days.

7. The Defendant's solicitors ceased to act for him soon thereafter. No payment into court having been made, judgment was entered against the Defendant on 25 February 2000.

Events after Master Yuen's order

8. The Defendant was released from detention on the mainland on 22 May 2000. It would appear that it was in May or June 2000 that he became aware that judgment had been entered against him.

9. According to a medical certificate dated 6 July 2000, the Defendant was admitted to a hospital on the mainland in May 2000 where he had to have an emergency operation. He was advised to rest for a year.

10. After discharge from hospital (presumably in July 2000), the Defendant went to America where he stayed from July to September 2000.

11. In October 2000, the Defendant went to Shandong where, it is undisputed, he had negotiations with officers of the Plaintiff. There is disputed evidence as to what was agreed between them, but it is common ground that in early December 2000, the Defendant caused a jade sculpture of a throne to be delivered to a hotel owned by the Plaintiff and assembled there for display.

12. On 27 November 2000, however, the Plaintiff caused a bankruptcy petition to be presented. This was opposed by the Defendant, and the petition has since been adjourned pending the Defendant's application to set aside the judgment.

Defendant's summons to set aside Master Yuen's order

13. It was in the above context that on 2 March 2001, the Defendant applied under Order 13 rule 9 to set aside Master Yuen's order, for a stay of execution and for leave to defend the action on the Order 14 application.

Master Kwan's order

14. Master Kwan heard the application on 11 June 2001 and dismissed it.

Proceedings before Chu J

15. The Defendant appealed to Chu, J. who dismissed the appeal from Master Kwan on the ground that Order 13 rule 9 did not apply, but agreed to treat the hearing as the Defendant's application for an extension of time to appeal Master Yuen's order.

16. The judge was concerned about the length of the Defendant's delay, as indeed we were, but rightly decided that the most important consideration remained the merits of the Defendant's case. On this aspect, the judge's conclusion was that the Defendant's defence was a shadowy one and that leave to defend should be granted on condition. There being no evidence as to the Defendant's financial circumstances, the judge concluded that there were no merits in the Defendant's appeal against Master Yuen's order imposing conditional leave, and refused leave to appeal out of time.

Principles

17. It is against the judge's decision that the Defendant now appeals. It is well-established law that where conditional leave is given, the court of appeal will not interfere with the discretion of the judge unless there has been some error of principle, or misapprehension of facts, or unless undue weight has been given to a particular aspect of the facts (see Hong Kong Civil Procedure 2003, para. 14/4/44), or conversely, where due weight has not been to a particular aspect of the facts.

18. Applying the above principles, an appellate court would usually be slow to interfere with the judge's exercise of discretion, but as can be seen below, in the present case some of the contemporaneous documents produced by the Plaintiff itself contradict its own case and it would appear that the judge has not given any or any due weight to these contradictions. Further some of the allegations made by the Plaintiff on affirmation, when tested against contemporaneous documents, require the circumstances to be closely investigated, and it would appear that the judge had failed to consider whether there ought for some other reason to be a trial of the Plaintiff's case.

Plaintiff's case

19. The statement of claim pleaded a case of loan only. It alleged that the Defendant is indebted to the Plaintiff in the sum of USD608 217, being the aggregate of loans and interest owed "by the Defendant to the Plaintiff as evidenced by a statement of indebtedness dated 21 September 1997 ...". It alleged that the loans were advanced by the Plaintiff to the Defendant as follows:-

Transfer of funds

20. The documentary evidence from the Plaintiff itself shows that no funds were transferred directly from the Plaintiff to the Defendant. Funds were transferred from an individual in Hong Kong Tin Ming Chung (who has said on affirmation that he was an agent for the Plaintiff) to a company called Jen Min Dairy Food Products Ltd, with which the Defendant is connected.

Statement of Indebtedness

21. To support the Plaintiff's case that the loans were made to the Defendant personally, the Plaintiff relied on a document in Chinese referred to as a "statement of indebtedness" (借款對帳單).

22. This was a document consisting of 2 pages. Party A was defined on the front page as the Plaintiff. Party B was defined on the front page as "Hong Kong Mr Wong Yim Kau" (the Defendant). A copy of the Defendant's Hong Kong identity card was attached to one corner.

23. The Defendant has asserted on affirmation that when he signed the document, that was not the front page. He alleges that he himself was never intended to be the debtor, and that the Plaintiff's funds had been transferred to benefit a Hong Kong company by the name of Forely Hong Kong Ltd.

24. The Plaintiff was a "collective enterprise", owned by the state. Forely was owned (or at least co-owned) by Tian Wen Ke, the chairman and legal representative of the Plaintiff, in his personal capacity.

References to Forely as "Party B"

25. There is some support on the second page of the statement of indebtedness for the Defendant's allegation of Forely's involvement as "Party B".

26. First, the first paragraph on the second page refers to Party A (the Plaintiff) having bought a flat in Hong Kong, with some expenses having been paid on its behalf by "Party B". If "Party B" were the Defendant, as the Plaintiff alleges, that would have meant that expenses for the flat had been paid by the Defendant. However, the flat was registered in the name of Forely, not the Defendant, and there is nothing to show that the Defendant personally had incurred any expenses in relation to the flat.

27. Secondly, the last paragraph on the second page refers to "Party B"'s investment in the Wei Shi Mei Entertainment Centre. However the investment in the entertainment centre was made by Forely, not by the Defendant personally.

Defendant's indorsement of Forely's indebtedness

28. Thirdly, on the second page, under the heading "Party B's opinion and signature", the Defendant had signed his name and added the following passage:-

"有關科利公司于1993年8月2日由香港田明忠支付的美元壹拾貳萬圓及陸萬元及科利公司94年11月30日向西霞口漁業公司借款肆拾萬元正科利公司在香港業務發展急需資金，原協議是94年11月30日前按本息償還，由于各種情況，借方未能按期償還，希望利息本金能雙方另定償還方法及時間。"

"With respect to the sum of USD120 000 and USD 60 000 paid by Tin Ming Chung of Hong Kong on 2 August 1993 to Forely Company and the loan in the sum of 400 000 borrowed by Forely Company from Xixiakou Fishery Company on 30 November 1994 the sum urgently required by Forely Company for business development in Hong Kong, the original agreement was that principal and interest would be repaid before 30 November 1994. Because of various circumstances the borrower defaulted repayment on time. It is hoped that the method and time for repayment of the principal and interest can be re-arranged by both parties" (emphasis added).

This endorsement showed that the Defendant was alleging that the funds had been borrowed by Forely, not by himself personally.

29. As mentioned above, Forely was owned (at least in part) by Tian Wen Ke, the Plaintiff's chairman. According to Tian, Forely only acquired a flat and it never carried on any business. If that were so, Forely would not have had any business development urgently requiring a loan of USD400 000, or borrowed the sums referred to.

30. When the Defendant made the endorsement on the statement of indebtedness that it was Forely which had borrowed the funds, one would therefore have expected Tian Wen Ke, the chairman of the Plaintiff (which was the creditor), and who was also (at least in part) owner of Forely, to have it struck from the record.

31. Yet Tian Wen Ke allowed this endorsement to remain on the document, unamended and unrebutted. In his 1st affirmation, Tian Wen Ke simply said that he "did not insist on amending his (the Defendant's) opinion because I believed that the evidence showing that the money had been lent to the Defendant and not Forely was overwhelming". This excuse for inaction apparently escaped the judge's notice.

Lack of qualification

32. The judge instead noted that the Defendant signed the document "without qualification, notwithstanding that he was allegedly very keen to clarify that the indebtedness was Forely's". Presumably, the judge was referring to the fact that the Defendant had not explicitly signed the document "for and on behalf of Forely". However, the judge should also have taken into consideration the fact that when the document was signed by Tian Wen Hu, the Plaintiff's general manager, it was also without qualifying words such as "for and on behalf of [the Plaintiff]". Yet it is undisputed by the Plaintiff that Tian Wen Hu was not "Party A", and he was signing the document as its representative only.

33. Further, the questionable nature of the alleged personal indebtedness of the Defendant was also apparent from the contents of the front page (even taking the Plaintiff's case that the front page was the one exhibited).

Investment in Wei Shi Mei Entertainment Centre

34. The second paragraph on the front page of the statement of indebtedness (which was prepared by the Plaintiff) refers to a joint (50-50) investment by Party A (defined as the Plaintiff) and Party B (defined as the Defendant) of RMB 8m in the Wei Shi Mei Entertainment Centre on 13 July 1993. It stated that "at the time", Party B had financial difficulties and borrowed its 50% investment funds from Party A, and Party A had on 13 July 1993 "invested" RMB1 020 000 in cash, of which Party B's 50% share was equal to RMB510 000.

35. The 1st affirmation of Tian Wen Ke also stated that "on or about 21 October 1993" the Defendant and Wei Hai San He Industries Company Ltd ("San He"), a subsidiary of the Plaintiff, signed a written agreement providing that both parties would invest in the project.

36. Thus the Plaintiff's case according to the statement of indebtedness and Tian Wen Ke's 1st affirmation was that the Defendant and the Plaintiff's subsidiary San He were 50-50 joint investors in the Entertainment Centre, with the investment having been funded in July 1993 and evidenced in a written agreement dated 21 October 1993.

37. However the written joint investment agreement dated 21 October 1993 stated that the parties were San He and Forely, not the Defendant personally. The document was chopped with Forely's chop, and the Defendant signed "as representative". That document was also chopped by San He and signed by Tian Wen Hu as its representative.

38. A further twist was that the Plaintiff's case (as stated in Tian Wen Ke's 1st affirmation, that"on or about 21 October 1993" the Defendant and San He had signed an agreement to invest in the Entertainment Centre) was later contradicted by Tian Wen Hu in his 2nd affirmation, in which he alleged that the Plaintiff and its subsidiary San He had not agreed to invest in the Entertainment Centre. He disavowed his execution of the joint investment agreement by saying that it was only done to assist the Defendant to obtain the necessary permits from government authorities. In other words, according to this version of the Plaintiff's evidence, the contemporaneous written document was a sham to mislead the authorities.

39. Tian Wen He alleged that it was only in September 1997 that the Plaintiff agreed to treat the Entertainment Centre project "as if it were a real joint venture between the Plaintiff and the Defendant" so as to waive part (RMB 510 000) of the indebtedness.

40. However, that was not the way in which the matter was stated in the statement of indebtedness dated 21 September 1997 (as set out in paragraph 34 above).

"Promissory Notes"

41. Moreover, although the statement of indebtedness referred to "promissory notes" being annexed, none were exhibited and they were only produced by the Plaintiff after an order for discovery.

42. The alleged "promissory note" for the alleged 1st loan could not properly be described as such. The document dated 13 July 1993 which was entitled "receipt" was signed not by the Defendant in his personal capacity, but as part of the corporate signature of Forely, and it referred to RMB1 020 000 being transferred by San He for "investment in the Entertainment Centre".

43. There was no signed receipt or promissory note for the alleged 2nd loan, only a copy of a bank credit slip.

44. As for the alleged promissory note for the alleged 3rd loan, again this was not signed by the Defendant in his personal capacity, but as part of the corporate signature of Forely. The document was written on Forely's letter-paper and referred to "our company's business needs" necessitating a loan.

45. It can therefore be seen from the above that the "promissory notes" that were supposed to support the Defendant's personal indebtedness apparently exculpate him and supports his case that the indebtedness should be that of Forely instead.

Order

46. In the light of the above documents and contradictions in the Plaintiff's own case, we take the view that this is a case where "there appears to be ammunition available to both parties capable of inflicting serious wounds". This was a case where unconditional leave should have been given as the Defendant has shown a triable issue (supported by some of the documents produced by the Plaintiff itself) that the debtor was Forely and not himself personally, or alternatively, that there ought for some other reason to be a trial of the Plaintiff's case. Whilst the Defendant's delay was considerable, at the end of the day it is the merits of his appeal that should be of prime concern to the court.

47. In the premises, we would allow the appeal, set aside the judge's order and grant an extension of time to the Defendant to appeal the decision of Master Yuen. We set aside the master's order, set aside the judgment entered as a result and give unconditional leave to the Defendant to defend the action.

48. As for costs, the Defendant was substantially out of time before appealing to the judge and accordingly we think it appropriate that this be reflected in the costs order. We consider that the appropriate costs order (which we make an order nisi) is that the costs before the master should be costs in the cause, the costs before the judge should be borne by the Defendant in any event and the costs of the appeal should be to the Defendant in any event.