YANCROWN LTD v. CHAN WAI PIU

HCA 527/2021

[2021] HKCFI 2406

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 527 OF 2021

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DECISION

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Introduction

1.  There are 3 summonses before me: -

(1)  By the summons filed on 20 May 2021, the Defendant seeks to strike out the present Action on the ground of abuse of process.  In the alternative, the Defendant asks that the present Action be stayed pending the final determination of the consolidated actions in HCA 3259/2016 and HCA 973/2018 (hereinafter the “Existing Proceedings”) 

(2)  By the summons filed on 28 May 2021, the Plaintiff seeks to enter summary judgment against the Defendant for the sum of HK$3,837,200. 

(3)  By the summons filed on 12^th August 2021, the Plaintiff seeks to amend the Statement of Claim by adding pleas concerning notice of dishonor.  

Background

2.  The material background is set out as follows. 

3.  In the present Action, the Plaintiff’s claim against the Defendant is based on 7 dishonoured cheques (the “Cheques”) that are dated from 6 to 25 October 2016.  The total amount involved is HK$3,837,200. 

4.  The Plaintiff is a company related to Hepta Artous Icthudia (hereinafter “Hepta”).  Both the Plaintiff and Hepta are owned and controlled by members of the same family, and their shareholders/directors overlap^[1].  

5.  Hepta is the plaintiff in the Existing Proceedings.  There, Hepta sues the Defendant^[2] based on 7 sets of loan agreements that were said to be entered between the Defendant and itself.  

6.  The details of the 7 loan agreements are set out in paragraph 3 of DHCJ MK Liu’s Decision dated 31 December 2019 in the Existing Proceedings: -

Loan Agreement	Date of Agreement	Scheduled Repayment Date	Principal (HKD)
1	8 October 2007	7 October 2016	50,000
2	23 October 2007	22 October 2016	250,000
3	18 April 2009	17 October 2016	122,000
4	18 December 2009	17 October 2016	22,000
5	7 June 2010	6 October 2016	150,000
6	14 May 2011	13 October 2016	300,000
7	26 March 2014	25 October 2016	200,000

7.  The “scheduled repayment dates” under the 7 loan agreements are exactly the same as the dates of the 7 Cheques.  

8.  According to the Consolidated Statement of Claim in the Existing Proceedings^[3], the Defendant drew and delivered the Cheques post-dated at the time when the parties entered into the alleged loan agreements.  It appears that the Cheques are securities in respect of the indebtedness under the loan agreements. 

9.  However, according to Mr. Alvis Chan’s 1^st affirmation filed in the Existing Proceedings^[4], in October 2016 Hepta indicated to the Defendant that he should repay all the loans.  Hence, the Defendant drew the 7 Cheques in favour the Plaintiff as instructed.  If this was the case, the 7 Cheques would be repayment of the underlying loans in question.  

10.  On 7 July 2019, Master Anthon H K Chan granted summary judgment in favour of Hepta under the Existing Proceedings.  He held that the Defendant was indebted to Hepbta under the 7 loan agreements. 

11.  However, by the Decision dated 31 December 2019, DHCJ MK Liu allowed the Defendant’s appeal.  The learned Deputy Judge took the view that there were inexplicable features in Hepta’s case as well as the Defendant’s case, and some material facts behind the 7 loan agreements had not been revealed^[5].  

12.  DHCK MK Liu held it was arguable that Hepta fell within meanings of “money lender” in the Money Lenders’ Ordinance, Cap 163 (the “MLO”), and Hepta carried on a business of making loans.  If it was the case, the requirements under, inter alia, section 23 of the MLO would not be complied with, and the loans might not be enforceable^[6].  The learned Deputy Judge held that without knowing all the circumstances, he was not in a position to exercise the discretion under section 23, and the whole picture would have to be explored at trial^[7].

13.  In the premises, the learned Deputy Judge set aside the summary judgment entered by the Master, and he granted unconditional leave for the Defendant to defend the Existing Proceedings^[8].

14.  Subsequently, the Defendant amended his Consolidated Defence in the Existing Proceedings.  It has been pleaded that the 7 loan agreements are unenforceable by virtue of section 23 of the MLO as Hepta carried on a business of money lending without license^[9].

15.  In the circumstances, the question whether the 7 loan agreements are enforceable is a live dispute to be resolved at the trial of the Existing Proceedings. It is plain that such live dispute cannot be resolved summarily.  

16.  Against this background, on 9 April 2021 the Plaintiff commenced the present Action against the Defendant, suing on the 7 Cheques.  

17.  On 20 May 2021, the Defendant took out a summons seeking to strike out or stay the present Action on the ground of abuse of process.  

18.  In response, the Plaintiff took out the summons dated 28 May 2021 seeking to enter summary judgment against the Defendant for the sum of HK$3,837,200. 

19.  Pursuant to the directions made by Registrar Kwang on 18 June 2021^[10], the Plaintiff’s application for summary judgment should be dealt with before the Defendant’s application to strike out or stay the present Action.  

The Plaintiff’s Application for Summary Judgment

Legal Principles on Summary Judgment

20.  Once the plaintiff can show a prima facie case, the defendant is vested with the burden of establishing an arguable defence or triable issue.  There shall be no mini-trial on affidavits as genuine factual disputes ought to be resolved at trial.  See Hong Kong Civil Procedure (2021), para 14/4/9.  

Analysis

21.  For the following reasons, I do not accede to the Plaintiff’s application for summary judgment, and I take the view that the application should not have been taken out.  

22.  Under section 23 of the MLO, an unlicensed money lender shall not be entitled to recover any money lent by him or any interest.  He is also not allowed to enforce any security.  However, the Court has a discretion to allow an unlicensed money lender to make recovery, and the Court can modify the terms of the loan and the security as it sees equitable.  

23.  There is no question that the 7 Cheques (i.e. the subject matters of the present Action) are inextricably linked to the 7 loan agreements (i.e. the subject matters of the Existing Proceedings).  

24.  In his Decision under the Existing Proceedings, DHCJ MK Liu made it clear that there are triable issues regarding the 7 loan agreements.  The triable issues include:  

(1)  whether Hepta carried on a money-lending business without license, such that section 23 of the MLO would be triggered?

(2)  if the answer to (1) is in the affirmative, how the Court’s discretion under section 23 should be exercised?

25.  In light of the ruling made by DHCJ MK Liu, there must be triable issues in respect of the 7 Cheques as well.  The parties’ disputes cannot be resolved summarily.  Those who are in control of Hepta and the Plaintiff cannot use the present Action to circumvent the triable issues identified by the learned Deputy Judge in the Existing Proceedings.  

26.  As mentioned, according to the pleadings and affirmation evidence filed by Hepta in the Existing Proceedings, the 7 Cheques are either (1) securities in respect of the underlying loans (the “First Scenario”); or (2) the Defendant’s repayments of the underlying loans (the “Second Scenario”).  

27.  I will address the 2 Scenarios in turn.  

28.  The First Scenario:  If Hepta was a money lender that carried on money-lending business without license, as appointed out by DHCJ MK Liu, section 23 of the MLO would take effect.  It follows that the security in respect of the underlying loans (i.e. the 7 Cheques) may not be enforceable, unless Hepta can convince the Court that it would be inequitable to disallow enforcement.  It would be most surprising if an unlicensed money lender can circumvent section 23 by nominating a sister company (or an agent) to take up the security in question.  If this technique were workable, section 23 would be useless, and the purpose and objective of the MLO could be defeated without the slightest difficulty.  In my view, this cannot be right.  

29.  The Second Scenario:  If the underlying loan agreements are unenforceable by virtue of section 23, it cannot be said that the 7 Cheques (being the Defendant’s repayment of the underlying loans) are supported by good consideration.  This is because the 7 Cheques were not issued to discharge any enforceable obligations, and hence there was failure of consideration.  As pointed out by Lord Diplock in Sharif v Azad [1967] 1 QB 605, 619B: -

“[a] cheque in performance of an agreement which is merely unenforceable is not affected by illegality, although the drawer may have an alternative defence to an action by an immediate party by showing that the immediate party did not give value, that is, consideration therefor.”

30.  In the premises, following the findings and/or ruling made by DHCJ MK Liu in the Existing Proceedings, there are also triable issues in the present Action in relation to section 23 of the MLO.  The Defendant does have arguable defences in both Scenarios.  

31.  Mr. Simon So (representing the Plaintiff) invites me to exercise the discretion under section 23 of the MLO.  For the following reasons, I am not persuaded that this is the appropriate course to take: 

(1)  First of all, the parties shall not even attempt to mount a collateral attack against DHCJ MK Liu’s Decision in the Existing Proceedings.  

(2)  Second, I respectfully agree with the reasons given by the learned Deputy Judge in his Decision.  The whole picture behind the parties’ dealings has not been revealed.  Without knowing all the circumstances, the Court should not hastily dispose of the matter conclusively.  

(3)  Third, I do not lose sight of the fact that in the present Action, the Plaintiff is suing on the Cheques.  Hepta (i.e. the lender) is not even a party to the present proceedings.  

32.  Further, Mr. Martin Wong^[11] representing the Defendant, drew my attention to the decision of Kwan J (as Kwan VP then was) in Re Goodwill Creation Ltd (HCCW 1035/2002, unreported, 23 August 2007), para 15(5).  In that case, the company issued 2 cheques in favour of the petitioner in purported repayment of the indebtedness owed by 2 related entities.  However, the petitioner had not agreed to release and had not released the debts owed by the 2 entities.  As such, Kwan J held that there was no consideration at all.  Relying on this authority, Mr. Wong argues that the Defendant has never been released from the liabilities under the loan agreements, and this is evidenced by the fact that Hepta has kept prosecuting the Existing Proceedings against the Defendant).  Hence, the 7 Cheques are not supported by good consideration.  

33.  I see the force of Mr Wong’s argument.  The Plaintiff does not have a valid answer.  At the hearing, Mr. So informed me that there was some alleged arrangement between Hepta and the Plaintiff.  However, as Mr. So fairly accepted, there is no evidence showing that such alleged arrangement was known and/or agreeable to the Defendant.  Hence, the alleged arrangement is neither here nor there, and could not constitute valid consideration in respect of the 7 Cheques. 

34.  Mr. Wong, relying on Thong Ko Sine v Wilkinson [1988] HKC 56, 57G-58H (per Rhind J), also raises another technical argument.  He points out that no notice of dishonor has been pleaded in the Statement of Claim, and that the Statement of Claim does not contain any plea suggesting that notice of dishonor was dispensed with.  Hence, the Statement of Claim is defective.  

35.  In response to Mr. Wong’s argument, the Plaintiff belatedly took out the summons dated 12 August 2012.  The Plaintiff seeks to amend the Statement of Claim by pleading that: -

(1)  Messrs Henry Wang & Yeung gave repeated notice to the Defendant, but the Defendant still refused to pay. 

(2)  The Defendant knew that the 7 Cheques were dishonoured as he was involved in the Existing Proceedings.  Hence, notice of dishonor was dispensed with by virtue of s 50(2) of the Bills of Exchange Ordinance as there was express and/or implied waiver on the part of the Defendant.  

36.  For the following reasons, the proposed amendments would not avail the Plaintiff: -

(1)  The pleas in the proposed amendments contain no particulars stating when and how the repeated notice was given to the Defendant.  More fundamentally, there is no evidence before me showing that repeated notice was actually given to the Defendant.  

(2)  The Defendant might have known that the 7 Cheques were dishonored by reason of his involvement in the Existing Proceedings.  However, it does not follow that the Defendant had waived notice of dishonor.  The Plaintiff is unable to point at any conducts or words on the part of the Defendant that constitutes waiver.  In fact, the Defendant is simply being sued by Hepta in the Existing Proceedings.  He is on the receiving end.  It does not appear to me that there is any substance in the suggestion of waiver.   

(3)  In any event, the Defendant has no opportunity to respond to the allegations raised by the Plaintiff belatedly.  It would not be fair to allow the Plaintiff to rely on these belated allegations.  

37.  For all the above reasons, there are clearly issues to be tried, and I am not satisfied that the Defendant has no arguable defence.  

38.  In light of the procedural history of the Existing Proceedings, the Plaintiff (which is a sister company of Hepta and which is controlled by members of the same family) should have known that there are triable issues relating to section 23 of the MLO.  Furthermore, the Plaintiff’s claim in this Action has not been properly pleaded and/or formulated.  

39.  In the premises, I am of the view that the Plaintiff should not have taken out the application for summary judgment, and the appropriate course to take is to dismiss the Plaintiff’s summons dated 28 May 2021 with costs. 

The Defendant’s Application to Strike-out or Stay the Present Action

40.  I now deal with the summons dated 20 May 2021 taken out by the Defendant seeking to strike out or stay the present Action.  

41.  As elaborated above, the issues in the Existing Proceedings clearly overlap with the issues in the present Action.  

42.  Hence, the finding in the Existing Proceedings may dispose of the issues in the present Action.  For instance, if the Court in the Existing Proceedings rules that the 7 loans are wholly unenforceable by reason of the provisions of the MLO and not a single penny should be recovered by Hepta, it is hard to see how the Plaintiff can get around the provisions of the MLO, and successfully sue the Defendant on the 7 Cheques in the present Action.  This would be unthinkable.  

43.  In the premises, from a case management point of view, it makes sense to stay the present Action, while the Existing Proceedings is pending resolution.

44.  Further, as pointed out by Mr. Wong, there is a need to avoid the risk of inconsistent factual findings.  I agree.  

45.  I also take into account that it is pointless for the Plaintiff to prosecute the present Action, while the Plaintiff’s sister company, Hepta, is prosecuting the Existing Proceedings simultaneously.  

46.  Indeed, this seems abusive to me.  It would be surprising if both Hepta and the Plaintiff can enter judgment against the Defendant under the Existing Proceedings and the present Action.  If this happens, the Defendant will be liable for the same sum of HK$3,837,200 twice.  This would be absurd and unjust.  I am the view it cannot not be right to allow the 2 sets of proceedings to progress concurrently.  

47.  The aforesaid analysis is supported by Re Goodwill Creation Ltd (supra) para 15(5) as discussed above.  Since the stance of Hepta is such that it would hold the Defendant liable under the 7 loan agreements, the Defendant has never been released from the underlying indebtedness.  Accordingly, it cannot be said the 7 Cheques are supported by good consideration.  

48.  In the premises, it would be abusive for the Plaintiff to continue prosecuting the present Action.  This is particularly so when Hepta is prosecuting the Existing Proceedings simultaneously.  

49.  For all the above reasons, I order that the present Action be stayed, pending the final determination of Existing Proceedings.  

50.  There is no reason why costs shall not follow the event.  I also order the Plaintiff to pay the costs of the summons dated 20 May 2021.  

The Summons to amend Statement of Claim

51.  As regards the Plaintiff’s summons dated 12 August 2021 seeking to amend the Statement of Claim, having said that the present Action should be stayed, it is unnecessary for me to dispose of the application.  I will simply make an order that the Plaintiff’s summons dated 12 August 2021 be adjourned sine die with liberty to restore.  

Conclusion

52.  In the premises, I order that: -

(1)  The Plaintiff’s summons dated 28 May 2021 be dismissed;

(2)  The present Action be stayed, pending the final determination of HCA 3259/2016 and HCA 973/2018 (i.e. the Existing Proceedings);  

(3)  Costs of the Plaintiff’s summons dated 28 May 2021 and the Defendant’s summons dated 20 May 2021 be paid by the Plaintiff to the Defendant, summarily assessed at HK$240,000; and  

(4)  The Plaintiff’s summons dated 12 August 2021 be adjourned sine die with liberty to restore.  

53.  Lastly, I express my gratitude to Mr. Wong, Mr. Lam and Mr. So for their able and helpful submissions.