VICTOR CHANDLER (INTERNATIONAL) LTD v. ZHOU CHU JIAN HE

CACV 373/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 373 OF 2007

(ON APPEAL FROM HCA NO. 2475 OF 2006)

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J U D G M E N T

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Hon Le Pichon JA:

1.  This was an appeal from an order of Suffiad J dated 24 October 2007 dismissing the defendant’s application (1) to set aside ex parte orders made respectively by Master de Souza and Master Hui granting the plaintiff leave to issue and serve a concurrent writ of summons and statement of claim out of the jurisdiction and for substituted service and (2) to strike out the whole of the plaintiff’s claim in the event of the setting aside application being successful (which event that did not happen).  At the conclusion of the hearing, judgment was reserved which we now give.

Background

2.  The plaintiff is a company incorporated in Gibraltar and is licensed there to engage in the business of telephone betting.  The defendant is a Chinese national resident in Beijing.

3.  In March 2003, the plaintiff granted credit facilities of GBP 2 million to the defendant for the purpose of telephone betting which the defendant utilised in full.  The plaintiff sought repayment and in October 2004, the defendant gave the plaintiff 7 personal cheques dated between 31 October 2004 and 30 April 2005 drawn by him in favour of the plaintiff on DBS Kwong On Bank in Hong Kong totalling HK$28 million.  All 7 cheques were dishonoured upon presentation.

4.  The plaintiff commenced the present proceedings on 10 November 2006 in respect of the dishonoured cheques.  The plaintiff obtained ex parte leave under Ord. 11, rule (1)(d)(ii) and/or (e) of the Rules of the High Court for service of a concurrent writ out of the jurisdiction and subsequently applied ex parte and obtained leave for substituted service.

5.  The defendant applied under Ord. 12, rule 8(1)(a), (c) and (g) to set aside the ex parte orders on the basis that there was no serious issue to be tried.  It was submitted that, first, the cheques were unenforceable because the consideration for them, being for the purpose of repaying a loan advanced for gambling, is illegal as a matter of Hong Kong law; and second, in respect of two of the cheques, the plaintiff did not have possession of them at the commencement of the action.

6.  The judge rejected the arguments of counsel for the defendant on the illegality issue and on the possession issue considered that it would be premature for him to be making findings of fact.  It is clear that the judge regarded the application before him as an interlocutory matter and dealt with it on that basis.

The Application of English Law Ordinance (“the AELO”)

7.  The AELO came into force on 7 January 1966.  Its purpose was “to declare the extent to which English law is in force in the Colony”.  For present purposes, the relevant provisions are the following:

“3.    Common law and equity

    (1)   The common law and the rules of equity shall be in force in Hong Kong-

(a)    so far as they are applicable to the circumstances of Hong Kong or its inhabitants;

(b)    subject to such modifications as such circumstances may require;

(c)    subject to any amendment thereof (whenever made) by-

(i) any Order in Council which applies to Hong Kong;

(ii)    any Act which applies to Hong Kong; or

(iii)   any Ordinance.

    …

4. Application of English enactments

    (1)   Subject to the provisions of this section and of any other Ordinance, the law of England as set out in the following Acts shall be in force in Hong Kong, that is to say-

(a)    the Acts specified in the second and third columns of the Schedule to the extent specified in the fourth column thereof subject to such modifications thereto as the circumstances of Hong Kong may require;

(b)    any other Act which applies to Hong Kong by virtue of-

(i) any Order in Council;

(ii)    any express provision in the enactment, or by necessary implication; or

(iii)   any Ordinance.”

8.  Section 1 of the Gaming Act 1710[1], as amended to 5 April 1843[2] appears as item 28 in the schedule to the AELO.

The Decision of the Standing Committee (“the Decision”)

9.  The Decision which was adopted on 23 February 1997 provided as follows.  After reciting the provisions of Articles 160 and 8 of the Basic Law which respectively stipulated that

“Upon the establishment of the Hong Kong Special Administrative Region, the laws previously in force in Hong Kong shall be adopted as laws of the Region except for those which the Standing Committee of the National People’s Congress declares to be in contravention of this Law …”

and

“The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate Legislation and customary law shall be maintained, except for any that contravene this Law and subject to any amendment by the legislature of the Hong Kong Special Administrative Region.”

the Standing Committee of the National People’s Congress decided as follows:

“1.    The laws previously in force in Hong Kong, which include the common law, rules of equity, ordinances, subordinate legislation and the customary law, except for those which are in contravention of the Basic Law, are adopted as the laws of the Hong Kong Special Administrative Region.

…”

Annex 1 to the Decision set out ordinances and subordinate legislation previously in force in Hong Kong held to be in contravention of the Basic Law which were not adopted as the laws of Hong Kong on 1 July 1997.  These included the AELO.

This appeal

Illegality

10.  Mr Lam who appeared for the defendant submitted that

(1) gaming debts were enforceable at common law;

(2) the position pertaining in Hong Kong immediately prior to 1 July 1997 was different in that it was governed by the AELO which rendered the Gaming Act 1710 (as amended by the Gaming Act 1835) applicable;

(3)    on the authority of the decision of the English Court of Appeal in Moulis v Owen [1907] 1 KB 746, as at 30 June 1997, a cheque drawn on a bank in Hong Kong given for the purpose of repaying a loan advanced for gambling is illegal as a matter of Hong Kong law and unenforceable even if it were legal to do so in the foreign jurisdiction where it had taken place;

(4) by virtue of section 160 of the Basic Law and the Decision, the AELO was not adopted as part of the laws of Hong Kong as of 1 July 1997;

(5) the effect of the non-adoption of the Ordinance is that by virtue of Article 8 of the Basic Law and sections 23 and 27 of the Interpretation and General Clauses Ordinance, the law applicable on 1 July 1997 must be the law “previously in force in Hong Kong” and under that law (as to which see (3) above), the cheques in question are unenforceable.

11.  As I understand it, put simply, Mr Lam’s position was not only is there no serious issue to be tried, the question of law should be determined at this stage and the plaintiff’s claim struck out, notwithstanding the fact that this appeal has come to this court as an interlocutory appeal.  Quite apart from the fact that this court consisting only of two members may not be duly constituted to hear an appeal on that basis in the absence of consent filed by the parties pursuant to section 34B(4)(c) of the High Court Ordinance, Cap. 4, I do not consider it appropriate to do so in the present case.  As will become apparent, the court has not had the benefit of the parties’ assistance on some of the points arising.

12.  Under what Mr Lam termed the ‘ancient’ common law (apparently a reference to English law applicable immediately prior to the Gaming Act 1710), gaming debts were not illegal and were enforceable.  Pausing there, several matters should be noted. First, the use of the epithet ‘ancient’ is as unhelpful as it is confusing.  I propose to proceed on the basis that Mr Lam meant the common law as that expression is generally understood, untrammelled by the intervention of statute law.  Second, in so far as it may be suggested that the Gaming Act 1710 was the first legislative intervention in England on the subject of the legality of games and gaming, that would not appear to be the case as appears from the dissenting judgment of Fletcher Moulton LJ which painstakingly traced the statutes relating to gaming from the earliest times (i.e. 12 Rich.2, c.6 enacted in 1379) to the 1710 Act (as to which see the Moulis case at 758-761).  Prior to 1379, as Fletcher Moulton LJ observed, “neither games nor gaming were in any wise illegal at common law”.

13.  I now turn to consider the position in law immediately prior to the handover.  Mr Lam relied heavily on the decision of the English Court of Appeal in Moulis.  In that case the plaintiff sued on a cheque drawn on an English bank which had been given by the defendant to the plaintiff in Algiers.  The cheque was drawn and given to secure money lent by the plaintiff to the defendant for the purpose of gambling.  According to French law, gambling was not illegal and the cheque was valid.  The plaintiff sued on the English cheques in England.  He was successful before Darling J but on appeal the majority rejected the argument that the prohibitions and disabilities in the Gaming Act 1710 only applied to gaming within the realm and held that all bills of exchange on a gaming consideration are void under that statute. Mr Lam’s case is premised on Moulis being followed by the Hong Kong courts had that question arisen for decision prior to the handover.

14.  It is a fact that there is no Hong Kong decision on the question posed in the Moulis case.  Prior to the handover, while English Court of Appeal decisions would have been persuasive authority, they were not binding on this court.  I accept that a decision of the English courts on the construction of an English statute would naturally be of great weight.  Nevertheless I do not regard it as a foregone conclusion that Moulis would necessarily have been followed for the following reasons.

15.  It is a majority decision based essentially on an earlier case, namely, Robinson v Bland, (1760) 1 W.Bl 234, 256; 2 Burr.1077, the majority of the court (Collins MR and Cozens-Hardy LJ) taking the view that the report of King v Kemp (1863) 8 LT 255 a decision to the contrary to be inaccurate and thus unreliable.  But as Fletcher Moulton LJ (the dissenting judge in Moulis) remarked (at 766), “there are two reports of [Robinson v Bland]which do not agree with one another” and although the report of King v Kemp was admittedly “meagre”, Fletcher Moulton LJ considered the report as “clear and explicit”, leaving no room for doubt that section 1 of the Statute of Anne (i.e. the 1710 Gaming Act) “does not apply to gaming beyond the realm”.

16.  Leaving aside the earlier authorities which, on any view, were not satisfactorily reported, as a matter of analysis and legal reasoning, the powerful dissenting judgment Fletcher Moulton LJ can hardly be brushed aside.  Historically, it would appear that the object of legislation relating to gaming from the earliest times until 33 Hen.8,c.9 (i.e. 1523) was

“to prevent popular indulgence in games which would interfere with the practice of archery, and it was a matter of no importance in the eyes of the Legislature whether the games were games of skill or chance, and whether or not they were played for money.”  

At the date of the passing of the 1710 Act, it was perfectly legal to play for ready money to any amount and the winner could keep the winnings.  The loser might also go to the limit of 100l. on credit and still be liable to have his debts enforced against him by action at law.  Importantly, it was demonstrated that

“at no time did the common law or Legislature treat gaming debts as in their nature legal or unenforceable or arising out of a turpis causa on which no action could be based”.

It was in this context that Fletcher Moulton LJ came to the conclusion that the Statute of Queen Anne was

“of a local character.  To give it a broader application would be to make it out of the harmony with the chain of statutes of which it forms part.”

17.  There is also the fact that a gaming creditor has always been able to sue a defendant in Hong Kong on a loan if enforceable under the law of the jurisdiction where the obligation was incurred.  See, for example, Wong Hon v Sheraton Desert Inn Corp [1995] 3 HKC 331.  It is, to say the least, anomalous (if not entirely artificial) that such a loan would be enforceable but not a cheque given in payment thereof.  It is a distinction that does little credit to the law.  I am therefore far from convinced that Mr Lam has demonstrated that Moulis would be followed by this court had the matter arisen for decision prior to the handover.

18.  Mr Lam’s fourth proposition is uncontroversial.

19.  As to his fifth proposition, Mr Lam’s argument was that by virtue of section 27(c) of the Interpretation and General Clauses Ordinance (“the IGCO”), section 23 of the IGCO applies to the Ordinance as if it had been repealed.  Section 23(a) reads:

“23.  Effect of repeal generally

    Where an Ordinance repeals in whole or in part any other Ordinance, the repeal shall not-

    (a)    revive anything not in force or existing at the time at which the repeal takes effect;

    …”

20.  Reference was then made to Oceania Manufacturing Co v Pang Kwong-on [1979] HKLR 445 where this court had to consider whether the common law doctrine of attornment was in force in Hong Kong.  That question arose in the following circumstances.  A statute of Queen Anne had abolished the common law rule that required the tenant to have attorned before the assignee of a reversion could enforce the covenants of a lease but that statute was not to be found in the list of pre-1843 English Acts in the schedule to the AELO.  Roberts CJ held that by virtue of section 5 of the Supreme Court Ordinance 18731, the statute of Queen Anne was included by implication and was in force in Hong Kong from 1873 to 1966.  He further held that the AELO repealed section 5 of the 1873 Ordinance and thus repealed by inference the statute of Queen Anne, in its application to Hong Kong.  In those circumstances section 23(a) of the IGCO was held to apply, Roberts CJ stating as follows:

“where an earlier Ordinance replaced the common law (as section 5 of 1873 Ordinance did) the repeal of that earlier Ordinance does not revive that part of the common law which was not in force at the time of the repeal.”

Applying that reasoning, Mr Lam submitted that on the repeal of the AELO, the common law principle permitting enforcement of gaming cheques which had never been in force in Hong Kong is not ‘revived’.  Therefore the cheques must be unenforceable.  Mr Lam submitted that had the intention been to effect a fundamental change in the law, a new ordinance should have been passed and that would have prevented section 23(a) from being triggered.

21.  There are several difficulties with Mr Lam’s submissions.  First, as noted earlier, the pre-handover legal position in this regard is not free from doubt.  Second, the Oceania case treated the AELO as having the effect of repealing the 1873 Ordinance thereby repealing by inference the statute of Queen Anne.  But in HKSAR v Ma Wai Kwan, David [1997] HKLRD 761 Chan CJHC stated (at 776) that:

“English law which includes the common law has started to apply in Hong Kong since at least 1844 when the previous Supreme Court Ordinance was enacted.  That Ordinance was replaced by the Application of English Law Ordinance in 1966.  The 1966 Ordinance did not import the English law.  Nor did it terminate the application of English law, which was applied by virtue of the previous Supreme Court Ordinance, and then re-apply the English law all over again.  It continued the application of the English law.  Its effect was, as its long title indicated, ‘to declare the extent to which English law is enforced in the Colony’.”

22.  If the correct analysis is that the AELO did not repeal but replaced the earlier Supreme Court Ordinance then, arguably, the statute of Queen Anne should not have been held to have been repealed by inference.  On this basis, the observations of Roberts CJ in Oceania on the effect of section 23 of the IGCO would be no more than obiter dicta.  I would add that although the list English statutes contained in the schedule to the Ordinance is sometimes treated as exhaustive, that approach would appear to ignore the opening words of section 4(1) and the provisions in paragraph (b) of that section.  Those provisions clearly leave open the possibility of Acts other than those listed in the schedule being incorporated by the AELO.  The 1873 Ordinance is but one of a number of Ordinances (see in particular No. 15 of 1844 (enacted on 21 August 1944) No. 6 of 1845 and No. 2 of 1946), specifically addressing the question “how far the Law of England to prevail” in Hong Kong.

23.  Be that as it may, it is common ground that the AELO ceased to be part of the laws of Hong Kong as of 1 July 1997 and any imperial Act that had been incorporated into Hong Kong law by reason of the AELO (including the Gaming Act 1710) would have ceased to be applicable to Hong Kong.  Understandably and, in my view, for good reason, the judge had difficulty with the notion that, notwithstanding the non-application of the AELO (and thus the Gaming Act 1710) because of contravention of the Basic Law, the common law of Hong Kong on 1 July 1997 was no different from, and identical in every respect to, the law that had previously been in force under the AELO.

24.  Arguably, the clear intention to be discerned from Ordinance No. 15 of 1844 through to the AELO was that upon becoming a colony, the common law applied to Hong Kong save that where the common law had been amended by statute as at the 5 April 1843, it was only applicable as so amended.  The non-application of the AELO rendered the imperial Acts inapplicable but left intact the common law.  Article 8 of the Basic Law would appear to lend support to this.  Assuming it be the case that a ‘new’ law is required to prevent section 23 of the IGCO from being triggered, there is the Decision which states the new order applicable in Hong Kong post-handover.

25.  It will have become apparent that, demonstrably, there is a serious issue to be tried.  Mr Lam view to the contrary is untenable.

Possession

26.  Mr Lam’s submission on this point was that given the proximity of the date of the writ and the date of the supporting affirmation for leave under Order 11 to serve outside the jurisdiction, a period of only 20 days, it should be inferred from the supporting affirmation that the plaintiff did not have two of the cheques in question in its possession at the commencement of this action.  While such an inference is permissible, I do not consider that the inference was ineluctable and had to be made.  All the cheques had plainly been in the plaintiff’s possession at some point because they had been presented for payment and were returned dishonoured.  The judge was entitled to take the view that this matter involved a factual finding to be made only at trial.

Conclusion

27.  In my view, this action must go to trial.  I would dismiss the appeal.  I would also propose that there be an order nisi of costs in favour of the plaintiff.

Hon Hartmann J:

28.  I agree.

[1] The Gaming Act, 1710 (9 Anne, c. 14)(9 Anne, c. 19, in the Revised Statutes), s. 1: “All notes, bills, bonds, judgments, mortgages, or other securities or conveyances whatsoever given, granted, drawn, or entered into, or executed by any person or persons whatsoever, where the whole or any part of the consideration of such conveyances or securities shall be for any money, or other valuable thing whatsoever, won by gaming or playing at cards, dice, tables, tennis, bowls, or other game or games whatsoever, or by betting on the sides or hands of such as do game at any of the games aforesaid, or for the reimbursing or repaying any money knowingly lent or advanced for such gaming or betting as aforesaid, or lent or advanced at the time and place of such play to any person or persons so gaming or betting as aforesaid, or that shall during such play, so play or bet, shall be utterly void, frustrate, and of none effect to all intents and purposes whatsoever. ….”

[2] By the Gaming Act, 1835 (5 & 6 Will. 4, c. 41), s. 1, it is enacted that so much of 9 Anne, c. 14, s. 1, “as enacts that any note, bill or mortgage shall be absolutely void, shall be and the same is hereby repealed; but nevertheless every note, bill or mortgage which if this Act had not been passed would, by virtue” of 9 Anne, c. 14, s. 1, “have been absolutely void, shall be deemed and taken to have been made, drawn, accepted, given, or executed for an illegal consideration.”

1 “Such of the laws as existed on the 5 April 1843 in England shall be in force in Hong Kong, except so far as the said laws are inapplicable to the local circumstances of the Colony”,