CHAN WAH t/a KA WAH SILK FLOWER FACTORY v. NG MAN MING t/a SIN FU TRADING COMPANY

1986 No. A5176

IN THE HIGH COURT OF JUSTICE

HONG KONG

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JUDGMENT

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1. This is an appeal against the decision of the learned Master on an 0.14 application. The appeal, as it is so called, is to be understood in the context of a hearing de novo.

2. Further affidavits have been filed with leave given by Mortimer, J.  The general approach is not so much whether the learned Master's decision can be flawed. Naturally, when the same matter has once been ventilated before and determined by a master, the judge on an 0.14 appeal would have the advantage of, at least, his views. But the present contest between the plaintiff and the defendant has been taken further by additional affidavits, and there is all the more reason for us not to be too concerned with the previous decision.

3. In order to fully appreciate this dispute, one must not lose sight of the somewhat unusual surrounding circumstances. The plaintiff and the defendant are related. The plaintiff is the son-in-law of the defendant, having taken the eldest daughter of the defendant as his wife. They are both comparatively new comers to Hong Kong. Both parties claim that he himself has prospered with the other of them in some financial predicaments. There have been a number of peripheral allegations and counter-allegations.

4. A driver of the defendant has come forward to support some of his allegations; so has a former employee of the plaintiff. The wife of the plaintiff has, if I may say so, given moral to her father. But Miss Yuen is certainly correct in her submission that the contents of her affirmation have introduced nothing of any real significance.

5. The book-keeper of the plaintiff has, on the other hand, rallied to the support of her employer.

6. Let me deal with the plaintiff's allegations first. It is common ground that the relationship between the parties had at one time been good. The plaintiff claims that he had an impoverished father-in law in the sense that he had been heavily committed in business activities with substantial bank overdrafts. The plaintiff claims that he had not infrequently come to his father-in-law's aid by providing him with the needed finance. While conceding that he is indebted to his father-in-law in some $437,000 processing charges, it is said that the net balance owed to him by his father-in-law stands in the region of over $3½ millions, comprising unpaid loans, advanced payment of processing charges, other expenses paid on behalf of the defendant as well as value of articles to which the father-in-law is said to have held himself without consent or authority.

7. The plaintiff chased, so it is said, the defendant for repayment and the defendant allegedly made excuses, one of which was, he, the defendant, was tied down by bank overdrafts. On the 12th of August, three cheques were allegedly given by the defendant to the plaintiff, the amounts of the cheque were totalling some $600,000 odd. These cheques were subsequently presented and dishonoured, marked "Referred to drawer". On these dishonoured cheques, these proceedings were commenced against the defendant. Judgment was granted by the learned Master against the defendant on these cheques together with claimed interests and costs.

8. On the other side of the coin, the defendant claims that these cheques were deliberately drawn by the plaintiff to defraud him. In the person of the plaintiff, so the allegations run, the defendant had much confidence, so much so that he had entrusted a cheque book with signed blank cheques to the plaintiff during his absence on business trips to China. Cheques of the defendant would have to be signed and chopped by a chop of the defendant firm before they could be met upon presentment. The defendant has deposed to the fact that he had entrusted the chop of his firm for the purposes of these cheques to the plaintiff's book-maker.

9. The defendant has the corroboration of his company driver on the allegation of such entrustment, and he is Mr Fung. He has affirmed that between June and July 1986 during the absence of the defendant, away from Hong Kong in Mainland China doing business, he received two cheques from the plaintiff on one occasion when he personally saw the plaintiff tear them from a cheque book with the plaintiff's book-maker filling in the figures. He has also deposed to his recollection that the defendant was in the habit of leaving a cheque book of the defendant company with the plaintiff whenever he, the defendant, returned to Mainland China for business.

10. An employee of the plaintiff has also come forward in support of the defendant's allegation. She claims that on numerous occasions in early 1986, she saw the plaintiff produce a cheque book of the defendant to the book-maker for her to fill in the figures and affix the defendant's chop on cheques taken from it. The plaintiff accuses this employee as having ulterior motive and been driven by ill-will.

11. In her denial of part of the defendant's version, the plaintiff's book-maker has sided with the plaintiff. She denies on affirmation that the defendant had ever left her with the defendant company's chop.

12. So one begins with this extra-ordinary situation of the family well divided into two camps, with loyalty either misplaced or displayed in favour of the truth. And to add to this extra-ordinary situation, of the alleged total indebtedness of over $3½ million from the defendant, the plaintiff seems to have been in unexplained haste on his claim for these three cheques, leaving the balance of the alleged $3½ million yet to be recovered in time to come. There may be good explanations and it may well be that this action or rather inaction is wholly irrelevant, but the situation faced by this Court against the background that I have described is certainly unusual.

13. There are said to be inconsistencies in the plaintiff's case, but they certainly do not seem to be significant contradictions or discrepancies. However, it is noteworthy that even counsel for the plaintiff, on the interpretation of the affidavit evidence, has been less than specific in pinpointing the source or sources of the amounts on these three cheques. Miss Yuen suggests by way of explanation that the three cheques seem to represent part of the alleged loans and alleged advanced payments for processing charges. Let us not overlook that also included in the alleged over $3½ million indebtedness are the other expenses allegedly paid on behalf of the defendant presumably at his request and value of articles allegedly stolen by the defendant. The defendant accuses the plaintiff for having issued these three cheques in his own handwriting. The Court is told that such accusation is in fact denied, but Miss Yuen, counsel for the plaintiff, has to be content with only an oblique reference contained, I believe, in paragraph 4 of the plaintiff's affirmation filed on the 14th November 1986. These criticisms levelled against the plaintiff by counsel for the defendant, in my view, really take the matter no further.

14. Next I turn to the criticisms advanced on behalf of the plaintiff by Miss Yuen. Counsel submits firstly that there are matters so inherently inconsistent with the very allegation of these cheques being drawn by the plaintiff without authorisation that the defence of fraud should be altogether rejected. Further, counsel argues that in all the prevailing circumstances, matters will have to be examined critically and in circumspection. In doing so, the Court would ultimately feel justified in rejecting the defence so advanced by or on behalf of the defendant. Lastly, so it is submitted, the matters raised and urged upon this Court by or on behalf of the defendant are but a sham and the circumstances must be such that the Court ought to feel almost constrained to grant judgment against the defendant in favour of the plaintiff. Moreover, there are suspicious circumstances in the mode of presenting his defence. Consequently, so Miss Yuen concludes, conditional leave should be seriously considered.

15. I have been ably assisted by both counsel. I hope I have sufficiently summarised their careful submissions made before me this morning.

16. On the suggested inherent inconsistencies, Miss Yuen drew my attention to paragraphs 4 and 5 of the defendant's affirmation filed on the 28th October 1986 and a police statement given by the defendant. It is complained that whilst the defendant's version is that he had been in the habit of entrusting the cheque book with signed blank cheques to the plaintiff, in one of his answers to the police, he made no such assertion but instead he stated that he had never so entrusted the plaintiff with his firm's cheque book before. The police query and the reply in question are:

17. In the context of the police inquiry, the question was not very precise in the use of the word "before": Was it before the event in the complaint or was it before he began to trust the plaintiff? After all, the defendant had previously stated: "Sometime between February and March 1986, because I had to travel to Mainland China on business trip, I left a cheque book which contained 25 signed cheques of Bank of Communications, Quarry Bay Branch."  It can be appreciated that the answer so given is open to more than one interpretation. It is further submitted that the habit of parting with his firm's cheque book and entrusting it with the plaintiff is closely linked with the defendant's allegation that the plaintiff fraudulently issued the three cheques. But even if the reply to the police question could be so exclusively interpreted against the defendant in the way suggested by Miss Yuen, I take the view that the matter is not central enough to be taken as an inherently inconsistent allegation which would entitle me to reject the defendant's allegation of fraud.

18. Coming back to the same paragraphs in that affirmation of the defendant, Miss Yuen suggests that there was no warrant for the defendant who allegedly left for China in early 1986, to continue to allow the cheque book of the defendant firm to remain in the custody of the plaintiff some time in August 1986. It is not so much a criticism that the allegation cannot be true. It is a complaint that reasonable particulars are lacking in sufficient support of the defendant's allegation of fraud. After all, Miss Yuen reminds the Court that the burden is on the defendant to place his prima facie defence, if any, fairly and squarely before the Court on an 0.14 application.

19. I am not as impressed by the possible construction or understanding of these two paragraphs, 4 and 5 as is counsel for the plaintiff. To me, they have not presented between themselves any inherently contradictory allegations on which I could reasonably rely for rejecting the defendant's defence of fraud against the plaintiff. In the same affirmation of the defendant, my attention was directed to paragraph 6. There the defendant's assertion is that upon notification by the bank of the dishonour of these cheques on the 20th August, he the defendant, immediately reported the matter to the police. In fact the defendant only reported to the police on the 28th, not the 20th of August. In his supplemental affirmation some two weeks later, the defendant offered an explanation. It was strongly urged by counsel on behalf of the plaintiff that such plain prevarication of the defendant should not be lightly overlooked. I cannot attached as much importance to the reporting time as invited by counsel. In any case, this last matter must be also collateral to the central allegation of fraud against the plaintiff.

20. To sum up, I am not persuaded that there are inherently contradictory allegations in the case of the defendant that would provide sufficient justification for this Court to have his defence of fraud rejected.

21. It must be to anyone's discomfort to try to unravel the alleged intricate business transactions as alleged by the plaintiff or the defendant who are closely related. It is extreme difficulty even to try to surmise at this stage who is not telling the truth, particularly against an involved background of family discord. The issue of the cheques is affected with alleged fraud. See also S.30(2) of the Bill of Exchange Ordinance. In my view, the defence has established a prima facie case which would merit leave to be granted.

22. I cannot detect any sham; nor do I find any suspicious circumstances in the mode of presentation of the defendant's case. Each party has its own version to tell and they have done so on affirmations. The apparent discrepancies are of little assistance. Both have condescended upon particulars and both have managed to muster support from witness or witnesses. This is not a matter in which the granting of leave should be visited by conditions. In the circumstances, it is my judgment that unconditional leave should, in these circumstances, be granted to the defendant.

23. I have made certain observations at the beginning of my oral judgment, part of the formal order I am about to make with regard to costs has to be likewise understood in the light of those observations. It remains for me, therefore, to order that the appeal be allowed; that the Order of the learned Master be set aside; that the defendant do have unconditional leave to defend and subject to what counsel have to say I propose to order costs in the cause for proceedings before the learned Master and this Court. I also propose to give directions with the assistance of counsel.

(Submissions on costs made)

24. Considerable additional evidence has been placed before this Court. I am certainly tempted to leave the order for costs before the Master undisturbed. On the other hand, Miss Au Yeung has submitted that the central issues have never wavered or shifted. Taking all into consideration, I think a fair order for costs should be that costs for the Master's hearing should also be costs in the cause.

25. I order:

        (1)     Appeal allowed;

        (2)     Order, of Master set aside;

        (3)     Costs of the hearing before the learned Master and today be costs in the cause;

        (4)     Unconditional leave to defend granted to the defendant;

        (5)     The defendant to file his defence within 14 days from  today;

        (6)     Reply, if any, within 14 days thereafter;

        (7)     Mutual discovery on oath or affirmation within 14 days after close of pleadings;

        (8)     Inspection within 7 days thereafter.