CHU KONG HIGHWAY ENGINEERING CO. LTD. v. WONG CHEUNG SUM

CACV 264/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 264 OF 1999

(ON APPEAL FROM HCA 2335/1999)

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J U D G M E N T

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Rogers JA:

1. This is an appeal from a judgment of Godfrey JA sitting as an additional judge of the Court of First Instance, given on 23 July 1999. The judge below was hearing an appeal from a decision of Master Muttrie. The Master had given judgment in Order 14 proceedings in favour of the plaintiff in the sum of HK$2,869,533.60 together with interest and costs. The judge below allowed the defendant's appeal and gave the defendant unconditional leave to defend.

The facts

2. The case arises out of a transaction between the plaintiff and Multi-Best Company Ltd ("Multi-Best"). By an agreement dated 6 May 1998, the plaintiff agreed to open a Letter of Credit in the sum of HK$6,869,533.60 to assist Multi-Best in purchasing frozen meat. It is unnecessary to set out the terms of that agreement which is exhibited to the affirmation of Mr Feng, the plaintiff's General Manager, save to say that it was a requirement that Multi-Best should repay the plaintiff this sum and should pay a handling charge of 2%. There is no dispute between the parties that the handling charge was paid and in June 1998, sums totalling $4m were paid, leaving an amount owing of HK$2,869,533.60. As a result of the arrangement between the parties, the plaintiff held three cheques issued by Multi-Best which were post-dated 17, 18 and 19 July 1998 respectively. The first two cheques were in the sum of $1m and the remaining cheque was in the sum of $869,533.60.

3. According to Mr Feng's affirmation, which is supported by bank documents to show the same, those cheques were deposited with the plaintiff's bank on 2 July 1998.

The plaintiff's version

4. So far there is no dispute between the parties as to the relevant facts. It is the plaintiff's case that on or about 13 or 14 July, the defendant who was a 25% shareholder of Multi-Best and his sister-in-law, Madam Ko Mi Lun, who was a 50% shareholder of Multi-Best went to the plaintiff's office. The remaining shareholder of Multi-Best was the defendant's wife. The defendant and Madam Ko informed Mr Feng that Multi-Best did not have sufficient funds to honour the three post-dated cheques.

5. According to Mr Feng, they requested a few more days indulgence to pay the outstanding debt. Mr Feng said that on behalf of the plaintiff, he agreed to accommodate the defendant and his sister-in-law on behalf of Multi-Best and not to jeopardise the financial reputation of Multi-Best by having cheques dishonoured by the bank. In consequence of that, Mr Feng wrote on 16 July to the plaintiff's bank and requested the return of the three post-dated cheques which had been deposited. A copy of the letter is exhibited; it was said to have been faxed in the morning and the cheques returned in the afternoon.

6. Mr Feng says that shortly thereafter the defendant came to the plaintiff's office alone and brought with him the three cheques, the subject of this action. These were dated 21, 22 and 23 July respectively. Those cheques were delivered to the plaintiff after the defendant had verified that Multi-Best's cheques had been returned from the plaintiff's bank and marked "cancelled".

7. The plaintiff says that he presented the first cheque for payment on 23 July. It was dishonoured and returned with a memo marked "refer to drawer". It is said that thereafter the plaintiff demanded payment of the cheques and the defendant "again and again asked for indulgence from the plaintiff in deferring the presentment of his remaining personal cheques until his financial position improved". Mr Feng says that he had no alternative but to present the two remaining cheques for payment on 15 and 21 December 1998 because they were about to become stale. They were returned marked "Pay(men)t countermanded by the drawer".

The defendant's version

8. The defendant put the contacts between the parties very much further back. He said that it was in February 1998 that he was asked by his sister-in-law to go to Multi-Best's offices where he met Mr Feng who introduced himself as a manager of the plaintiff and said that Multi-Best owed the plaintiff "a lot of money". The defendant said that thereafter Mr Feng telephoned him nearly everyday at his office and asked when Multi-Best would pay the money. The phone calls would start at 8.30 in the morning and the last one would be at 8:00 in the evening. The defendant continued:

"During the conversation Mr Fung (i.e. Mr Feng) would threaten to go up to Tak Tai and to take whatever goods he could lay his hand on. I was worried since I feared that I would lose my job if Mr Fung would go to the office to make a scene."

9. What was not said at that stage was that the defendant was one of five directors of Tak Tai. The defendant held 9% of the issued shares, there were a total of 10 shareholders, whom the plaintiff has justifiably suggested on affidavit are all members of the same family; that too has not been contradicted. The defendant's affidavit goes on :

"6. On or around the 21st of July 1998 I was told by my said sister-in-law to go up the office of Multi-Best. At the office I met Mr Fung again and this time he was with two female staffs their names of which I cannot now remember. This time Mr Fung talked about money owed by Multi-Best to the Plaintiff in one of the transactions between them. During this meeting Mr Fung was very anxious and agitated and he demanded Multi-Best to pay what he alleged were debts due to the Plaintiff. He banged on the table a few times during the meeting and he insisted that no one was to leave the conference room until some sort of proposal should be forwarded by the directors of Multi-Best. Mr Fung also threatened those in the room which include myself, my wife, another director of Multi-Best and my said sister-in-law by saying, '白刀仔入紅刀仔出' ('white knife will go in and red knife will go out'): '我要你地十賠償還' ('I demand you to pay ten times what you owe (to the company)') and '你地全部同我跳樓死左佢我就有交代' ('All of you should jump down from here and die and I could answer (to my company)'), Mr Fung also swore in Chinese. He was well-built and he boasted to be in the army once. I started to worry about the safety of myself and my fellow directors. Mr Fung pressed me to come up with some financial solution. I told him that I myself did not have any money and I did not want to drag my family business into the dispute. Mr Fung was not satisfied with my answer and he grew more fierce in this manner which frightened me.

7. Realizing that no solution was in sight and Mr Fung would not let the matter rest and fearing that he might do something which might hurt us I reluctantly agreed to draw 3 cheques as required by Mr Fung who claimed that would enable him to satisfy the Plaintiff's demand. As I did not have any cheque book with me I asked Mr Fung if I could be allowed to go back to my office to draw such cheques. Mr Fung agreed. After the drawing of cheques I sent them back to the office of Multi-Best for my said sister-in-law to fill in the details and she sent them to the office of Mr Fung."

10. The judge below remarked that there was no evidence filed from any other persons who were present at the meetings and specifically at the meeting at which Mr Feng made the threats. He then went on to consider whether the defence of duress was credible. His conclusion was:

"Whether it will eventually be believed is not a matter for me. It is an extraordinary story, but I bear in mind that the defendant, and (if there is a trial of the action) any other deponent who gives evidence supporting his defence, will be liable to be sent to prison for a considerable time for the offence of perjury, if the allegations, which are very serious, made by the defendant are held to be false. Despite some misgivings, I cannot treat this defence as incredible. I therefore propose to allow this appeal, and to give the defendant unconditional leave to defend the action."

11. On behalf of the plaintiff, Mr Fok SC has raised two major matters. The first is the question of fact as to whether the defendant's allegations are credible and the second is as to whether even if they were credible, as a matter of law, they could amount to duress.

Duress

12. It would be convenient to consider briefly the defence of duress. The judge below said:

"The defence of duress is one which requires a defendant to demonstrate that he did what he intended to do but did so unwillingly, see Lynch v. DPP for Northern Island [1975] A.C. 653 especially per Lord Morris at p.670."

13. That case, of course, concerned criminal responsibility for acts committed under a threat of assault by terrorists should the person threatened not comply. It appeared to be accepted by the parties in this case that there was in effect no difference between the test for duress as laid down in the Lynch case and that in Pao On & Ors. v. Lau Yiu Long & Ors. [1980] A.C. 614. At p.635, Lord Scarman said:

"There must be some factor "which could in law be regarded as a coercion of his will so as to vitiate his consent." This conception is in line with what was said in this Board's decision in Barton v. Armstrong [1976] A.C. 104, 121 by Lord Wilberforce and Lord Simon of Glaisdale - observations with which the majority judgment appears to be in agreement. In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it. All these matters are, as was recognised in Maskell v. Horner [1915] 3 K.B. 106, relevant in determining whether he acted voluntarily or not."

14. It is unnecessary, it seems to me, to say more than the word "unwillingly" as used by the judge must be given its full force and effect. It cannot be taken to mean "reluctantly". Usually duress implies duress of the person: something equivalent to holding a gun at a man's head. The case of Maskell v. Horner referred to in the Pao On case illustrates that duress can be in respect of economic matters. The pressure of seizure or detention of goods can be held to be analogous to duress of the person. If a payment is made under a pressure which establishes that the payment is not made voluntarily but to avoid a threatened evil then it may be duress, but as Lord Reading CJ said at p.118 of the Maskell case:

"The payment ... (must be) ... made not with the intention of giving up a right but under immediate necessity and with the intention of preserving the right to dispute the legality of the demand."

15. The judge continued by saying that no express words may be necessary to indicate that the plaintiff intended to keep his right to recover alive, the circumstances surrounding the payments and the conduct of the plaintiff when making them may be a sufficient indication. What was important in that case was that when the defendant's payments were made, his servants who made the payments, continued on each occasion to give a sufficient indication to the plaintiff that the payments were not made with the intention of the transactions being closed.

16. The effect of duress in the law of contract is to render the contract voidable. If the facts relied upon to establish duress are acts of, or threats of, physical violence to the person they would also give rise to a claim in the tort of intimidation.

17. Turning to the present case, it seems to me that the reference to Mr Feng going to Tak Tai to take whatever goods he could lay his hands on is not such a matter as could give rise to a claim that the cheques had been given under duress. Apart from being imprecise, the defendant's worry and fear that he should lose his job at Tak Tai was, on the face of the evidence, clearly nonsense. Once his position in Tak Tai and his relationship to the other shareholders and directors was revealed, no credence can be given to his statement whatever. Moreover, the fear expressed in paragraph 7 of his affirmation was not expressed to relate to any threats in relation to Tak Tai.

18. The only other matter which could give rise to duress is referred to in paragraphs 6 and 7 of the defendant's affirmation, namely the making of the statements which have been translated "white knife will go in and red knife will go out" and "all of you should jump down from here and die and I could answer (to my company)". If taken literally, it might be said that there had been a threat to stab the defendant. Even a temporary threat of violence, if of sufficient severity such as stabbing, could amount to duress. But the circumstances must be considered to see whether there was in fact or could have been coercion of will, such that there was no true consent to the giving of the cheques.

19. Taking the defendant's assertions alone, there is no suggestion that he protested that he was only going to provide cheques drawn on his own bank account because of the threat of violence. Rather, he went back to his own office, signed three blank cheques and sent them to his sister-in-law for her to complete. But if the defendant had in truth escaped the immediate vicinity of somebody threatening to stab him, the natural course for the defendant to have taken had he been threatened would have been to make complaints to the police before he signed the blank cheques.

20. At no time did the defendant make complaint prior to the commencement of the action. There never was any suggestion of coercion or duress until after the writ was issued and indeed the defendant had changed solicitors. Indeed, the plaintiff's solicitors' letter before action went unanswered, at least until after the writ had been served.

21. If the defendant had drawn the three cheques under a threat of violence, one would have expected the cheques to have been stopped immediately with an immediate protest to the plaintiff if not to the police.

22. Instead, it is clear that the first cheque went unpaid in July 1998 due to insufficient funds and by the time the other two cheques were presented in December, payment had been countermanded. Clearly by then, even on the defendant's own version, the threat which gave rise to duress must have subsided since payment was countermanded. It would have been natural to have expected notification of the countermanding to be communicated to the plaintiff, most probably accompanied by a complaint to the police as well.

23. Thus on the defendant's own version of events, I cannot see that a credible defence of duress can be made out on the facts. That is even without having regard to the version of the events related by the plaintiff and in particular the other undisputed fact that the original cheques from Multi-Best had been retrieved from the bank prior to the bank presenting them for payment.

24. The series of undisputed events accords, of course, with the plaintiff's version but is impossible to reconcile with the defendant's version. If the plaintiff already had three cheques which were about to become due and were already in the bank, it is not apparent as to why it should voluntarily withdraw those from the bank and instead of insisting that Multi-Best should pay its debts, Mr Feng should threaten the defendant in a criminal manner. Even if that could have occurred, no rational explanation can be offered as to why the plaintiff should have delayed until December to present the remaining two cheques if they had been extracted by threats.

25. Together with all this it must be borne in mind that the remaining undisputed evidence shows that the cheques were given to repay what was, in effect, a loan by the plaintiff to Multi-Best. This was, again, not something that the defendant found appropriate to reveal in his own evidence.

26. When viewed in the context of those facts which are undisputed or beyond reasonable dispute, the case put forward by the defendant is unbelievable.

27. We were urged on behalf of the defendant that since unconditional leave to defend had been given by the judge, this Court should not interfere with the judge's decision in that respect. Reliance was placed on a number of cases including statements of the judge below himself when sitting in the Court of Appeal in Strong Base Services Ltd. v. Geroma Electronic Ltd. & Anors. [1996] 2 HKLR 124 at p.127 where he said:

"Although it might have been open to the judge to have granted conditional leave to defend (the 'fall back' position that the plaintiff urged us to take here) it is not in my view open to us to substitute for his judgment giving unconditional leave to defend an order that conditional leave to defend ought to be granted instead."

28. It was said that those words were mandatory and in effect that it is a matter of law that it is not open to this Court to differ from the judge's view of the facts.

29. Given that there is a right of appeal against an order giving unconditional leave to defend, there cannot, it seems to me, as a matter of logic, be an absolute bar upon this Court reversing a decision of a judge whether it be on fact or law.

30. But in my view, the judge was not intending to lay down the proposition stated as a matter of law; he was simply reiterating the same view as, for example, Sir John Donaldson in Lloyds Bank Ltd. v. Ellis-Fewster & Another [1983] 1 W.L.R. 559 at p.562 where he said in a passage also cited by the judge in the Strong Base case :

"In a case where the triablity of the issue depends upon evidence as opposed to law, I would think it a very surprising situation if the Court of Appeal was prepared to disturb the judge's view. If one judge thinks there is a triable issue, it would be surprising if two or three judges think there is not."

31. That as a matter of general proposition, in my view, must be right. The threshold for leave to defend on Order 14 proceedings is, of course, extremely low. As a matter of common sense and practical reality, if one judge thinks that is an arguable defence, it would be a very rare occurrence for other judges to think there is not.

32. Whilst I differ with great diffidence from the judgment below, I do so in the light of the fact that I am coming to the same decision as the Master. Furthermore, there was no analysis of what the defendant was saying in the context of the surrounding facts which cannot be disputed. In my view, this is a case where a different conclusion has to be reached.

Keith JA:

Introduction

33. For the reasons given by Rogers JA, I agree that this appeal should be allowed, the order made by the judge should be set aside, and the order of the master restored. I wish to add a few words of my own in order to explain why I take a different view of the case from that of the judge below.

Are the facts alleged by the Defendant capable of amounting to the defence of duress?

34. The traditional view is that duress involves the absence of consent. A person's acts will have been procured by duress if his will has been "overborne" so that he is incapable of making a free choice or acting voluntarily. However, a different view of the law was taken in Lynch v. Director of Public Prosecutions for Northern Ireland [1975] AC 653. Although that case concerned the defence of duress in the criminal law, no difference between the criminal law and the civil law was said to exist on the question as to the juridical nature of the defence of duress. The thrust of the case is summarised in Chitty on Contracts, Vol. 1, 28th. ed., para. 7-002 as follows:

"All five members of the House of Lords in Lynch's case rejected the notion that duress deprives a person of his free choice, or makes his acts non-voluntary. Duress does not 'overbear' the will, nor destroy it; it 'deflects' it. Duress does not literally deprive the person affected of all choice; it leaves him with a choice between evils. A person acting under duress intends to do what he does; but does so unwillingly. Lord Wilberforce specifically stated that 'duress does not destroy the will, for example, to enter into a contract, but prevents the law from accepting what has happened as a contract valid in law.' "

At para. 7-004, the effect of this new approach was described as follows:

"Because duress does not destroy the will or the consent of the putative contracting parties, it is not possible to treat the issue as one of pure fact, nor is it immaterial what caused the will to be deflected, or the consent to be distorted. So, also, because duress does not truly deprive a party of all choice, but only presents him with a choice between evils, it is not possible to inquire simply whether the party relying on duress had 'no choice'; the inquiry must necessarily be as to the nature of the choices he was presented with, and in what respect the choices differed from those ordinarily available in the market - where a person also has to choose, between paying the market price and going without."

35. This view of the law of duress has not been applied consistently since Lynch was decided. In both Barton v. Armstrong [1976] AC 104 and Pao On v. Lau Yiu Long [1980] AC 614, the doctrine was still being treated as resting on the absence of consent, though in neither of those cases had Lynch been cited. However, in Universe Tankships Inc. of Monrovia v. International Transport Workers Federation [1983] 1 AC 366 (in which Lynch was not cited either), the House of Lords held that the rationale underlining the law of duress in contract is that the contracting party is induced to act in a particular way by pressure which the law does not regard as legitimate, the effect of which pressure is to deprive the party of any practical choice in the matter. Indeed, Lord Scarman spoke at p.400 of "the victim's intentional submission arising from the realisation that there is no practical choice open to him", suggesting that what is crucial is the victim's subjective belief that no practical alternative is available.

36. On this view of the law, I do not think that it can be said that, on the assumption that the Defendant's version of events would be believed at trial, there would be no chance of him establishing the defence of duress. For the reasons given by Rogers JA, I discount as of no significance (a) Mr Feng's threat in February 1998 "to go up to Tak Tai and to take whatever goods he could lay his hand[s] on", and (b) the Defendant's fear that he would lose his job if Mr Feng went to his office and made a scene. Apart from anything else, the threat had supposedly been made about five months before the relevant cheques were handed over.

37. However, I cannot discount the physical threats allegedly made on 21 July 1998. For present purposes, I must treat them literally and not metaphorically, and I must bear in mind the ferocity of Mr Feng's manner which is alleged to have accompanied them. If Mr Feng were to be found at trial to have behaved in the way alleged, the pressure to which he subjected the Defendant would undoubtedly be regarded as illegitimate, and it is possible that the Defendant thought that he had no practical alternative but to give Mr Feng the post-dated cheques demanded. After all, even though the Defendant was allowed to return to his office to draw the cheques demanded, his wife and sister-in-law had remained in the office of Multi-Best with Mr Feng. It may be that he had the opportunity, after Mr Feng had left the office, to countermand the cheques and report the incident to the police, but that does not affect the position as to whether he had any real alternative at the time.

Is it possible that the facts alleged by the Defendant will be believed at trial?

38. It is here that I find myself in respectful disagreement with the judge. I regard the Defendant's story as not merely "extraordinary" (which is how the judge characterised it), but as so implausible that there is no possibility of it being believed at any trial of the action. That is a robust finding, but it is one which I am compelled to in the present case. I regard three features of the case as so inconsistent with the Defendant's story as to make that story unbelievable:

(i) Once Mr Feng had left Multi-Best's office, so that the Defendant's wife and sister-in-law were out of his clutches, the Defendant could have been expected within a few days to have reported the matter to the police if the alleged threats had been made. In fact, the first time that he made the allegations about Mr Feng was following the issue of the current proceedings.

(ii) Although the Plaintiff presented the first of the three cheques for payment on 24 July 1998, the other two cheques were not presented for payment until 15 December and 22 December 1998. If the cheques had been obtained in the manner alleged by the Defendant, there would have been no reason for the Plaintiff not to have presented the other two cheques for payment on 24 July 1998 as well.

(iii) The Plaintiff already had three cheques drawn on Multi-Best's account totalling the same sum as the three cheques subsequently drawn on the Defendant's account. Those cheques had already been deposited with the Plaintiff's bank and were to become due shortly. The only explanation offered for why the Plaintiff should voluntarily request the return of those cheques came from the Plaintiff - namely that the Defendant voluntarily offered to provide personal cheques of equivalent amounts to replace them. No contrary explanation or denial has ever been offered by the Defendant.

Conditional leave to defend

39. Finally, I wish to say something about the passage in Godfrey JA's judgment in Strong Base Services Ltd. v. Geroma Electronic Ltd. [1996] 2 HKC 94 at p.96B-C quoted by Rogers JA in his judgment. I am rather inclined to think that Godfrey JA was expressing the view that it was inappropriate for an appellate court to substitute, for a finding that a defendant was to have unconditional leave to defend, a finding that leave to defend was to be conditional. After all, he went on to say:

"As [counsel] pointed out, the judge, having decided that unconditional leave to defend ought to be granted, had got past the point of considering whether conditional leave to defend might be granted as an alternative. In my view, we ought not to disturb the decision of the judge who, having evaluated the material before him, came to the conclusion that the first defendant had demonstrated triable issues which could not be decided on affidavit evidence."

40. To the extent that Godfrey JA was saying what I am inclined to think he was saying, I fear that he went too far. If the Rules provide for an unrestricted right of appeal from an order giving a defendant unconditional leave to defend, there is little room for denying an appellant the right to contend that the leave to defend should have been conditional. Ironically, only a few months ago, Godfrey JA was a party to a decision of the Court of Appeal - Chung Fai Holdings Ltd. v. Tattune Development Ltd. (CACV 124/99) - in which the Court of Appeal did substitute, for an order giving the Defendant unconditional leave to defend the action, an order giving the Defendant conditional leave.