GM COMMERCIAL CONSULTANTS CORP. v. EURO-ASIA ZHONG JI (HK) LTD AND ANOTHER

CAMP 460/2021

_ [2022] HKCA 1719_

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 460 OF 2021

(ON AN INTENDED APPEAL FROM HCA NO 651 OF 2019)

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J U D G M E N T

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

1.  This is the plaintiff’s application for leave to appeal the Decision of DHCJ Le Pichon (“the judge”) given on 13 May 2021 (“the Decision”) in which the judge:

-  set aside the default judgment the plaintiff had obtained against the 1^st defendant on 10 June 2019 (“the Default judgment”);

-  discharged the charging order absolute which the plaintiff had obtained on 7 August 2019 (“the charging order”) against the 1^st defendant’s properties on the strength of the Default judgment; and

-  made no order on the 1^st defendant’s two summonses, one filed on 13 November 2020 for relief from sanctions (“the Relief summons”), and the other filed on 20 January 2021 for leave to adduce evidence in support of the Relief summons (“the New Evidence summons”).

2.  On 26 May 2021, the plaintiff sought leave to appeal from the judge.  On 30 September 2021, the judge refused leave for reasons given in a Decision dated 30 September 2021 (“the Decision on Leave”).

3.  On 15 October 2021¹, the plaintiff filed a summons in this court renewing its application for leave to appeal.  Written submissions in support of this application were filed by the plaintiff and the 1^st defendant respectively on 15 October 2021 and 29 October 2021.  We considered it appropriate to decide this interlocutory application on the papers. 

4.1  Regrettably, the application bundle was poorly prepared as the documents were incomplete. As a result of the unsatisfactory preparation of the bundle, the court has had to call up the lower court file and search for necessary documents before the case could be considered.

4.2  Paragraph 9 of Practice Direction 4.1 requires an applicant for leave to provide essential documents in the application bundle.  That was not done in this case.  For instance, George Yuen Chee Mok’s 2^nd and 5^th affirmations on behalf of the plaintiff (“Mok 2^nd” and “Mok 5^th” respectively) were included, but the exhibits were incomplete.  In particular, exhibit “GYCM-10” of Mok 2^nd was an opinion of CH Hong, a PRC lawyer, which annexed documents (unmarked and unpaginated) provided to her by the plaintiff’s solicitors, but some of them had not been adduced as exhibits to any affirmations.  

5.1  Further, no corporate chart showing the English and Chinese names of the companies was provided.  This was important in this case as some of the companies (PRC and Hong Kong) mentioned in the documents had similar words in their Chinese names, and returns to the Hong Kong Companies Registry only had the English names of companies. 

5.2  However, from an undated bilingual annual report exhibited as “GYCM-6”, the following may be gleaned:

-  中吉集團 Zhong Ji (Holdings) Ltd (sometimes referred to as Jilin Zhong Ji (Holdings) Ltd) is a PRC company, 

-  中吉有限公司 Zhong Ji Ltd² (sometimes referred to as Hong Kong Zhong Ji Ltd) is incorporated in Hong Kong.  It appears to be common ground that this company had also been called “Zhong Ji (Holdings) Ltd” from 14 February 1989 to 24 October 1989: see §5(1)(b) of the Defence of the 1^st Defendant, and §2(c) of the Plaintiff’s Amended Reply to Defence of the 1^st defendant.  Although there were two companies called by the same name, the two are of course different legal entities as one was a PRC company and the other was a Hong Kong company.  The term Zhong Ji (Holdings) Ltd when used in this Judgment refers to the PRC company.

In the annual report, Zhong Ji (Holdings) Ltd (the PRC company) and Zhong Ji Ltd are said to be “sister corporations”.  The 1^st defendant, incorporated in Hong Kong³, was not referred to in the annual report.      

Procedural background

6.  Briefly, the procedural background is as follows.

7.1  On 15 April 2019, the plaintiff issued a writ against the 1^st and 2^nd defendants⁴ with a statement of claim (“SOC”) attached.

7.2  The SOC was curiously worded:

“1.  The plaintiff’s claim is for HK$7,523,955 ... (“the said sum”), being money payable by the Defendants to the Plaintiff as money had and received by the defendants to the use of the plaintiff.

PARTICULARS

On a date unknown to the plaintiff, the defendants sold and received from their Head-office or Principal, Zhong Ji (Holdings) Ltd (now known as Zhong Ji Ltd)⁵ (State-owned enterprise belonging to PRC Government) the said sum being the proceeds of sale of the plaintiff’s 21.5% share in Jiyuan Shopping Town 吉源商城 (“JST”) which has a building floor area of about 89,754 square meters and the current estimated value of over RMB¥160,000,000.00, of which the plaintiff was/is the true beneficial owner thereof”.  (Emphasis added).

7.3  The prayer for relief was for the said sum and interest thereon at 8.125% p.a.⁶ from the date of writ to judgment and thereafter at judgment rate until payment.

8.1  On the same day, the writ was served on the 1^st defendant by being left at its registered office⁷.

8.2  The 1^st defendant not having given notice of intention to defend, the plaintiff obtained the Default judgment on 10 June 2019.

9.  On 12 June 2019, the plaintiff applied ex parte for a charging order against the 1^st defendant’s properties, being the commercial units which were its registered office.  A charging order nisi was obtained on 24 June 2019, which was made absolute on 7 August 2019.

10.1  On 18 June 2020, the 1^st defendant through its then solicitors filed a summons to set aside the Default judgment and to discharge the charging order (“the Default judgment summons”).  On the same day there was filed an affirmation of Li Wen Xia (“LWX”), a director and shareholder of the 1^st defendant, which was defective for want of a valid declaration of interpretation.

10.2  On 14 August 2020, Master W Tsui ordered (among other things) that unless the defect is rectified by 25 September 2020, the 1^st defendant would be debarred from relying upon it.

10.3  By 25 September 2020 however, the 1^st defendant had still failed to rectify the defect.  On the same day, it filed a summons for an extension of time to file LWX’s affirmation (“the 1^st defendant’s 1^st time summons”) which was dismissed by Master Tsui on 9 October 2020.

10.4  On 20 October 2020, the 1^st defendant filed another summons for extension of time to rectify the defect (“the 1^st defendant’s 2^nd time summons”).  This was supported by an affirmation of its solicitor deposing to LWX’s inability to come to Hong Kong for a sufficient period of time.

10.5  On 21 October 2020, Master R Lee dismissed the Default judgment summons and the 1^st defendant’s 2^nd time summons (“Master R Lee’s order”).  This was the order that was the subject of the 1^st defendant’s appeal to the judge.

11.  The hearing before the judge was fixed for 28 April 2021.  In the meantime, the following events occurred:

-  on 3 November 2020, the 1^st defendant changed solicitors;

-  on 13 November 2020, the 1^st defendant filed the Relief summons;

-  on 20 January 2021, the 1^st defendant filed the New Evidence summons. 

The Decision

12.  There were therefore before the judge

-  the 1^st defendant’s appeal from Master R Lee’s order, as well as

-  the 1^st defendant’s Relief summons and the New Evidence summons filed after Master R Lee’s order.

13.  Before the hearing before the judge, the plaintiff had filed 5 affirmations of George YC Mok, the controller of the plaintiff as well as the solicitor acting for it.

14.  It should first be noted that the 1^st defendant was only incorporated in Hong Kong in 2011 and has a different company registration number from Zhong Ji Ltd⁸. The company returns show:

-  Zhong Ji (Holdings) Ltd or Zhong Ji Ltd (the companies pleaded in the SOC) were not shareholders or directors of the 1^st defendant;

-  Shan⁹ Yi Ping or Liu Hao (individuals referred to in Mok’s affirmations) were not shareholders or directors of the 1^st defendant.  

15.  Some of the documents exhibited to the plaintiff’s affirmations or annexed to Hong’s opinion suggest the following:

(1)  JST was a development in the PRC undertaken originally by Jilin Xinda International Real Estate Development Co Ltd (“Jilin Xinda”) and Bonaseal Holdings Ltd (“BHL”);

(2)  at some stage, BHL transferred 40% out of its 50% share (=20%) in JST to a company called Cityork Hong Kong Ltd (“Cityork”);

(3)  in January 1999, JST’s board minutes stated that the profits would be shared as to 50% for 中吉公司 “Zhong Ji Company”, 30% for BHL, and 20% for Cityork;

(4)  in September 1999, the controllers of BHL signed a Deed of Undertaking Acknowledgment of Loan in which they undertook to repay a loan from the plaintiff in the sum of $6,154,701 (as at 8 July 1999) with interest agreed at 13% pa;

(5)  on 9 August 2000, the plaintiff wrote to Shan as chairman of Zhong Ji Holdings Ltd stating that BHL’s controllers owed the plaintiff money, and asked if the plaintiff could obtain a proportionate part of BHL’s shares of JST; the plaintiff has not exhibited any written reply;

(6)  on 16 January 2001, BHL and its controllers agreed to transfer to the plaintiff 21.5% out of its 30% share of JST at the price of $7,523,955¹⁰ to set off their debt, and agreed, should the plaintiff so request, to execute the relevant documents for the transfer of those shares (“the 2001 Share Transfer Agreement”); the plaintiff’s case is that no documents of transfer were executed;

(7)  on 31 January 2008, BHL agreed to give up its 30% share in JST and to transfer it to Zhong Ji Holdings Ltd in exchange for the latter being responsible for JST’s outstanding debts and liabilities, including tax liabilities (“the 2008 Share Transfer Agreement”); it is not known if documents of transfer were executed;

(8)  on 2 January 2014, the plaintiff wrote to Liu individually stating that BHL had not yet transferred the JST shares to it, and asked Liu if he could introduce buyers for the 21.5%, for which the plaintiff offered a part of the profit as commission; the plaintiff’s case is that there was no written reply;

(9)  on 18 March 2019, the plaintiff’s solicitors sent a letter before action to the 1^st defendant, stating (among other things) the following:

-  “in or about 2001, [the plaintiff] accepted the transfer of 21.5% of [JST] from [BHL] upon the recommendation and assurance of your former chairman, Shang Yi Ping, that your company (formerly known as Hong Kong Zhong Ji Ltd¹¹) would arrange for [the plaintiff] to be duly registered as a shareholder”;

-  in 2003, the 1^st defendant (through Shan) had offered to buy the 21.5% share from the plaintiff at $5.5 million, which the plaintiff accepted¹²;

-  the plaintiff demanded that it be registered as a shareholder of JST, or be paid the said sum, or $5.5 million.

16.  The writ was filed a month later.

17.  Before the judge, the 1^st defendant’s leading counsel¹³ submitted that the Default judgment should be set aside as:

(1)  no judgment, default or otherwise, should be entered in favour of the plaintiff as its claim was so defectively pleaded that it was liable to be struck out; and/or

(2)  the Default judgment was liable to be set aside ex debito justitiae as service was irregular.  

18.  Having set out the relevant factual background in §§ 6 -17 of the Decision, the judge held, for reasons set out in Section II of the Decision (§§68 - 78) that the service was regular¹⁴. However, for reasons set out in Section I (§§24 - 67), the judge held that the plaintiff’s cause of action was defective, and accordingly the Default judgment should be set aside and the consequential charging order discharged. 

19.  Essentially, the judge held the plaintiff’s cause of action was not sustainable, even on its own case.  Even though there had been delay by the 1^st defendant, the judge held that as the plaintiff’s pleading was “palpably bad and defective”, it would be a travesty of justice if the court were to allow a default judgment to be entered on it¹⁵.

The plaintiff’s renewed application for leave to appeal

20.  As noted earlier, the judge having refused leave to appeal, the plaintiff renewed its application to this court. 

Discussion

Principles

21.  It is well-established that a court will not give leave to appeal unless the applicant can show that it has a reasonable prospect of success on appeal.  As the plaintiff is seeking to appeal the setting aside of a default judgment, which is a decision made in the exercise of the court’s discretion, the plaintiff must show a reasonable prospect of success in its argument that the judge had erred in law, or had misapprehended a material fact, or had failed to take a relevant matter into account, or had taken into account an irrelevant matter, or that the decision to set aside the Default judgment was “plainly wrong”.

Draft grounds of appeal

22.  The grounds of appeal in the draft Notice of Appeal are annexed to this Judgment.

Ground (5)

23.  We will discuss Ground (5) first as it is the crucial ground.  In §26 of the Decision, the judge noted:

“P’s claim is a common law action for money had and received. Such an allegation necessarily involves the payment of money from one party to another and the receipt of those monies by the other”.

24.  However, the plaintiff now argues¹⁶:

“Fundamentally, this analysis was based on the ‘misnomer’ that the claim was ‘for money had and received’ Credit One Finance Ltd v Yeung Kwok Chi and Others (21/09/2020, HCA33/2016) [2020] HKCFI 2450 at §43 per Recorder Eugene Fung SC. The proper analytical framework to apply should be that as explained by the CFA in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 [2004] HKCU 380 which did not require ‘payment of money from one party to another and the receipt of those monies by the other’. The correct questions to ask should be (1) Was the defendant enriched? (2) Was the enrichment at the plaintiff’s expense? (3) Was the enrichment unjust? (4) Are any of the defences applicable? The answers to the above first three questions are affirmative, and D1 did not put up any defence. Thus, on the face of P’s claim, the unjust enrichment claim is made out”. (Emphasis added).

25.  By referring to the “money had and received” claim as a “misnomer”, it seems the plaintiff is now no longer seeking to support this claim.  (In any event, the judge was right to hold that this claim was clearly bad even on the plaintiff’s own case.  Even on the documents annexed to Hong’s legal opinion exhibited to Mok 2^nd, no money was ever paid by the plaintiff to the 1^st defendant: for it was BHL or its controllers who owed money to the plaintiff leading to the 2001 Share Transfer Agreement; at the time of the 2008 Share Transfer Agreement, the 1^st defendant had not even been incorporated; and according to the terms of the 2008 Share Transfer Agreement, no money passed hands). 

26.  Further, it is clear from the Decision that the plaintiff had not advanced a claim below based on unjust enrichment beyond “money had and received”.  As noted in §15 of the judge’s Decision on Leave:

“It transpires from P’s Reply Submissions in relation to its leave application,that notwithstanding its own pleading, P’s cause of action is for unjust enrichment”.

27.1  In any event, a claim in unjust enrichment has not been properly pleaded.  It is clear from Shanghai Tongji¹⁷, and recognized in questions (1) to (3) of the plaintiff’s written submissions quoted in §24 above, that at least those three ingredients are required to be pleaded by a plaintiff.  That requirement was not satisfied in the SOC.    

27.2  Even putting to one side the incomprehensible reference in the Particulars to the defendants having “sold” ... “the said sum”, and even assuming that the plaintiff was alleging that the 1^st defendant had received the said sum as the proceeds of sale of 21.5% in JST which the plaintiff alleges it owned beneficially, the plaintiff had not pleaded facts making the enrichment unjust. 

27.3  To merely plead some facts and assert a claim of “money had and received” is not sufficient for a claim in unjust enrichment.  An action for “money had and received” may include (but is not confined to) such diverse situations as total failure of consideration, payment by mistake, payment as a result of oppression, payment as a result of a tort, etc.  None of these or other situations was identified in the SOC. 

27.4  Besides, it would still not be enough to plead some facts and then merely assert, say, “total failure of consideration”.  As was held in Shanghai Tongji¹⁸, even if that was asserted, it would still be “crucial correctly to identify and characterise the transaction providing the basis for the defendant’s enrichment”.  The SOC together with the documents referred to by the plaintiff do not begin to identify or characterise the relevant transaction.  If it is alleged that there was a “sale” of the 21.5% shares by the 1^st defendant, how could that have been done when it had not even been incorporated in 2008?  What were the alleged “proceeds of sale”, when the 2008 Share Transfer Agreement was for nil consideration¹⁹? In any event, when was any purported consideration “received” by the 1^st defendant? 

28.  In these circumstances, the judge was clearly entitled to exercise the court’s discretion to set aside the Default judgment.  To echo the judge’s words, it would be a travesty of justice to allow the Default judgment to stand²⁰.  In our view, that is the end of the renewed application for leave to appeal.  For the sake of completeness however, we will discuss the other grounds briefly. 

Other Grounds 

29.1  Ground (1) seeks to challenge the judge’s criticism (Decision, §§44-46) of the plaintiff’s allegation that Liu had agreed to sell the 21.5% shares for the plaintiff and to receive the proceeds on its behalf.

29.2  Those paragraphs in the Decision should be read in context.  They were in answer to the submission of the plaintiff’s counsel that the plaintiff’s letter dated 2 January 2014 to Liu (see §15(8) above) and the lack of a reply amounted to Liu’s agreement to sell the shares and receive the proceeds on the plaintiff’s behalf.  That submission did not refer to allegations in the body of Mok 2^nd.  Thus, the judge held at §46 that “the absence of a reply to the 2014 letter cannot be equated with an agreement on Liu Hao’s part”.  That silence does not constitute consent is fundamental contract law, and the judge was clearly correct.

29.3  As for the plaintiff’s reference in Ground (1) to a passage in Mok 2^nd, it would be noted that the company returns show that Liu was not a director or shareholder of the 1^st defendant.  The plaintiff has only alleged that Liu took over as chairman of “the Zhong Ji Group” (in English). (Presumably this is a reference to 中吉集團 or Zhong Ji (Holdings) Ltd the PRC company, as the Hong Kong company previously called by that name had changed its name back in 1989). The company returns show that the PRC company Zhong Ji (Holdings) Ltd and Zhong Ji Ltd (the companies pleaded in the SOC) were not shareholders or directors of the 1^st defendant.  The fact that LWX was a common director and shareholder of the 1^st defendant and Zhong Ji Ltd is neither here nor there.  There was no evidence (at this stage) that whatever agreement may have been made by Liu, it was on behalf of the 1^st defendant.      

30.1  Ground (2) starts off with the bare assertion that BHL “had transferred the interest in 21.5% shares in JST to the plaintiff by the agreement of 16 January 2001" (emphasis added).  However, the plaintiff has only exhibited an agreement to transfer, and confirmed in its 2014 letter that BHL has not transferred the shares.   

30.2  Further, the fact that LWX is a director and shareholder of the 1^st defendant and Zhong Ji Ltd and/or the PRC company Zhong Ji (Holdings) Ltd does not, without more, render the 1^st defendant liable as “agent” of these latter companies.  We have not seen (at this stage) any evidence of an agency.

31.  Ground (3) refers to the judge’s observation on the plaintiff’s claim to a “beneficial interest” in JST.  Putting aside the judge’s reference to PRC law on trust assets as set out in another case, she was nevertheless entitled to remark that Hong did not refer to a concept of beneficial ownership under PRC law when one would have expected that to be at the forefront of her legal opinion if that concept exists.

32.  Ground (4) refers to the limitation period.  The point is that in the pleading quoted by the judge in footnote 11, the plaintiff alleged that it “believes the proceeds of sale are fully received/collected by the defendants on behalf of the plaintiff and in any event, within 6 years of the issuance of the Writ herein”.  So, it is asserting that the defendants (including the 1^st defendant) received the proceeds within the limitation period.  On that case, when and how the plaintiff came to know of it is immaterial, as it would not need a postponement of the limitation period under s.26 Limitation Ordinance.

33.  Ground (6) criticizes the weight given by the judge to the factor of delay in the exercise of discretion.  There is nothing in this ground.  The judge was well aware of the time line.  The weight she gave to the 1^st defendant’s delay is not a matter for appellate interference.

34.  Ground (7) is only a “wrap-up” ground advanced with reference to grounds (5) and (6). In light of our decisions on those earlier two grounds, it follows that there is nothing in ground (7) either.

Order

35.  The plaintiff’s renewed application for leave to appeal filed on 15 October 2021 is dismissed with costs to the 1^st defendant.  As for summary assessment of costs, the figures claimed in the 1^st defendant’s statement of costs ($44,030) are modest.  Apart from the costs related to the preparation of the statement of costs ($1,160 and $850) which are generally not granted pursuant to PD14.3, they are allowed in full i.e. in the sum of $42,020.

Annex