PONG YUEN MAN TOMMY v. YEUNG KANG LAM

CACV 555/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 555 OF 2001

(ON APPEAL FROM HCA NOS. 8447 AND 9307 OF 2000)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a decision of Chu J, given on March 2001. Although the decision is dated 27 March, the reasons for the decision were prepared after the hearing and sent to the parties on 3 April. The application before the judge was an appeal from an order of the master dismissing an application under Order 14 for summary judgment.

2. At the hearing of this appeal, this court allowed the appeal and said it would hand down its reasons for judgment in writing. This I now do.

3. There are 2 actions. The plaintiff in the first action, Yeung Kang Lam ("Yeung"), sued the 2 defendants, Pong Yuen Man, Tommy and Tam Che Ming ("Pong" and "Tam") for the balance of $2 million said to be owing in respect of an introduction fee. The case was quite simple. It was said that the parties had agreed in January 2000 that the plaintiff would introduce the defendants, or more particularly Union Contractors Limited ("UCL"), the company of which they were directors and shareholders, to GKC Holdings Limited ("GKC"). GKC was at the time in financial difficulties. Indeed, since January 2000 it has gone into liquidation. The purpose of the introduction was to put Pong and Tam and their company into a position whereby a scheme of arrangement could be devised that would ultimately benefit their company. The statement of claim alleged that the fee was to be $20 million, if the scheme of arrangement went through, and $11 million, if it did not. The $2 million was what was said to be outstanding after payment had been made by 3 cheques totalling $9 million.

4. The second action started as a claim based on an agreement reached at the end of February 2000 for a loan of $9 million repayable within 2 months with interest of $600,000. When the writ, with the statement of claim endorsed, was issued, it did not contain a claim in respect of dishonoured cheques. The terms of the loan were varied by oral agreement in mid-August 2000. Pong sued Yeung for the principal loan sum of $9 million and interest of $2.1 million (or alternatively $600,000).

5. Yeung's reaction to the second action was to apply to strike it out as an abuse. His case was that he had already made a claim for the unpaid $2 million portion of the introduction fee. In their defence, which had been filed only a week before the second action had been started, Pong and Tam had made no mention of the alleged agreement reached in mid-August to pay $2.1 million interest. Rather they had admitted some dealings between the parties in respect of GKC but denied any liability to pay the introduction fee. Yeung's case was that the second action should have been dealt with as a counterclaim to the first since the $9 million that Pong claimed was a loan, was the same $9 million that Yeung had already alleged was part payment of the introduction fee. It was said on Yeung's behalf that the second action had been started merely to cause embarrassment to Yeung, who was himself the chairman of a public company.

6. An order was made in the second action on 8 December 2000 to consolidate that action with the first. However, the court file of the first action does not show a corresponding order. If there was a failure to make orders in both actions, that was compounded by the fact that proper directions were not given for the further conduct of the actions including, in particular, as to the heading of the proceedings. That, in turn, may have caused some confusion to the Judge below, since the opening paragraph of the judgment appears to refer to the wrong action.

7. In the second action, Pong sought summary judgement under Order 14. The master dismissed that summons and gave costs to Yeung. On appeal the judge not only set aside the master's dismissal but gave judgment for Pong.

8. Quite simply, Yeung's affirmation in answer to the summary judgment application, although brief, said that the cheques upon which suit was brought, were given in pursuance of an oral agreement. That agreement had been made in June 2000. It was that Pong would sell Yeung 7,300 tons of steel of screw shape for construction at $1,507.00 per ton. Under the oral agreement there were to be four shipments, all in July 2000. The four undated cheques were deposited with the plaintiff so that he may insert the dates and present them for payment three days after each delivery. The plaintiff made no delivery at all.

9. These are obviously unusual events. But is the defendant's case unbelievable? The master did not think so. There may be very little documentary evidence to support Yeung's case but there is, likewise, very little to support Pong's case either. One thing there is, is a letter from Kingsway Capital Investment Limited. That company was engaged to advise the investors on the restructuring of GKL. The letter was to UCL. In it, Kingsway Capital Investment Limited set out the terms of its engagement. There is the further matter that the defence in the first action admits involvement of the parties with regard to GKC.

10. The judge below acknowledged that it was wrong to indulge in a mini-trial of the action on affidavit and that the court should look to see whether the defendant's allegations are credible. In the end, however, the judge said this:

"Other than the bare denial and the assertions on pleadings, there is simply no material, let alone evidential material, before the court. There is no triable issue and no defence to the alternative claim."

11. Although it is true that before the master there was no defence filed on behalf of Yeung in the second action, that is hardly surprising. The writ in the second action was issued on 3 October 2000. It was not served immediately, but the defendant came to know about it because details were in the newspapers. On 14 October 2000, before the writ in the second action had been served, application was made on behalf of Yeung to dismiss or stay the action as being an abuse of process. That application was supported by an affirmation which referred to the first action and the allegations made by the parties.

12. The writ in the second action was thereafter amended on 19 October. The summons to dismiss or stay the proceedings was adjourned on the 20 October to a date to be fixed. The order 14 application was not made until 16 November.

13. There are 2 reasons why a defence would not have been filed prior to the hearing of the order 14 application on 8 December. In the first place, it would have been illogical in view of the outstanding summons to dismiss or stay. In the second place, in accordance with proper practice, no defence should be filed until after the order 14 application had been disposed of. The allegation that the cheques had been given in respect of the steel contract was contained in affirmation of 7 December. It is only if that allegation were unbelievable that that allegation should have been ignored and judgment should have been given.

14. I see no reason why it should be said that Yeung's affirmation as to the reason for the existence of the cheques was unbelievable. The only suggestions that can be made are that the details of the contract were too vague, that it was such an unusual way of doing business, that it was inherently unlikely that the parties could have made such a contract and that there was no documentary evidence. Pong's advisers may well consider that these matters may be good material for cross-examination of Yeung, but they do not make his version of events unbelievable.

15. Unfortunately, whilst the Judge below did caution herself not to go through a trial on affidavit, there seems to have been a considerable amount of weighing of probabilities in the judgment. The query as to why the defendant should issue cheques, as opposed to having payment effected by letter of credit, is one such point. It may have been strange, as the Judge said, but it is not unbelievable.

16. It is worth mentioning that under Order 14 r. 4(1), it is for a defendant to show cause against an application "by affidavit or otherwise". Although normally the defence will be on affidavit, the rule makes quite clear that a defendant can show cause "otherwise". In this case, the first action cannot be ignored. It was Yeung's case that he received $9 million as part of his introduction fee. There is nothing incredible about that. Furthermore, the letter from Kingsway Capital Investment Limited clearly shows an involvement of UCL with GKC. That letter may not have mentioned Yeung's introduction. There is no apparent reason why it should have done.

17. Without descending into realms of probabilities, it can also be said that Pong's case has not been entirely consistent.

18. Mr Fung SC on behalf of Pong has argued that, even if there is an arguable case in relation to the matters arising on Pong's claim that there was a loan, there is a claim on a bill of exchange namely the first cheque for $3 million. However, in the circumstances of this case, I do not see that this alters the position. Yeung's case is that there was a total failure of consideration.

19. The only question, in my view, which arises in this case is whether the application for summary judgment should have been made and pursued. The reply in the first action was served on 5 October. By that stage it was clear that issue had been joined. In their defence Pong and Tam had admitted that there was some sort of an arrangement between Yeung on the one side and Pong and Tam on the other in relation to restructuring GKC. The allegation that the $9 million payment in the 3 cheques was a loan, had been denied in the reply.

20. As already stated, the second action started as a claim based on a loan of $9 million. When the writ, with the statement of claim endorsed, was issued, it did not contain a claim in respect of dishonoured cheques. It is true to say that it contained various statements about the cheques, but those paragraphs were hardly in a form suitable for a pleading and were, in my view, liable to be struck out as embarrassing. When Yeung made his affirmation on 14 October, the writ had not been served. The only allegation that he had to deal with, therefore, was the allegation that there had been a loan. The writ was amended 3 days after the summons to dismiss or stay. The amendment brought in the claim based on the dishonoured cheques. As the judge found, only one of the cheques was dishonoured prior to the issue of the writ. Hence a claim in the second action could only be made on the first cheque.

21. The summons under Order 14 was not issued until nearly a month later, on 14 November. It was adjourned to 8 December, in the terms of a consent summons issued on 25 November. On 7 December, Yeung's affirmation containing his allegation in respect of the cheques was filed. Short of any devastating documentary evidence, the matter was bound to turn on the credibility of the witnesses. Both sides were alleging oral agreements. There was no evidence that Pong could give in reply. In my view, instead of attempting to argue based on probabilities and deductions, the matter should have proceeded to trial.

22. Nevertheless, given the timing of the various events, whilst I have some doubts about the matter, I consider that it could be said that it was not until 7 December that Pong's advisers knew of the defence in respect of the first cheque. Although the claim in respect of the other cheques was pursued even in the court below, I consider that it might be said that it was too late by 7 December to save the costs of the hearing before the master. Since that was the date on which the allegations in relation to that claim became clear, it may be said that costs in the cause of the hearing before the master was a permissible order.

23. However, apart from the fact that the time scale was clearly very tight, there was no other justification in my view, for pursuing this application for a summary judgment. Interlocutory skirmishes, are highly undesirable. They add to costs and delay. Unless an application for summary judgment is clear, it should not be pursued.

24. This court therefore ordered that the appeal would be allowed, that Yeung would be given unconditional leave to defend and that the costs before the master would be costs in the cause and the costs here and before the judge would be to Yeung.

Hon Le Pichon JA:

25. I agree.