MAK SHIU TONG v. YUE KWOK YING AND ANOTHER

CACV 199/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 199 OF 2002

(ON APPEAL FROM HIGH COURT ACTION NO. 3758 OF 1998)

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J U D G M E N T

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Hon. Cheung J.A. (giving judgment of the court) :

The applications

1. On 23 March 2002, Chung J. struck out the amended defence and counterclaim of the 1st defendant and entered judgment for the plaintiff against the 1st defendant.

2. The 1st defendant then lodged a notice of appeal against the order striking out his defence but did not appeal against the striking out of his counterclaim.

3. The plaintiff applied for security for costs of the appeal against the 1st defendant. The application was based on the impecuniosity of the 1st defendant.

4. On 30 September 2002, Yuen J.A., sitting as a single judge of the Court of Appeal, ordered the 1st defendant to provide security in the sum of HK$273,375.00 within 14 days. In default of such security being given, the appeal of 1st defendant would be dismissed without further order.

5. The 1st defendant did not furnish the security and on 16 January 2003 the appeal of the 1st defendant was dismissed.

6. The 1st defendant then applied again to Yuen J.A., among other things, to set aside the order of 16 January 2003 which dismissed his appeal and also a stay of execution of the order for security for costs.

7. The applications were dismissed on 19 February 2003.

The appeal

8. The 1st defendant now lodges two appeals before us. First, an appeal against the decision of 30 September 2002 in relation to the ordering of security for costs. Second, an appeal against the decision of 19 February 2003 which affirmed the dismissal of the 1st defendant's appeal.

Appeal to the full court

9. On an appeal from a single judge to the full court of the Court of Appeal, the principle is that the full court will not exercise the discretion afresh and cannot interfere with any exercise of discretion by the single judge, unless he errs in principle : see para. 59/14/27 of Hong Kong Civil Procedure 2002 Vol. 1.

Security for costs

10. In considering whether to grant security for costs on appeal, the judgment of Chan Sai Lun Henry v. Chan Wai Wah, Lily-Ann (CACV 143 and 205 of 1998) is relevant. Whilst the impecuniosity of the appellant would normally entitle the respondent to get security for costs of an appeal, the court may in some circumstances decline to order security notwithstanding the appellant's impecuniosity where, for instance, it is satisfied that the appeal raises real and substantial issues and that the appeal bears a sufficiently good chance of success to justify exposing the respondent to the injustice of having to bear his own costs even if he successfully resists the appeal.

Good chance of success on appeal

11. In this case, the 1st defendant admitted that he was impecunious. It was also not disputed that the 1st defendant would be unlikely to satisfy any costs order against him should he fail in his appeal. The basis of the resistance to the security for costs is that the 1st defendant has a good chance of success on appeal which justifies the departure from the normal situation of ordering security where the appellant is impecunious.

12. The question of the merits of the appeal was gone into in the hearing for security for costs.

The plaintiff's claim

13. The plaintiff is a businessman and the head of a number of companies. One of the companies China Treasure Industrial Enterprise ("China Treasure") carried out a development project ("the project") on the Mainland.

14. The 1st defendant was the managing director of the 2nd defendant which was formerly engaged by China Treasure to provide legal consultancy services in relation to the project.

15. The plaintiff complained that the defendants had defamed him in respect of an interview given by the 1st defendant to a magazine. The plaintiff had already entered judgment against the 2nd defendant.

The relevant parts

16. The relevant parts of the interview are as follows :

「 1. 有人收咗錢就無諗過起樓，本來御花園同天星廣場應該喺九五年底前完工，但係到而家為止，仲係爛地一塊。

2. 無諗住起已經唔係好事，為咗敷衍小業主，佢委託我當法律諮詢人，向小業主解釋中國法律，麥紹棠並答允按中國法例賠償未能如期交樓的利息，更承諾九六年底可以全部完工。原來麥紹棠一路以來都採『拖字訣』，而家小業主堅持喺廣東省，深圳等地告緊佢。按中國法例，小業主一旦勝訴，麥紹棠成為法定持牌人，一定要負責，會被起訴，香港法例唔同大陸法，喺大陸出咗問題，麥紹棠要負責。

3. 太陽城爛尾樓係一個『局』，受害嘅層面好廣，而有人就一個仙都無出過，更挪用訂金作收購其他上市公司之用....」

The translation is as follows :

“ 1. Someone after receiving the money never thought of building houses, originally work for Regent on the Park and Star Place should be completed before the end of '95, but up to now, still is a piece of wasteland.

2. Never thought of building was already not a good thing, in order to fob off the small owners, he engaged me to be legal consultant, to explain Chinese law to the small owners, Mak Shiu Tong also agreed according to Chinese law to compensate interest for late hand over of property, and also promised full completion of work by end of '96. In fact Mak Shiu Tong was using 'delaying tactics' all along, now the small owners insisted on suing him in Guangdong province, Shenzhen etc. According to Chinese law, if the small owners are successful, Mak Shiu Tong being the legal representative, must bear responsibility, will be sued, Hong Kong law is different from Chinese law, if a problem arises in China, Mak Shiu Tong must bear responsibility.

3. 'Sun City' uncompleted housing was a 'scam', level of victimization is very wide, but someone did not even contribute a cent, and even took the deposit to use for acquiring other listed companies..."

The content of the defamation

17. Paragraph 9 of the statement of claim stated that the defamatory meaning of the words were :

1) the project was a scam devised by the plaintiff;

2) the plaintiff had swindled money from investors under the pretence but with no intention of building or developing any property; and

3) the money that was swindled was then used by the plaintiff privately to purchase listed companies in Hong Kong.

18. The plaintiff further pleaded that the words complained of imputed a crime punishable by imprisonment, namely obtaining money from investors by deception and/or a fraudulent scheme and that those words were calculated to and did disparage the plaintiff in his profession, trade or business.

The issues

19. The issues raised in the defence were identified by Chung J. as follows :-

(1) the words complained of did not refer to the plaintiff but only to China Treasure;

(2) the plea of justification; and

(3) the plea of fair comment.

20. In each of these issues, Chung J. found that the 1st defendant was bound to fail and hence he struck out the defence.

The striking out application

21. In this case discovery was completed and witness statements and expert reports were exchanged. The case was also set down for hearing.

22. The striking out application was undertaken in the light of the practice referred to in Gatley on Libel and Slander (1998) 9th Ed., para. 30-140 :-

“ Striking out. The advent of witness statements has given rise to a practice of applying, at or before trial, to strike out parts of an opponent's pleading if it is apparent from the witness statements served that the party will not be able to prove part of his pleaded case. This was the course adopted in McDonald's v. Steel [1995] 3 All ER 615, where the plaintiff applied before trial and before discovery was completed, but after service of witness statements, to strike out parts of the defence and particulars of justification and fair comment. On the defendants' appeal, Neill L.J. stated that when an application is made before trial, the correct approach is to consider whether or not the defendants' case in relation to a particular passage in the defence is incurably bad : at an interlocutory stage, and before full discovery, the court will seldom be able to say that a particular allegation is incapable of being proved. However, he saw considerable merit in applying at the close of evidence at trial to strike out allegations for which there is no evidence for the jury to consider, and he regarded the practice of applying at the start of trial as a sensible one in an appropriate case, where it is likely to shorten the trial but warned that there may be cases where the defendant hopes (and, he implied, should be permitted) to prove his case by eliciting favourable answers in cross-examination."

Reference to the plaintiff and admission

23. On the first issue, Chung J. held that the words were clearly referable to the plaintiff and that the defendants had by his amended defence admitted that the words complained of were defamatory.

Justification

24. Chung J. further held that the plea of justification was bound to fail. The justifications that were relied upon were as follows :

1) When the relevant persons were demanding payments of arrears, they already knew that works and construction of the whole project had been suspended since April 1995 and would not be resumed.

Chung J. held that the particulars provided by the 1st defendant revealed that the oral demands for payment of arrears by the purchasers were made in June and November 1993 and also in July 1994. As these demands were made before the suspension in April 1995, the plea of justification could not be made out.

2) The plaintiff had promised to pay interest by way of compensation and to complete the works by 1996, but did not fulfill such promises in their entity.

3) The purchasers had applied to the China International Economic and Trade Arbitration Commission Shenzhen for arbitration and have won.

Chung J. held that these matters even if true would not justify the defamation that was complained of.

4) Certain persons had bought shares without making payment and at the outset planned to use public money to purchase a listed company.

Chung J. held that the particulars provided by the 1st defendant revealed that the relevant person was not the plaintiff, hence the evidence did not support this contention.

Fair comment

25. In relation to the plea of fair comment, one of the comments relied upon by the 1st defendant was that the plaintiff had never thought of building the project and that by itself was not a good thing.

26. Chung J. held that the 1st defendant has to prove that the plaintiff had never intended to construct the project before he can establish whether the comment that such an intention "was not a good thing" was fair or not. This is because such a plea is dependent, among other things, on proof of the truth of the underlining facts upon which the comments were made : Gatley, paras. 12-14.

27. In relation to the other comment, namely that the plaintiff had been using the delaying tactics, Chung J. held that this is in fact a statement of fact and not a comment. Further there is no evidential basis to support the truth of such a statement.

28. Chung J. also looked at the statements and documents which were intended for use at the trial and found that these documents contained bare and unparticularized assertions which were based either on unsubstantiated personal belief or rumours which were hearsay in nature. They also contained irrelevant materials. He further considered there was no realistic hope that the 1st defendant would be able to prove his case, for example, by eliciting favourable answers in cross-examination if his action was allowed to proceed to trial.

Merits of the appeal

29. The merits of the appeal were canvassed before Yuen J.A. We were also addressed on the merits of the appeal.

30. We are of course not hearing the appeal of the striking out application itself. The merits were gone into for the 1st defendant to demonstrate that he had such a meritorious appeal that he should not be deprived of the chance of pursuing it because of his impecuniosity. Although Mr. Kwong, counsel for the 1st defendant, in his written submission had confined his challenge to the decision of Chung J. only, obviously his challenge would apply to both of the decisions of Chung J. and Yuen J.A. It is also clear from Mr. Kwong's submissions, many of the points he raised in this appeal had not been canvassed before Yuen J.A.

The principle

31. The principle to be applied in a striking out application is that it is only in plain and obvious cases that a pleading should be struck out. The drastic consequence of striking out is more apparent in respect of a defence. Unlike the plaintiff who may have the chance of instituting another action, a defendant who had his defence struck out would be subject to the judgment that would inevitably be entered against him.

Reference to the plaintiff

32. In relation to the identity of the plaintiff, the content of the article has to be looked at. It clearly was directed towards and referable to the plaintiff. We agree that it would be a perverse verdict if the jury were to decide otherwise.

Admission of the defamatory words

33. In relation to the admission of the defamatory meaning of the words uttered by the 1st defendant, in the light of the paragraph 4 of the amended defence, it was held by Yuen J.A. that it can hardly be said that Chung J. had made a glaring mistake in holding that the 1st defendant had admitted the defamatory meaning.

34. The defence was drafted in Chinese with an English translation. The original defence denied paragraph 9 of the statement of claim which deals with the defamatory meaning of words.

35. Paragraph 4 of amended defence reads :

「 四、 第一被告否認申索書第七、八、九、十、十一段文字祗提及之有人是指有關的公司，除了特提及原告人姓名，文字并不牽涉原告人。」

36. The translation used in these proceedings reads :-

“ 4. D1 denies para. 7, 8, 9 [which sets out the alleged defamatory meanings], 10 [which sets out the alleged imputations of the words] and 11 [of the statement of claim] in that the "Someone" mentioned in the Words referred to the relevant company. Save that the plaintiff's name was specifically referred to, those Words have no connection with the Plaintiff."

37. Mr. Kwong, counsel for the 1st defendant, submitted before us that in paragraph 4 of the Chinese amended defence, there should be a full stop after the reference to paragraph 11 of the statement of claim. As a result, paragraph 9 will consist of two parts. The first is an express denial of, among other things, the defamatory meaning of the words contained in paragraph 9 of the statement of claim. The second is a denial that the words were referable to the plaintiff.

38. Although the 1st defendant had specifically challenged the ruling of Chung J. that the 1st defendant had admitted the defamatory meaning of the words, the point now raised by Mr. Kwong is not a point that had been raised before.

39. We are of the view that this is a point that the 1st defendant is still entitled to take at this stage because the issue is still on the merits of the appeal. It is clear from the pleadings that the 1st defendant's interpretation of the defamatory words was not the same as that of the plaintiff. The plaintiff's case on the defamation is that from the beginning the plaintiff had no intention to build.

40. The words "...... no intention of building or developing any property" are capable of bearing this meaning. Equally the words do not expressly state that the intention is restricted by reference to a specified time. In the Further and Better Particulars provided by the 1st defendant, he had expressly relied as his plea of fair comment on the fact that the project "was not completed as originally scheduled". This showed that even before the latest submission from Mr. Kwong, the 1st defendant had not agreed with the defamatory meaning relied upon by the plaintiff.

Justification

41. In relation to the justification on the demand for payment and suspension of work, Mr. Kwong had submitted before Yuen Y.A. that the relevant part of the defence contained grammatical mistakes and it should read as follows :-

“ whilst the relevant person/companies were demanding payments (throughout 1993, 1994, 1995, 1996) of arrears, they already knew that works and construction of the whole project had been (would have to be) suspended since (by) April 1995 and would not be resumed."

42. Yuen J.A. held that this was a new allegation.

43. Yuen J.A. further held that in respect of the evidence relied upon by the 1st defendant in support of the alleged statement that demands had been made in 1995 and 1996, the evidence revealed that these were not demands for payment made by the plaintiff's company but rather demands for completion of the works or for repayment of money made to the plaintiff's company. Hence, it was difficult to see how the 1st defendant has a sufficiently good chance of success on appeal as to justify exposing the plaintiff on costs.

44. Yuen J.A. held that even if leave is granted on appeal to amend the defence, the 1st defendant may well have to pay the costs of appeal since he would be putting up a different case from that before the judge.

45. In relation to the promise to pay interest and to complete the works by 1996, it was held that even if it was to be read subject to the proposed amendment, the 1st defendant may still be ordered to pay the costs of the appeal as a condition for the amendment.

46. As to the arbitration award made in favour of the purchasers, the argument before Yuen J.A. was that Chung J. should not have dismissed this paragraph without hearing evidence from the witnesses.

47. Yuen J.A. held that the truth of the statement was already assumed by Chung J. in favour of the 1st defendant. Further, it has never been pleaded that the arbitrator had found that the plaintiff had perpetrated a scam or swindled the purchasers in undertaking the project.

48. In relation to the allegation of purchase of shares without payment and the intention of using public money to purchase a listed company, Yuen J.A. held that there was never a plea that the plaintiff was in any way connected to the two persons disclosed by the defendant.

49. As to the suggestion that Chung J. was wrong to ignore these matters because they have to be canvassed at the trial as to what they meant, Yuen J.A. held that the submission was surprising whether in its audacity or candour.

Intention

50. It is important to bear in mind that what the 1st defendant seeks to do is to justify, among other things, the defamation that the plaintiff had no intention to build or complete the houses and the project was a swindle. In other words his defence is that what he said about the plaintiff is true.

51. The intention of a person may be established either by an express statement of intention made by that person or from the surrounding circumstances upon which the necessary inference may be drawn. The 1st defendant does not rely on any express statement of intention by the plaintiff. As to the surrounding circumstances, one would have thought that the fact that no house had ever been built since the project started in 1992 is the strongest indication as to the intention of the plaintiff and is relevant in deciding whether the project was a swindle or not. This is purely a jury question.

52. However this fact was not pleaded by the 1st defendant. He had chosen to rely on the four matters referred to by Chung J. in support of its plea of justification.

53. These matters were held by both Chung J. and Yuen J.A. as not affording the ground for justification.

Arbitration

54. On the defence of justification, in the light of the new submissions by Mr. Kwong and without intending to express a final opinion on the matter, we are not convinced that the 1st defendant is bound to lose. The question is whether there is evidence upon which an inference may be drawn on the intention of the plaintiff as alleged by the 1st defendant. In our view the promise to complete the houses and pay interest together with the matter of the arbitration award are clearly matters upon which the necessary inference on the intention of the plaintiff may be drawn.

55. The only defence raised by China Treasure in the arbitration in 1998 was that the work was stopped due to the macro economic policy promulgated in the Mainland at that time. This defence was rejected by the arbitrator. Although the arbitrator did not find the project was a swindle (it was not necessary for him to do so), the fact remains that if the failure to build was not due to the macro economic policy, then it is open for inference to be drawn on the true intention of the plaintiff and the true nature of the project.

56. In this case, the 1st defendant had not referred in his pleadings to the defence raised by the plaintiff in the arbitration. However, the arbitration was expressly pleaded and the written decision of the arbitrator was disclosed. If the striking out application is conducted by reference to the disclosed documents, then obviously the nature of the defence relied upon by the plaintiff in the arbitration should also be taken into account in deciding whether the 1st defendant's plea of justification is bound to fail or not.

57. It is said that of the 700 odd purchasers only 11 of them had chosen to arbitrate. This cannot be a relevant matter on the issue of the intention of the plaintiff.

58. It is said that the plaintiff had in fact in 1996 offered the purchasers to exchange their purchase in the project with some other property. Many of them had accepted the exchange and expressed to the plaintiff their satisfaction with the settlement.

59. Mr. Yan, S.C., counsel for the plaintiff, was not able to inform us the exact date of settlement because of the large number of purchasers involved. Specifically we were not told whether all the settlement had occurred prior to the interview given by the 1st defendant in February 1998 and the publication of the article in March 1998. It appeared that a dinner organized to 'celebrate' the settlement took place in November 1998. Whatever the position may be, these items of evidence are not conclusive as to the intention of the plaintiff. They should be considered together with the other evidence in this case.

60. The 2nd defendant had prepared a legal opinion on 30 January 1996 stating that the cause of the delay in completion was due to causes beyond the control of China Treasure. The opinion had referred to causes such as natural disaster and the change of economic policy in the Mainland.

61. As can be seen from the opinion, it was given by two directors of the 2nd defendant. One was a Mainland lawyer. The other was a Mainland law professor and lawyer. The opinion they reached was based on the factual information supplied by the developer. This being the case, it cannot be said that the 2nd defendant had, as a matter of fact, accepted that the delay in completion was due to natural disaster and the economic policy. Natural disaster was not a defence relied on by the plaintiff in the arbitration.

62. In any event, the opinion was given by the 2nd defendant and not the 1st defendant. Mr. Kwong had at one time acted for the 2nd defendant. In an application to set aside the default judgment entered against the 2nd defendant, Mr. Kwong informed Findlay J. that the 2nd defendant was "mistaken" in its opinion. Whatever was said by Mr. Kwong was on behalf of the 2nd defendant only. The 1st defendant, at least for the purpose of the striking out application, cannot be prejudiced by the position taken by the 2nd defendant.

Promise to complete

63. Likewise, if despite the promise to complete the project, the project still had not been completed, then it is another fact upon which the necessary inference of the plaintiff's intention may be drawn.

Implication on costs

64. The 1st defendant had already through counsel indicated there may be amendments to the defence. One cannot rule out the possibility that the 1st defendant may further include the failure to complete the buildings at all as a further ground for justification.

65. If the 1st defendant relies on a new case which was not pleaded in the hearing before, obviously this will have an implication on costs. However, while he may have to bear the costs of the amendment and may be deprived of the costs of the appeal if the outcome of the appeal depends on the new grounds, it does not necessarily follow that he may have to bear the plaintiff's costs of the appeal even if he (i.e. the 1st defendant) is successful in the appeal.

Fair comment

66. In relation to the first plea of fair comment, Chung J. read the defamatory words as meaning that the plaintiff had never intended to construct the buildings. The 1st defendant submitted that it was too literal an interpretation and what it meant was that the plaintiff never thought of completing the buildings as scheduled. This is a matter that we had earlier dealt with.

67. In ordering security, Yuen J.A. held that even if this interpretation is to apply, the sting of the defamation is that the plaintiff "never" thought of constructing or completing the buildings. On this basis, the interpretation now relied upon by the 1st defendant would have made no difference to the outcome of the case because he simply could not prove truth of this allegation.

68. The words used were "Someone after receiving the money never thought of building houses....". It is arguable from this that the intention was not one that was already formed right from the beginning. However, what is more important is that if there are facts upon which the plea of justification can be met and these facts are the same ones relied in support of the plea of fair comment, then the requirement of truth on the factual matters can likewise be met as well. Hence this particualr defence of fair comment is not one that should be struck out.

69. The second plea of fair comment is in respect of the statement that the plaintiff was using delaying tactics. In our view this is not something which is only capable of being regarded as one of fact. Whether this is a statement of fact or comment has to be considered in the context in which the words were used. These words were said in the context of the plaintiff hiring the 1st defendant to explain the law of the Mainland to the purchasers and the plaintiff had promised to pay interest and complete the buildings in 1996. Viewed in this context, the words used are capable of being construed as a comment as well. While it is the judge to decide whether words used are facts or comments, the law also states that if the judge thinks reasonable people could take either view he must leave the matter to the jury : Gatley para. 12.7. Clearly a substantial argument is now raised on the true nature of the words.

Real and substantial appeal

70. Having analysed the nature of the 1st defendant's case, we are of the view that he has real and substantial grounds of appeal. In view of his impecuniosity, if he is ordered to pay security for costs he would be precluded from pursuing his appeal. We consider it would be unjust to do so.

71. In our view there is a further reason why the 1st defendant should be allowed to pursue his appeal without ordering him to provide security for costs. If at the end of the day he is allowed to defend, even if he may not succeed in every aspect of his defence, the damages that may be ordered against him will very much depend on which particular defamatory remark he could defend by way of justification or fair comment. It is not right to deprive him of the chance of having his day in court.

Conclusion

72. Accordingly we shall allow both appeals and set aside the orders for security for costs and dismissal of the appeal. We would urge Mr. Kwong to review the grounds of appeal, pleadings and evidence thoroughly so that the 1st defendant's case can be fully presented.

Costs

73. As the 1st defendant is successful in his appeal, we will make an order nisi that he should have the costs of the two appeals. As to the costs before Yuen J.A., since the 1st defendant succeeded largely on new matters not previously raised before Yuen J.A., we will make no order as to costs of those proceedings.