HUNLICAR SECURITIES LTD v. CHANG KAR HUNG

HCA 1118/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1118 of 2009

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AND

HCA 2540/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2540 of 2009

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BETWEEN

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D E C I S I O N

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Introduction

1.  There are the defendants’ appeals against the master’s orders both dated 10 February 2010.

2.  The master’s orders were made pursuant to RHC Ord. 14.  In short, she entered summary judgment against both defendants with interest and costs.

3.  The claim in HCA 1118/2009 (“A1118/09”) is $1,344,125.80.  The summary judgment entered against the defendant in A1118/09 (“Chang”) is $1,206,225.87 ($1,344,125.80 - 6,732.59 - 64,269.18 - 66,898.16).  Unconditional leave was given to Chang to defend:-

(a)     $6,732.59 and $64,269.18 being monthly rebate allegedly omitted for August and September 2008 respectively (which the plaintiff claims are not payable);

(b)    $66,898.16 being an alleged miscalculation of the monthly rebate for May 2007 (which the plaintiff does not admit).

4.  The claim in HCA 2540/2009 (“A2540/09”) is $781,511.88.  The summary judgment entered against the defendant in A2540/09 (“Mdm Chan”) is as claimed.

Background

5.  The background is undisputed.

6.  The plaintiff has been a licensed stockbroker.  Both defendants were its customers.  When they were trading in stocks through the plaintiff, the defendants each operated a number of stock accounts.  Although there was a cash account for each, most transactions were made through the margin accounts.

7.  Chang started to trade through his own accounts in July 2005 and he started doing so through Mdm Chan’s accounts as well in January 2006.  The stock accounts were liquidated in April 2009.

8.  Because Mdm Chan’s accounts were in fact operated by Chang, the facts relevant to the determination of both appeals are essentially the same (whether according to the plaintiff or according to the defence).

9.  The parties therefore agree that, at least for present purpose, I can approach the matter as if there were only one appeal.

Defence to the Claims (and Counterclaim)

10.  As can be expected, the plaintiff charged broker’s commission for the stock trading (gross rate agreed to be at 0.25%).  There is no dispute commission rebates were payable by the plaintiff to the defendants.  The parties however dispute the kinds of rebate as well as their rates.

11.  According to the plaintiff, there were the monthly rebate and special rebate.  According to the defence, however, in addition to the monthly and special rebates, there was also an annual rebate.

12.  As regards the rates of the rebates, the plaintiff’s case is that, for the monthly rebate:-

“… if the [defendants] could achieve a turnover exceeding certain amount per month, the Plaintiff would only charge effective brokerage commission at a lower rate and would refund the excess brokerage commission received back to the [defendants] … ” (para. 5(ii), reply and defence to counterclaim).

For the special rebate:-

“… the Plaintiff would at its absolute discretion grant certain clients including the [defendants] a … lump sum if the Plaintiff considered [those] clients as valuable clients who had generated significant brokerage income to the Plaintiff such that the Plaintiff would like to retain those few clients by offering further incentives … ” (para. 16(iii), 1^st affirmation filed on the plaintiff’s behalf).

13.  At the time of the master’s hearing, this aspect of the defence case is summarised in the defence and counterclaim as follows:-

“In or about 2005, a Mr. Ken CHEUNG for and on behalf of the Plaintiff orally agreed with the [defendants] … ”

in relation to the monthly rebate:-

“… a rebate to the [defendants] at the rate of 0.125% of the total trade volume under all of the [defendants’] securities trading accounts with the Plaintiff payable monthly”,

and, in relation to the annual rebate:-

“.. [there] would be a further rebate at the rate of 0.03% of the total trade volume under all of the [defendants’] securities trading accounts with the Plaintiff payable annually … ”

(para. 7, defence and counterclaim).  The contents of the pleadings were verified by Chang’s affirmation.

14.  At the time of these appeals, however, the defendants seek to change this part of their case as follows:-

(1)     in relation to the monthly rebate: “… what was actually agreed was that the monthly percentage rebate would be a 0.125% and that this figure would be subsequently adjusted, from time to time, according to the monthly rebate rate which other securities firms were offering … ”;

(2)     in relation to the annual rebate: “[however] I am certain that it was also orally agreed that on top of the monthly rebate there was to be an annual rebate at the rate of 0.03% of the annual total trade volume”

(para. 6, Chang’s 3^rd affirmation).

15.  Because this affirmation has not been adduced at the first instance hearing, leave to adduce it on appeal is required pursuant to Ord. 58 r. 1(5) (see further para. 37 to 40 below).

16.  The defendants clarify during the appeal hearing the amount of monthly rebate and special rebate is no longer disputed, nor is their payment disputed.  Consequently, the only dispute revolves around the alleged annual rebate.

17.  At the court’s request, counsel have kindly agreed on and provided a table showing the amount of annual rebate which in gist is now the subject-matter of the counterclaim against the plaintiff.

18.  According to the table, the amount of annual rebate which the plaintiff allegedly owes the defendants totals about $3 million.  For the period from 2005 to 2009, the amount outstanding for each year was:-

(a)     2005: $103,506.69;

(b)    2006: $587,009.92 ($492,484.50+27,245.46+67,279.96);

(c)     2007: $1,854,467.28 ($934,731.97+919,735.31);

(d)    2008: $404,535.94 ($108,005.51+296,530.43);

(e)     2009: $53,004.18.

19.  In view of the said amount of about $3 million, it is the defendants’ case the plaintiff should still owe them about $374,000 after a set-off ($3 million – ($1.344 million + 781,511.88)) (the defence also allege the plaintiff has made a part-payment of $500,000 (see para. 27 below)).

20.  Up to the time of these appeals, no particulars have been given for the counterclaim.  The said sum of about $374,000 now appears to be the amount counterclaimed.

Is the Defence Believable ?

21.  The applicable legal principles are undisputed (this being essentially a case of whether the defence case is believable).

22.  Those principles have been summarised in Hong Kong Civil Procedure 2010, Vol. 1.  They are quoted below for ease of reference:-

“It is appropriate to be reminded of the principles applicable to an O.14 application.  They are well-known. … The [defendants] … must show that there are triable issues.  [They have] to satisfy the court that [they have] a ‘real or bona fide defence’. … If [they make] an allegation, it must be credible or believable in the light of the evidence placed before the court.  As Bokhary J.A. said in Re Safe Rich Industries Ltd ([1994] H.K.L.Y. 183):

‘The test at the summary stage is indeed as simple as whether the [defendants’] assertions are believable.  But it must be recognized─because failure to recognize it would create a debt-dodger’s charter─that whether the [defendants’] 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 [is] 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. …

‘Unless it is obvious that the defence put forward by the [defendants] is ‘frivolous and practically moonshine, O.14 ought not to be applied’ …’: per Godfrey J.A. in Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 at 228.

“It is trite law that the mere assertion in an affidavit of a given situation does not, ipso facto, provide leave to defend, since the [defendants] must satisfy the court that [they have] a fair or reasonable probability of showing a real or bona fide defence, i.e. that [their] evidence is reasonably capable of belief. … After reviewing all the authorities, the English Court of Appeal has laid down a definitive ruling that if the evidence of the [defendants] is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the [defendants have] a real or bona fide defence and judgment will be given to the plaintiff (… Ng Shou Chun v. Hung Chun San [1994] 1 H.K.C. 155 at 158), … there are some cases in which the [defendants’] own case, although apparently it raises issues which, if found in [their] favour, would provide [them] with a defence, are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that [their] defence is a sham’: per Mortimer J.A. in Manciple Ltd v. Chan On Man [1995] 3 H.K.C. 459 at 466.  Two tests are appropriate, namely ‘Is what the [defendants say] credible?’ and ‘Is there a fair or reasonable probability of the [defendants] having a real or bona fide defence?’  Where an issue of fact is raised, the first question must be answered in the affirmative before considering the second.

However, practitioners are reminded that O.14 is not intended to be a mini-trial of the action on affidavits.  “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 [defendants say] credible?’  If so, [they] must have leave to defend.  If not, the plaintiff is entitled to summary judgment.  The issue is not whether the [defendants’] assertions are to be believed; it is whether those assertions are believable”: per Godfrey J.A. in Ng Shou Chun v. Hung Chun San [1994] 1 H.K.C. 155 at 158.” (emphasis supplied) (para. 14/4/9).

23.  In short, I do not find the defence to be believable, and therefore conclude that there is no real or bona fide defence.  The reasons are summed up below.

24.  First, as a broad-brush observation, it is inherently implausible a claim that amounts to about $3 million (and amounted to some $1.85 million in 2007 alone) is not reflected in any contemporaneous documents at all (whether to evidence the agreement, or the defendants’ later claim, for it).  There is no written evidence of payment either (the defendants’ allegation relating to the sum of $500,000 will be discussed in para. 27 to 32 below).

25.  On the other hand, both the monthly rebate and special rebate are shown in the plaintiff’s records.

26.  Secondly, the contemporaneous record relating to the sum of $500,000 supports the plaintiff’s case and discredits the defence case.

27.  The plaintiff mentioned in its affirmation there was a loan of $500,000 advanced by its manager to Chang in May 2008 to refute the defence claim that it owed to the defendants rebate in arrears.  In response, Chang deposed that this was part-payment.

28.  Several matters should be noted in this regard:-

(1)     the payment of $500,000 was by way of the personal cheque of the plaintiff’s manager (the husband of a major shareholder of the plaintiff);

(2)     the plaintiff’s statement recorded the deposit of said sum as “CASH DEPOSIT”;

(3)     Chang deposed initially the said sum was for the part-payment of “the annual/monthly rebate”.  The latest defence case is that they were part-payment of the annual rebate (the monthly rebate is now admitted to have been paid) (see also para. 13 and 14 above);

(4)     in each of the monthly statements for 2008 (up to September), the plaintiff charged interest (in thousands of dollars).  By the end of 2007, according to the defence calculation (para. 18(a) to (c) above), the plaintiff should owe the defence about $2.54 million.

29.  I agree with the plaintiff the above matters are inconsistent with the defence case regarding the $500,000.

30.  If the plaintiff had in fact owed the defence annual rebate, it just needed to make “part-payment” by a credit entry in the monthly statements instead of its manager issuing a personal cheque.  Also, the entry in the monthly statement should state “annual rebate” (or some description) instead of cash deposit (the defence has not been able to explain why a wrong description has been used in the monthly statement).

31.  As regards para. 28(4) above, the charging of interest when, according to the defence, the defendants should have been the plaintiff’s creditors for a sum totalling some $2.54 million is also inherently implausible.

32.  In so concluding, I take into account Chang was an active stock trader during the relevant time period and he was responsible for directing which of the trading accounts were to be used for such purposes.

33.  The defence also relies on the affirmation of two individuals, a Mr Chan and a Mr Wu, to support its case.  They are described by the defence as independent witnesses.

34.  Mr Chan is himself sued by the plaintiff for sums similarly arising out of his stock trading.  He has motive to speak for the defence because his defence is the same in nature as the defendants’.

35.  Mr Wu deposed he was also promised annual rebate by the plaintiff.

36.  There is no need to go into the details save to say the contents of their affirmations are not such as to show triable issues or for some other reasons there ought to be a trial in the light of the contemporaneous documents adduced herein.

Application to Adduce Fresh Evidence

37.  The relevant legal principles are agreed.  The evidence:-

(a)     could not have, with reasonable diligence, been obtained at the earlier hearing;

(b)    if admitted, would probably been an important influence to the case;

(c)     is apparently credible

(the definition of “special grounds” in Ord. 58 r. 1(5): Fortis Insurance Co. (Asia) Ltd. v. Lam Hau Wah Inneo, HCA 1840/2009 (30 March 2010), para. 15-16; Ladd v. Marshall [1954] 1 WLR 1489).

38.  Some latitude is afforded in relation to summary judgment applications: Langdale v. Danby [1983] 1 WLR 1123, 1133 applied in Chan Yau v. Chan Calvin & Others, HCA 666/2007 (15 May 2009), para. 20 to 22.

39.  I agree with the plaintiff the defence has failed to satisfy the conditions summarised in para. 37(a) and (c) above in view of the matters set out under the heading “Is the Defence Credible?”.  In relation to para. 37(c) above, the change of stance also adversely affects the credibility of the defence case (see para. 13, 14 and 28(3) above).

40.  The application is accordingly refused.

Conclusion

41.  The appeals are dismissed.

42.  Further, the admission made during the hearing of the appeals (see para. 16 above) appears to cover the matters which the master thought should be triable (para. 3(a) and (b) above).

43.  Unless the defence states in writing within 7 days that the admission should not so apply (with reasons) (with liberty to the plaintiff to reply within 7 days thereafter), the master’s order is to be amended for judgment to be entered against Chang for the entire sum claimed.

Costs Order

44.  The parties agree the usual rule that costs should follow the event is applicable if the appeals are dismissed and the applications to adduce fresh evidence are refused.

45.  There will accordingly be a costs order that the costs of the appeals and the applications be paid by the defendants to the plaintiff to be taxed if not agreed.