OSK ASIA FUTURES LTD v. LAM CHI BIN STANLEY AND ANOTHER

CACV 294/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No 294 of 2002

(On appeal from HCA No. 10335/2000)

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JUDGMENT

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Hon Yuen JA (giving the judgment of the Court):

1. This is an appeal from an order of Master Louis K.Y. Chan made on 13 July 2002 whereby it was ordered that the 1st Defendant ("the Judgment Debtor") be imprisoned for one month under Order 49B rule 1B(1)(c) of the Rules of the High Court.

Issue of proceedings

2. The background to this appeal is as follows. As a result of futures trading in October 2000, the Judgment Debtor became liable to the Judgment Creditor in the sum of more than $9 million. A writ was issued against him that year.

Conditional leave

3. There was an application for summary judgment. On 20 April 2001, Master M. Wong gave the Judgment Debtor leave to defend, conditional upon payment into court of a sum of $2.5 million within 14 days. In default of payment, the Judgment Creditor would be entitled to enter final judgment against him.

Affirmations in support of stay application

4. In May and June 2001, the Judgment Debtor filed 2 affirmations in support of his application for a stay of Master Wong's order pending an appeal from that order. These affirmations are important and have to be considered in detail.

5. In his affirmation of 4 May 2001, the Judgment Debtor stated that he was unable to meet the order for payment into court without depriving himself of all his working capital and selling his investment in a property project in the PRC at an undervalue, in consequence of which he would be financially ruined.

6. That project was a development known as Kam Pik (or Kimby) Garden in Shanghai. In his affirmation, the Judgment Debtor said that by an agreement dated 25 November 2000 ("the Agreement") between Shanghai Lian Fa Real Estate Development Co Ltd ("Lian Fa") and Silicon SMT Manufacturers ("Silicon") which was owned by himself, Silicon had in effect acquired the property at the price of HK$7,200 per sq.m.

7. The Judgment Debtor exhibited the Agreement which was entitled "包銷合同" (Underwriting Agreement). In the Agreement, Silicon undertook to sell the 39 houses in the development project (totalling 11,593.07 sq.m.) at HK$7,200 per sq.m. Should the actual selling price exceed HK$7,200 per sq.m., Silicon would receive the difference. Should the actual selling price be less than HK$7,200 per sq.m., Silicon would settle with Lian Fa at the price of HK$7,200 per sq.m.

8. In his affirmation, the Judgment Debtor stated :-

"7. In accordance with Clause 3 of the Agreement, Silicon has paid the total sum of HK$34,000,000.00 to Lian Fa.

8. I am the beneficial owner of the entire issued share capital of Silicon and I provided the funding of Silicon in the Shanghai property. ...

9. The payments of HK$34,000, 000.00 by Silicon to Lian Fa under the Agreement were out of funding belonging to me.

10. Lian Fa is now utilizing the said HK$34,000,000.00 for completion of the construction and decoration of the Shanghai Property and the construction is expected to complete in November 2001.

...

17. According to the estimate before the signing of the Agreement, the sale of the Shanghai Property after completion of construction could bring in a profit in the region of HK$30,000,000.00"

(emphasis supplied).

9. Clause 3, which was referred to in the affirmation, was the payment clause, whereby Silicon agreed to make payment in the following manner:-

1.	Upon signing the Agreement (HK dollars)	5,000,000.-
2.	Within 30 days after signing the agreement	12,000,000.-
3.	Within 90 days after signing the agreement	17,000,000.-
4.	Within 14 days after the issue of the Occupation Permit, the balance of	49,470,104.-

10. The total amount of the 4 payments under Clause 3 was $83,470,104.00 (which was equivalent to 11,593.07 sq. m. at $7,200 per sq. m). The total amount of the 1st to 3rd payments was $34 million, the sum which the Judgment Debtor said Silicon had paid with funds provided by himself.

11. It is clear beyond peradventure that the Judgment Debtor was saying on oath that he had provided $34 million in funds to Silicon, which Silicon had paid to Lian Fa, and which Lian Fa was utilizing to construct the property, which was expected to be completed in 6 months' time and to bring a profit of $30 million to Silicon.

12. The Judgment Debtor's application for a stay of Master Wong's order pending appeal was dismissed by Master Jones on 22 May 2001.

13. On 5 June 2001, the Judgment Debtor filed another affirmation. In this affirmation, he stated:-

"3. I started to invest in the Shanghai Property since November of last year and up-to-date Silicon has put in about HK$34,000,000.00 into the investment. That sum of money represents the bulk of my own personal fortune. ..."

(emphasis supplied).

14. Eventually, Chung J. granted the Judgment Debtor a stay of Master Wong's order pending appeal.

Summary Judgment

15. On 16 July 2001 however, the Judgment Debtor's appeal was heard by Waung J. who entered summary judgment against him.

Examination

16. The Judgment Debtor failed to satisfy the judgment. By way of enforcement, the Judgment Creditor obtained a charging order on the shares in Silicon and also issued a summons for the examination of the Judgment Debtor.

17. On 13 December 2001, Master Au-Yeung gave an order for the disclosure of documents by the Judgment Debtor for the purposes of the examination.

18. The examination before Master Chan took place over a period of 4 months and took 3 days. The first day of examination was on 1 March 2002.

19. When the Judgment Creditor sought to trace the source of the $34 million which the Judgment Debtor said in his affirmations he had provided to Silicon, the Judgment Debtor denied that he had provided any funds.

20. He said that Clause 3 only dealt with the progress of payment, and that Silicon's obligation was actually in Clause 5(5) of the Agreement. This provided that Silicon had to assist Lian Fa to obtain financing (融資) in the sum of $34 million (of which $10 million was to repay Lian Fa's bank loans and other expenses, and which would be deducted from the last payment under Clause 3).

21. He claimed that he had an arrangement with a company (the full name of which he was not aware) which was controlled by the Zhen Jiang City government, under which the Zhen Jiang company provided labour and materials to the project (帶資興建). According to the Judgment Debtor, the Zhen Jiang company was prepared to do that as he was very influential in it and as it would receive part of Silicon's profits after the project was completed. Vis-a-vis Lian Fa, Silicon's contribution was simply to fulfil its duty under Clause 5(5) to find financing for it (March transcript pp. 11-14).

22. No documentary evidence was adduced by the Judgment Debtor to support his allegation of an arrangement with the Zhen Jiang company. The Judgment Debtor alleged that there was no documentation because the arrangement was based on trust or honour (信譽), and because what the Zhen Jiang company was doing was illegal as it was supporting him by utilizing materials belonging to the state.

23. Towards the end of the hearing on 1 March 2002, the Judgment Debtor asked for an adjournment of 1 month so that he could return to the mainland for documents and so that he could settle accounts. He told the master that he was fearful that his project would be "swallowed up" and that the profit would be made by others in his place. It would be noted that this was 4 months after the due date of completion of the project according to the Agreement.

24. The hearing was then adjourned to 18 May 2002. The Judgment Debtor claimed that in the period of time between the hearings, he had been to Shanghai and had found that the companies had closed down. He claimed that the Zhen Jiang company had been taken over by a company called Tung Fang Asset Management Co. However this company could not answer his queries and he could not find any relevant materials. He claimed that there was no management at the development project, that it had been taken over by residents and hawkers, that the air-conditioners had been removed and that it was in a run-down condition (May transcript, p15).

Order for imprisonment

25. In a detailed Decision, the master rejected the Judgment Debtor's attempt to reverse the clear statements he had made in the May and June 2001 affirmations that he had provided funds of $34 million to Silicon for the development project.

26. The master did not accept that the Judgment Debtor's investment in the development project was solely by way of labour and materials supplied by the Zhen Jiang company, a matter which had not been mentioned in the affirmations.

27. Further, the master noted that the 3 sums totalling $34 million payable by Silicon to Lian Fa under Clause 3 were different from the financing of $34 million which Silicon had to arrange for Lian Fa under Clause 5(5), as $10 million of this latter sum was to be repaid by way of deduction from the final balance.

28. The master also took into account the fact that there was no documentation at all evidencing the alleged arrangement with the Zhen Jiang company, notwithstanding the fact that the sums involved were not insubstantial.

29. The master indicated that he was fortified in his belief that the Judgment Debtor had made up the story at the examination as he could not even provide the correct name and address of the Zhen Jiang company.

30. The master found beyond reasonable doubt that the Judgment Debtor had failed to make full disclosure of his assets and investment in the development project. He ordered a term of 1 month's imprisonment under Order 49B rule 1B(1)(c), which provides that where the court is satisfied, following an examination, that a judgment debtor has wilfully failed to make a full disclosure as required under rule 1A, it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months. It is from this order that the Judgment Debtor now appeals.

Application to adduce fresh evidence on appeal

31. Before dealing with the issues on appeal, however, it is necessary to record that the Judgment Debtor sought to adduce fresh evidence at the hearing of the appeal, which application was refused by reason of the matters set out below.

Court of Appeal order of 23 July 2002

32. The appeal was originally listed to be heard before another division of this court (Hon. Rogers V-P, Le Pichon JA and Sakhrani J) on 23 July 2002. At the hearing, the Judgment Debtor (who was represented by counsel at the time) sought to produce a number of Chinese documents that had not been before the master.

33. Upon the Judgment Debtor's undertaking to provide security for the Judgment Creditor's costs of the hearing and bail, the Court of Appeal vacated that hearing but ordered that any application by the Judgment Debtor to adduce further evidence be made before 6 August 2002, time to run during vacation.

34. No application to adduce fresh evidence was made by 6 August 2002. On that day however, the Judgment Debtor's solicitors wrote to the Judgment Creditor's solicitors asking for an extension of 14 days to file the application for leave to adduce fresh evidence. On 13 August 2002, the Judgment Creditor's solicitors replied refusing consent to the requested extension.

35. However, the Judgment Debtor made no application to the court to adduce the fresh evidence out of time in the 8 months that followed. No satisfactory reason has been given by the Judgment Debtor for his failure to do so. He simply exhibited the fresh materials to an affirmation filed on 7 April 2003 (3 days before the hearing of the appeal before us).

36. The Judgment Debtor's excuse for this was that he understood that when he was legally represented, it would have been necessary for the Chinese documents to be translated into English, which he claimed would have cost a great deal of money as he alleged mainland Chinese personnel would have been required to translate Chinese terms used on the mainland.

37. He was however aware that if he appeared in person, he would not need to prepare translations. And yet, after commencing to act in person on 11 March 2003, he still made no attempt, in almost a month that followed, to apply to adduce the fresh evidence out of time. He was unable to offer any reason for this omission, save to say that it had taken him some time to type out his documents in Chinese.

38. Since there was no satisfactory explanation for his failure to comply with the Court of Appeal's order of 23 July 2002 (which was obviously designed to deal timeously with the issue whether the fresh evidence complied with the Ladd v Marshall conditions), and given the substantial delay, there existed no ground for this court to exercise its discretion in his favour. Accordingly his application for leave to adduce fresh evidence was dismissed.

The Appeal

39. Dealing now with the appeal, the Judgment Debtor's grounds of appeal were:-

"(1) the Learned Master erred in ordering the imprisonment of the Judgment Debtor on the ground that he had failed to make full disclosure of his assets and investments in Kam Pik Garden when the Learned Master himself found that the Judgment Debtor had substantial interest in the 39 houses (in Kam Pik Garden).

(2) the Learned Master failed to exercise his discretion under Order 49 [sic] rule 1B(1) when he ordered the imprisonment of the Judgment Debtor solely on the ground that he had failed to make full disclosure of his assets".

40. The first ground of appeal showed perhaps a misunderstanding of the master's reasons for the order. In paragraph 19 of his Decision, the master focussed on the fact that there was no information on the source of the $34 million, when on the basis of what the Judgment Debtor had said in his affirmation of 4 May 2001, he had paid $34 million to Lian Fa pursuant to Clause 3 of the Agreement and would have a substantial interest in the houses covered in the Agreement.

41. The master was entitled to find that the Judgment Creditor had discharged its burden of proof to show that the Judgment Debtor had wilfully failed to make full disclosure of his assets. It was, after all, the Judgment Debtor himself who had disclosed on oath that he had provided funds of $34 million to Silicon out of his "personal fortune"(affirmation filed 5 June 2001, paragraph 3). Under Order 49B, the Judgment Debtor was prima facie obliged to disclose the source, location and extent of that personal fortune.

42. Now that the Judgment Debtor was seeking to retract those statements made on oath (by making new allegations about Silicon's arrangement with Lian Fa and the Zhen Jiang company), the master was entitled, and indeed obliged, to examine these new allegations carefully to see if they were true, and he did so.

43. His finding on the facts, after having seen and heard the evidence of the Judgment Debtor over a period of 3 days, was that he did not believe the new allegations. On appeal, the Court of Appeal would only disturb his findings of fact if it could be shown by the appellant that either (1) there was no evidence to support the finding of fact; or (2) that the finding was contrary to documentary or other incontrovertible evidence which had been overlooked (Tang Kwok Ming v Daxprofit Scaffolding Ltd [1999] 1 HKC 657, 663).

44. The Judgment Debtor has failed to show to us either of the above. The master's scepticism about the Judgment Debtor's new allegation, that Silicon did not need to pay funds of $34 million to Lian Fa, could not be faulted.

45. First, the Judgment Debtor's new allegation was contradictory to the clear words of the Agreement which the Judgment Debtor had signed on behalf of Silicon. Clause 3 was not simply, as the Judgment Debtor now alleged, just a record of the progress of payments. It stated clearly Silicon's obligation to make payments to Lian Fa. Further, clause 5(4) of the section entitled "Silicon's obligations" stipulated that Silicon had to make payments punctually, or risk termination of the Agreement.

46. Secondly, the Judgment Debtor's allegation that the $34 million in Clause 3 (the payment clause) was the same as the $34 million in Clause 5(5) (the financing clause) was rejected by the master for good reason. The two sums could not be set-off because Silicon was not itself the financier under Clause 5(5), and in any event it was expressly agreed that $10 million out of the $34 million Lian Fa borrowed from the financier would be deducted from the last payment payable by Silicon. If it were the case (as the Judgment Debtor now alleged) that Silicon was absolved from paying the $34 million because Zhen Jiang would provide $34 million labour and materials which would be treated as "financing" for Lian Fa, that would not explain why Lian Fa would have to suffer a deduction of $10 million subsequently.

47. Thirdly, there was no documentary evidence from either Lian Fa or the Zhen Jiang company or indeed Silicon supporting the Judgment Debtor's allegation.

(1) As for (a) Lian Fa, it was not suggested by the Judgment Debtor that Lian Fa was in any way acting illegally; therefore the Judgment Debtor's excuse for the absence of documents from the Zhen Jiang company could not apply to Lian Fa. Yet there was not a single piece of documentary evidence from Lian Fa which lent support for the Judgment Debtor's new allegations.

(2) As for (b) the Zhen Jiang company, there was no documentary evidence showing that the value of the labour and materials it had supplied were, by the time of the affirmations, equal to the sums of the 1st - 3rd payments under Clause 3 referred to in the affirmations.

(3) As for (c) Silicon, one would have expected at least some contemporaneous documents from this company, operated by the Judgment Debtor in Hong Kong, evidencing the arrangements it had with Lian Fa and the Zhen Jiang company. This would particularly be so if, as the Judgment Debtor alleged, Silicon depended on the labour and materials from the Zhen Jiang company to fulfil its (Silicon's) obligation to Lian Fa. Clearly, some co-ordination work would have to be undertaken by Silicon. Yet not a single piece of contemporaneous documentary evidence was produced before the master.

48. In the circumstances, the Judgment Debtor has failed to show that the master's findings of fact could be faulted in either of the ways set out above, such as to warrant an appellate court overturning the findings. The fact that the Zhen Jiang company and/or the company that took it over may later be shown to exist does not get the Judgment Debtor home in his appeal, as the master's decision was not made solely on his finding that these companies did not exist.

49. As for the second ground of appeal, it has not been shown how the master is said to have failed to exercise his discretion properly when he ordered the term of imprisonment. The master's written decision showed that he had the relevant principles firmly in mind and that he had applied the principles to the facts as found by him. Given the Judgment Debtor's two earlier affirmations, the contradictory nature of his new allegations and the paucity of evidence supporting his new allegations, the order made by the master was by no means surprising in its result or extent.

Order

50. In the circumstances, the master's order should stand, and this appeal is dismissed with costs to the Judgment Creditor. The bail pending appeal is hereby revoked and the Judgment Debtor is to serve the balance of the term of imprisonment imposed by the master (he having been imprisoned for 2 days prior to the grant of bail pending appeal).