CHEUNG CHI PO v. KE JUN XIANG

FAMV No. 37 of 2012

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 37 OF 2012 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL FROM
CACV NO. 170 OF 2011)

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Between:

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DETERMINATION

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Mr Justice Ribeiro PJ:

1.  We dismissed this application for leave to appeal with costs, reserving our reasons.  We now provide those reasons.

2.  On 11 May 2009, the plaintiff/respondent (“Cheung”) issued a writ against the defendant/applicant (“Ke”) claiming the sum of HK$25 million.  The statement of claim, verified by a statement of truth, stated:

“The Plaintiff’s claim is for $25 million, money payable by the Defendant to the Plaintiff, being the sum of $25 million lent by the Plaintiff to the Defendant on the 1st day of November 2007 and repayable on 31 December 2007, together with interest on the said sum of $25 million at the agreed rate of prime rate plus 2.5 per cent per annum from 1 November 2007 until repayment pursuant to a Chinese promissory note dated 1st day of November 2007, signed by the Defendant”.

3.  The document referred to as “a Chinese promissory note” provided as follows:

“I, Ke Jun Xiang, due to cash flow problem, borrow from Cheung Chi Po HK$25,000,000.00 on the following terms and conditions and to agree to comply with as follows :-

1. interest at the bank’s best lending rate plus 2.5% per annum (P + 2.5%)

2. Term of repayment of money :

from 1^st November 2007 to 31^st December 2007, full repayment upon the expiry date on 31^st December 2007

I have personally received the said sum of HK$25,000,000 correctly and made this Agreement.’

4.  Although referred to as a “promissory note” the document in question is not a promissory note within the meaning of the Bills of Exchange Ordinance.[1] This was accepted by the Court of Appeal.[2]  So the claim as pleaded and as reflected in the document, indicates a two month loan made and received personally in one sum on 1 November 2007, acknowledged as such by Ke.

5.  Cheung entered default judgment on 10 June 2009 when Ke failed to file a notice of intention to defend.  Some 18 months later, on 17 December 2010, Ke applied to set the judgment aside.  He filed an affirmation saying that, contrary to what the document stated, he had not received any money at all; that he had signed it because he was desperately trying to raise money by way of personal debt to keep afloat a public company of which he was chairman; that Cheung had made it a condition that he sign the document before Cheung would go about trying to arrange the loan; that he had signed on that basis but no money had been received; that when he asked for the document to be returned, Cheung said he would destroy it and Ke did not press for its return.  Ke then said that when he later received a letter demanding repayment, he asked Cheung about it and was told that it was an error and that he could ignore it, which he duly did.  Ke explained that he had only sought legal advice when told by a friend about an advertised a statutory demand based on the judgment against him.

6.  An important development occurred when, in filing evidence to resist the application to set the default judgment aside, Cheung changed his version of how the debt had arisen.  Deputy High Court Judge Coleman SC describes it thus:

“What he says is that the loan was not a one-off transaction, rather, the Plaintiff says that he was one of a group of people from whom the Defendant had from time to time sought to borrow money to help with his business and that, since about 2003, the Plaintiff had provided various loans varying in amount from a few hundred thousand dollars to a few million dollars. Sometimes these were paid in cash in Mainland China when the Plaintiff and the Defendant met there, sometimes the payments were made directly to debtors on behalf of the Defendant, and sometimes the Defendant asked for money to be transferred to his wife’s account.

The Plaintiff says that the total amount of loans accumulated to about $25 million by 2007 and as he became increasingly insecure that the Defendant would repay that sum, he asked for his interests to be better protected by the Defendant’s signing the promissory note for repayment. He says the note was signed in a restaurant when the Defendant signed it and his signature was witnessed by a Mr Shao, another executive director of the relevant company. The Plaintiff says also present was his own assistant.”[3]

7.  The Master set the default judgment aside, as did DHCJ Coleman SC,  applying the test of whether the defendant has satisfied the court that his case has a real prospect of success, a burden higher than that required to avoid O 14 summary judgment.[4] They were both much influenced by the change in the plaintiff’s version of how the debt arose.  The Judge also remarked that given that Ke was saying that no money at all had been received, it might have been expected that Cheung would have put in evidence to dispel that allegation, but he had not done so. 

8.  The Court of Appeal (Cheung JA, with Yuen JA agreeing) acknowledged the legal test for setting aside a default judgment[5] but thought that Ke’s case was “inherently incredible”, finding it extremely unlikely that a commercially experienced chairman of a listed Hong Kong company would have behaved in the way that Ke claimed to have behaved.  We can well understand the Court of Appeal’s scepticism. If Ke had really acknowledged receipt of the money without actually obtaining a penny, his insouciance and inactivity in the face of Cheung’s failure to return the signed acknowledgment and of his receiving the letter of demand strains one’s capacity for belief.

9.  The Court of Appeal did not, however, reverse the decisions in the courts below.  Instead, it imposed as a condition of setting the default judgment aside, payment into court by Ke of the entire $25 million amount of the claim.

10.  Mr Alan Leong SC, appearing for the applicant,[6] applies for leave solely on the basis that a question of law of great general or public importance arises.  He formulates it (having slightly revised it at the hearing) as follows:

“Is it open to the court to impose any condition on a defendant upon setting aside a regular judgment on the ground that the defence is shadowy, when the court must necessarily have been satisfied that there is a defence having a real prospect of success? If the answer is in the affirmative, then what should be the different conditions to be imposed under different circumstances, and the purposes to be served by imposition of such conditions in each instance?”

11.  What underlies this question is a passage in L&M Specialist Construction Ltd v Wo Hing Construction Co Ltd,[7] when (while in the Court of Appeal) I saw a logical tension arising where terms are imposed on the “shadowy defence” basis while holding at the same time, that a default judgment should be set aside on the basis that there are real prospects of success, qualifying that by saying that in rare and exceptional cases, such views might concurrently be justified.  Mr Leong SC invited the Appeal Committee to grant leave so that the proper approach to the “logical tension” could be settled once and for all.

12.  We agreed with the submission of Ms Audrey Eu SC that properly read, the Court of Appeal’s decision does not give rise to any logical conundrum.  What Cheung JA was saying was that he did not consider the defendant to have real prospects of success,[8] that the Judge had exercised his discretion erroneously[9] and, implicitly, that the Court of Appeal would in the normal course have reversed the decisions below and refused to set the default judgment aside.  His Lordship stated:

“The only reason why this Court did not wholly allow the plaintiff’s appeal but imposed the condition requiring the defendant to make payment into Court of $25 million is because of the way the plaintiff presented its case.”

13.  The Court was therefore on the brink of allowing the appeal, seeing no real prospects of success in the defence but deciding, in its discretion, to hold its hand, on terms that the claim amount be paid into court in the light of the shift in the plaintiff’s case.  We agree that so understood, the Court of Appeal decision does not give rise to any point of law of great general or public importance, but instead involves the exercise of a discretion with which the Court of Final Appeal would have no basis to interfere.

14.  The second aspect of the question as set out by Mr Leong involves an attempt at challenging the imposition of a condition which Ke says is wholly beyond his means and impossible to comply with.  He seeks to rely on a principle along the lines of that laid down in the well-known decision in M V Yorke Motors (a firm) v Edwards.[10]  

15.  However, as the editors of the White Book note,[11] a defendant who seeks to avoid or limit a financial condition by virtue of his own impecuniosity must put sufficient and proper evidence before the court and make full and frank disclosure.  Ke was alerted to the possibility of financial conditions being imposed on him since Cheung had pressed for such conditions and complained on appeal to the Court of Appeal about the failure of the court’s below to impose the same.  Yet he put no evidence before any of the courts below until after the Court of Appeal had imposed the condition now complained of.  In such circumstances, the complaint cannot be entertained.

16.  We were accordingly satisfied that no grounds had been made out for leave to appeal and the application was dismissed with costs.