NG SHOU CHUN v. HUNG CHUN SAN

IN THE COURT OF APPEAL

1993, No.182
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

1. This is a plaintiff's appeal from Mayo J. who, on 8th November 1993, on an application by the plaintiff for summary judgment under 0.86 of the Rules of the Supreme Court, gave the defendant unconditional leave to defend the action.

2. The action arises out of an agreement made on 7th October 1991 for the sale by the defendant to the plaintiff of Flat E, 12th Floor, Forward Mansion, Tuen Mun. The sale price was $800,000, which both sides accept was an undervalue. The agreement contains a number of terms in standard form, but it also contains several exceptional provisions to which I now refer.

3. First, the amount of the deposit paid by the plaintiff to the defendant under the terms of the agreement was $400,000, 50% of the purchase price. This, of course, is greatly in excess of the conventional 10%, and immediately causes one to raise one's eyebrows. Secondly, the date fixed for completion of the agreement is a date, 7th October 1992, one year later than the date of the agreement itself; and one's eyebrows rise further. Thirdly, it contains a provision the effect of which is that the defendant was to be entitled at any time to call the sale off on 7 days' notice in writing to the plaintiff on repayment to the plaintiff of the $400,000 without compensation, interest or costs; and one's eyebrows rise into the stratosphere.

4. This highly unusual transaction arose in this way. The defendant, finding himself strapped for cash and unable to raise it through conventional sources, even on the security of the property, was introduced to the plaintiff, who was prepared to accommodate him. The accommodation, however, was not given in the conventional way, that is to say by way of loan of the money, secured by way of charge of the property. It was afforded by means of the agreement for sale of 7th October 1991.

5. All the subsequent documentation brought into being by the parties solicitors, is, as Mr Whitehead, for the plaintiff, pointed out, consistent with this agreement taking effect according to its tenor; but the solicitors' correspondence contains some letters worthy of attention.

6. By a letter dated 16th January 1992 and addressed by the defendant's solicitors to the plaintiff's solicitors, the defendant's solicitors wrote this :

" We refer to the above matter and write to confirm that our respective clients have agreed to sign the Cancellation Agreement in respect of the above property on or before 18th January 1992."

This letter does not further explain the circumstances in which it came to be written.

7. By a further letter dated 23rd January 1992, the defendant's solicitors wrote this :

" We refer to our letter of 16th January, 1992 and write to inform you that our client now has no intention to rescind the sale of the above property."

8. On 7th October 1992, the defendant's solicitors wrote this :

" Our client has verbally informed us that he will not complete the sale and purchase of the above property with your client on 10th October, 1992, nor will he return the deposit in the sum of HK$400,000.00 to your client since there has been a dispute on the matter."

9. On 13th October 1992, the plaintiff's solicitors wrote to the defendant personally, referring to the agreement, and adding this :

" Despite the said Agreement for Sale and Purchase, you have failed to complete the conveyancing transaction on the scheduled completion date nor return the said deposit to our client. As a result, our client has suffered losses and damages.

We write to advise that unless you return the said deposit in the sum of HK$400,000.00 to our client within 14 days from the date of this letter, we shall commence legal proceedings against you on behalf of our client without further notice."

10. Finally, on 28th January 1993, the plaintiff's solicitors wrote to solicitors now instructed by the defendant saying this :

" We are instructed by our client that our client is prepared to accept your client's repudiation of the Sale and Purchase Agreement.

Please therefore return all the monies paid by our client within 7 days, failing of which legal proceedings will be commenced against your client without further notice."

11. Against this background the case for the plaintiff is, as Mr Whitehead described it, a simple one. The plaintiff agreed to buy the property; a sale and purchase agreement was duly drawn up; the deposit of $400,000 was paid; and the defendant has now resiled from the agreement.

12. But the defendant says, first, the transaction never took place at all; he never received the $400,000.Second, he says that in considering the transaction, the court should look at the substance and not the form and should conclude that it was in reality a transaction for the loan of $400,000, the property standing by way of security for repayment of that sum. Thirdly, the defendant says the transaction was a money lending transaction; and that the plaintiff is an unregistered money-lender and so precluded from recovering the money under the terms of the Moneylenders Ordinance, Cap.163.

13. Mr Whitehead accepts that this was an unusual transaction. He says, however, that both sides were represented by solicitors; and that the defendant's case depends on mere assertion. He says in particular that the defendant's assertion that the $400,000 was not paid to him is, on the evidence , incredible.

14. On this point, that is to say, whether the $400,000 was ever received by the defendant at all, I would accept the submission of Mr Whitehead that that assertion is incredible. In National Westminster Bank Plc v. Daniel, 19th February 1993 (unreported), Glidewell L.J. said this :

"I think it right to follow the words of Ackner LJ in the Banque de Paris case - or indeed these which amount to much the same thing (as I see it) of Lloyd LJ in the Standard Chartered Bank case. 'Is there a fair or reasonable probability of the defendants' having a real or bona fide defence'? Lloyd LJ posed the test: 'Is what the defendant says credible?' If it is not, then there is no fair or reasonable probability of him setting up a defence."

15. I would apply that test to the defendant's assertion about the $400,000 here.

16. 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 0.14 or 0.86 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.

17. Having said that, I repeat that the defendant's assertion in this case that he never received the $400,000 is in my view beyond belief and if the matter had rested there I would have allowed the appeal. But the matter does not rest there. There remain the defendant's two other points to be considered.

18. As to the defendant's second point, he is right in contending that equity looks at the substance of the transaction, not the form. There are many cases in the books where a sale, with a collateral agreement for repurchase by the vendor within a stipulated time. has been held by the courts to be. in essence. a transaction by way of mortgage. The undervalue, and highly unusual provisions of the agreement here, suggest that this was just such a transaction. It will be for the trial judge to decide what evidence he accepts and what evidence he rejects But the circumstances seem to me, on the face of it, to be consistent more with a transaction by way of charge to secure the repayment of the $400,000 than with a genuine transaction of sale and purchase. (Nothing I say is, of course, intended to pre-empt any decision of the trial judge, who will have the advantage which we have not of seeing and hearing the witnesses.)

19. On that ground alone, therefore, I would agree with the judge and say that this is plainly a case which requires investigation at trial and, accordingly, is a case in which the defendant ought to be given unconditional leave to defend.

20. As to the defendant's third and last ground of defence, the money-lending defence, we have had cited to us the case of Nash v. Layton [1911]2 Ch 71. It appears there was nothing in the nature of the loan in question in that case or elsewhere in the pleadings to suggest that the plaintiff was a money-lender; yet the majority of the court allowed the defendant to interrogate the plaintiff on just that matter. That authority has stood for a long time; and the present case, where as I think there is something in the nature of the loan in question to suggest that the plaintiff might be a money-lender, seems to me to be an a fortiori case for giving leave to the defendant to advance the money-lending defence at the trial of the action (by which time the appropriate interrogatories will have been administered).

21. I would uphold the decision of the judge accordingly and dismiss this appeal.

Nazareth, J.A. :

22. I agree and I would only add for myself, despite the unsatisfactory nature of aspects of the defendant's evidence which my Lord has referred to and indeed the judge below referred to, and despite the documentary evidence upon which Mr Whitehead has laid considerable emphasis as being consistent with the plaintiff's evidence, and also despite Mr Whitehead's powerful submissions, in the unusual circumstances of this case, and having regard in particular to the terms of the sale and purchase agreement, I have in the end, had no difficulty in concluding that the defendant's case is not incredible, and that he has discharged the threshold onus that is referred to in the Murjani case to show a triable issue. In short, I am satisfied that this is a case that should go to trial.

Mortimer, J.A. :

23. I agree and I would also dismiss this appeal.

24. In his short judgment, the judge below said "It is indeed the case that if the defendant's evidence is considered on its merits, his defence is not very convincing." With that, for my part, I agree. In particular, it is my view on the affidavits that have been put before the Court that his contention that he did not received the $400,000 is incredible. Of course that in no way binds any other tribunal which considers the point. But, in 0.86 proceedings for summary judgment, that is not the end of the matter. The defendant raises the issue that in any event the transaction was not that which it appears, and on this point the plaintiff is in difficulties on his own case. The issue is : was it an agreement for the sale and purchase of this flat; or was it, in truth, the loan of $400,000 with the agreement that there should be a charge on the flat as security. Suffice it to say that for the reasons given already, the nature of the transaction, the correspondence, the history, and the nature of the plaintiff's claim as initially made, show that there is an issue to be tried, and that the case ought to go for trial as the judge decided.

25. I agree with what has fallen from Godfrey J.A. on the proper approach to affidavit evidence in 0.14 and 0.86 proceedings and the futility of holding lengthy hearings in them.

26. So far as the Moneylenders Ordinance and the defence sought to be raised by amendment is concerned, for my part, I would not make it any part of my reasoning for dismissing the appeal. I can see that it may fall for argument in future cases where there is an application for summary judgment on the loan of money, and the defendant seeks to raise a defence under the Moneylenders Ordinance in the hope that he may obtain some evidence which supports his defence by the administration of interrogatories following Nash v. Layton [1911]2 Ch 71. That is a matter which may fall for argument in the future. I would not make it any part of my reasons for dismissing this appeal.