DINERS CLUB INTERNATIONAL (HK) LTD v. LEUNG KAI MAN

DCCJ2411/2003

IN THE DISTRRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2411 of 2003

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DCCJ2412/2003

IN THE DISTRRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2412 of 2003

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BETWEEN

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Reasons for Decision

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1. I dismissed the Defendant’s application for leave to appeal against the summary judgments entered against him for reasons below.

2. The material facts of this case were briefly that the Defendant was at the material times the holder and user of a Diners Club Card and a Visa Card issued to him respectively by the two Plaintiffs.  He was also a director of Grand Pacific Hotel Limited, which was formerly known as Grandfield Pacific Hotel Limited (“Grandfield”), which ran the business of a hotel.  On 9^th January 2001, Periwin Development Limited petitioned to the Court of First Instance for an order to wind up Grandfield (HCCW29/2001).  A provisional liquidator was appointed to take over its business, but with the permission of the Court, the provisional liquidator returned the business to the directors of Grandfield including the Defendant on 19^th March 2001.  Between May and December 2001, Grandfield issued to the 1^st-named Plaintiff Diners Club International (HK) Limited 8 cheques for the total sum of $46,820 to settle the credit card debt incurred by the Defendant through the use of his Diners Club Card, and another 8 cheques for the total sum of $27,600 to the 2^nd-named Plaintiff to settle the credit card debt incurred by the Defendant through the use of his Visa Card.  The Plaintiffs cashed the cheques issued to them respectively, and reduced the credit card debts of the Defendant accordingly.

3. On 3^rd January 2002, the Court of First Instance heard the petition and ordered Grandfield to be wound up.  By virtue of section 184(2) of the Companies Ordinance, Chapter 32, the winding up of Grandfield was deemed to commence at the time when the petition for its winding up was presented, i.e. on 9^th January 2001.

4. Subsequent to the Order of winding up, Miss Alision Wong and Mr. Alan Tang of Grant Thornton were appointed as the Joint and Several Liquidators of Grandfield (“the Liquidators”) on 18^th June 2002.

5. By letters dated 16^th August 2002, 26^th September 2002 and 25^th November 2002, the Liquidators wrote to the two Plaintiffs demanding for the return of the said sums of $46,820 and $27,600 paid to the Plaintiffs by cheques issued by Grandfield on the ground that these payments were void by virtue of section 182 of the Companies Ordinance since the payments were made by Grandfield after the commencement of its winding up and were not validated by any order of the court.

6. The two Plaintiffs took legal advice and eventually compiled with the demand of the Liquidators and paid back the money.  They then sought to recover the money from the Defendant by making entries of “reverse payment” into the respective credit card accounts of the Defendant.  The Defendant refused to pay, and hence the Plaintiffs brought these two actions against the Defendant. 

7. The Defendant’s primary argument was that after the provisional liquidator had been discharged, he had to and did spend his own money for the purpose of running Grandfield’s business that was badly disturbed by the appointment of the provisional liquidator resulting in shortage of running capital.  He said that Grandfield re-paid part of the debts owed to him from time to time when it had the available money.  He said that he could have asked Grandfield to issue cheques to him directly to settle the debts owed to him by Grandfield, but for the sake of convenience, he directed Grandfield to issue cheques to the two Plaintiffs to settle his credit card payments.  In this manner, the Defendant considered that the money received by the Plaintiffs was in fact his money and hence the payments were not rendered void by section 182.  The Defendant therefore claimed that the Plaintiffs should not have returned the money to the Liquidators, or they should have done so only after they had failed to get a validation order from the Court, but the Plaintiffs had never applied for such an order.

8. In DCCJ2412/2003, the 2^nd-named Plaintiff’s claim was also made up of another credit card debt in the sum of $60,687.  The Defendant did not dispute that he was liable to pay this sum, except to say that he offered to pay this sum to settle all of the Plaintiffs’ claims, and the Plaintiffs had unreasonably refused to accept.

9. The two Plaintiffs applied for summary judgment against the Defendant.  Their applications were successful.  The Defendant sought leave to appeal.

10. When the application for summary judgment was heard, the Defendant was not legally represented.  The proceedings were conducted in Punti and the judgment was delivered in Chinese.  In this application for leave to appeal, Mr. A. Lam of Counsel represented the Defendant.  At the request of Mr. Lam, the proceeding was conducted in English.

11. Mr. Lam advanced 5 grounds of appeal. 

12. Firstly, Mr. Lam submitted that it was not right for the Plaintiffs to make payment to the Liquidators and then charge the Defendant by making reverse payment entries into his accounts.  He submitted that a question of law had arisen in the present case, i.e. whether the money paid by Grandfield through its cheques involved a double disposition of property, first from Grandfield to the Defendant, and then from the Defendant to the Plaintiffs.  Presumably, Mr. Lam meant to argue that if there were no disposition of Grandfield’s property in favour of the Plaintiffs (but just a disposition of property from the Defendant to the Plaintiffs), the Plaintiffs would not be required by section 182 to pay over the money to the Liquidators, and hence they were not entitled to seek repayment from the Defendant.  Mr. Lam further submitted that section 182 did not catch a bank.  He cited Hollicourt (Contracts) Ltd. v. Bank of Ireland [2001] Ch 555 and Coutts & Co. v. Stock [2000] 1 WLR 906 to support his propositions.  Mr. Lam further submitted that section 182 was a very difficult and complicated section that required consideration by the Court of Appeal.

13. In my view, the two cases cited by Mr. Lam, which were on the same point, did not help the Defendant at all.  It would suffice to refer to only one of them.  In Hollicourt (Contracts) Ltd. v. Bank of Ireland, a company was wound up.  Before the making of the winding up order but after the presentation of the petition, the company paid its creditor by issuing a cheque upon its account with the bank.  The bank honoured the cheque and paid over the money to the creditor.  It was held that when the bank honoured the cheque, it was merely acting on the company’s mandate as its agent, and involved no disposition of the company’s property to the bank for the purpose of section 127 of the Insolvency Act 1986 (which was equivalent to our section 182 of the Companies Ordinance). 

14. In my view, the facts of Hollicourt (Contracts) Ltd. were substantially different from the present one.  In that case, the bank merely paid over the money to the company’s creditor who was the payee of the cheque.  In the present case, although the two Plaintiffs were banks, they were themselves the payees of the cheques and in truth and in fact the ultimate recipients of Grandfield’s property.  As Mummery L. J. made it clear, at page 563, the section impinged “on the end result of the process of payment initiated by the company, i.e. the point of ultimate receipt of the company’s property in consequences of a disposition by the company.”  It was beyond argument that there was a direct disposition of the property of Grandfield in favour of the two Plaintiffs, and that this disposition was caught fairly and squarely by the provision of section 182.

15. Perhaps I should reiterate what I had already stated between paragraphs 29 and 33 of my earlier judgment concerning the tri-parte dispositions of property amongst Grandfield, the Defendant and the Plaintiff concerned.  Once the Plaintiff concerned cashed a cheque issued by Grandfield, it was bound to extinguish a debt in the corresponding sum owed to it by the Defendant.  In other words, the choses in action between the Plaintiff concerned and the Defendant extinguished.  Likewise, the Defendant who claimed that Grandfield owed him money would have his own choses in action against Grandfield extinguished.  The end result was that the Defendant was no longer required to pay the corresponding sums of money represented by Grandfield’s cheques to the Plaintiffs, but it was brought about by the extinguishment of different choses in actions amongst the parties and a direct disposition of property from Grandfield to the Plaintiffs.  In this application for leave to appeal, I had heard no argument from Mr. Lam that this analysis was wrong.

16. Before I left this ground of appeal, I had to refer to another submission made by Mr. Lam.  Mr. Lam had made the point that I had relied upon the case of Bank of East Asia, Ltd. v. Rogerio Sou Fung Lam and Another trading as R. Lam & Co. (a firm) [1988] 1 HKLR 181 in my earlier judgment, but the validity of this case had been questioned in Hollicourt (Contracts) Ltd.  When I referred to the Bank of East Asia case, I was using it as an example to illustrate that it was not necessary for the bank to apply for a validation order first before it could start proceedings against the Defendant to recover the sums paid to the Liquidators.  It had nothing to do with the doubt expressed by the learned judges in Hollicourt (Contracts) Ltd. where they questioned whether the bank in Bank of East Asia should return the money to the liquidator at all when it was merely acting as an agent in cashing the cheques.

17. The second ground put forward by Mr. Lam was whether the Liquidators should go after the Defendant first before they demanded the Plaintiffs to pay over the money to them.  Mr. Lam referred to page 567 of the judgment in Hollicourt (Contracts) Ltd. where the learned judges left open the question whether it was necessary for the company to exhaust all its remedy against the payees first before it could sue the bank. 

18. I was of the view that this point did not assist the Defendant.  In the Hollicourt (Contracts) Ltd. case, it was sought to argue that the bank should not be held liable if the company did not pursue against the payee of the cheque first.  The point was that the company should go after the party who had actually received the money instead of the bank who was merely an agent handing over the money.  This situation did not arise in the present case.  As I had said before, the two Plaintiffs were the actual and ultimate recipients of the Grandfield’s property.

19. Mr. Lam had further sought to argue that when the Plaintiffs faced with the demand by the Liquidators to pay over the money, they should not comply with the demand but take out interpleader proceedings.  There was no doubt that the Plaintiffs could not take out interpleader proceedings because as the payees of the money, they had a personal interest in the money and could not therefore satisfy the requirement of Order 17 rule 3(4)(a) of the Rules of the District Court.  They had to decide whether they should comply with the demand of the Liquidators or keep the money themselves.

20. The third ground raised by Mr. Lam was that the Plaintiffs should have followed the examples of other banks who had received similar demands from the Liquidators but refused or failed to return the money.  Such other banks included Fortis Bank, A E Bank and the Standard Chartered Bank.  I found this ground had no merit.  Each case had to be decided upon its own facts.  The action of other banks was simply irrelevant to the questions under consideration here.

21. The fourth ground raised by Mr. Lam was that when the Plaintiffs returned the money to the Liquidator, they had breached their implied duty of care owed to the Defendant.  Mr. Lam referred me to paragraph 7.6 and 7.7 of Paget’s Law of Banking (12^th Edition), page 119.  In paragraph 7.6, the learned author stated that “it is impossible to give an exhaustive list of the duties of care owed by banker and customer to each other because in any given case, the court is concerned with the particular contract or, in the case of an alleged duly of care in tort, the proximity of the parties, reasonableness and justice on the particular facts.”

22. In this present case, the Plaintiffs allowed the Defendant to use their credit cards to obtain goods and service on credit upon the Defendant’s undertaking to settle the credit card sums upon their demand.  Their relationship was clearly one of creditor and debtor.  In this particular context, I failed to see what duty of care owed by the Plaintiffs to the Defendant had to be implied into their relationship.  On the contrary, if there were any duty of care, it should be the other way round, namely, the Defendant should have ensured that the payments to the Plaintiffs were valid payments and not void or voidable payments.  When Mr. Lam was asked what duty of care should have been implied, Mr. Lam was unable to give a clear answer, other than saying that more elaborate research would be carried out if leave to appeal were granted.

23. The fifth ground put forward by Mr. Lam was that the Defendant would wish to adduce new evidence to support his case.  It was submitted that the Defendant wished to ask the former accountant of Grandfield to give evidence on the meaning of various entries in the ledgers of Grandfield.  In those entries, it was recorded that the cheques issued by Grandfield to the Plaintiffs were payments for the Defendant’s entertainment.  As far as I could understand it, the Defendant wished to adduce the new evidence to show that despite what had been recorded, the money paid to the Plaintiffs were not for his personal use or enjoyment but for the running of Grandfield’s business so that the payments could be validated under section 182.  In my view, the Defendant had failed to give a reasonable explanation as to why such evidence had not been adduced in the earlier hearing, and he had failed to demonstrate how such evidence could affect the outcome of this case.

24. Mr. Lam referred me to the principles set out in Smith v. Cosworth Casting Processes Limited [1997] 1 WLR 1538 that governed granting or refusing leave to appeal.  Such principles had been helpfully summarized by Her Honour Judge Ng in Bowardley Enterprises Limited (suing on behalf of itself and all other members of the Hong Kong Badminton Association as on 9^th August 1997) v. Millennium Group Limited, unreported, DCCJ3039/2004.  I had borne those principles in mind.  However, for the reasons stated above, I was of the view that the Defendant had no realistic prospect of succeeding on the appeal, and that there was no point of law that the public interest required it to be examined by the appellate court.  Accordingly, I refused the Defendant’s application for leave to appeal.

25. It followed that it was pointless to consider the Defendant’s other application for these two cases to be consolidated so that they could be taken on appeal at the same time.  This application was also dismissed.

26. During the course of argument, Miss Tai for the Plaintiffs asked for security of costs of the appeal if the Defendant were given leave to appeal.  It was submitted that the Defendant was now residing out of jurisdiction since he was living in Nanjing, the People’s Republic of China.  It was not necessarily for me to decide this point since the Defendant’s application for leave to appeal had been dismissed.

27. Lastly, Mr. Lam asked for stay of execution of the judgment if leave to appeal were not granted.  The Defendant had not issued any summons for this purpose.  Nor had he filed any evidence to substantiate why such a stay should be granted.  As Miss Tai for the Plaintiffs had rightly pointed out, Order 58 rule 3 of the Rules of the District Court made it clear that an appeal should not operate as a stay of the proceedings in which the appeal was brought.  Hence, Mr. Lam’s request for stay of execution of the judgment could not be acceded to.

28. As far as costs of the applications were concerned, there was no reason to depart from the normal principle that costs should follow the event.  I therefore ordered that the Defendant should pay costs of this application for leave to appeal, as well as costs of the application for consolidation of the two cases, to be taxed if not agreed.