BRUCE HUTCHISON v. HO PUI TSUN PETER

CACV 203/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 203 OF 2003

(ON APPEAL FROM HCA NO. 749 OF 2002)

____________________

____________________

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1. This was an appeal and cross-appeal from a judgment of Deputy High Court Judge Carlson given on 25 April 2003. The matter before the judge was an appeal from the master who had entered judgment in favour of the plaintiff in the sum of $500,000 as well as a separate judgment in the sum of $1,410,000 plus interest, but had ordered that there should be a stay of execution of that latter judgment pending trial of the counterclaim or further order. The judge below had dismissed the defendant's appeal and had made an order that the sum of $1,410,000 should be paid into court within 56 days. Although the appeal had been brought out of time, leave to appeal out of time was given by Yuen JA. At the conclusion of the hearing of this appeal this court allowed the defendant's appeal to the extent that the order for the payment of the $1,410,000 into court was set aside. The plaintiff's cross-appeal was dismissed. The costs of both the appeal and cross-appeal were made costs in the cause in the action.

Background

2. The plaintiff's case is relatively simple. It is based upon a deed by which the defendant acknowledged and confirmed that he was indebted to the plaintiff in the total sum of $2 million. The second part of that claim is in respect of dishonour of a cheque for $500,000, which had been given in part payment of the greater sum. The defence in the action pleads duress and undue influence. In respect of both those defences the judge below came to the conclusion that the defendant had failed to make out a believable defence. Against that ruling there has been no appeal.

3. The defendant has, however, raised a counterclaim. The essence of the counterclaim is that there has been a continuing relationship between the plaintiff and the defendant who, at one stage, were on very friendly terms. That relationship included the plaintiff giving the defendant horse racing tips from time to time. That had allowed the defendant to make considerable sums of money. It is the defendant's case that this arrangement then progressed to one where the profits of the betting would be split between the plaintiff and the defendant. The plaintiff, at that stage, was a trainer licensed by the Hong Kong Jockey Club. The obvious implications therefore arise. It is the defendant's case that that course of dealing between the parties then extended to share dealing where the defendant himself provided the necessary information. It then transpired that there was a downturn in the stock market as a result of which there were losses. It was those losses that formed the subject matter of the deed upon which the plaintiff brought action.

4. The nub of the counterclaim is that a continuing part of this cooperation between the plaintiff and the defendant led to the purchase of horses by the plaintiff in respect of which the defendant was to have a share in the profits. It is the defendant's case that he paid $2 million in respect of that. Whilst there is some difficulty in the fact that the defendant says that that payment was made in various amounts of cash and the documentation produced by the defendant only relates to the purchase of 6 horses and not, as pleaded, 8 horses, the fact remains however that the invoices produced by the defendant do show the defendant's name together with the plaintiff's name as the purchaser of those horses.

5. Whilst the judge below held that the counterclaim raised by the defendant was shadowy, he was quite correct, in my view, in concluding that the veracity of that counterclaim could not be decided at the summary judgment stage. In those circumstances whilst holding the defence to be shadowy he considered it appropriate to order the payment into court. After the judgment was handed down on 25 April 2003 the order was filed on 23 May 2003. It was only after the order had been sealed and filed that the point was raised on behalf of the defendant that the defendant was impecunious and could not raise the money that the judge had ordered to be paid into court. It was on the strength of an affidavit supporting that allegation that leave to appeal was given by Yuen JA. It should also be noted that the plaintiff consented to that evidence being admitted.

This appeal

6. It appears from the evidence which has been filed that the defendant's financial affairs are, indeed, in something of a parlous state and certainly he cannot pay the amount ordered into court. He has a salary of $35,000 per month. Out of that he has to pay the expenses of his son who is being educated abroad and that costs some $12,000 per month. He also has living expenses of at least $10,000 per month. It is his case that he has had to receive charitable payments from his brothers and sisters and friends and that the money which has been paid in respect of the judgment debt of $500,000 was borrowed money. On the basis of the evidence that has been filed, in my view, the conclusion has to be reached that the defendant is, indeed, impecunious.

7. Mr Fung, who appeared on behalf of the plaintiff, argued that the question of impecuniosity should have been raised earlier. He drew this court's attention to the decision of this court in Muhammad Ibrahim v Asmat A.M. Khan [1986] HKLR 580. In that case this court had considered the question of impecuniosity preventing a defendant from meeting the condition of payment into court. It was the view of this court that although the judge hearing the summary judgment application might, of his own motion, raise the question as to whether the defendant could meet a condition as to a payment in, it was not necessary that he should do so in cases where the defendant was represented. Huggins VP said at page 585J:

"... it should not be thought that, as a general rule, those advising parties seeking leave to defend should commit their clients to the expense of preparing evidence of their financial resources prior to an intimation from the Court that it intends to impose onerous conditions. However, if they do not come prepared with evidence it is incumbent on them at least to indicate that the defendant wishes to call evidence. In other words, they must raise any relevant issue of fact before the judge. It would make a mockery of the O.14 procedure if a defendant were entitled to remain silent about his lack of means at the time of the imposition of the condition and to raise it for the first time in the Court of Appeal: he could so raise it only if he obtained leave to adduce fresh evidence, and he would not be permitted to adduce fresh evidence upon an issue of fact which was not directly raised in the Court below. There had to be an end to litigation and a party who failed to adduce his evidence at the proper time could not be heard to complain if the decision went against him."

8. Whilst I consider that the approach outlined in that judgment is quite correct, it has to be tempered by the fact that a defendant cannot necessarily be expected to be aware that his own impecuniosity would be a ground upon which the court might not order conditions. Hence a mistake in failing to raise the matter before that judge, whether at the time of the hearing of the summary judgment application or, at least, prior to the judgment being sealed, is probably a fault of the legal advisers. Such faults should not be visited on the party concerned unless it is absolutely necessary and if the opposite party can be compensated in costs. In this case there is the added factor that the relevant evidence was permitted to be adduced on the application before Yuen JA.

9. Whilst, therefore, reiterating that if a defendant wishes to raise the issue of his own impecuniosity as a ground for an order for payment in not to be made against him, that should be done as part of the summary judgment application and not on an appeal. If such an issue is raised as a matter of appeal, the costs may well be awarded against the persons who were responsible for the issue not having been raised at the correct time, possibly that would be the legal advisers concerned.

10. In respect of the plaintiff's cross-appeal there was really little that Mr Fung could say as to the merits of the counterclaim apart from the fact that the matters raised in the counterclaim were shadowy. Given the difficulty of the disputed evidence from the defendant that he had paid $2 million in cash and the obvious necessity of the plaintiff having to explain the presence of the defendant's name on the invoices for the purchase of the horses, it was not possible for this court to come to the conclusion that the matters raised in the counterclaim were wholly unbelievable.

11. As regards the counterclaim constituting a ground upon which there could be an equitable set-off, Mr Fung relied upon the proposition that there were 2 requirements which had to be established for an equitable set-off to apply. In the first place the counterclaim had to be, at the least, closely connected with the same transaction as that giving rise to the claim. In the second place the relationship between the respective claims had to be such that it would be manifestly unjust to allow one to be enforced without regard to the other. For that proposition he relied upon the judgment of Simon Brown LJ in Esso Petroleum Co Ltd v Milton [1997] 1 WLR 938 at 950D. I consider that both requirements are sufficiently satisfied in this case for an equitable set-off to be held to be arguable at this stage. The defendant's case is that the transaction in relation to the horses was simply a follow-on from the previous transactions. Although they may be different, to the extent that they involved different subject matter, there is clearly a basis for the defendant to aver that they were simply a continuation of the cooperation between the plaintiff and the defendant in the various ventures which they undertook. In the circumstances of this case, it is clearly arguable that it would be unjust to allow of the plaintiff to recover on his claims but not to allow the defendant to set-off his claims.

12. The order as to costs reflected the practical outcome of the appeal and cross-appeal and avoided the necessity of an immediate order of a partial taxation.

Hon Le Pichon JA:

13. I agree.