BANK OF COMMUNICATIONS (HONG KONG) LTD v. CHINA FORTUNE ENTERPRISES LTD AND OTHERS

DCCJ 116/2023

[2025] HKDC 801

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 116 OF 2023

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BETWEEN

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DECISION

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1.  By an Inter Partes Summons issued on 20 December 2024, the 4^th Defendant (“D4”) seeks leave to appeal against my Decision dated 6 December 2024 ([2024] HKDC 2015). In the Decision, I dismissed D4’s appeal against the decision of a Master entering summary judgment against him and striking out his counterclaim.

2.  There is also another Summons issued by D4 on 14 January 2025, seeking to amend the draft Notice of Appeal originally filed in support of the leave application.

3.  The plaintiff does not object to the amendment to the draft Notice of Appeal. I can see no prejudice to allow the amendment. I grant leave to D4 to amend the draft Notice of Appeal, and to proceed with his leave application on the basis of the amended draft, with costs to the plaintiff, to be taxed summarily on party-and-party basis.

4.  It is trite that D4 shall be granted leave to appeal against my Decision if its intended appeal is reasonably arguable; or there are some reasons to grant leave to appeal in the interest of justice. Reasonable prospect in an intended appeal means the merits are more than fanciful, but there is no need to show that it will probably succeed: SMSE v KL [2009] 4 HKLRD 125.

5.  This is my decision on the D4’s application for leave, after considering the respective written submissions filed by the parties. I shall go through the 7 intended grounds of appeal as set out in D4’s draft Notice of Appeal (as amended). The abbreviations and definitions used in my Decision will be adopted unless otherwise indicated.

Ground 1(a)

6.  D4 complains that I conducted a mini-trial on affidavits, contrary to the usual principles adopted by the court in the context of a summary judgment application.

7.  D4 accepts the summary of facts as set out in §§2-8 of the Decision[1].

8.  In my view, it is important to bear in mind that D4 does not challenge the authenticity of his signatures on the Facility Letter and the Guarantee: c f §§5.9 – 5.10 of the Decision. It is the plaintiff’s case that, on the strength of Facility Letter and the Guarantee, it has demonstrated that it is prima facie entitled to judgment. Therefore, the burden is shifted to D4 to show a triable issue: Order 14 rule 3(1) of the Rules of the District Court (Cap 336H).

9.  Whilst D4 argues it is inept for the plaintiff to refer to Ling Wai Hoi v Jetland Global Investments Ltd [2022] 5 HKLRD 156, because the standard of proof expected of a debtor in raising a defence to set aside a statutory demand proceedings is different from that of a defendant in raising a triable issue under Order 14 rule 3(1), it remains trite that the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate when assessing the credibility of the defendant’s factual case, whilst ensuring that it does not embark on a mini-trial on affidavit evidence: see eg Guanghua SS Holdings Limited v Lim Yew Cheng & Anr [2022] HKCFI 1052 (Ng J; 20 April 2022) at §13.

10.  It is D4 who raises a case of fraud practised on him by Mr Tsui; a case that he was misrepresented as to what he was allegedly asked to sign in a carpark; and a case that the plaintiff should be fixed with constructive notice of Mr Tsui’s misrepresentation and/or undue influence on him. I agree with the plaintiff’s submissions that I was entitled to critically examine D4’s allegations to see whether they afford him an arguable defence worthy of full investigation at a trial. Whilst D4’s submissions pinpoint to various allegations on which I am said to have wrongly found to be implausible and practical moonshine, I do not detect any submissions in showing how I allegedly overstepped the assessment of evidence, to the extent that I conducted a mini-trial on affidavits.

11.  I think it is sufficient for me to set out my views on 2 particular points relied on by D4 under this ground.

12.  First, D4 claims that the facts of the present case are similar to Dao Heng Bank v Ho Yin Yuk & Anr [2003] 1 HKLRD 28. In that case, the court held, after trial, that Madam Ho’s agreement to mortgage her properties as security for a loan advanced to his godson was procured by the godson’s misrepresentation and undue influence. D4 argues that my reasoning in §§19.1 – 19.2 of the Decision is faulty when it is compared to how the court found and accepted that Madam Ho in Dao Heng Bank was under the influence of her godson’s misrepresentation and undue influence.

13.  I cannot accept D4’s submissions. Madam Ho in Dao Heng Bank was a 72-year-old widow when she mortgaged her properties away, uneducated, illiterate, and had little contact with her own children. The court must have evaluated the allegation of misrepresentation and/or undue influence against such a background. In the present case, when I was asked to evaluate whether D4’s allegations on misrepresentation and/or undue influence were even plausible to afford him an arguable defence, the context was distinctly different[2]. In my view, it is wrong for D4 to say that I erred because he was not even given the opportunity to have his evidence tested at trial – but why should he be allowed such chance when his case was, in my decision, practical moonshine? There is certainly much force in the plaintiff’s submissions that D4’s approach is fundamentally misconceived, because his submissions are based on the antecedent premises that his case on misrepresentation and/or undue influence must be plausible.

14.  Next, D4 argues that I ignored the proper context of the transaction relating to the Ka Shin Street Property in §§19.3 – 19.4 of the Decision.

15.  I find the plaintiff right in saying D4 fails to show my reasoning is wrong. It was D4’s allegations that he was asked to sign on some blank signing pages some time in late 2017, certainly after August 2017: see §§5.6 – 5.8. The assignment of the Ka Shin Street Property was executed in January 2017. Therefore, even if D4 asserts that Mr Tsui asked him to sign on those pages before the assignment of the Ka Shin Street Property, such allegation is plainly inconsistent with the documentary evidence, and is not believable at all. There was nothing wrong in the Decision to reject D4’s allegations summarily.

16.  Ground 1(a) does not enjoy any reasonable prospect of success.

Ground 1(b)

17.  D4 says I erred in making tentative assessment of the respective chances of success of the parties and the relative strength of their good or bad faith.

18.  What I have said above under ground 1(a) applies equally to this ground.

19.  Further, I agree with the plaintiff that D4’s argument on the suitability of adjudicating fraud in a summary judgment application is entirely misconceived. I agree that, whilst previously[3] a plaintiff could not apply for summary judgment based on allegations of fraud, it has long been accepted that the court may reject any defence raised on the basis of fraud, whether by the plaintiff or a third party. There is no statutory prohibition or case authority to the effect that, once a defendant raises an allegation of fraud as a defence, the court must grant leave to defend to allow the defendant to have his allegation tested at trial.

20.  Ground 1(b) is not reasonably arguable.

Ground 2

21.  D4 complains that I erred in not drawing an adverse influence against the plaintiff, on the basis that Mr Ng has not provided evidence in support of the plaintiff’s application for summary judgment.

22.  The plaintiff does not require Mr Ng’s evidence to complete its cause of action against D4; nor to demonstrate that it is prima facie entitled to judgment. D4 claims that, contrary to what can be detected on their face, his signatures on the Facility Letter and the Guarantee were actually not witnessed by Mr Ng; and this allegedly supports the existence of an arguable defence. I disagree with D4 that I failed to find the plaintiff’s case suspicious because Mr Ng has not provided any affidavit evidence in favour of the plaintiff. This goes to an evaluation of the plausibility (or the lack of it) of D4’s bare assertions. In the Decision, I found that D4’s allegations were not capable of belief, even when evidence from Mr Ng was absent. I am not persuaded that I erred in any way.

23.  Ground 2 is not reasonably arguable.

Ground 3

24.  D4 says that I erred in §15.1 of the Decision, in which I concluded that the plaintiff was not fixed with any constructive notice of Mr Tsui’s misrepresentation, given D4’s interest in Year Fortune.

25.  Reliance is placed on Royal Bank of Scotland Plc v Etridge (No 2) [2001] 3 WLR 1021 to the effect that, even the relationship between D1 and D4 was apparently not non-commercial, this does not mean that the plaintiff was not put on inquiry as to the provenance of the Facility Letter and the Guarantee.

26.  D4 further refers to §49 of Etridge (No 2), in which the House of Lords held that, in the case where the wife became a surety for the debt of a company whose shares were held by her and her husband, the bank was still put on inquiry given that the shareholding interests would not be a reliable guide to the identity of the persons who actually had the conduct of the company’s business.

27.  The saying that in law, context is everything is not just cliché – the House of Lords in Etridge (No 2) proceeded to discuss different permutations of fact (of which joint shareholding by husband and wife in a family business was one) on the basis that husband and wife was one of those special relationships that the bank might be put on enquiry as to the possible existence of misrepresentation and/or undue influence. Such a special relationship is apparently absent here. I explained in the Decision why I found it implausible for the bank to have notice that D4 allegedly reposed trust and confidence in Mr Tsui, which might turn the relationship between D1 and D4 into a non-commercial one: §18 of Decision.

28.  D4 argues that the plaintiff has adduced no evidence to rebut his case that he reposed trust and confidence in Mr Tsui. The correct way of looking at the matter is that D4 never informed the plaintiff that he so reposed trust and confidence in Mr Tsui; nor is there any evidence showing that the plaintiff might have worked it out on its own. The plaintiff is not required to perform mind-reading in a run-of-the-mill commercial transaction.

29.  This ground is not reasonably arguable.

Ground 4

30.  Under this ground, D4 complains that I erred in §15.3 of the Decision, when I declined to accept that Mr Ng must have been complicit in Mr Tsui’s scam, assuming he flouted the plaintiff’s guidelines on how documents like the Facility Letter and the Guarantee should be signed and witnessed.

31.  D4 does not add much under this ground in addition to what he has already pointed out in relation to the previous grounds. What I set out above in evaluating the merits of ground 2 applies to this ground as well.

32.  Again, I agree with the plaintiff that D4 proceeds on the misconceived assumption that his allegations of fraud were believable at the first place. Since I found otherwise in the Decision, D4 cannot try to make a mountain out of a molehill from the absence of evidence from Mr Ng.

33.  D4 does not have any reasonable prospect of success in his intended appeal under this ground.

Ground 5

34.  D4 says that I erred in finding that Mr Tsui could not have acted as the plaintiff’s agent: §17 of the Decision.

35.  In his submissions, D4 refers to §60 of Bank of China (Hong Kong) Ltd v Wong Yuk Ping & Anr [2003] 1 HKLRD 1:-

“60. Agency is a question of fact. As between spouses, such occurrences are rare. The mere fact that a debtor is required by his bank to obtain security for facilities afforded to him whether by way of guarantee or otherwise and he then approaches the surety, does not mean that the debtor is acting as agent of the bank; in such circumstances, he may well just be acting for himself: Barclays Bank Plc v O’Brien [1994] 1 AC 180 at pp.193G-194B.”

36.  In my decision, the above passage is even more apposite in the context of an apparently arms’ length relationship between the debtor and the surety. This passage fortifies the views I formed in §§16-17 of the Decision. I am not persuaded that I erred in any way.

37.  This ground provides no reasonable basis for D4’s intended appeal.

Ground 6

38.  D4 says I erred in distinguishing the present case from China Citic Bank International Limited v China Will Enterprise Limited & Ors [2024] HKCFI 1859 (Deputy Judge Jonathan Wong; 24 July 2024). It is submitted that I did not properly consider that the alleged scam practised on D4 by Mr Tsui actually overlapped in time with the alleged fraud practised by Mr Tsui on D2, raised by D2 as his defence in China Citic Bank. Further, the learned Judge in China Citic Bank drew adverse inference against the bank on the absence of direct evidence from the officer who claimed to have witnessed the execution of the various documents in that case. It is submitted that I erred in not doing the same.

39.  With respect, I think D4 has been misunderstanding the factual context of China Citic Bank. The default judgment entered against D2 covered the whole indebtedness of China Will, guaranteed by the unlimited guarantee provided by D2. The bank’s claim in that case relied on all of the facility letters allegedly countersigned by D2 and witnessed by the bank officer. Therefore, in face of serious allegations made by D2 that the bank officer did not actually witness the signing of the facility letters, and was an active participant of Mr Tsui’s fraud, the learned Judge was obviously concerned that no direct evidence from the bank officer was adduced by the bank to rebut D2’s case. Hence, despite the learned Judge’s finding that D2’s evidence regarding the due execution of the facility letters in 2017 and early 2018 appeared inconsistent[4], D2 demonstrated a reasonably arguable defence to set aside the default judgment.

40.  In the present case, D4 does not allege that his signatures on the Facility Letter and the Guarantee were forged; those signatures were just inappropriately obtained. I have already explained above that the lack of direct evidence from Mr Ng does not affect the analysis, because I found D4’s defence plainly unarguable in other respects. Having revisited China Citic Bank, I am still convinced that the subsequent and substantial increase in the credit limit extended to China Will through alleged forgery in that case was completely different in nature and character from D4’s defence here.

41.  I also maintain my view that the times Mr Tsui allegedly committed equitable wrongs on D2 in China Citic Bank, and on D4 in the present case were different, such that China Citic Bank cannot be given due weight to show merits in D4’s defence.

42.  I do not find Ground 6 reasonably arguable.

43.  I cannot see it is otherwise in the interest of justice to allow D4 to appeal against the Decision.

Conclusion

44.  D4’s application for leave to appeal is dismissed with costs to the plaintiff, with certificate for a counsel. Similar to the Decision, I order costs to be taxed on an indemnity basis.

45.  The plaintiff has not submitted a statement of costs for the purpose of summary assessment. I shall summarily assess the plaintiff’s costs for both the leave application and the amendment of the draft Notice of Appeal at HK$86,000.00.

46.  The above costs order is nisi. Any application for variation should be made by letter within 14 days of this Decision, and shall be dealt with on paper.