張侃 v. 尚品匯(香港)國際貿易有限公司

CAMP 415/2022

[2023] HKCA 65

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 415 OF 2022

(ON AN INTENDED APPEAL FROM DCCJ NO 4405 OF 2019)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is the plaintiff’s application for leave to appeal out of time against the judgment of Deputy District Judge Gary Lam dated 26 July 2022 (“Judgment”)[1] dismissing the plaintiff’s claim and allowing the defendant’s counterclaim.

2.  Having considered the papers, we exercise our power under Order 59 rule 2A(5)(a) to determine this application on the basis of written submissions without a hearing. There is simply no good reason to hold an oral hearing for this purpose, as requested by Mr Keith Tam on behalf of the plaintiff, when comprehensive submissions in writing have been made on both sides and the same grounds of appeal have been analysed by the judge in refusing leave to appeal.

Background

3.  The plaintiff claims that at the request of the third party Chen Hongfu (“Chen”), on 25 March 2015 he advanced to the defendant a loan of US$300,000 (“Loan”) with interest at 1.2% per month. Chen was a director of the defendant. His request for the Loan was allegedly made on behalf of the defendant and the loan agreement contained in a Chinese document dated 25 March 2015 (“Loan Agreement”) allegedly between the plaintiff and the defendant was made via Chen, with Chen’s signature and stamped with the defendant’s company chops, ie a rectangular chop bearing the words “For and on behalf of [the defendant]… Authorised Signature(s)” (“Authorised Signature Chop”) and a round chop bearing the defendant’s Chinese and English names (“Name Chop”). On 22 March 2016, US$200,000 was repaid. The plaintiff commenced this action in the District Court for repayment of the remaining US$100,000 with interest based on the Loan Agreement and/or unjust enrichment.

4.  The plaintiff’s case is that Chen had actual or apparent authority. He relies on the following matters in support of his plea of apparent authority:

(1)  Chen was a director and was involved in the operations and/or day-to-day affairs of the defendant.

(2)  Chen was a founding member of the defendant holding 37.5% of its shares and a signatory to the defendant’s Memorandum of Articles of Association.

(3)  The plaintiff was first introduced to Chen in or around 2014 through a mutual friend, and had since been accompanied by Chen to visit the defendant’s office and retail store. During those visits, the defendant’s staff invariably addressed Chen as “Boss Chen” (陳老闆).

(4)  On several occasions, Chen granted discounts to the plaintiff for his retail purchases with the defendant.

(5)  Chen signed the Loan Agreement as “經手人” with the Name Chop and Authorised Signature Chop stamped on it.

5.  The defendant’s case in gist is that Chen had no actual or apparent authority to enter into the Loan Agreement. Even if he did have apparent authority, it was irrational and/or reckless for the plaintiff to rely on this. As to the alternative claim of unjust enrichment, the defendant raised the defence of ministerial receipt and in any event there had been a bona fide change of position. The defendant counterclaims the US$200,000 paid to the plaintiff on 22 March 2016, alleging it was paid by Chen without the defendant’s authority and/or by mistake, and the plaintiff is liable to repay the defendant based on unjust enrichment.

6.  While other matters such as the application of section 117 of the Companies Ordinance (Cap 622) were raised at trial, they are not the subject of this leave application.

7.  The matters leading to this leave application being made out of time are as follows:

(1)  The plaintiff applied for leave to appeal before the judge, who by a decision (“Leave Decision”) dated 20 September 2022[2] granted leave to appeal only on Ground 2.4 of the draft notice of appeal (which relates to the absence of good faith in the defence of ministerial receipt).

(2)  The plaintiff then filed the Notice of Appeal in CACV 388/2022 based on Ground 2.4 on 26 September 2022, and took out a summons under CACV 388/2022 seeking leave to appeal against the Judgment on other grounds on 3 October 2022.

(3)  On 6 October 2022, the Registrar of Civil Appeals wrote to the plaintiff stating that to seek leave to appeal from the Court of Appeal on the other grounds, the plaintiff should commence separate proceedings rather than issue a summons under CACV 388/2022.

(4)  The plaintiff then withdrew the summons in CACV 388/2022 and issued the present summons in CAMP 415/2022 on 7 October 2022.

(5)  On 10 October 2022, the plaintiff issued a summons in CAMP 415/2022 for leave to amend the present summons. The proposed amendments made clear that an extension of time is sought for the plaintiff to apply for leave to appeal and if leave to appeal is granted, the plaintiff be allowed to include other grounds in the Notice of Appeal in CACV 388/2022 and that the appeals be heard together.

8.  As a result, the plaintiff is 3 days out of time in respect of the present application to seek leave to appeal on the grounds set out in the draft notice of appeal (“Draft NOA”) lodged on 7 October 2022 (which does not include Ground 2.4 in respect of which the judge had granted leave).

9.  Where a delay in applying for leave to appeal is inexcusable although insubstantial, the applicant faces a higher threshold, ie he must show a real prospect of success on the merits and not simply a reasonable prospect of success: Hong Kong Civil Procedure 2023, vol. 1, §59/2A/10.

10.  Mr Benjamin Chain submitted for the defendant that given the plaintiff’s application for leave was out of time, he must now meet the higher threshold. The plaintiff has explained via his solicitor’s affirmation the reason for the delay. Given that the delay is short and appears to have arisen from an inadvertent error, we do not think it appropriate to apply the higher threshold.

The proposed grounds of appeal

11.  The proposed grounds of appeal, which have all been canvassed before the judge in the leave application, are as follows:

(1)  The defence of ministerial receipt was not expressly pleaded or particularised.

(2)  The defence of ministerial receipt cannot be made out as there was insufficient evidence to support this defence.

(3)  On the objective evidence, apparent authority was established based on Chen’s usage of the Authorised Signature Chop and the Name Chop.

(4)  There was no irrational or reckless reliance of apparent authority.

Ground 1: lack of pleading and particulars of the ministerial receipt defence

12.  Under Ground 1 of the Draft NOA, the plaintiff complains that for the defence of ministerial receipt, the defendant merely pleaded at §11F of the Amended Defence and Counterclaim (“Defence”) that “its role in the receipt and onward transfer of the USD300,000 was no more than ministerial”, without pleading any agency relationship between Chen as the principal and the defendant as the agent or that the defendant was under an obligation to account to Chen and/or the recipients of the transfers from the defendant’s account. In short, the manner in which the receipt and onward transfer was ministerial as averred was not specifically pleaded or particularised. It is contended that the defendant should not have been allowed to run this defence which amounted to shifting goalposts and an ambush on the plaintiff, causing the plaintiff to suffer irreparable prejudice.

13.  Contrary to Mr Chain’s submission[3], this pleading objection was raised at the trial and was dealt with in the Judgment. See the reasons given by the judge in §41 of the Judgment for rejecting this objection.

14.  As noted by the judge at §§40 to 41 of the Judgment and §3 of the Leave Judgment, the essential facts in support of the ministerial receipt defence (ie Chen directed the plaintiff to make payment into the defendant’s account and he instructed the entire sum less bank charges be transferred out of the defendant’s account to three other parties the next day, and that the plaintiff had no reasonable basis to believe that he was lending money to the defendant given the lack of actual and apparent authority and in any event the irrationality and recklessness in relying on any apparent authority) were all pleaded as part of the factual matrix in the Defence.

15.  The plaintiff responded to §11F of the Defence as follows in §12E of the Re-Re-Amended Reply:

“Paragraph 11F is denied. It is denied that the Defendant’s role was ‘no more than ministerial’, whether as alleged or otherwise. It is averred that the Defendant had received the USD300,000 from the Plaintiff (and/or made any further transfers) as a principal party, and not as an agent and/or in any ministerial capacity. Without prejudice to the aforesaid, the Defendant is [in] any event not entitled to rely on any such defence, since the Defendant had acted in bad faith in its receipt of and/or insofar as it had transferred away the relevant sums (which is not admitted) ...”

16.  The plaintiff chose not to apply for further and better particulars of this defence. Further, as pointed out by the judge[4], it would appear from the opening and closing submissions of Mr Tam at the trial that the nature and key ingredients of this defence was clearly understood and the plaintiff was well aware that the issues would be whether there was an agency relationship and/or an obligation to pay over the amount.

17.  The pleading objection is entirely without merit. The plaintiff all along understood the main plank of this defence and can hardly complain of ambush, prejudice or any unfairness.

18.  As for Mr Tam’s contention that the inference of an agency relationship is a “marked” departure from the defendant’s averment in §9 of the Defence that the payments to three other parties were “directed by, or for the benefit of, the Plaintiff”, this additional pleading objection is not mentioned in Ground 1 of the Draft NOA. In any event, the averment that the onward transfers were directed by or for the benefit of the plaintiff is not inconsistent with an agency relationship between Chen and the defendant.

19.  Ground 1 has no reasonable prospect of success.

Ground 2: ministerial receipt

20.  Under this ground, the plaintiff seeks to challenge the judge’s finding that the defendant’s receipt of the Loan was ministerial.

21.  At §§40-41 of the Judgment, the judge inferred that Chen used the defendant’s account as a conduit to channel his unauthorised borrowing to persons designated by him, on the basis that (1) Chen directed the plaintiff to make payment into the defendant’s account and caused the amount paid in to be withdrawn; and (2) the plaintiff knew or ought to have known that the real borrower was not the defendant.

22.  It is contended by the plaintiff there was insufficient evidence to justify the judge’s finding in that the matters in (1) and (2) cannot support the inference drawn by the judge, as there was no evidence to show that Chen was the ultimate recipient or beneficiary of the monies transferred from the defendant’s account and there is nothing to connect Chen with the recipients[5].

23.  This contention is of no merit. We agree with the judge the absence of evidence to show that Chen was the ultimate recipient or beneficiary of the monies is beside the point and does not impact on the finding that the defendant was used as a nominee of Chen[6]. The judge is entitled to draw an inference from the matters in (1) and (2) there was manifestation of assent for the agency between Chen and the defendant to come into existence. As it cannot be said his inference was plainly wrong, there is no basis for the appeal court to interfere.

24.  In Mr Tam’s submissions, he complains of “irreconcilable conflicting and contradictory finding” in §41 of the Judgment (that Chen was the principal and the defendant was the agent in receiving the money from the plaintiff) and in §27 of the Judgment (that the use of the Authorised Signature Chop was Chen’s own representation and this could not give rise to any apparent authority of Chen to enter into the Loan Agreement on behalf of the defendant). As rightly submitted by Mr Chain, this is clearly a shifting of grounds by the plaintiff. We agree also with Mr Chain this new contention is untenable, as there is no inconsistency in the findings in §§41 and 27 of the Judgment. The findings that (1) Chen was the principal and (2) Chen could not represent the defendant, are perfectly consistent.

25.  There is also no reasonable prospect of success under this ground.

Ground 3: requisite representation for apparent authority

26.  The plaintiff seeks to challenge the judge’s finding of fact that Chen’s usage of the Authorised Signature Chop and the Name Chop did not constitute the requisite representation that Chen had authority to enter into the Loan Agreement on behalf of the defendant.

27.  There is no dispute about the law as to what constitutes requisite representation for the purpose of apparent authority for the agent to enter into a transaction of behalf of the principal. The principles discussed at §§43 to 71 in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479 were summarised by the judge for present purpose at §§17 to 18 of the Judgment:

(1)  the representation was made by a person or persons who had actual authority to manage the business of the company either generally or in respect of the matters to which the contract relates;

(2)  in principle, such a person making such a representation can be the agent but practically this should be “very rare and unusual”. Two conditions for such rare and unusual circumstances are that the principal had given the alleged agent the actual or apparent authority to make the representation in question, and that the representation must be clear and unequivocal, judging by the practical realities of the particular case.

28.  At §3.1 of the Draft NOA, the plaintiff seeks to argue the mere fact that Chen had been authorised to use the Name Chop constituted a representation that Chen had authority to enter into the Loan Agreement on behalf of the defendant.

29.  Apart from TS Office System Ltd v Wing Kee Produce Ltd [2015] 1 HKLRD 479, which the judge discussed in some detail at §§21 to 23 of the Judgment, Mr Tam cited these other cases not cited at trial[7] which he submits are analogous: Honor Engineering Limited v Hing Fat Machinery & Electrical Engineering Co Ltd (DCCJ 3397/2012, 17 April 2015); Swire Engineering (1988) Limited v T.S. Wong & Company Limited (CACV 94/1992, 16 October 1992); Jones Lang Lasalle Ltd v China Faith Limited (HCA 2767/2001, 12 October 2006).

30.  We have considered the cases and do not think they would assist the plaintiff in challenging the judge’s finding of fact of the absence of apparent authority. As noted by the judge, the cases are all fact-sensitive.

31.  In Honor Engineering Limited, apparent authority was inferred not merely from the fact that the agent had permission to use the defendant’s company chop and letterhead, but also from the fact that the plaintiff submitted variation order claims to the defendant and the defendant submitted corresponding variation order claims to the main contractor and there was a tripartite relationship between the main contractor, the defendant as the sub-contractor and the plaintiff as the sub-sub-contractor. (§§29, 39 to 40)

32.  In Swire Engineering (1988) Limited, which also concerned a construction project, the finding of requisite representation for apparent authority was not merely based on the stamp of the defendant company’s chop on the plaintiff’s quotation but on a host of other matters, including the representation by the defendant’s project manager to the plaintiff that the agent had authority to commit the defendant, and (apart from the agent’s important position within the defendant company) the fact that the agent was permitted by the defendant company to handle the particular matter including attending to and obtaining two quotations and commenting on behalf of the defendant company that the first one was too high. (p 8)

33.  In Jones Lang Lasalle Ltd, the court found that the plaintiff failed to show apparent authority relying on a letter affixed with the 1^st defendant’s company chop but signed by someone whom the plaintiff knew was not the 1^st defendants’ officer or employee. (§§57-60)

34.  Whether or not there is requisite representation inevitably turns on the facts of each case. None of the authorities cited would support the plaintiff’s argument that the mere authorisation of Chen to use the Name Chop would be sufficient to constitute the requisite representation of Chen’s authority to enter into the Loan Agreement on behalf of the defendant.

35.  The plaintiff further prays in aid a number of other matters in §§3.2 to 3.4 of the Draft NOA:

(1)  Chen was a director of the defendant and appeared to be in charge of the wholesale and retail business. He asked the plaintiff for a loan giving the latter the impression that Chen was also responsible or empowered to borrow on behalf of the defendant.

(2)  There was no particular procedure for the use of the Authorised Signature Chop or the Name Chop, and Chen had previously used the Name Chop when Chen’s friends and clients made purchases through Chen.

(3)  The amount of the Loan measured in light of the defendant’s annual turnover in the region of HK$50 to 60 million is not significant.

36.  The above matters, whether separately or cumulatively, do not assist the plaintiff at all. They are essentially a repetition of Mr Tam’s arguments at trial[8], which were considered and rejected by the judge[9]. It is not a proper use of the appeal process for a party to challenge findings of fact by repeating his unsuccessful submissions that had been made to the trial judge without identifying palpable errors that warrant appellate intervention.

37.  At §3.5 of the Draft NOA, the plaintiff argues that if there was requisite representation, it would be an unusual case where reliance is not presumed. In support of this contention, Mr Tam relies on Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2) at §§50, 71 to 75, and seeks to challenge the judge’s finding based on matters referred to at §§24(2) to (6) of the Judgment by confining those matters only to matters within the plaintiff’s knowledge.

38.  Mr Tam’s argument misses the mark. §§50, 71 to 75 of Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2) deal with the issue of reliance which arises after requisite representation is established. It was in the context of reliance that the state of mind of the representee and matters known to the representee were discussed. The judge discussed the matters at §24 of the Judgment in the context of considering whether or not there had been requisite representation, not whether there had been reliance.

39.  In the circumstances, there is also no reasonable prospect of success under this ground.

Ground 4: irrational or reckless reliance

40.  Under §4 of the Draft NOA, the plaintiff seeks to challenge the judge’s finding that even if there was apparent authority, the plaintiff acted irrationally or recklessly in relying on such apparent authority. The plaintiff again emphasises that it has no knowledge of the internal approval procedure of the defendant.

41.  Given the conclusion that there was no requisite representation, it is not necessary to deal with the issue of irrational/reckless reliance. Mr Tam has also not dealt with this ground in his submissions. We would address this briefly for the sake of completeness.

42.  The judge addressed this at §28 of the Judgment. His finding of irrationality/recklessness is not based on the mere failure to conduct company search, but the failure to do so in the context of a borrowing which was not in the usual course of dealings between the parties. We do not see how his finding can be faulted.

43.  This ground has no reasonable prospect of success.

Conclusion and costs

44.  For all the above reasons, the application for leave to appeal is dismissed. It is unnecessary to deal with the application to amend the present summons.

45.  We make a further order under Order 59 rule 2A(8) that no party may request our determination to be reconsidered at an oral hearing inter partes, as this application is entirely without merit.

46.  Costs of the application should follow the event. We order the plaintiff to pay the defendant the costs of this application. Having considered the defendant’s statement of costs for summary assessment, we would allow the costs in full of $91,850.

47.  The costs order and summary assessment are in the nature of orders nisi. If there is no application for variation within 14 days of the handing down of this judgment, the orders will be made absolute.