EVER CHANCE DEVELOPMENT LTD. v. CHING KAI CHIU and Others

IN THE COURT OF APPEAL

1997, No. 8

(Civil)

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J U D G M E N T

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Ching, J.A. :

1. On 12th December, 1994, the Plaintiff, Ever Chance Development, Limited, issued proceedings against the Defendant in High Court Action No. A12909 of 1994. It was a claim based upon a loan agreement dated 30th October, 1992. The Plaintiff issued an Order 14 summons on 30th January, 1995, and eventually conditional leave to defend was given on 29th January, 1996, by Sears, J. For one or another reason the conditions were not finalised and the matter was to be restored for hearing on 30th December, 1996. Meanwhile, events were occurring in China. On 12th April, 1995, the Dai Liang Municipal Council commenced an action against the Plaintiff for repayment of a loan. The Plaintiff alleged that this was the same loan which it had lent on to the Defendant and therefore joined the Defendant as a third party. On 22nd August, 1995, the Intermediate Court gave judgment in favour of Dai Liang against the Plaintiff and gave judgment in favour of the Plaintiff against the Defendant. Being dissatisfied with that judgment against him, the Defendant appealed to the Higher Court, apparently on 18th December, 1995. That appeal was dismissed on 11th April, 1996. On 6th August, 1996, the Plaintiff instituted the present action against the Defendant upon the basis of the Chinese judgment and issued an Order 14 summons on 13th September, 1996. The summons came on for hearing on 30th December, 1996, the same day as the adjourned hearing for the fixing of the conditions in Action No. A12909. These matters were heard by Sears, J., who doubted the correctness of having given conditional leave to defend in Action No. 12909, stayed all further proceedings in that action and who gave summary judgment in this. The appeal is only upon the last of those matters.

2. The underlying facts alleged by the Plaintiff are that in 1992 the Defendant approached it for a loan to facilitate his participation in the redevelopment of a piece of property in China. As a result, he signed the loan agreement of 30th October, 1992, which clearly identified him as the borrower. In it, clause 1 states that he is the borrower of RMB28,000,000, that he borrowed the money for the purpose of investing in the redevelopment, clause 2 states that he guaranteed to repay the loan with interest (a total of RMB28,000,000) by 13 November, 1993, and clause 4 states that he would pledge his shares in the redevelopment as security. He signed another document bearing the same date instructing the Plaintiff to pay the capital sum to a company called Xing Sheng Real Estate Company, Limited. He signed a receipt dated 31st October, 1994, for a cashier order in the sum of RMB20,000,000. Only RMB2,000,000 was repaid by the due date. By a letter dated 15th April, 1994, the solicitors for the Plaintiff demanded the outstanding balance of RMB26,000,000. The Defendant presumably informed Xing Sheng about this, for by a letter dated 28th April, 1994, they pleaded unforeseen financial difficulties, assured the Defendant that they would repay and asked him to arrange for more time. Apparently the Defendant then wrote to the Plaintiff a letter dated 3rd May, 1994. It is not in the appeal bundles but it is referred to in a letter from the Plaintiff to the Defendant dated 8th May, 1994. After referring to the loan agreement and the default in repayment it stated that the money had emanated from Dai Liang and stressed the necessity for repayment. It sought repayment within two months, a pledge of the Defendant's properties and the signing of an agreement to that effect at a solicitor's office. A document called "Minutes of Repayment Schedule" was signed by the Plaintiff and the Defendant which, inter alia, identified three of the Defendant's properties. It was dated 18th May, 1994. Such an agreement was in fact signed at a solicitor's office and it bears the date 20th May, 1994. It recites that it is supplemental to the agreement of 18th May, 1994, that the Defendant is indebted to the Plaintiff in the sum of RMB26,000,000, that the Defendant is short of the funds for repayment and that he intended to realise all his assets to enable him to repay. The agreement was that the Defendant should forthwith realise his assets and apply the proceeds in repayment. If he were unable to repay by 8th June, 1994, he was to transfer all his interest in the properties, subject to encumbrances, to the Plaintiff. The Defendant was not to further encumber any of the properties and was required to obtain the consent of the Plaintiff before any sale. Provision was made for the mechanics of sale and repayment. There were apparently two further memoranda signed by the Defendant and his wife pledging two of the properties to the Plaintiff as security for repayment.

3. So far as the merits are concerned, the Defendant admits his involvement in the loan transaction. According to him, however, he had no share in the redevelopment and he was not the borrower. A Mr. Wu of Xing Sheng, a Mr. Huang who was the secretary of Dai Liang and a director of the Plaintiff and a Mr. He, another director of the Plaintiff, had approached him. They told him that the Plaintiff had agreed to lend RMB20,000,000 to Mr. Wu to support the redevelopment but wished to do so through the Defendant as the agent of Mr. Wu as the Defendant had the trust and confidence of Dai Liang. He signed the loan agreement because he was assured by Mr. Huang and Mr. He that it was for record purposes only and would not be intended to be or treated as binding or having any legal effect between him and the Plaintiff since it was the policy of the People's Republic of China that local governments could not provide loans, directly or indirectly, to finance private enterprises. So far as the other documents are concerned, he says that at about the end of April or early May Mr. He requested him to write to the Plaintiff's solicitors asking for time to repay and suggested to him that he should put down that he would agree to sell his properties to repay the loan as this would be more persuasive to Mr. He's superior. Mr. He also assured him that Mr. Wu had obtained a loan for the repayment. On 3rd May, 1994, he therefore wrote a letter asking for time, as he says, "for Mr. Wu". He then received the letter from the Plaintiff dated 8th May, 1994, and understood from it that the Plaintiff had agreed to extend two months to Mr. Wu. On 18th May, 1994, he was asked to sign the "Minutes of Repayment Schedule" in accordance with the letter on the assurance from Mr. Huang and Mr. He that the purpose of it was that it should be shown to their superior. He adds, "In any event, Mr. Wu would effectuate repayment on 8th June" but whether this is what he thought or what he was told is not clear. He then says that, "All along, it was highlighted by Mr. Huang and Mr. He that it was the best time for me to help friends." He therefore agreed to and did sign the Minute and the subsequent agreement of 20th May, 1994, and points out that at the time of the latter he was not legally represented. He goes on to mention another agreement between the Plaintiff and Xing Sheng which he describes as another sham and where the money being borrowed by Xing Sheng was routed through him. He mentions this in support of his case. It is sufficient to say that it does not support his case at all and Mr. Ronny Tong, Q.C., who appeared for the Defendant with Mr. P. Tam, did not seek to argue that it did.

4. On the face of the documents, admittedly signed by the Defendant, the case against him was overwhelming. As Mr. Patrick Fung, Q.C., who appeared for the Plaintiff with Mr. Nelson L. Miu, pointed out at no stage did the Defendant allege any sort of duress or undue influence in relation to them. The defence, put briefly, was that to the knowledge of the Plaintiff the loan agreement was a sham, never intended to be binding, and was designed as camouflage to circumvent governmental restrictions on the Plaintiff's and Dai Liang's lending powers. It was "to be used as record purpose only." The receipt and the payment instruction were consequential to the loan agreement. That sort of defence is often put forward but rarely succeeds. It is usually exploded by posing a simple question which asks why anyone should require anything to be put into writing or to be signed. The equally simple answer is that that is done so that each party to it can rely upon its contents against the other. Here, the Defendant alleges that he was to receive no benefit from the loan agreement. The loan recorded in it was a very large one. Yet he signed it. Then he signed the Minute of 18th May, 1994, and the agreement of 20th May, 1994, as well as the two memoranda. These put valuable properties at risk. The explanations for his actions are wholly incredible especially since with regard to the later documents it is clear from his own case that Dai Liang was putting pressure upon the Plaintiff which was in turn putting pressure upon the Defendant. He knew that those documents would be shown to the superiors of Mr. Huang and Mr. He. Yet he signed them.

5. Mr. Ronny Tong, Q.C., argues that the merits of the case are irrelevant to this appeal. He accepts that he can attack the validity of the Chinese judgment only on the grounds that it was procured by fraud. He relies upon the decision in Jet Holdings Inc. v. Patel (1990) 1 QB 335 for the proposition that the fraud which the Defendant needs to show is not restricted to fraud in the cause of action but may be collateral fraud. That is clearly right. He appears to accept that the Defendant must put up a case which may be characterised as being prima facie, arguable or credible. That again is clearly right. However, he asserts that in considering whether or not the Defendant's case has reached that threshold regard is to be had only to the allegations and the evidence in support of it. That is clearly wrong. It would be wrong not to take into account all of the evidence. Only when that is done is it possible to see whether the Defendant's allegations are credible, to see which facts are arguable and then to go on to consider whether or not they arguably amount to the necessary fraud.

6. This appeal was argued only on the basis that some of the evidence provided to the Courts in China was fraudulent. There was no allegation that the cause of action as a whole was fraudulent. It will be recalled that the case presented to the Judge below was that the Defendant had signed the loan agreement as an agent and upon the basis that he would not be personally liable. Consistent with that, the arguments in this Court centred around five particular matters in which it was alleged that fraudulent evidence was given in China. Each of these will be dealt with in turn.

7. The first complaint is that the Plaintiff's evidence was that the money, in the form of a bank draft, was delivered to the Defendant personally whereas it was not. It is true to say that in this respect the evidence of the Plaintiff would have benefitted from greater precision. There was evidence from a witness on behalf of the Defendant, a Mr. Rong that it was that witness who had personally received the banker's draft. However that may be, it must be remembered that for any fraud to be relevant it must be fraud that arguably misled the Court. Assuming that the Defendant's evidence that it was not he but Mr. Rong who physically received the bank draft is credible it remains to consider whether or not fraud is thereby shown and whether that could have affected the judgment at all. The answer to both questions must emphatically be in the negative. It is common ground that the money did in fact go to Xing Sheng and that the Defendant was instrumental in this. His defence is that he acted only as an agent on the basis that he was not to be personally liable. In these circumstances the only real issue before the Court in China was, on the assumption that the Defendant acted as an agent for Mr. Wu, whether he had assumed any personal liability. Whether he received the bank draft personally was in that respect nihil ad rem. Mr. Ronny Tong was reduced to arguing that it was no doubt the Plaintiff's intention to add verisimilitude to its version of events and that this might have influenced the Court. Allegations of fraud, in whatever sense the word fraud is used, are very serious and do not fall short of allegations of serious criminal offences. The arguments of Mr. Ronny Tong do not come close to the threshold of showing an arguable case of fraud.

8. The second complaint was that the Plaintiff's evidence was that the Plaintiff did not know Mr. Wu. This allegation was based upon a passage in a written submission to the Higher Court in China which read,

"However (the Defendant) in his appeal statement repeatedly mentioned Wu Kai Lau and Jiangmin Xing Sheng Real Estate Co. Ltd. (The Plaintiff) actually have no dealing with them whatsoever, and never know them."

The translation of the original document, from which the above is taken, was not a certified one and there may be a doubt as to its accuracy. Assuming that it is accurate it is still of no assistance to the Defendant. Read in the context that the appeal related to the loan agreement dated 30th October, 1992, and bearing in mind the absence of tenses in the Chinese language it is quite apparent that the passage referred to the time before that date. Nothing in the evidence shows that this was or may have been untrue.

9. The third complaint was one of the utmost gravity. It was an allegation that was based upon a passage of the written submission of Dai Liang to the Higher Court in China the relevant part of which began with the words,

"(Dai Liang) signed a loan agreement with (the Plaintiff) on 28th October 1992 after negotiations. (Dai Liang) pursuant to the loan agreement lent RMB Twenty Million Yuen to the use of (the Plaintiff) for one year term, interest 18% per annum ..... After signing the agreement, (Dai Liang) entrusted by (the Plaintiff) remit the sum to Jiangmen Xing Sheng Real Estate Co. Ltd. (see appendix 2) and a receipt was issued by (the Plaintiff) to (Dai Liang) ....."

It was alleged that that agreement was concocted by Dai Liang and the Plaintiff, even though that agreement was never produced in the Hong Kong Court and could not be examined. The evidence of the Defendant in this respect consists solely of allegations of his belief and an assertion that, for some inexplicable reason, no such agreement could have been entered into on 28th October, 1992, when the agreement between the Plaintiff and the Defendant was entered into on the 30th of this month. In argument, Mr. Ronny Tong relied upon this evidence and also drew attention to a document by which Dai Liang's bank remitted the money. Whether or not that was the appendix 2 referred to in the passage cited is not known. Mr. Ronny Tong relied upon that document as somehow showing that the agreement in question had been concocted but it is impossible to see how it could do so. Its contents faithfully mirror the passage cited save that it adds that the money lent was for the purpose of purchasing steel bars. For all that may be known, that may have been exactly the purpose provided for in the agreement. An allegation of fraud is serious enough in itself. The gravity of the allegation is increased by one that alleges that a document was concocted for that purpose. It is a scandal that it was thought fit to make such an allegation.

10. The fourth complaint was that the Plaintiff gave false evidence in China that the loan agreement between the Plaintiff and the Defendant had been signed in China whereas in other evidence it was said to have been signed in Macau. It is true that the Plaintiff has given contradictory evidence about this although an explanation had been proffered. No argument has been advanced that the Chinese Courts lacked jurisdiction because the agreement may have been signed in Macau and, in the absence of any such allegation, it is impossible to understand how this allegation is at all relevant. The fact remains that the Defendant did sign the agreement with the terms already discussed. Yet this complaint is relied upon as showing fraud.

11. The final complaint was that Dai Liang had colluded with the Plaintiff in the institution of the proceedings in China in that the Plaintiff never filed a defence in those proceedings. This argument, for good reason, was not pressed. Dai Liang and the Plaintiff are two separate legal entities even though one may be wholly owned by the other. Dai Liang was entitled to sue the Plaintiff and the Plaintiff, if as appears, there was no defence, was entitled to present no defence. There is nothing to this point far less anything indicating fraud.

12. Mr. Patrick Fung pointed out that while judgment was awaited in China the Defendant applied for a stay of the present proceedings in Hong Kong on the grounds that the proceedings in China were more appropriate. It would appear that no question of alleging fraud in China occurred to the Defendant until after judgment these had been given against him. This says nothing for the Defendant's credibility. Mr. Ronny Tong cited a large number of cases with which it is unnecessary to deal since Mr. Patrick Fung conceded that the Defendant was not required to do more than to show an arguable case of fraud. That arguable case has not been shown. Mr. Ronny Tong also briefly mentioned two other points. The first was that the Order 14 proceedings in this case were launched after judgment at first instance had been given in China and the Plaintiff had not informed the Court of it when the summons in the 1994 action was heard. It remains that the Defendant was in the process of appealing the judgment in China and the Higher Court had not yet rendered its decision on appeal. In any event the judgment constituted a new cause of action and there was no necessity to refer to it. Certainly it could not have been added to the writ in the 1994 action as the cause of action had not yet accrued at the date of issue of that writ. Secondly, it was mentioned that the question of whether there was a triable issue had been determined by the giving of conditional leave to defend in the 1994 action. There is simply nothing to that point.

13. This appeal must be dismissed. I would also make an order nisi that the respondent is to have its costs of the appeal.

Liu, J.A. :

14. In an action commenced in Hong Kong by the plaintiff (the respondent) against the 1st defendant (the appellant) to enforce a PRC judgment, the respondent applied for summary judgment. The appellant resisted the Order 14 application on his allegations of collateral frauds said to have been committed by the respondent. The respondent had commenced an action in Hong Kong claiming a like amount against the appellant whose application for striking out was unsuccessful. The master, granted leave to defend. On appeal, the appellant's leave to defend was made conditional by Sears, J. In the proceedings below, Sear, J. granted the respondent's Order 14 application against the appellant for the enforcement in Hong Kong of its foreign judgment. The judge also stayed the Hong Kong proceedings in which the appellant had obtained conditional leave to defend. The appellant feels aggrieved by these decisions; hence the instant appeal.

15. The allegations of fraud concerned collateral frauds on 5 matters, namely:

(1) the false evidence on the delivery to the appellant of a bank draft or receipt;

(2) the false evidence on the respondent's absence of knowledge of Mr Wu;

(3) the fabrication of a "loan agreement" in collusion with Dai Liang authority;

(4) the false evidence on the location where the lending agreement between the parities was signed;

(5) the collusion between the respondent and the Dai Liang authority in the institution of the PRC proceedings.

16. Like every allegation of fraud, an allegation of collateral frauds must be supported by full particulars. Counsel owes a duty to the court that these allegations should not be lightly made. In this appeal, the question is whether the affidavit evidence discloses a prima facie case of frauds. They are not to be relied upon as frauds going directly to the cause of action. Were they frauds extraneous or collateral to the dispute?

17. The clear and concise statement of the law for frauds in the enforcement of a foreign judgment at common law is set out in Dicey and Morris, the Conflict of Laws, 11th Edn. (1987), rule 44 which provides:

"44. A foreign judgment relied upon as such in proceedings in England is impeachable for fraud. Such fraud may be either (1) fraud on the part of the party in whose favour the judgment is given; or (2) fraud on the part of the court pronouncing the judgment."

18. It is the former of a collateral nature that the respondent is said to have perpetrated before the PRC court. Mr Tong, leading counsel for the appellant seeks to impeach the PRC judgment on the appellant's allegations of collateral frauds, not as frauds going directly to the cause of the action itself. Mr Tong submits that this court should not be reluctant to grant O. 14 leave to a prima facie case of collateral frauds. In Jet Holdings Inc. v. Patel [1990] 1 QB 335, at p. 345 B Staughton LJ observed:

"Collateral fraud is a stronger case where the English court should be more ready to investigate anew matters which were considered by the foreign court than in the case of fraud going directly to the cause of action which was adjudicated upon by the foreign court."

19. But the alleged collateral frauds must be sufficiently linked to the deliberation of the PRC court. Put another way, the collateral frauds must be frauds by which the respondent had procured the foreign judgment. A party who has obtained a foreign judgment by fraud, collateral frauds in this case, is a litigant who has deliberately caused the foreign court to come to a wrong decision. That much is clear. Leading counsel for the appellant, Mr Tong concedes in one of his questions posed for our consideration that as collateral frauds, lies told or false testimony given in the PRC court must be for making either the respondent's case more believable or the appellant's case less believable, in counsel's own words "in order either to booster [the respondent's] case or persuade the PRC court to reject the [appellant's] evidence." Was the PRC court deceived into giving its judgment by these alleged collateral frauds? As Lord Templeman said in a judgment he delivered for the Judicial Committee that in each case the test was "whether justice requires the further investigation of alleged frauds or requires that the plaintiff, having obtained the foreign judgment, shall no longer be frustrated in enforcing that judgment." See Owens Bank Ltd. v. Etoile Commerciale S. A. [1995] 1 WLR 44 at 51 C - D.

20. In the case before us as analysed by my Lord Ching, JA, none of these alleged collateral frauds could be said to have an impact on the conclusion of the PRC court, which no court could have failed to reach on the overwhelming documentary evidence and telling concessions. The evidence all went one way. No amount of collateral fraud of the nature of those alleged could have made any difference to the decision of the PRC court. In this unusual case, for the anlaysis given by my Lord, it cannot be said that the foreign judgment was procured, wholly or in part, by these alleged collateral frauds. Whilst the appellant is not barred by their failure or omission to raise these allegations of collateral frauds before the PRC court, no prima facie case is shown that the PRC court was deceived into giving its judgment. The case before the PRC court was adjudged on restitution after the lending agreement between the Dai Liang authority and the respondent had been declared null and void for breach of regulations. On the overwhelming evidence, it was virtually a cast-iron case, and this must reflect on the bona fides of allegations of collateral frauds now sought to be raised by the appellant. Mr Tong has succeeded in mounting what must be an attractive argument on the force of these alleged collateral frauds and collusion, but no one could fail to realise that this is a hopeless exercise. The issues raised are, therefore, neither triable nor bona fide. Justice requires that the respondent shall no longer be frustrated in enforcing its PRC judgment. The judge was right. I would dismiss this appeal with the same order nisi for costs.

Nazareth V-P:

21. The only ground relied upon by the appellant is fraud, i.e. collateral fraud which the appellant has sought to show in the five respects mentioned by my Lord.

22. There are plainly some curious features in the respondent's version of the matter. It would be surprising if there were not, given the involved nature of what transpired by any account. Even so, as Ching JA has demonstrated, the allegations of fraud are nebulous; they do not begin to meet the threshold for such allegations; and, if that were to be considered, they are simply overwhelmed if addressed on the usual Order 14 basis, by the evidence relied upon by the respondent.

23. I agree with my Lords and without hesitation would also dismiss the appeal. I would also make an order nisi giving the respondent its costs of the appeal.

24. The appeal is accordingly dismissed with an order nisi that the respondent is to have its costs of the appeal.