LU YONGLIANG v. BANK OF CHINA LIMITED, DONGGUAN BRANCH AND ANOTHER

CACV 512/2019

[2021] HKCA 1047

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 512 OF 2019

(ON APPEAL FROM HCSD 3/2018)

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BETWEEN

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  This is our judgment on the application of the Applicant by a Notice of Motion of 28 January 2021 seeking leave to appeal to the Court of Final Appeal in respect of our decision of 31 December 2020. By that decision, we refused to allow the Applicant to use the new evidence he put forward for the purpose of the substantive appeal.

2.  Since the issue of the Notice of Motion, the substantive appeal has been heard and dismissed on 25 February 2021.  The substantive appeal was brought against the judgment of M Ng J of 9 October 2019 by which the Applicant’s application to set aside a statutory demand by the 1^st Respondent was dismissed.

3.  The Applicant issued another Notice of Motion on 24 March 2021 seeking leave to appeal against the dismissal of the substantive appeal.  That application will be addressed separately.

4.  In our judgment of 31 December 2020, we held as follows:

(a) The rule of Ladd v Marshall [1954] 1 WLR 1489 should be applied with full rigour in respect of the application of the Applicant for admission of new evidence (except in respect of the evidence of Mao on Case Protest, which is no longer relevant for present purposes) because this is not a case where it can be said that the judgment of M Ng J was obtained by fraud: see [11] to [41] of the judgment;

(b) The allegation of fraud in respect of the underlying transactions was not relied upon before M Ng J.  Counsel then acting for the Applicant (not Mr Man SC nor Mr Tang or Mr Lui who are now acting for the Applicant in this application) confirmed with the judge that the Applicant confined his application to the prospect of overturning the Mainland judgment in the PRC courts.  We held that the Applicant should not be allowed to canvass a fresh ground of fraud in the underlying transactions in the appeal: see [29] to [39], [66] to [69] of the judgment;

(c) The Applicant did not satisfy us that the new evidence of the Applicant could not have been obtained with reasonable diligence before the hearing below: see [42] to [57] of the judgment;

(d) The Applicant did not satisfy us that the new evidence is not relevant to any of the grounds which the Applicant can properly canvass in the appeal: see [65] to [71] of the judgment;

(e) The Applicant did not satisfy us that the new evidence is apparently credible: see [72] to [79] of the judgment; and

(f) Thus, the Applicant did not meet the criteria of Ladd v Marshall and the application for admission of new evidence was rejected.

5.  In the Notice of Motion of 28 January 2021, the following questions were put forward on behalf of the Applicant as questions of great, general or public importance:

“ Whether a judgment is procured by fraud where it confirms a right and/or a debt and/or a foreign judgment and the claimant knew that the right and/or debt and/or foreign judgment was procured by fraud. (‘Question 1’)

…

Where a judgment debtor challenges a judgment procured by fraud by an appeal from that judgment, whether the Ladd v Marshall [1954] 1 WLR 1489 conditions apply with full rigour, and if not how such conditions are modified. (‘Question 2’)

…

Whether (and if so when) a judgment debtor is precluded from or restricted in (and if so in what way) challenging a judgment obtained by fraud by way of appeal from that judgment on the ground that he did not allege that fraud at first instance. (‘Question 3’)

…

Whether (and if so when) condition 1 of Ladd v Marshall is satisfied where the new evidence could not have been obtained with reasonable diligence by the time of the first instance hearing, but the appellant could have made the same factual assertion without the evidence.  (‘Question 4’)”

6.  Leave was also sought on the “or otherwise” ground.  However, as acknowledged by Mr Man, this Court’s usual practice is to reserve such ground for the consideration of the Appeal Committee.

7.  Thus, we shall focus on the 4 questions.

8.  Before we address these questions specifically, it is necessary to remind ourselves the context in which this application was made.  This is not an intended appeal against a decision in the substantive appeal.  It is intended to be an appeal against the interlocutory determination by this Court on admission of new evidence for the purpose of the appeal.  Such determination was an exercise of discretion under Order 59 Rule 10(2) of the Rules of the High Court Cap 4A.

9.  Moreover, the discretion was exercised in the context of an appeal against the refusal to set aside a statutory demand.  The grounds advanced by the Applicant to set aside the statutory demand were, as explained in [29] to [39] of the judgment of 31 December 2020, circumscribed.  As mentioned, the substantive appeal had subsequently been heard and dismissed.  The statutory demand had been served a long time ago on 18 January 2018.  The unmeritorious application to set aside the statutory demand and the appeal have substantially prolonged the bankruptcy process.

10.  Further, Mr Man’s contention on relaxation of Ladd v Marshall is confined to the first criterion of reasonable diligence.  Counsel did not dispute that the second and third criteria are applicable in any event. In other words, if the Applicant was unable to reverse our findings against him on these two criteria, the application for admission of new evidence had to be rejected.

11.  Hence, one must examine if the Applicant advanced any reasonably arguable challenge to our findings on these two criteria.  Whilst Question 3 can be said to relate to our finding on relevance, none of the questions relate to the findings on apparent credibility of the new evidence.

12.  The only ground asserted by the Applicant which can be said to be related to our findings on apparent credibility is advanced under the rubric of “or otherwise” ground in respect our summary rejection of the new evidence, see paras 18 and 19 of the Notice of Motion.

13.  We agree with Mr Yuen SC that the Applicant had not demonstrated why the Court of Final Appeal should be asked to review this Court’s assessment of evidence.  The contention that it was a summary assessment is neither here nor there given the nature of an application for admission of new evidence in an appeal.

14.  Hence, we are not persuaded by Mr Man that there is any good ground for reversing our assessment on apparent credibility.  It follows that the outcome of the intended appeal would not be different from our determination on 31 December 2020.  On this ground alone, leave to appeal should not be granted.

15.  Further, there are other difficulties in the Applicant’s application.

16.  Question 1 is the foundational premise (viz that the judgment of the lower court was obtained by fraud) on which Questions 2 and 3 are put forward.  Mr Man did not dispute that counsel for the Applicant had intimated to the judge that he only sought to set aside the statutory demand on the slender basis that statistically the Applicant might succeed in the appeal in the Mainland courts.  It was also a deliberate strategy on the part of those representing the Applicant not to rely on the alleged fraud in the underlying transactions as a ground for setting aside the statutory demand: see [29] to [38].  In such circumstances, the judge did not need to rely on any evidence of the Respondent in rejecting the application to set aside.

17.  A fatal flaw in Mr Man’s submission is that counsel failed to have proper regard to the onus of an applicant in an application to set aside a statutory demand.  Rule 47(4) of the Bankruptcy Rules Cap 6A prescribed that a debtor applying to set aside a statutory demand must state the grounds on which he claims the demand should be set aside in the supporting affidavit.  The burden is on the debtor to satisfy the court that sufficient cause is shown for the demand to be set aside, see Rule 48(1).  The debtor has the burden of making good a case coming within Rule 48(5) by reference to his grounds set out in the affidavit.  As we had said at [68] and [69] in the judgment of 31 December 2020:

“ 68. It cannot be denied that the new ground, involving a challenge to the underlying indebtedness by reference to the history of the loans of Henghui Group taken up by Jiangmen Central is highly fact and evidence sensitive.  More precisely, the issue is not simply whether those loans originated from the LC Fraud but also concerns the alleged involvement of the staff of BOC Dongguan in a conspiracy.  To succeed in the application to set aside the statutory demand, the Applicant would have to show a substantive dispute that by virtue of such involvement (if any) of its staff, BOC Dongguan should not be permitted to enforce the Guarantee notwithstanding that it had actually advanced substantial loans to Jiangmen Central (in a sum much larger than those allegedly used to cover the old loans due from Henghui Group). 

69. We are not persuaded by Mr Man that the Applicant should be allowed to rely on the new point.  There was simply no good reason for not taking the point below if the Applicant believed it had any merit.  Substantial time was taken for the preparation leading to the proceedings below and the application to set aside the statutory demand had inevitably prolonged the process of bankruptcy proceedings.  It is quite obvious that the Applicant chose to litigate in the mainland proceedings and placed his bet on the appeal to the SPC.  Thus, his counsel adopted the position before the Judge that the courts in Hong Kong should leave the mainland appeal to determine the underlying merits.  Having so conducted himself at the court below, it appears to us to be singularly opportunistic for him to come back to have another go when he lost his battle in the mainland system, including his unsuccessful attempt to apply for Case Protest.”  

18.  Nor has Mr Man satisfactorily explained how the Applicant could overcome the limitations on fresh point being taken on appeal as discussed in the line of authorities cited at [66] of that judgment.

19.  We have also explained at [15] to [20] in the judgment the distinction between a fresh action to set aside a judgment obtained by fraud and an appeal based on an allegation to that effect which we have to bear in mind in considering Clone Pty Ltd v Players Pty Ltd (2018) 353 ALR 24; Takhar v Gracefield Developments Ltd [2020] AC 450; Mayer Corporation Development International Ltd v Alliance Financial Intelligence Ltd [2019] HKCA 777.  We also alluded to the relevant Hong Kong authorities on the topic: Karaha Bodas Co LLC v Persusahaan Pertambangan Minydak Dan Gas Bumi Negara [2007] 4 HKLRD 1002 and Johnson Electric International Ltd v Bel Global Resources Holdings Ltd [2014] 5 HKC 504.

20.  In the instant application, Mr Man referred additionally to Noble v Owens [2010] 1 WLR 2491 to support his submission that there should not be any difference between an appeal and the pursuit of allegation of fraud by way of fresh action.  With respect, counsel failed to have adequate regard to the reasoning in that case.  The main holding by the English Court of Appeal was that a judgment could not be set aside merely on some allegations of fraud.  Following the rationale of Jonesco v Beard [1930] AC 298, it was held that there had to be a finding of the judgment being obtained by fraud before it could be set aside.  Whilst previously the proper course was to establish the fraud by a fresh action (as held to be the proper course in Jonesco v Beard, supra, other than cases where such fraud is clearly established on incontrovertible evidence or not contested), the English Court of Appeal held that the English court could rely on Civil Procedure Rules (“CPR”) r.52.10(2)(b) to remit the issue of fraud to the trial judge for a determination.  As subsequently made clear in Dale v Banga [2021] EWCA Civ 240, whether such power should be exercised is a matter of discretion and depends on (1) whether the evidence adduced by an appellant met the threshold of being capable of showing that the court below was deliberately misled and that the judgment must have been obtained by fraud; and (2) if such threshold is met, whether on the facts and circumstances of the particular case it is appropriate that the fraud issue should be remitted or otherwise dealt with in the same proceedings.

21.  At [40] of Dale v Banga, supra, there were references to other English Court of Appeal judgments in which the courts expressed a preference for the issue of fraud to be determined by way of a fresh action. 

22.  In Hong Kong, we do not have the equivalent of CPR r.52.10(2)(b)[1].  There is no express power in our Rules of the High Court for the Court of Appeal to remit an issue to the lower court for determination without setting aside the judgment below.  In Sin Chung Yin Ronald v The Dental Council of Hong Kong FACV 6/2016, 4 November 2016, it was held at [104] that by virtue of Order 59 Rule 10(4) this court has the power to order a remitter if we consider it appropriate “consequential upon” the disposal of the appeal.  Whether the wide and general wordings of Rule 10(4)[2] can encompass a similar course to be adopted as in Noble v Owens, supra shall have to be tested on another occasion.

23.  In any event, the application for admission of new evidence had not been argued before us on the Noble v Owens basis.  In light of our findings on the scope of issues canvassed below and the lack of apparent credibility to support a case implicating the Respondents of fraud, we do not see any basis for granting leave to appeal on account of any alleged failure to explore such option when we rejected the new evidence application.

24.  The stark reality is that the Applicant had never suggested before M Ng J that the guarantee in question or the mainland judgment had been obtained by fraud.  In accordance with the practice of this Court, such fresh argument should not be permitted to be run in the appeal.  It also follows that the judgment of M Ng J cannot be said to be a judgment obtained by fraud since the court had not been asked to address if the guarantee or the mainland judgments had been obtained by fraud.

25.  By reason of these difficulties, there is no basis to regard Question (1) as an issue arising in the context of this appeal.

26.  Once the premise that the judgment of M Ng J was obtained by fraud is rejected, Questions 2 and 3 cannot be germane in this appeal.

27.  Further, for the reasons already canvassed, we do not find Question 3 to be reasonably arguable.  The effect of Mr Man’s submission is that so long as an appellant can put forward some evidence to support an allegation of fraud (and irrespective of the lack of reasonable diligence of such appellant in procuring such evidence in the court below) and the fraud could vitiate the underlying transaction, this Court must admit the same irrespective of the lack of reliance on such allegation in the court below. Such line of argument subverts the principles of Aikens LJ in Royal Bank of Scotland plc v Highland Financial Partners [2013] 1 CLC 596 at [106], cited at [21] of the judgment of 31 December 2020, in particular (2) and (3). 

28.  Question 4 in substance challenges this Court’s assessment of evidence and rejection of the Applicant’s contention that he could not procure such evidence earlier as set out at [42] to [54] of the judgment of 31 December 2020.  We do not consider that it raises any question of great, general or public importance.

29.  For these reasons, we dismiss the Notice of Motion of 28 January 2021.  We also order the Applicant to pay the costs of the Respondents in the application.  Having considered the statement of costs of the Respondents, we fix such costs at $335, 518.