CHAN KWONG LAI AND ANOTHER v. WONG CHI FAT AND ANOTHER

1996, No.A11808

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. On 4th December 1997, Master Jones entered final judgment in favour of the 2nd Defendant herein against the 1st Plaintiff, upon the 2nd Defendant's Counterclaim, in the sum of HK$655,730.94, together with interest and costs. By Notice of Appeal dated 8th December 1997, the 1st Plaintiff appeals against the said judgment. This is the judgment consequent upon that appeal.

2. In broad terms, this is a partnership dispute. In essence, in the period between October 1992 and January 1993, the 1st Plaintiff and the 1st Defendant entered into an agreement to carry on a partnership business of manufacturing, selling and supplying garments, the Plaintiff pleading that the 2nd Defendant, of which the 1st Defendant is a director, should conduct that partnership business. Effectively, therefore, I take this to mean that the 2nd Defendant was to be the partnership vehicle. The remedy sought by the 1st Plaintiff against both Defendants is, inter alia, for an account of the partnership business, perhaps understandably in light of the 1st Plaintiff's complaint that, to-date, it has received nothing from a business which is said to have made substantial sums of money since its inception.

3. In turn, the 1st and 2nd Defendants, who have put in a joint defence, essentially denied the partnership allegations, and the 2nd Defendant counterclaims for the repayment of four separate sums of money, amounting in total to the judgment sum, which it is said represent personal borrowings by the 1st Plaintiff from the 2nd Defendant. It is with regard to this Counterclaim that Order 14 proceedings were issued, eventually resulting in the judgment appealed against (and, incidentally, the subsequent refusal of the 1st Plaintiff's application for a stay of execution of that judgment pending the 1st Plaintiff's appeal.)

4. In respect of this Counterclaim, there is no issue on the part of the 1st Plaintiff as to the receipt of the four separate sums in question, but the 1st Plaintiff alleges and pleads as follows :-

That with regard to the first two sums, totalling some $300,000, these were subject to an oral agreement by the 1st Defendant, on behalf of the 2nd Defendant, not to demand repayment and that the loan would be set off against the 1st Plaintiff's entitlement to a share of profit of the partnership business (such entitlement, of course, is the precise matter in issue in the case presented by the 1st Plaintiff against the 1st and 2nd Defendants);

As for sums three and four, amounting to the balance of the judgment sum, the 1st Plaintiff pleads that, pursuant to the partnership agreement, he had transferred the business of his own company, one Winnet Limited, to the 2nd Defendant, and that monies owed by one Apex One Limited to Winnet, when received by Winnet, should be returned to the 1st Plaintiff, and that the bulk of the balance represented these monies.

That in a nutshell is the shape of the case.

5. It is worth specifically noting that these matters all appear on the face of the pleadings, in particular the Amended Reply and Defence to Counterclaim, prior to the issuance of the 2nd Defendant's Order 14 Summons taken out on 24th July 1997.

6. Against this background, Mr Koo for the 1st Plaintiff, asks me to set aside the judgment; Mr Liang (who also appeared below) asserts that it is appropriate that this judgment remains in place.

7. I pause to remind myself of established Order 14 principles. Mr Koo has drawn my attention to several leading cases in this area. These principles are entirely well settled, although I think it worth referring, in the circumstances, to extracts from three of the cases mentioned. See in particular the judgment of Godfrey J.A. in Man Earn Ltd. v. Wing Ting Fong Civ. App. No.94 of 1995 at pages 3-4, wherein the learned judge observed as follows :

"... Since the policy which underlies the summary procedure is to prevent the defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant has clearly no defence to the plaintiff's claim, the procedure should be invoked only where this condition is satisfied. Practitioners, and sometimes judges, are in danger of losing sight of this :

'People do not seem to understand that the effect of Ord. 14 is that, upon the allegation of the one side or the other, a man is not permitted to defend himself in court; that his rights are not to be litigated at all. There are some things too plain for argument; and where there were pleas put in simply for the purpose of delay, which only added to the expense, and where it was not in aid of justice that such things should continue, Ord. 14 was intended to put an end to that state of things, and to prevent sham defences from defeating the rights of parties by delay and at the same time causing great loss to the plaintiffs who are endeavouring to enforce their rights. But when in such a case as this, Ord. 14 is applied, there are a great many things to be said. I do not propose to enter into the merits of the case or the comprehension of it, which is necessary to some extent in order to deal with the merits. That question would have to be dealt with when the case is tried. But I am bound to say that it startles me to think that in a case of this sort an order should be made, the effect of which is that the defendant is not to be heard to make his defence.' -

see Jacobs v. Booth's Distillery Co. (1901) 85 L.T. 262, per Lord Halsbury LC.

Unless it is obvious that the defence put forward by the defendant is 'frivolous and practically moonshine, Ord. 14 ought not to be applied' : see Codd v. Delap (1905) 92 LT 510, per Lord Lindley, at p.511.

For those who may believe that these sentiments are outdated, a salutary reminder is provided in Crown House Engineering v. Amec Projects Ltd. (1990) 6 Const. Law Journal 141, where (at p.154), Bingham LJ says this :

'... Ord. 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise ... The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. This is not to say ... that a defendant with no or no more than a partial defence can cheat a plaintiff of his just deserts by producing hefty affidavits and voluminous exhibits to create an illusion of complexity where none exists. Where the point at issue is at heart a short one the court will recognise the fact and act accordingly no matter how bulky its outer garments. But it does mean that where there are substantial issues of genuine complexity the parties should prepare for trial ... rather than dissipate their energy and resources on deceptively attractive short-cuts.'

I would express the hope that those practitioners, of whom there are too many, who appear to be prepared to advise every client with what seems to be a good case to invoke this extraordinary procedure, without reflecting on the fact that, if the attempt fails, the result will be to keep the plaintiff out of the judgment to which he may well be entitled for far longer than would have been the case if they had concentrated, instead, on bring the matter to trial, will in future think twice before giving such advice."

8. I am reminded also of the observations of Patrick Chan, J. (as he then was) in Mass International Ltd. v. Hillis Industries Ltd. & Another [1996] 1 HKC 434 at 439 :-

" It is appropriate to be reminded of the principles applicable to an O.14 application. They are well-known and in fact not disputed by the parties. The plaintiff (a defendant to the second defendant's counterclaim) must show that there are triable issues. He has to satisfy the court that he has a 'real or bona fide defence' (see Ackner LJ in Banque de Paris et tes paysbas (Suisse) SA v Costa de Naray [1984] 1 Lloyd's Rep 21 at 23). If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. As Bokhary JA said in Re Safe Rich Industries Ltd (CA 81/94, unreported) :

'The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognized ( because failure to recognize it would create a debt-dodgers' charter ( that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.'

On the other hand, it must also be borne in mind that for an application like the present, the court must not embark on a mini trial on affidavits."

9. Finally, I note in particular the comments of Godfrey J.A. in Ng Shou Chun v. Hung Chun San Civ. App. No.182 of 1993 at page 4 :

" In the local case of Bhagwandas Kewaleram Murjani & Others v. Bank of India [1990] 1 HKLR 586, the Court of Appeal, after going into all the evidence, came to the conclusion that the case of the defendant was plainly advanced dishonestly and was therefore incredible. But Murjani was decided before National Westminster Bank v. Daniel and I would sound a note of caution about Murjani, which has come to be cited in almost every case under O.14 or O.86 to justify the plaintiff in asking the court to embark on a mini-trial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question : 'Is what the defendant says credible?' If so, he must have leave to defend. If not, the plaintiff is entitled to summary judgment. The issue is, not whether the defendant's assertions are to be believed; it is whether those assertions are believable."

10. Against this background, I am in no doubt whatever that this appeal should succeed, notwithstanding Mr Liang's efforts to isolate from the partnership business the transactions the subject to the Counterclaim and the Judgment, and to categorise the 1st Plaintiff's version of events as incredible. In my view, looking at the case in the round, the answer is totally clear-cut for the purposes of Order 14 proceedings, whatever may ultimately be found at trial; this case is redolent with triable issues as to the partnership, as to the alleged 'loans', and as to the specific agreements concerning their repayment, and no amount of skilful advocacy on Mr Liang's part can disguise this stark position. Indeed, even without the agreements pleaded by the 1st Plaintiff with regard to repayment of the 'loans', there may well have been a residual argument available as to the equitable set-off of these monies against the account claimed by the 1st Plaintiff to be due. But this aspect has hardly been developed and, in any event, presently does not arise for decision.

11. I also note specifically that in the affidavit sworn on behalf of the 2nd Defendant in support of the Order 14 application, no attempt whatever has been made to deal with the pleaded issues on the Reply and Defence to Counterclaim, or with the content of the 1st Plaintiff's affidavit in opposition. Indeed, these matters are entirely avoided, and the affidavit of the 2nd Defendant in support effectively amounts to no more than a recitation of the pleading.

12. With great respect, therefore, I am quite unable to agree with the view of the learned Master below. I can only assume that the argument which took place before him must have presented differently from that before me. Suffice to say, I am old-fashioned enough to apply Order 14 principles rigorously. My only hesitation in this case is as to the form of the Order, which in turn will have ramifications as to costs. Can the case be put high enough to justify the assertion that the 1st Plaintiff should not merely have leave to defend (or in this case, I suppose, leave to continue defending), but should Order 14 have been attempted at all in light of the pleaded issues? Since argument concluded late in the afternoon yesterday, this case has been adjourned overnight and I have had the benefit of some reflection on this issue.

13. I think the answer to this rhetorical question is probably "no". The pleaded allegations are clear and against the matrix of facts the subject to the litigation as a whole (i.e. the partnership dispute, the dissolution of the partnership, the requirement for an account and so forth) I do not consider that the 1st Plaintiff's assertions come near to the incredibility benchmark that Mr Liang urges upon me in order to hold the judgment he has been successful in obtaining. After taking all the circumstances into account, I consider this summary judgment application to have been a mis-judgment. It may have been a tactical manoeuvre, I know not, but in my view it was misplaced and quite inappropriate in the circumstances, whatever the ultimate merits as they may be established at trial.

14. Accordingly my Order is as follows :

(1) the 1st Plaintiff's appeal be allowed with costs in any event, such costs to be taxed if not agreed;

(2) the Order of the learned Master below, and the judgment entered on 4th December 1997, be set aside;

(3) the 2nd Defendant's application by summons dated 24th July 1997 be dismissed, with an order nisi that the costs of and occasioned by that application be to the 1st Plaintiff in any event, to be taxed if not agreed.

15. I have made an order nisi as to costs in anticipation of the fact that Counsel would not be present today to receive this judgment; however, since they are present, I am happy to hear any representations on costs that they feel they may wish to make.

[Submissions from Counsel]

16. I have now had the opportunity of hearing Counsel. Mr Liang very fairly concedes that in light of my judgment he has nothing to say about the costs of the appeal. The only thing he does say about the hearing below is that the defence of equitable set-off did not really assume prominence before the learned Master. I was aware of this, and indeed I do not think it makes any difference to my costs holding. The gravamen of the dismissal of this Order 14 Summons and the costs order following thereon is that these issues were clear to the 2nd Defendant on the face of the pleadings before the application was even mounted. Possibly, I suppose, it could be argued, as I thought Mr Liang might argue, that in the circumstances it was feasible at least to issue the application in order to see what would be put on affidavit; however, I do not think that would be a cogent argument or, indeed, an appropriate way to proceed. I think, at the end of the day, the short point is that this application should not have been made. The position was clear on the pleadings, and in my judgment the learned Master should have dismissed the application with costs. Accordingly, I am disinclined to make any alteration to the view that I have earlier expressed in delivering this judgment, and therefore the order nisi can now assume the status of a final order, Mr Liang having had his say.

17. I leave it to the solicitors for the 1st Plaintiff, who have the carriage of the Order, to formerly engross it for my signature.

18. I thank Counsel for their assistance.