HOTUNG INVESTMENT (CHINA) LTD v. ERIC SHEA KIM HOTUNG

HCA 77/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 77 OF 2012

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D E C I S I O N

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1.  This is an appeal by the defendant (“SK”) against the order of Master Herbert Au-Yeung made on 17 November 2016 giving him conditional leave to defend the claims of the plaintiff (“P”).

The parties

2.  At all material times, P was and is a limited company incorporated in Hong Kong.  Its principal activities are to hold the family properties formerly belonging to Mr Eric Edward Hotung (“EEH”) on trust for six of his eight children.

3.  SK is one of the children of EEH but not a beneficiary of this trust.  He is a beneficiary of some other trusts.

The claim, master’s order for conditional leave to defend and judgment

4.  P sued SK for misappropriation / wrongful detention / conversion of 300 ounces of American Eagle gold coins (“the Gold Coins”) and an antique ‘Ivory Screen’ as described in the will of the late Sir Robert Hotung (EHH’s father) (“the Ivory Screen”).

5.  P applied for summary judgment against SK on 22 April 2016.  Master Au-Yeung gave SK conditional leave to defend P’s claims on 17 November 2016 in the following terms:

(1)  If SK pays US$141,405 into Court by 4 pm of 29 December 2016, SK may defend the action as to the whole of P’s claim, costs of the application for summary judgment be in the cause of the action with certificate for counsel;

(2)  If that sum is not so paid, P may enter judgment against SK for:

(a)  SK do within 14 days deliver up 300 ounces of American Eagle gold coins or any part thereof still in SK’s possession;

(b)  SK do within 14 days deliver up the Ivory Screen;

(c)  In the event of SK’s failure to deliver up any of the items, there be an assessment of damages suffered;

(d)  P shall be entitled to the costs of the whole action (including the costs of this application with certificate for counsel and all costs reserved, if any) to be taxed.

6.  SK filed a notice of appeal on 1 December 2016.  He also asked in the notice for a stay of the master’s order pending the determination of his appeal.  But he did not seek a hearing for the application for stay.

7.  P has also obtained an interlocutory injunction on 14 December 2016 enjoining SK from selling, disposing of or transferring the Ivory Screen to anyone other than P and/or diminishing its value whether it be the screen as described in §7 of the amended statement of claim or as in §7.2of the amended defence and whether it be within or outside Hong Kong.  The injunction was extended by consent to the conclusion of this action.

8.  SK failed to pay the US$141,405 into court on 29 December 2016.  Since he had not obtained a stay of the master’s order, judgment was entered against him on 13 January 2017 pursuant to and in terms of §2 of the master’s order.

9.  Since judgment has been given to P, SK’s application for stay of the master’s order as adumbrated in the notice of appeal has lapsed.  I would pay no regard to the written submissions by Mr Gormley, counsel for SK for stay of execution of the master’s order. 

The legal principles

10.  SK now appeals against the master’s order.  He is seeking unconditional leave to defend the action.  An appeal from a master to a judge in chambers is conducted by way of rehearing the application before the master.  The party appealing has to open the appeal.  The judge will give weight to the master’s decision but is not bound by it (Hong Kong Civil Procedure 2017, Vol. 1 §58/1/2, p. 1084).

11.  In an Order 14 application, a condition of paying some or all of the money or damages claimed into court, or giving security, is imposed where there is a good ground in the evidence for believing that the defence set up is a sham defence or the master is prepared very nearly to give judgment for the plaintiff or where there is something suspicious in the defendant’s mode of presenting his case, or the court is left with a real doubt about the defendant’s good faith.  Leave to conditional on the full amount being paid into court may be ordered where the defence is “shadowy” or there is little or no substance in it or the case is almost one in which summary judgment should be ordered (Hong Kong Civil Procedure 2017 Vol.1 §14/4/16 page 281).

The plaintiff’s claims

12.  P’s claims have been set out in the amended statement of claim and are supported by the 2nd and 3rd affidavits of EEH and the 8th and 9th affirmations of Sean Eric Hotung (“SEH”), P’s current director.  The material facts of P’s case are set out in a chronological table in the written submissions of Ms Ng, P’s counsel.  The following table of chronological events of P’s case is taken from Ms Ng’s table:

	Date		Event		Reference
(1)	1969		P was incorporated in Hong Kong to hold certain trust properties for six of children of EEH borne by Patricia Hotung.		SEH 8th [1/65/§8]
(2)	22.1.1986		P purchased the Gold Coins from a bullion brokerage firm, Mocatta & Goldsmith at the total costs of US$131,680.00.  The Gold Coins were kept in a safe deposit box in BNP Bank in Hong Kong.  They were under the custody of EEH as trustee/bailee for P.		EEH 2nd [1/59/§4] SEH 8th at [1/65/§§11-13] “SEH-32” [1/158] SEH 9th [1/94/§10] “SEH-37” [2/338-367]
(3)	Around 2004		BNP Bank no longer provided safe deposit box services and EEH retrieved the Gold Coins and later took them to USA.  In early 2004, EEH kept them in a safe deposit box in the State of New York at a branch of Citi-Bank for P.  In mid-2004, EEH transported them to a safe deposit box in Sun Trust Bank in Mclean, Virginia, USA (“the Deposit Box”).  They were kept in the Deposit Box under the name of EEH.		EEH 2nd [1/59/§4] SEH 8th [1/65-66/§§12-14]
(4)	4.3.2005		Hong Kong Court ruled in HCA 571/2003 that P and Hotung Enterprises Limited were trusts holding properties for six of EEH’s eight children.		EEH 2nd [1/59/§3]
(5)	2006		EEH started to entrust his assets with SK.  EEH made SK trustee and gave him powers of attorney to various funds and assets.		SEH 8th [1/66/§15]
(6)	2007		SK became EEH’s financial adviser.  He managed EEH’s Hong Kong office and its staff from 2007 until he fell out with EEH in around August 2011.		SEH 8th [1/66/§15]
(7)	17.7.2007		SEH became a director of P and became responsible to recover for P all its assets that have been taken away by others.		SEH 8th [1/65/§10]
(8)	2009 or earlier		The Ivory Screen was placed in the Deposit Box.		SEH 8th [1/67/§17]
(9)	2009		EEH appointed SK a joint custodian and signatory of the Deposit Box.  EEH informed SK that the Gold Coins in the Deposit Box were held by EEH and SK as trustee / bailee for P.		EEH 2nd [1/60/§6]
(10)	24.5.2010		SEH wrote an email to SK requesting for confirmation that the Ivory Screen was safe and not in the possession of Barbara Mak (a daughter of EEH), and that the Ivory Screen needed to be inspected.		SEH 9th [1/97/§19] “SEH-39” [2/385-386]
(11)	31.5.2010		SK replied SEH by email and confirmed that he saw the Ivory Screen with Marty (Martha Alafoginis – an employee of EEH) in the Deposit Box a couple of weeks ago.  SK said that the screen had been there since it came from NY (New York).		SEH 9th [1/97/§20] “SEH-39” [2/385-386]
(12)	Later part of 2010 or Early 2011		EEH made a gift of the Ivory Screen to P.		EEH 2nd [1/60/§6] SEH 8th [1/67/§17]
(13)	Later part of 2010 or early 2011		SK removed the Gold Coins and Ivory Screen from the Deposit Box.		EEH 2nd [1/60/§7]
(14)	Early 2011		SK told EEH that he had removed the Gold Coins and Ivory Screen from the Deposit Box and would produce them upon request.  EEH requested SK to deliver the Gold Coins and Ivory Screen to him.  SK promised to do so before August 2011 but failed to meet the promise.  He also declined the further requests of EEH or his solicitors to do so.		EEH 2nd [1/60/§§8-9]
(15)	May 2011		SEH met SK in Hong Kong at the restaurant Jimmy’s Kitchen in Central.  SK knew that the Ivory Screen belonged to P.  He also knew that SEH had access to EEH’s safe deposit box in Hong Kong.  SK proposed to SEH that they could split the proceeds and contents of the Deposit Box and EEH’s safe deposit box in Hong Kong.  SK told SEH that more than half of the Gold Coins (175 ounces) had been converted into cash.  SEH declined the offer.		SEH 8th [1/67/§18]
(16)	28.12.2011		SEH’s brother Robert confided to SEH that SK refused to return the Gold Coins and Ivory Screen until he received certain documents signed by EEH.		SEH 8th [1/67/§19] “SEH-34” [1/205-206] “SEH-35” [1/207-221]
(17)	13.1.2012		P issued the writ of summons herein against SK to recover the Gold Coins and Ivory Screen.		[1/1-16]
(18)	15.4.2014		SK filed his defence.
(19)	21.4.2016		SK amended his defence.		[1/27-35]
(20)	22.4.2016		P applied for judgment under Order 14.		[1/41-46]
(21)	17.11.2016		Master Au Yeung heard P’s Order 14 application and gave SK conditional leave to defend.		[1/57-7 to  57-9]
(22)	1.12.2016		SK filed the notice of appeal to judge in chambers against the master’s order.		[1/57-10 to  57-13]
(23)	29.12.2016		SK failed to pay into court the US$141,405 for conditional leave.
(24)	13.1.2017		Judgment entered in favour of P for the whole claim.		[1/57-26 to  57-28]
(25)	21.3.2017		Hearing of the Order 14 appeal and P’s summons to adduce Yau Yuen Mei’s affirmation on the value of the Gold Coins.

The plaintiff’s case on the Gold Coins

13.  EEH said in his 2nd and 3rd affidavits that the Gold Coins were purchased by P and belonged to P [1/59/§4 and 1/88/§§9-12]. 

14.  P also relied on some accounting documents to prove its ownership of the Gold Coins.  It produced a few pages of the ledger for 86/87 showing the purchase of four lots of American Eagle gold coins totaling 300 ounces (the Gold Coins).  It also produced a current account with Mocatta for 86/87 from its accounting papers showing these purchases at a total costs of US$131,680 or HK$1,021,558.56.  It also produced its audited account for the year ended 31 March 1989 which was audited by Pricewaterhouse Cooper (in its former name of Lowe Bingham & Matthews) showing its holding of an investment in bullion coins of a worth at HK$1,012,559 in 1988.  The same investment also featured in its audited account for the year ended 31 March 1990 which was audited by Fung & Chan [Exhibit “SEH-37” 2/340-344, 355 and 365].

15.  EEH had in the past also used the Gold Coins as part of his assets to secure loan facilities from the Hong Kong Bank.  He produced a copy of his loan application [Exhibit “EEH-3” 2/323] and said:

“The Court will note on page 15 of said exhibit that the Ivory Screen and 300 ounces of American Eagles Gold Coins are listed as assets in the application form. In the said application, I tried to use all assets under my control (including the Gold Coins and the Ivory Screen) to increase my credit-worthiness to secure a better loan. I would eventually repay the loan and I had no concern at that time that any of those properties would be in danger.” [1/89/§15]

16.  It is also P’s case that SK had sold some of the Gold coins.  SEH said in §18 of his 8th affirmation:

“In May 2011, I met the Defendant (SK) in Hong Kong at Jimmy’s Kitchen in Central. The Defendant knew that the Ivory Screen belonged to HICL (P) and he also knew that I had access to EEH’s safe deposit box in Hong Kong. The Defendant (SK) proposed to me that he would split with me the contents of the safe deposit box EEH had in the USA, if I would split with him the contents of the safe deposit box EEH had in Hong Kong. He informed me that more than half of the Gold Coins (175 ounces) had already been converted into cash and we could split the proceeds and contents of both boxes. I declined his offer.” (emphasis supplied)

17.  P had previously used this conversation to claim SK’s money kept in Wing Hang Bank Ltd. on the basis that such money was the proceeds of sale of some of the Gold Coins.  The bank took out interpleader proceedings in DCMP 2083 of 2012. 

18.  One Mr Chan Wing Hong Ricky, a director of P, has also said in an affirmation made in the interpleader proceedings on 25 January 2013 that the Gold Coins were purchased by P in 1986 at US$131,680 and SK was appointed a joint custodian with EEH of these coins when they were kept in USA.  But SK refused to return them at EEH’s request in August 2012 [1/164-5/§§13(4)-15].  Mr Chan also produced a page of P’s ledger dated 31 March 2012 recording P’s purchase of the Gold Coins (American Eagle Bullion Coins) [1/195].  He said SK was aware that the Gold Coins belonged to P as SK had full access to all of P’s audited accounts which listed P’s assets. 

19.  SK denied that he had access to P’s audited accounts, but he did confirm that when he worked for EEH, he had seen a document that mentioned that 300 ounces of American Eagle gold coins (the same as the Gold Coins) were held in a deposit box in New York sometime in 2009 [1/77/§16].

20.  Furthermore, on 28 December 2012, SK’s brother, Robert Eric Hotung (“REH”), wrote an e-mail to SEH and said that SK had had no intention of returning the Gold Coins unless and until he received certain documents signed by EEH.  P then realized that SK had no intent to return to it the Gold Coins and/or the proceeds of sale of the Gold Coins.  The e-mail said:

“... Of course, matters are tense between EH (EEH) and ESK (SK) as ESK has EH’s gold and is not about to return it until their differences are resolved – something about a piece of document? ...”

SK’s defence to the claim for the Gold Coins

21.  SK in his original defence filed on 15 April 2014 admitted that he had received the Gold Coins from EEH, but alleged that they belonged to EEH who gave them to him as personal gifts [1/27/original §4 and 1/28/original §7.2].

22.  However, when P amended its statement of claim to clarify that the Gold Coins were 300 ounces of American Eagle gold coins purchased by P on 22 January 1987 from Mocatta & Goldsmid, SK changed his stance in his amended defence.  He did not accept that he had received from EEH the 300 ounces of American Eagle gold coins.  This was surprising as Mr Chan Wing Hong Ricky had already made it clear that the Gold Coins that P was claiming from SK were the 300 ounces of American Eagle gold coins.  This was maintained in P’s amended statement of claim and SK admitted that these were the gold coins he received from EEH. 

23.  SK changed his case in the amended defence.  He pleaded that he had received from EEH some 291 ounces of assorted gold coins.  These coins comprised some Canadian Maple Leaf gold coins 1990, some American Eagle gold coins 1986, some American Eagle gold coins 1989 and a few other gold coins of other types [1/28/§7.2].  He produced an inventory list prepared by Messrs. Gary Adkins Associates Inc. in June and August 2014 to verify that he had these coins in his possession [2/434-435].  He said these gold coins did not appear in P’s records.  He also alleged that EEH had told him in 2009 that EEH wanted to transport some 600 ounces of gold coins from Virginia to the United Kingdom.  He thus argued that the Gold Coins as claimed by P are not the same gold coins that were given to him by EEH [1/77/§16].

24.  However, it is P’s case that SK had prior to 2014 sold some of the Gold Coins.  The inventory, if true, only showed that he had purchased some other gold coins afterwards.

25.  I have referred to the interpleader proceedings above.  They were tried by Deputy Judge Kent Yee.  On the question of whether SK had sold some of the Gold Coins, the Deputy Judge said in §§35 to 37 of the judgment as follows:

“35.  On the issue as to whether ESK Hotung (SK) has sold the gold coins without the consent of the Company (P), the Company’s evidence is that in May 2011, there was a meeting between ESK Hotung and his brother Sean Eric Hotung (“SEH”), who is a director of the Company.  SEH contends that in the meeting at Jimmy Kitchen in Central, ESK Hotung told him that more than half of the gold coins (175 ounces) had already been converted into cash.  ESK Hotung further suggested splitting other assets of the Company between SEH and him. There were further details given about the meeting.

36.  ESK Hotung in his 2^nd Affidavit dated 11 March 2013 dealt with this serious and well-particularised allegation by three words only: “It is false”.  His bare denial in these circumstances is demonstrably unimpressive.  This is so despite the draft Deed of Settlement and Release sent by the Company under the cover of a letter dated 6 February 2012, which was made on the assumption that all the 300 ounces gold coins could be returned to the Company.

37.  In any event, I note that ESK Hotung himself does not deny that he has sold the gold coins. I cannot understand why he fails to so if the gold coins remain intact in his possession.”

26.  Thus SK in his affirmation filed in the interpleader proceedings did not deal with the issue of whether he had sold some of the Gold Coins.  His reply to the alleged conversation he had with SEH is “It is false”.  This reply can mean that there was no meeting as alleged or he did not tell SEH in the meeting that he had sold any of the Gold Coins or that he only said he had sold a smaller quantity of the Gold Coins.  This reply is indeed “demonstrably unimpressive”.  If he had not sold any of the Gold Coins, why did he not say so?

27.  P thus has a strong case to say that SK had sold some of the Gold Coins and his inventory only showed some repurchased gold coins.

28.  However, SK tried to argue in his 2nd affidavit that the Gold Coins claimed by P are the same gold coins that are in his possession.  He said:

“In short, there is no controversy between the parties that a quantity of coins was transferred from EEH to me. Both descriptions of these coins are around 300 ounces of pure gold coins, and the Gifted Coins are predominantly American Eagles. It is understood that it is their ownership that is the subject of controversy between the parties.”

29.  In saying that both sides are referring to the same lot of gold coins, SK is in fact trying to twist P’s claim to a specific lot of American Eagle gold coins (the Gold Coins) to a claim for another lot of gold coins of various composition and to duck the issue of whether he had sold some of the Gold Coins and repurchased some other gold coins.  His position is an impossible one as P’s case is clear that the Gold Coins are all American Eagle gold coins 1986, but the gold coins he is keeping is comprised not only of American Eagle gold coins 1986, but also of Canadian Maple Leaf gold coins 1990, American Eagle gold coins 1989 and a few gold coins of other types [1/28/§7.2].  The 1989 and 1990 gold coins could not have been purchased by P back in January 1986 as they were only available in the market in 1989 and 1990 respectively. 

30.  SK’s case is simply that his lot of gold coins is not the American Eagle gold coins purchased by P in January 1986, but another lot that EEF gave him in January 2009.  He alleged that EEH owned many other gold coins as EEH at one time wanted to move 600 ounces of them from the US to the UK.  

31.  To boost his case that EEH had another lot or lots of gold coins, he made use of the e-mail sent by REH to SEH dated 28 December 2012 (see above) which referred to the Gold Coins as “EH’s (EEH’s) gold”.  He thus argued that REH was referring to gold coins owned by EEH and hence not P’s Gold Coins. 

32.  However, I take the expression “EH’s gold” in REH’s e-mail to mean either gold belonging to EEH or under his control.  I do not think REH was using very precise language in the e-mail.  He was using terms casually to express something SEH understood and SEH knew what he meant.  It must also not be overlooked that it was EEH who had asked SK to be the joint custodian of the Gold Coins and SK later refused the requests of EEH and his lawyers for their return.  Hence, the return of the Gold Coins was a matter between EEH and SK until this action was taken out.  It is thus not surprising that REH would have described the Gold Coins as “EH’s gold” when in fact they belonged to P.

33.  Furthermore, EEF had explained why he did not have any gold coin and he only had control of P’s Gold Coins.  I have already referred to his introduction of his loan application to Hong Kong Bank above [Exhibit “EEH-3” 2/323] in which he listed on page 15 the 300 ounces of American Eagles Gold Coins as his assets.  He said in §15 of his 3rd affidavit that he had tried to use all assets under his control (including the Gold Coins and the Ivory Screen) to increase his credit-worthiness to secure a better loan in the said application.  He further said:

“... I am obliged to bring the said loan application to the Court’s attention for two reasons:

a.  If 600 ounces of golds coins truly existed, regardless of origin, then the application would reflect 600, rather than 300 ounces of gold coins; and

b.  ...”  [1/89/§15]

34.  Though SK tried to suggest that both sides are referring to the same lot of gold coins, that cannot be.  He is just confusing matters.  The plaintiff’s Gold Coins are all American Eagle gold coins 1986. 

35.  Ms Ng, counsel for P also pointed out that SK had pleaded and referred to in his affidavit a Mr Bisrat Tesfazion, a former manservant of EEH as the witness who allegedly can prove that EEH did give him the Gold Coins and Ivory Screen as gifts.  But he has not provided any witness statement or affidavit by this person to support his case.

Decision on the claim for the Gold Coins

36.  To sum up the analyses, P’s case of its ownership of the Gold Coins is well supported by evidence in particular the reading together of the accounting documents and the contemporary audited accounts.  EEH has also made it clear that he himself did not own any gold coin.  He only used the Gold Coins for his loan application as the coins were in his control. 

37.  However, SK’s defence to this claim is confusing.  He at one time admitted that he had the Gold Coins which were a gift from his father EEH.  But when he could not come up with the same coins, he twisted P’s case to suit the coins that he is keeping. 

38.  P’s case of ownership is strong. EEH has denied of having given the coins to SK as a gift.  But even if EEH did so, no title could have passed from P to SK as SK is not a bona fide purchaser for value and in good faith.  On the whole, I agree with the master that SK’s defence is shadowy and condition was properly imposed for leave to defend the claim for the Gold Coins. I am also of the view that the plaintiff is very close to the judgment seat.

The plaintiff’s case on the Ivory Screen

39.  P pleaded in the amended statement of claim that EEH gave the Ivory Screen to P as a gift in early 2011.  It is a screen described in the will of the late Sir Robert Hotung (EHH’s father).  The screen was later placed in the Deposit Box.

40.  It is SK’s original case that EEH gave him an ivory screen in around January 2009 together with the gold coins he described in the amended defence as a gift.  The screen and coins were kept in his safe deposit box in SunTrust Bank in the US.  He then removed them from the deposit box on 22July 2010 and did not access the box again.  Since P’s case is that the Ivory Screen was only placed in the Deposit Box (which is the same deposit box referred to by SK) in 2011, SK therefore disagreed in the amended defence that he had taken away the Ivory Screen of P.

41.  P then revised its case in the 2nd affidavit of EEH and 8th affirmation of SEH on when the Ivory Screen was placed in the Deposit Box.  EEH said in §§6 and 11 of his 2nd affidavit:

“6.  ... In the latter part of 2010 or early 2011, I gifted the Ivory Screen as described in the Will of my father, Sir Robert Hotung to the Plaintiff and the Ivory Screen was already in the said deposit box.

...

11.  I expressly state and hereby confirm that there is and was only one batch of Gold Coins (the subject matter in the Plaintiff’s claim) and one Ivory Screen (the subject matter in the Plaintiff’s claim) ...” (emphasis supplied)

42.  SEH also said in §11 of his 8th affirmation:

“11.  ..., in early 2011, EEH gifted an antique Ivory Screen (“Ivory Screen”) as described in the will of the late Sir Robert Hotung to the Plaintiff.  The Ivory Screen was already in said safe deposit box in 2009 or earlier.”  (emphasis supplied)

43.  After P has revised its case to say that the Ivory Screen was in the Deposit Box in 2009 or earlier, SK also accepted that both sides were talking about the Ivory Screen and not that there were two ivory screens.  He said in §41 of his 2nd affidavit:

“... The Defendant’s position is clearly not that there were ‘two sets of gold coins and ivory screens.”

SK’s defence to the claim for the Ivory Screen

44.  Since there is only the Ivory Screen, the next question is whether EEH had given it to SK as a gift in around January 2009.

45.  SK pleaded in §7.7 of the amended defence that EEH had in early January 2010 added one Barbara Mak (“BM”), a daughter of EEH, as a signatory of the Deposit Box but inadvertently removed SK as a signatory of the box.  SK was however reinstated as a signatory on 20 January 2010 [1/29/§7.7]. 

46.  Since BM had been a signatory of the Deposit Box, SEH was worried that she might have removed or tempered with the Ivory Screen. He then sent SK an e-mail on 24 May 2010 asking SK to inspect the Ivory Screen at the Deposit Box.  SK replied SEH on 31 May 2010 that he had inspected the Ivory Screen a few weeks before that.  The e-mails are as follows [2/386]:

24 May 2010 from SEH to SK:

“when was the last time the Ivory Screen was checked? there is a rumor B (BM) is in possession of the I. Screen. It must be kept in mind she replicated a stain glass window from the 1800s. The screen needs to be properly checked—each piece of ivory too. ...”

31 May 2010 SK to SEH:

“Saw screen with marty a couple of weeks ago in suntrust box. It has been there since it came from NY as far as I know. ...”

47.  Ms Ng submitted for P that SK in the e-mail correspondence did not consider the Ivory Screen as his property or that EEH had given it to him in January 2009. 

Decision on the claim for the Ivory Screen

48.  I agree that if the screen had been given to him as a gift in January 2009, there was no reason why he would not have told SEH the same in his e-mail reply or at least showed gratitude to SEH for being concerned that his property might have been stolen by BM.  His defence that the Ivory Screen had been given to him by EEH as a gift in January 2009 is thus shadowy and I am of the view that the plaintiff is very close to the judgment seat.  I agree with the master that he should only be given conditional leave to defend this claim.

The Condition imposed

49.  SK has an alternative ground for the appeal.  He said the conditional leave for him meant final judgment as the condition was beyond his ability to comply. 

50.  He relied on Hong Kong Civil Procedure 2017, Vol. 1 §14/4/16, p. 282 which says:

“When granting conditional leave to defend, the Court is required to consider all the circumstances, which include the financial circumstances of the defendant, and for practical purposes should not impose a condition, e.g. the payment into court of such a sum as would make fulfilment of the condition impossible ... it would be a wrong exercise of discretion to grant the defendant leave to defend on condition that he should pay into Court an amount which he would never be able to pay, for that would be tantamount to giving judgment to the plaintiff, notwithstanding the court’s opinion that there was an issue or question which ought to be tried.”

51.  However, SK also acknowledged that he has the burden to adduce sufficient and proper evidence as to his means and must make full and frank disclosure of his means.  It is not enough for him to show that it is difficult for him to fulfil the condition sought to be imposed (Kwong Key Construction & Engineering Ltd v Sunlink Ltd, CACV 457/2002, Unreported 27 May 2003, Hon. Yeung JA & Ma JA).

52.  Ma JA (as he then was) said in §§19 and 20 of the judgment:

“19.  The relevant principles regarding the court’s approach as to the question of a defendant’s means in relation to an order for conditional leave, are well known. The courts in Hong Kong have consistently applied the principles set out in the speech of Lord Diplock in Yorke Motors (a firm) v Edwards [1982] 1 WLR 444. I have already referred to the decision of this court in Hwang v Morgan Guaranty, where two features were highlighted: -

(1)  Where a defendant seeks to argue his impecuniosity in order to avoid a financial condition being imposed, the onus is on him to put sufficient and proper evidence before the court as to his means. He must make full and frank disclosure. The reason for this evidential burden (on top of the legal burden) is that usually it is the defendant rather than the plaintiff who will have any knowledge of his own financial position.

(2)  A defendant must show not that it is difficult for him to fulfil the condition sought to be imposed, but that it is impossible for him to fulfil it. Here, the possibility of a defendant obtaining financial assistance from, say, friends, relatives, financial institutions or (in the case of a company) related or associated companies, must be satisfactorily dealt with by him.

20.  Once a defendant satisfies the court of these two matters, the correct order would then be unconditional leave to defend even if the defence is shadowy. As Godfrey J said in Unic Company v Centus Developments Limited at 648:-

‘Further, leave to defend should not be made conditional where on the evidence as to the financial circumstances of the defendant, it is plain, or even probable, that to give the defendant leave to defend only upon condition that he pays the whole sum into court would be tantamount to refusing him leave to defend at all.’”

53.  SK relied on his 3rd affidavit in this action to say that he is currently unable to pay P the outstanding costs of HK$244,001.00.  Hence, it is impossible for him to pay US$141,405.00 into Court.

54.  However, there is not a page of exhibit to support what he said.  There is no information of his bank accounts in Hong Kong or elsewhere save those in Wing Hang Bank where the proceeds have been paid into court.  There is also no information about his business or employment at all.  He also has not said a word about the possibility of his obtaining financial assistance from friends, relatives or financial institutions.  He has therefore failed completely in making disclosure of his means.  I therefore cannot disturb the master’s order on the ground of his impecuniosity. 

Funds in court purportedly being proceeds of some of the Gold Coins

55.  As a result of the interpleader proceedings, funds standing in SK’s account with Wing Hang Bank totaling US$79,656 have been paid into court.  These funds are supposed to be proceeds of sale of some of the Gold Coins.  Mr Gormley has asked me to take that into account and reduce the amount in the condition imposed by the master.  He has indeed raised this point in §22 of his skeleton used before the master. 

56.  Ms Ng argued that that sum was paid into court under a different set of proceedings and should not be taken into account on the amount to be paid in.

57.  I disagree with Ms Ng.  The amount ordered by the master is equivalent to the purchase costs of the Gold Coins. The funds deposited in court is supposed part of the proceeds of the Gold Coins.  It would be unfair to SK if such sum is not taken into account in assessing the sum to be paid in by him.

58.  Though Ms Ng has tried to adduce an affirmation of by a solicitor of P’s solicitors to show that the amount ordered by the master is too low to represent the value of the Gold Coins, she has not been able to persuade me why I should allow this affirmation to be used on appeal.

Order

59.  In the premises, I allow the appeal by reducing the sum ordered to be paid into court to HK$481,640.

60.  I therefore set aside the judgment entered on 13 January 2017.  I further order as follows:

(1)    (a)  If SK pays HK$481,640 into Court within 28 days from today, SK may defend the action as to the whole of P’s claim;

(b)  costs of the application for summary judgment before the master be in the cause of the action with certificate for counsel; and

(c)  SK do pay P 85% of the costs of the appeal.

(2)    If the sum of HK$481,640 is not so paid, P may enter judgment against SK for:

(a)  SK do within 14 days deliver up to P the Gold Coins as recorded and described in Exhibit “SEH-37” at bundle 2 pp. 340-344 or any part thereof still in SK’s possession;

(b)  SK do within 14 days deliver up to P the Ivory Screen;

(c)  In the event of SK’s failure to deliver up any of the items, there be an assessment of damages suffered to P;

(d)  P shall be entitled to the costs of the whole action (including the costs of this application before the master with certificate for counsel and all costs reserved, if any) to be taxed; and

(e)  SK do pay P the costs of the appeal.