LI NANFENG v. WONG CHUN HONG

CACV 547/2019

[2021] HKCA 1203

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 547 OF 2019

(ON APPEAL FROM HCA NO 3447 OF 2016)

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REASONS FOR JUDGMENT

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Hon Kwan VP:

1.  I agree with the reasons for judgment of Yuen JA.

Hon Cheung JA:

2.  I agree with the reasons for judgment of Yuen JA.

Hon Yuen JA:

3.1.  This is the appeal of the defendant (“Wong”)  from the Judgment of DHCJ Simon Leung (“the Judge”)  given in HCA3447/2016 (“the 2016 Action”)  on 21 November 2019 (“the Judgment”)  entering summary judgment against him in the amount of RMB88,265,737 (“the Judgment amount”). 

3.2.  The Judgment amount is made up of two items claimed by the plaintiff (“Li”):

(1)  RMB61,525,737 (“the Sum”)[1] and

(2)  RMB26,740,000 (“the Shanghai Feng Dan Proceeds”)[2].

3.3.  In the Notice of Appeal, Wong argued that there should be the following two deductions from the Judgment amount:

(1)  the Sum should be reduced as he had paid Li’s wife Madam Li Chi (“Mrs Li”)  SGD200,000[3] in cash in July 2012, and HKD20 million in cash between November 2012 and November 2013;

(2)  the Shanghai Feng Dan Proceeds should only be RMB18,077,728 (i.e. RMB8,662,272 less).

The two deductions come up to a total of about $30 million in Hong Kong currency. 

3.4.  It was also contended in the Notice of Appeal that the Judge had failed to consider the option of conditional leave, and that he failed to take into account that the parties would in any event have to proceed to trial on the issue of interest.

4.  At the conclusion of the hearing, the appeal was dismissed with costs.  My reasons appear below.

Background

5.1.  The following summary of the material background facts is taken from the judgment of this court[4] in CAMP82/2018[5].

“The case of [Li] is that he was the beneficial owner of 4.1% of the shareholding in a PRC company SZITIC Property and his indirect ownership of this shareholding (involving the interposing of other entities)  was held by his two nominees named Chen and Yu. Li averred it was agreed that Wong would receive for Li the sale proceeds of his indirect interest in the 4.1% shareholding and his indirect interest in a former subsidiary of SZITIC Property, Shanghai Feng Dan, and pay Li the proceeds with interest upon the happening of certain events, which had materialized. Li brought this action [the 2016 Action] against Wong alleging breach of contract in failing or refusing to pay him the sale proceeds and interest.

Wong’s position is that he is prepared to return the proceeds claimed to either Li or Chen/Yu, but he wants to ensure that if he pays Li, Chen and Yu would not claim the same sum against him. Hence, he issued the interpleader summons”.

5.2.  Li had issued the writ in the 2016 Action on 30 December 2016.  In the statement of claim filed on 13 April 2017, Li pleaded that his indirect 4.1% shareholding was held for him by Chen and Yu[6], and that in or about 2006, he had informed Wong that he would be “willing and prepared to sell his 4.1% Shareholding (held through Chen and Yu on his behalf as pleaded above)  ...”[7].

The 2017 Open Letter  

6.1.  In Wong I, he said[8]:

“In an open letter dated 27 April 2017 from [Wong’s solicitors] to [Li’s solicitors] [“the 2017 Open Letter”], I proposed to [Li] that (i)  he shall arrange [Chen and Yu] to collect the sum of RMB88,240,000[9] and (ii)  upon [Chen and Yu] receiving the said sum of RMB88,240,000, [Li] shall forthwith discontinue the Action herein against me with no order as to costs (‘Proposal’). In such letter, I also warned [Li] in advance that should [Li] not accept the Proposal, I would be applying to Court by way of interpleader proceedings”.

6.2.  Pausing there, it is noted that in the 2017 Open Letter (before the interpleader), Wong did not suggest either that:

(1)  the Sum should be reduced by the cash he had paid Mrs Li, or

(2)  the Shanghai Feng Dan Proceeds were less than the figure claimed. 

Interpleader Summons

7.1.  As foreshadowed in the 2017 Open Letter, in May 2017 Wong issued an interpleader summons, in which he also asked for leave to serve Chen and Yu out of the jurisdiction in the PRC. 

7.2.  In Wong I:

(1)(a)  he said that Mrs Li had, in her own right, issued proceedings against him in HCA2611/2015 (“the 2015 Action”)  claiming that he had acquired some shares in SZITIC Property on trust for her personally in 2002 and 2003[10];

(b)  he exhibited his Defence in the 2015 Action, in which he denied Mrs Li’s claims, and alleged that although he did pay her SGD180,000 in cash in July 2012 and HKD20 million in cash between November 2012 and November 2013, those were part payments of the Sum[11];

(2)  he alleged that the Shanghai Feng Dan proceeds should only be RMB18,077,728[12].

7.3.  Nevertheless, Wong deposed as follows:

“I confirm that for the purpose of the Summons, I am not claiming any interest in either (i)  the Sum or (ii)  the Shanghai Feng Dan Proceeds, or any part thereof”[13]. (Emphasis added).

7.4.  He also said[14]:

“Nonetheless, for the purpose of the summons, I am willing to pay into Court the sum of RMB88,265,737 (representing the aggregate of (i)  RMB61,525,737 and (ii)  RMB26,740,000 ie the alleged amount of the Shanghai Feng Dan Proceeds), either in full or (as the Court allows)  in full less the Defendant’s agreed, taxed or assessed costs of this application”.

7.5.  In other words, the only deduction Wong claimed then was for legal costs of the interpleader application.   

8.  On 7 June 2017, a master gave leave to Wong to serve Chen and Yu out of the jurisdiction.  

The Deposit Letter

9.  On 17 October 2017, Wong’s solicitors informed Li’s solicitors that Wong had deposited HKD108 million with them “which sum will be utilized in complying with any court Order to be made in relation to [Wong’s] (interpleader)  Summons taken out on 24 May 2017” (“the Deposit Letter”). 

The draft consent order

10.1.  The hearing of the interpleader summons took place before DHCJ Yee on 6 November 2017.  Li and Wong were both represented by leading counsel.  Chen and Yu did not appear. 

10.2.  Wong’s counsel applied for an adjournment, and for that purpose submitted a draft consent order, which contained an order that in the event of Chen and Yu not appearing at the adjourned hearing, the Sum and the Shanghai Feng Dan Proceeds shall be paid out to Li upon the court ordering that Chen and Yu be forever barred from prosecuting their claim against him (Wong)  (“the draft consent order”). 

10.3.  Li’s counsel informed the court that his primary position was that the interpleader jurisdiction was not engaged at all, and that he would only agree to the draft consent order if the court was prepared to accede to Wong’s application to adjourn the hearing[15].

10.4.  The court did not accede to Wong’s application to adjourn the hearing, and accordingly no consent order was made.  However, the proposed order referred to above is instructive, as it showed Wong’s willingness to pay the entire Judgment amount to Li without deductions for the alleged set-off of payments to Mrs Li or the “over-payment” of the Shanghai Feng Dan Proceeds. 

Interpleader Decision

11.  In a Decision given on 12 December 2017, DHCJ Yee dismissed the interpleader summons on the ground that Wong had failed to provide satisfactory evidential foundation for his alleged expectation that he would be sued by Chen and Yu. As noted by the judge,

-  the agreement for the sale of the shareholding was made between Li and Wong[16];

-  Wong did not allege that he had ever had any agreement with Chen and Yu[17];

-  Chen and Yu completed the transfer of the shareholding[18];

-  Chan and Yu have never claimed any ownership in the shareholding or the proceeds[19];

-  Wong has never attempted to pay Chen and Yu[20];

-  there was no reason why Chen and Yu allowed payment to be outstanding by Wong for such a long time (9 years had elapsed between the time of the transfer and the hearing of the interpleader)[21].  

12.1  As events transpired, one day after the hearing before DHCJ Yee (7 November 2017), Yu instructed PRC lawyers[22] to accept service on his behalf. 

12.2.  On 19 December 2017, the High Court notified Wong’s solicitors of the service on Yu[23].

13.  On 27 December 2017, Wong applied for leave to appeal the Interpleader Decision given on 12 December 2017. 

14.1.  On 3 January 2018, Wong’s solicitors wrote to Yu’s PRC lawyers informing them of Wong’s application to DHCJ Yee for leave to appeal, and asking Yu whether he agreed with Li’s allegation that Chen and Yu only held the 4.1% shareholding on Li’s behalf, and whether Yu would confirm that he would not make a claim against Wong.

14.2.  Yu did not reply to this letter whether by himself or through his lawyers, and neither he nor Chen have ever sought to participate in the 2016 Action.

15.1  On 31 May 2018, DHCJ Yee dismissed Wong’s application for leave to appeal the Interpleader Decision. 

15.2.  On 3 August 2018, this court[24] also refused to give Wong leave to appeal, remarking that the proposed appeal was “hopeless”[25]. 

15.3.  In other words, the court has finally determined between Li and Wong that Chen and Yu have no claims on the Sum and the Shanghai Feng Dan Proceeds and that Li was entitled thereto.

Application for summary judgment  

16.  In the meantime, on 7 March 2018 Li issued an application for summary judgment.

The 2018 Open Letter

17.1.  On 7 September 2018, Wong’s solicitors wrote an open letter to Li’s solicitors (“the 2018 Open Letter”).  After references were made to the Court of Appeal’s refusal of leave to appeal the Interpleader Decision and Li’s application for summary judgment, the following passages appeared:

“5. You would also note from the Fourth Affirmation of our client that he is vigorously opposing your client’s summary judgment application both as to liability and quantum.

6. Whilst our client has been advised by counsel that your client’s summary judgment application enjoys no reasonable prospect of success, our client (throughout)  never disputed that he was accountable to Chen and Yu.

7. In the circumstances, our client hereby makes the following proposal [“Proposal”]:-

(1)  your client shall arrange Chen and Yu to confirm in writing that they have been holding the 4.1% Shareholding (as defined under paragraph 3 of the Statement of Claim)  for your client;

(2)  your client shall arrange Chen and Yu to confirm in writing that they have no objection to our client paying the Sum (as defined under paragraph 19 of the Statement of Claim)  and the Shanghai Feng Dan Proceeds (as defined under paragraph 25 of the Statement of Claim) by way of discharge of our client’s liability towards them; and

(3)  conditional upon (1)  and (2)  immediately above, our client shall consent to summary Judgment being entered against him under your client’s Order 14 Summons dated 7 March 2018". (Emphasis added).

17.2.  Pausing there, it is noted that the Sum (as defined under paragraph 19 of the Statement of Claim)  was “approximately RMB61,500,000” and the Shanghai Feng Dan Proceeds (as defined under paragraph 25 of the Statement of Claim)  was “approximately RMB26,740,000”. 

17.3.  In other words, despite the contents of his 4^th affirmation, Wong was still prepared to disclaim all interest in the Sum (irrespective of the alleged part payments to Mrs Li)  and in the Shanghai Feng Dan Proceeds (irrespective of the alleged difference of RMB8.6 million), but he was seeking to impose on Li conditions relating to Chen and Yu, even though as between them (Li and Wong), the court had finally determined that Chen and Yu had no claims to the Judgment amount, and Yu had been made aware of the 2016 Action for more than 9 months and had chosen not to participate in it.

Summary Judgment Decision

18.  In his Judgment dated 21 November 2019, the Judge addressed Wong’s arguments that there were triable issues concerning:

(i)  Chen and Yu; and

(ii)  Wong himself.

19.  In relation to (i), the Judge held that as between Li and Wong, the court’s ruling that Chen and Yu have no claim against Wong constituted an issue estoppel[26].  The Judge considered whether there has been a material change in circumstances since the final determination of that issue, and held that the service on Yu, albeit not on Chen, did not amount to such.  The Judge noted that neither Chen nor Yu has ever indicated their claim to the figure which became the Judgment amount[27], and “the fact that even now, ... there remains no response from either Chen or Yu reinforces the lack of material change”[28].

20.1.  In relation to (ii), the Judge first noted Wong’s “unequivocal” stance in the interpleader, which was that he claimed no interest in the Judgment amount.  As the Judge put it, “the whole point of the Interpleader Summons was, as it had to be, merely to ensure that Wong could absolve himself from the contest for the [Judgment amount] but not the liability to pay it”[29].  The Judge held that Wong’s conduct in depositing the Judgment amount with his solicitors[30], and in proposing the terms of the draft consent order[31], reinforced the point[32]. Had Wong’s stance been that he was not liable to Li, he should have defended instead of interpleaded.  Therefore, Wong was also precluded from disputing liability to Li[33].

20.2.  Secondly, the Judge held that in any event[34], the burden was on Wong to raise a triable issue.  Apart from Wong’s alleged fear of a claim from Chen and Yu, he had shown no grounds why he should not be liable to pay Li.  In this respect the Judge noted the contents of the 2018 Open Letter[35].  Accordingly, the Judge found that Wong had failed to show a bona fide defence to liability.

21.  As for quantum, the Judge noted that Wong had adduced no evidence in support of his allegation that the Shanghai Feng Dan Proceeds should be RMB18,077,728 instead of RMB26,740,000.  The Judge rejected as “incredible” Wong’s explanation that in the interpleader proceedings, he had waived the difference (RMB8 million)  on the ground that it was “trivial”[36].  As for the deduction from the Sum of the alleged part payments to Mrs Li, the Judge found it was unclear from Wong’s affirmation whether he was also relying on the argument that the difference was “trivial”, but if he was, then again it was “incredible” that the difference (which the Judge referred to as “SGD120,000”[37] and HKD20 million)  could be regarded as “trivial”[38].

22.  The Judge accordingly entered judgment against Wong in the Judgment amount. Directions were given for the claim for interest, which had not been included in the application for summary judgment. 

Appeal

23.  On appeal, Mr Johnny Mok SC[39] referred first to the well-established cases that the nature of the summary judgment procedure is extraordinary,[40] and that if possibly genuine weaknesses were exposed in a plaintiff’s case, they cast doubt on his right to invoke the summary procedure in the first place[41].

24.  Mr Mok submitted that:

(1)  in relation to the Shanghai Feng Dan Proceeds, Li’s figure was only an approximation of the proceeds attributable to his shares, based on what he was told by other shareholders who have not been identified;

(2)  in relation to the Sum, Mrs Li has admitted in the 2015 Action that she has received from Wong cash payments of SGD180,000 and HKD20 million; although she claims that Wong made these payments to her on account of her own shareholding in SZITIC (unconnected with Li’s claim against Wong), her own claim “bears all the hallmarks of a sham” for the reasons set out in §32 of Wong’s skeleton submissions such that it was a “bogus claim”; accordingly, Wong’s case should be permitted to be “properly ventilated in a trial”[42].

25.  Wong’s Notice of Appeal also contained two other grounds, which Mr Mok did not develop in his oral submissions:

-  the judge failed to take into consideration the option of conditional leave for the whole or part of the Judgment amount (Ground 1);

-  the judge failed to take into account that the parties would in any event have to proceed to trial on the issue of interest (Ground 7).

Discussion

26.1.  I shall deal with the “deductions” point first.  It would immediately be seen that Wong is resiling from his case in the interpleader application in which he claimed no interest in any part of the Judgment amount. 

26.2.  Prior to the hearing of the Order 14 application, his case can be seen from the following (in chronological order):

-  the 2017 Open Letter, in which Wong did not assert any set-off against the Sum, nor a lower figure for the Shanghai Feng Dan Proceeds;

-  his affirmation in the interpleader proceedings (Wong I)  filed on 24 May 2017, in which he deposed

“I confirm that for the purpose of the Summons, I am not claiming any interest in either (i)  the Sum or (ii)  the Shanghai Feng Dan Proceeds, or any part thereof”[43] (Emphasis added);

-  the Deposit Letter of October 2017, which was to the effect that the entire sum deposited would be paid to Li if the court so ordered on the interpleader;

-  the draft consent order, which did not provide for deductions on account of the set-off, nor a lower figure for the Shanghai Feng Dan Proceeds;

-  the 2018 Open Letter - after the Court of Appeal decision refusing leave to appeal the Interpleader Decision and after Li had applied for summary judgment of the Judgment amount - in which Wong indicated that he was prepared to pay over the Judgment amount to Li, albeit on the conditions set out above[44]. 

26.3.  In §34 of Wong IV, he sought to explain why he is only now claiming to retain part of the Shanghai Feng Dan Proceeds as follows:

“The sole reason why I have been so generous is that if quantum is in issue, I would not be allowed to interplead. With a view to putting an early end to the Action herein (or at least the majority part of it)  if I were allowed to interplead, I then adopted a ‘let’s not quarrel on triviality’ approach in respect of the amount of the Shanghai Feng Dan Proceeds”.

26.4.  He did not even proffer any explanation why he is only now claiming to set off part of the Sum, even though “as I have pleaded under paragraphs 48 to 51 and 53 of my Defence in the 2015 Action, by October 2012 I have already made payments to [Li] (through the Wife)  the sums of SGD120,000[45] and HKD20,000,000”[46].

27.  Mr Mok argued that Wong was entitled to change his position between the interpleader application and the summary judgment application.  He referred to a remark in DHCJ Kee’s Interpleader Decision[47] when dealing with the application made by Li’s leading counsel that if the court were to dismiss the interpleader summons, it could order Wong to pay the Judgment amount forthwith to Li.

28.1.  That remark must be understood in the context.  The judge had first noted that the provisions in Order 17 did not provide such a mechanism[48], and that Li had not made an application for summary judgment or for judgment on admissions[49]. The judge then said[50]:

“ ... There are strict legal requirements to be complied with by a plaintiff for an application for summary judgment. I cannot lightly dispense with such requirements and allow Wong to be caught off guard.

Further, the fact that the Agreed Transfer took place in 2008 and the present action was only brought in 2016 may cause some concern in the context of a summary judgment application. Wong may take a different position in an O.14 application. It is not fair to disallow Wong a chance to deal with a summary judgment application properly”. (Emphasis added).

28.2.  It is clear from the context of the passages set out above that the judge was dealing with any procedural unfairness that Wong might suffer in being “caught off guard” when Li had not filed an application for summary judgment or for judgment on admissions, and was hypothesizing possible arguments (which might or might not be valid)  that Wong might advance had he been given adequate notice.  Read in context, the judge was not holding in that passage that Wong was entitled to resile from his position in the interpleader application in a subsequent application for summary judgment; he was simply holding that it would be procedurally unfair to spring Li’s proposed order on Wong. 

29.  Then there was the argument that Wong could not have made deductions of disputed amounts in interpleader proceedings.  Paragraph 23 of his skeleton submissions on appeal was as follows:

“Under §§33-35 of [Wong’s] 4^th affirmation, [Wong] explained that the sole reason for his not disputing on quantum at the interpleader stage was that, if quantum was in issue, he would not be allowed to interplead. The price for interpleading was that [Wong] had to pay into the Court the entire sum as claimed by [Li] in his SOC.” (Emphasis added).

30.  With respect, it is clear from Order 17 rule 1 of the Rules of the High Court that Wong could, if he wanted to, hive off the deductions he now claims from the sum to be interpleaded.  Note 17/1/3 of the Hong Kong Civil Procedure 2021 clearly states:

“The applicant may interplead as to so much of a debt as he admits, the dispute as to the residue being settled separately”.

Reading v School Board of London[51]is cited as authority, which Mr Mok did not seek to challenge.

31.  Mr Mok then argued that because Order 17 rule 5(1)  refers to “the subject-matter in dispute”, there must be the same subject matter between the rival claimants, and hence Wong could not have made deductions as against one claimant (Li)  and not against another (Chen and Yu).

32.  That argument is not borne out by the facts.  Wong’s allegation of a lower figure for the Shanghai Feng Dan Proceeds applied to both Li and to Chen and Yu.  In other words, Wong was claiming that he was not indebted in the sum of RMB8.6 million to either set of claimants.  And yet Wong did not exclude RMB8.6 million from the 2017 Open Letter, he claimed no interest in any part of the Judgment amount in the interpleader, he included this sum in the Deposit Letter, and offered to pay it in the draft consent order and in the 2018 Open Letter.  It can thus be seen that the argument based on Order 17 rule 5 could not have been the reason for his position during the interpleader proceedings.  

33.  Following the Interpleader Decision, there has been a final determination as between Li and Wong that Li is entitled to the Judgment amount.  For Wong to seek to re-argue it now by saying that he can retain some HKD30 million by way of the two deductions is tantamount to an abuse of the Henderson v Henderson[52]type.  As stated in Hong Kong Civil Procedure 2021[53],

“It may be abuse of procedure to litigate matters which have, or could have, been decided in earlier proceedings. The basic rule is that, where a matter becomes the subject of adjudication, the court requires the parties to put forward their whole case and will not (except under special circumstances)  permit them later to re-open matters which might have been brought forward as part of already concluded litigation”.

34.  Further, as a matter of fact, the Judge was entitled on the evidence to find that Wong’s defence was not bona fide. 

35.1.  First, Wong’s defence includes having to explain why he had taken the position he had in the interpleader proceedings. In this respect, the Judge was entitled to take the view that it is “incredible” to say that the difference of RMB8.6 million in the Shanghai Feng Dan Proceeds is “trivial”, such that Wong was prepared to make “over-payment” of that figure out of his own pocket.  The same comment applies to the even larger figure of SGD180,000 and HKD20 million. 

35.2.  Further, if these sums were indeed so “trivial” to Wong at the time of the interpleader, he has not explained why he is seeking to deduct them from the Judgment amount at the time of the summary judgment application.  He has not deposed to any change of circumstances which has altered his sense of financial values.

36.  Secondly, the judge was entitled to give substantial weight to the fact that Wong had alleged some 4 years ago that the Shanghai Feng Dan Proceeds was the precise figure of RMB18,077,728, and yet he has not produced a single piece of documentary evidence in support of this precise figure.  Li’s explanation for the approximation of his claim was that he had no personal knowledge of the transactions, and he had to rely on information from other shareholders to work out the sums to which he was entitled.  Wong, in contrast, was directly involved in the transactions.  As such, the price would be within his personal knowledge, but he has failed to explain how the alleged lower figure was calculated.  It is trite that in Order 14 proceedings, the burden is on the defendant to raise a triable issue, in this case, that the Shanghai Deng Fan Proceeds were less by some RMB8.6 million. 

37.  Lastly, the 2018 Open Letter showed that even after the Court of Appeal’s dismissal of leave to appeal the Interpleader Decision, Wong was still choosing to challenge Li’s entitlement to the Judgment amount on the basis of Chen and Yu’s alleged claim thereto only, and not on the grounds of the two deductions.  The Judge was entitled to take this into account when assessing the bona fides of the new defence based on the two deductions.  

Further grounds

38.  Finally, the Judge’s decision not to grant conditional leave, and his decision to enter summary judgment for the Judgment amount and give directions for the determination of the issue of interest are matters which were within the exercise of his discretion.  It is well established that an appellate court would not disturb the exercise of judicial discretion unless it is shown that the judge had made an error of law, or had misapprehended material facts, or had failed to take into account relevant matters, or had taken into account irrelevant matters, or was plainly wrong.  None of these have been substantiated in grounds of appeal (1)  and (7), and Mr Mok did not develop them in his skeleton submissions or oral arguments. 

Order

39.  For the above reasons, the appeal was dismissed with costs with certificate for two counsel.