BANK OF CHINA (HONG KONG) LTD AND OTHERS v. CHEUNG KING FUNG FRANCIS AND ANOTHER

CACV 66/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 66 OF 2005

(ON APPEAL FROM HCA NO. 31 OF 2000)

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REASONS  FOR  JUDGMENT

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Hon Tang JA (giving the reasons for judgment of the Court):

Introduction

1.  The writ of summons in this action was issued on 3 January 2000.  It was served by registered post on 5 January 2000.  On 31 January 2000 judgment in default of notice of intention to defend was entered against the 2^nd defendant. 

2.  The claim against the 2^nd defendant was based on 2 guarantees dated 12 August 1997 and 28 October 1997 respectively. By these guarantees, the 2^nd defendant guaranteed the banking facilities granted to the 1^st defendant by the plaintiff.  The plaintiff (the bank) claimed the sum of $728,020.43 being the 1^st defendant’s indebtedness to the bank in respect of such banking facilities.

3.  On 27 October 2003, the 2^nd defendant applied to set aside the judgment.  That was refused by Master Ho on 16 June 2004.  The 2^nd defendant’s appeal was dismissed by Yam J on 10 November 2004.  By a notice of appeal dated 19 February 2005, the 2^nd defendant has appealed against the decision of Yam J.

4.  On 8 June 2005, the 2^nd defendant applied under O. 59 r. 10 RHC for leave to adduce additional evidence on appeal.  The application was heard by Yuen JA on 16 June 2005 and on 20 June 2005, the decision of Yuen JA refusing leave was handed down.  In para 22 of the decision, Yuen JA provided a summary of the additional evidence but the more important evidence goes to the following new issues, viz.,

(1)	she was drunk when she signed the August 1997 guarantee and probably when she signed the October 97 guarantee;
(2)	she signed the guarantees under the undue influence of the 1st defendant, who was her co-habitee, and the bank officers were aware of the relationship.

5.  The 2^nd defendant has appealed to us pursuant to O. 59 r. 14(12) from the determination of Yuen J. 

6.  We heard and dismissed both appeals with costs on 5 July 2005.  We now provide our reasons.

7.  We deal first with the appeal from Yuen JA. 

Appeal from Yuen JA

8.  Mr Arthur Wong who appeared for the 2^nd defendant has submitted that on an appeal under O. 59 r. 14(12), we are entitled to exercise our discretion afresh and that Mak Pak Keung v Wong Ip Ming, unreported, CACV 78/2000 which decided otherwise is wrong.  This is what Rogers Acting CJHC said in Mak Pak Keung:  

“7.   When the appeal is thus brought to the Court of Appeal on appeal from a decision of a single judge, what the Court of Appeal is doing is reviewing on appeal the exercise of discretion by the single judge.  In my view the same rules apply in that respect as apply to the Court of Appeal in other cases when it is reviewing the exercise of a discretion by a judge.  They can be summarised that the Court of Appeal will not interfere with the exercise of a discretion unless it is satisfied that the judge had applied wrong principles of law or had given a wholly erroneous weight to some matters or failed to take into account some other matters or indeed if the judgment was plainly wrong.”

Mr Wong also submitted that by analogy with O. 59 r. 3, the appeal should be by way of rehearing.  Even so, as para. 59/1/49 in the Hong Kong Civil Procedure 2004 shows, the power of a Court of Appeal on an appeal from an exercise of discretion by a judge is similarly limited.  Thus, Mr Wong’s submission is rejected.

9.  Mr Wong then submitted that Yuen JA was wrong for the following reasons:

“	a.	The judge had applied wrong principles of law;
	b.	The judge had given a wholly erroneous weight to some matters;
	c.	The judge had failed to take into account some other matters; or
	d.	The judgment/order was plainly wrong.”

10.  On (a), Mr Wong has drawn our attention to Forward v West Sussex County Council [1995] 1 W LR 1469.  There, the English Court of Appeal was concerned with an application arising out of a judgment entered in default of notice of intention to defend.  On the defendant’s appeal against the judge’s refusal to declare that the writ had not been served on him, the defendant applied for leave to adduce additional evidence.  The Master of the Rolls said at page 1474:

“But in any event we accept the argument that the Ladd v Marshall conditions do not apply with their full rigour in a case of this kind and that the court has a residual discretion to admit new evidence if it appears appropriate to do so.”

11.  Here, as is apparent from the judgment of Yam J, he refused to set aside the default judgment because the 2^nd defendant did not have a defence on the merits.  So there has been a decision on the merits.  That explains why Yuen JA seemed inclined to the view that the Ladd v Marshall conditions would apply.

12.  But as Yuen JA said in paragraph 31 of her decision:

“31.    In the present case, however, even assuming that the Ladd v Marshall rules in their strict sense did not apply, and that they were only part of the overall circumstances to be considered, I am of the view that leave should not be given for the 2^nd Defendant to adduce fresh evidence now.”

13.  So it does not matter whether in this case there had been a decision on the merits such that the Ladd v Marshall conditions would apply.  Moreover, as the judgment of the Master of the Rolls referred to above shows, even if the Ladd v Marshall conditions do not apply with their full rigour, that does not mean they are irrelevant. 

14.  In para. 53, Yuen JA concluded:

“Given the lengthy and inadequately explained delay between October 2003 (when the evidence could have been adduced) and June 2005 (when the present application was made) and the unsatisfactory state of the new allegations, I do not consider that the Court of Appeal’s power to give leave to adduce fresh evidence on appeal should be exercised in this case”.

15.  So we cannot accept Mr Wong’s submission that the judge has applied wrong principles of law.

16.  (b) and (c) can be dealt with together.  Mr Wong emphasized that the judge had failed to take into account sufficiently the 2^nd defendant’s health problems and personal situations.

17.  So far as the 2^nd defendant’s allegation that she had a nervous breakdown is concerned, that was specifically dealt with by Yuen JA in para. 44 of her decision. 

18.  But Mr Wong reminded us that the 2^nd defendant claimed to have attempted suicide in 1995 and 1999, and that she had been ill-treated by the 1^st defendant from 1995 to 1999.  But, these have little to do with the delay identified by Yuen JA

19.  Then, it is said that the 2^nd defendant had continued to receive medical treatment from 1995 to 2004 for tension headache with anxiety and stress and that she had 4 treatments in 2004 for severe tension headache. 

20.  On the other hand it is the 2^nd defendant’s evidence that she was able to carry on an active social life in 2000 to 2002.  There is also an exhibit produced by the 2^nd defendant which shows that she was well enough to accept employment as chief interior designer from 14 February 2005.

21.  We do not agree that Yuen JA had failed to take into account relevant matters.

22.  As for the ground that the judgment was plainly wrong.  Mr Wong emphasised that Yuen JA was wrong on the question of delay.  He submitted that there were settlement discussions from 2000 to 2003.  The evidence does not support any settlement discussion prior to the service of the statutory demand in 2003.  Mr Wong referred us to the various dinner parties that the 2^nd defendant had attended with officers of the bank in the years 2000, 2001 and 2002.  They do not show any settlement discussion at all.  Moreover, as the citation at para. 14 above shows, Yuen JA was principally concerned with the delay between the time when the 2^nd defendant applied to set aside the judgment (October 2003) and her application for leave to adduce additional evidence on appeal (June 2005).

23.  Another reason given by the judge for refusing leave was the unsatisfactory state of the 2^nd defendant’s evidence.  It was essentially the defendant’s case that she was so drunk that she did not know what she was signing.  Secondly, because of her relationship with the 1^st defendant, the bank had constructive notice of undue influence

24.  So far as the first ground is concerned, we agree with the judge that there is no satisfactory explanation why this allegation had not been made earlier.

25.  Moreover it is inconsistent with the affirmations in Chinese that she had filed in support of her application to set aside the judgment.  In para. 4 of her first affirmation which was filed on 27 October 2003, she said :

「4.  本人於一九九七年與張鯨豐先生 (Mr Cheung King Fung, Francis) (後稱”張先生”) 在中銀的合併銀行，中南海銀行的香港仔分行（後稱”中南”）簽約一份保證人文件，本人作張先生的保證人，保證金額為80萬。當時中南的分行經理張定文先生負責此事，他叫本人到香港仔分行簽署該份保證人文件，但當時我到銀行時他並沒有向我講解一切保證書內容，注意事項及其中所涉及解除保證人手續等事宜，他宣稱只是一般手續，並沒有什麼特別。於是本人上去中南時只用五至十分鐘便簽署該份文件。作為一間銀行經理，在叫客人簽署文件時竟沒有解釋文件內容便叫客人簽名，此舉明顯是銀行疏忽，也同時是屬於失誤。」

In her affirmation dated 9 March 2004 she said:

「2.  本人與張鯨豐先生 (Mr Cheung King Fung, Francis) (即第一被告人) 在原告人，中南海銀行的香港仔分行簽約一份保證人文件，本人作第一被告人的保證人，保證金額為80萬。當時中南的分行經理張定文先生負責此事，他叫本人到分行簽署該份保證人文件，但當時本人到銀行時他並沒有向我講解一切保證書內容，注意事項及其中所涉及解除保證人手續等事宜，他宣稱只是一般手續，並沒有什麼特別。於是本人上去中南時只用五至十分鐘便簽署該份文件。」

26.  We believe that these two paragraphs do not sit well with her allegation that she was so befuddled by drink that she did not know what she was signing or that the bank officer was equally drunk. 

27.  Moreover, there has been no explanation from the 2^nd defendant why if she did not know she had signed guarantees, she could have written to the bank on 20 May 1999 that she wanted “to terminate to be guarantor for (the 1^st defendant) with immediate effect”, and then, again, by letter dated 11 August 1999.  Her allegation that she did not know what she had signed was so unsatisfactory that Yuen JA was right to take that into consideration in deciding whether or not to grant leave.

28.  As for allegation regarding the 1^st defendant, Yuen JA dealt with that in paras. 47 and 48 of her decision.  We agree and have nothing to add.

29.  It followed that in our view the decision of Yuen JA is unassailable.  That was why we dismissed the appeal from her.

Appeal from Yam J

30.  We returned to deal with the appeal against Yam J.  The plaintiff has applied for an extension of time to serve a respondent’s notice, which was not opposed by Mr Wong.  In the respondent’s notice the plaintiff asked that the decision of Yam J be affirmed on the ground that there was no or no sufficient evidence that the 2^nd defendant had no notice of the writ of summons delivered before the judgment dated 31 January 2000.

31.  Mr Wong relies on O. 10 r. 1(3) which provides that in the event of a service by post:

“(a) the date of service shall, unless the contrary is shown, be deemed to be the seventh day … after the date on which the copy was sent to …, the address in question.

32.  He referred as to para. 13/9/5 Hong Kong Civil Procedure where this sentence appears:

“When a defendant deposes that he has not received the writ through the post, the court has little option but to believe this save when there is sufficient material to cast doubt upon the defendant’s credibility to enable the court to disbelieve him.”

33.  We do not read this as suggesting that the court must accept a defendant’s assertion no matter how improbable.

34.  It is quite clear from Forward v West Sussex County Council, cited above, that a defendant is required to provide “convincing evidence”: at 1473G.  The Master of the Rolls went on to say of the judge that “He was in our view quite right to be sceptical of the contention that the 4^th defendant had not received the writ in the absence of compelling evidence to show that it had not been forwarded on to him, as would in the ordinary course be accepted”: at 1474H.  Of course, how much evidence is required must depend on the circumstances of the particular case. 

35.  Here, the address of service was the business address of the 2^nd defendant.  It was the address given by her in her summonses to set aside the judgment.  The evidence shows that was the address used by her and occupied by her staff at the time of service.

36.  Moreover, she has not denied receipt of the letter before action dated 17 November 1999 addressed to the same address.

37.  The 2^nd defendant’s evidence on this can be found in her affirmation dated 9 March 2004:

「8.  而有關第一被告人乃屬本人公司之股東，故第一被告人之通訊地址與本人通訊地址同是報稱本人公司地址（附件一），由於本人與第一被告人之關係惡劣；便吩咐公司同事凡收到任何有關第一被告人之信件或文件全部放回接待處待第一被告人派人到本人公司取回。」

She was supported by an affirmation by 錢惠君of the same date:

「本人錢惠君乃是第二被告人公司職員，任職已有8年多。本人是在這公司認識第一及第二被告人。由於在1999年第一及第二被告人發生上述問題而導致關係惡劣，繼而第一被告撤離公司，故第二被告人對第一被告人懷恨至深，並立令不想再見到有第一被告人名字之任何文件；所以公司所有同事收到及看到有第一被告人名字之文件，不會交任何正本或拷貝給第二被告人看，並集齊放置在接待處等待第一被告人之弟弟到公司取件。」

38.  But, as the affirmation of Sung Sze Hang dated 27 January 2000 on behalf of the bank shows, the writ was served by registered post addressed to the 2^nd defendant.  That being the case, there is no reason why the letter should not have been seen by the 2^nd defendant.

39.  Given the unsatisfactory nature of the explanation, we are not satisfied that she has succeeded in showing the contrary.  In other words, we are not satisfied that she did not have notice of the writ at the material time. 

40.  Indeed, we would go further and say that her explanation is incredible.  Bearing in mind the receipt of the letter of demand dated 17 November 1999, we regard as incredible her allegation that her staff would have simply passed an envelope addressed to her to the 1^st defendant.  Or that if her staff saw a writ with the 1^st defendant’s name on it as well as hers, they would have passed it onto the 1^st defendant without telling her.

41.  Since we are of the view that she had not shown that she had no notice of the writ at the material time, the judgment must on any view be regarded as regular.  We agreed with Yam J that she had not disclosed any defence on the merits.

42.  Mr Wong also submitted that O. 10 r. 1(3)(b) had not been complied with because the affirmation of service had not followed the exact wording of O. 10 r. 1(3)(b)(ii).  But that rule only requires that “any affidavit proving due service of the writ must contain a statement to the effect that … (ii) in the case of service by post, the copy of the writ has not been returned to the plaintiff through the post undelivered to the addressee.”  Here, para. 3 of the affirmation of service affirmed that “As at the date hereof, the envelope has not been returned by the Post Office through the Deed Letter Service”.  We believe that is a sufficient compliance with O. 10 r. 1(3)(b)(ii).

43.  Mr Wong also complained that no evidence of posting has been produced.  But, the 2^nd defendant had not expressly challenged the posting of the letter containing the writ.  Her case was that she had not seen it for the reasons disclosed and quoted in para. 37 above.  So it is not surprising that the bank simply relied on the affirmation of service.  We have no reason to doubt the correctness of the affirmation of service.

44.  Lastly, Mr Wong took the point that since the letter terminating the guarantee dated 20 May 1999 was received by the bank on 10 June 1999 and that by virtue of clause B3 of the guarantee, her liability under the guarantee crystallised on 10 September 1999.  But the claim was based on the amount outstanding as at 6 December 1999. 

45.  But, it is clear from the bank statement produced that the amount outstanding on 10 September 1999 was in excess of $735,949.24, which was the amount outstanding as at 6 December 1999.  There is no evidence from the 2^nd defendant that the bank statement was wrong or that the judgment had been entered for too much.  So there is nothing in this point either.

46.  For the above reasons, Yam J was correct in dismissing the 2^nd defendant’s appeal against the Master’s decision.  Accordingly, we have dismissed her present appeal with costs.