BANK OF CHINA (HONG KONG ) LTD v. CERTAIN AIM LTD

HCMP1272/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1272 OF 2007

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D E C I S I O N

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1.  The two summonses are for leave to adduce further evidence for the purpose of an appeal against a Master’s decision refusing to set aside a default judgment.

BACKGROUND

2.  The plaintiff claims against the defendant for payment of moneys and delivery of vacant possession under two charges which secured payment of an instalment loan and a Gold Loan.

3.  In the absence of an acknowledgement of service, the plaintiff obtained a default judgment on 25 September 2007.

4.  The defendant claimed to be unaware of the proceedings or the judgment until September 2008. 

5.  Upon learning of the judgment, the defendant applied on 28 October 2008 to set aside the judgment on the ground that the judgment was irregular because the originating summons was never served on the defendant (“the irregularity ground”).  In addition, amongst the defences raised, the defendant claimed that the outstanding Gold Loan should be substantially less than as claimed by the plaintiff.  The reason was that the value of gold bars should not be calculated with reference to the market price of gold but to an agreed “locked” price of $3,524 per tael since 30 August 2003 (“the merits ground”).

6.  Amongst the evidence disclosed by the plaintiff at the hearing before the learned Master on 20 April 2010 (“the Hearing”) was an acknowledgement of service disclosed by the plaintiff on 12 October 2009.  It was purportedly signed by Madam Yeung Chi Hung (“Yeung”), a director of the defendant. After inspection of the original, Yeung reported a case of forgery to the police on 7 December 2009.

7.  After the Hearing, the Master dismissed the defendant’s application on 17 May 2010.  Amongst the reasons for dismissal :

(i)      With regard to the irregularity ground, the learned Master ruled that there was no need for the plaintiff to establish that the defendant (who was served with documents by leaving at or by post to the registered office) had actual notice of the originating summons.  The occurrence book kept at the management office of the complex where the mortgaged property was situated showed that there were at least three caretakers looking after management of the complex.  The fact that the plaintiff has adduced the affirmation of only one of the caretakers to confirm that he had no notice of the posting of documents bore little if no weight.  Even without taking into consideration the acknowledgement of service, the learned Master was satisfied that the originating summons had been validly served and the judgment was a regular one.

(ii)     With regard to the merits ground, the learned Master relied on, amongst others, the notes to financial statements of the audited account of the defendant ended 31 March 2004.  They provided that gold loss was stated at the gold price prevailing at the close of business on the balance sheet date and that was contrary to the existence of the “locked price” agreement between the parties.  That set of audited accounts had not been rectified notwithstanding the defendant claimed that their auditor had made a mistake.

8.  The defendant filed a notice of appeal dated 27 May 2010 due to be heard in two weeks’ time on 13 October 2010.

9.  The defendant now seeks to adduce the 3^rd affirmation of Yeung dated 21 September 2010; and an affirmation of Suen Chun Sum (a security guard) dated 27 August 2010.

PRINCIPLES FOR GRANTING LEAVE TO ADDUCE FURTHER EVIDENCE ON APPEAL FROM MASTER TO JUDGE

10.  Under Order 58, rule 1(5), evidence as to matters which occurred after the date of the decision appealed against may be adduced at the hearing of an appeal.  Further, evidence may be received on special grounds” if the conditions laid down in Ladd v. Marshall [1954] 1 WLR 1489 are satisfied, that is :

(i)      The evidence could not have been obtained with reasonable diligence for use at the hearing below.

(ii)      The evidence is such that, if given, would probably have an important influence on the result of the case though it need not be decisive.

(iii)      The evidence is such as is presumably to be believed.  It need not be incontrovertible.  It is sufficient that it is apparently credible.

11.  These principles are not in dispute.  Counsel’s difference in submission lies in whether or not a more relaxed approach should apply where an application is made to rely on further evidence at an appeal from a summary judgment or a refusal to set aside default judgment; and whether the Court has a residual discretion to admit new evidence, if it appears appropriate to do so, even if there has been a delay in the application. 

12.  In advocating the more relaxed approach, Ms Wong SC leading Mr Anthony Chan for the defendant rely on Langdale v. Danby [1982] 1 WLR 1123, at 1133D-F. After setting out the test in Ladd v. Marshall, Lord Bridge says :

“In the situation arising on an appeal to the Court of Appeal from a summary judgment, the application of these conditions and perhaps the conditions themselves will require some modification. It may well be that the standard of diligence required of a defendant preparing his case in opposition to a summons for summary judgment, especially if under pressure of time, will not be so high as that required in preparing for trial. The second and third conditions will no doubt be satisfied if the further evidence tendered is sufficient, according to the ordinary principles applied on applications for summary judgment, to raise a triable issue. But I can see no injustice at all in requiring a defendant to use such diligence as is reasonable in the circumstances to put before the judge on the hearing of the summons, albeit in summary form, all the evidence he relies on in defence, whereas it would be a great injustice to the plaintiff to allow the defendant to introduce for the first time on appeal evidence which was readily available at the hearing of the summons but was not produced.”

13.  In Forward v. West Sussex County Council [1995] 1 WLR 1469, where a defendant applied to set aside default judgment on the ground that there was no valid service on him, Lord Bingham MR said :

“… we accept the argument that the Ladd v. Marshall conditions do not apply with their full rigour in a case of this kind and that the court has a residual discretion to admit new evidence if it appears appropriate to do so.”

14.  Defence counsel submits that the rationale for this more relaxed approach is obvious.  In resisting the entry of summary judgment or setting aside a default judgment, a defendant is required to show that his defence is arguable or has a reasonable prospect of success, not that it will succeed.  The standard of diligence required of a defendant in such instances will not be so high as that required in preparing for trial.  In Forward v. West Sussex County Council, adducing further evidence to deal with comments of the court below would satisfy this condition.

15.  On the other hand, Mr Lam SC for the plaintiff contends that Lord Bridge does not go so far as to say that a lesser standard of diligence would be acceptable but only that it may well be acceptable, especially under pressure of time : per Nazareth VP in Sunny Square Ltd v. Artsland Properties Investment Ltd & others, CACV34/1999 and CACV35/1999.

16.  Mr Lam SC also points out that in Bank of China (Hong Kong) Ltd v. Cheung King Fung [2007] 1 HKLRD 462, Tang VP explained that Forward was a case that concerned only service of proceedings with no consideration of the merits of the defence at all.  In contrast, in Cheung King Fung, which was an appeal from a refusal to set aside a default judgment on both the grounds of irregularity of service and lack of merits, Yuen JA applied Ladd v. Marshall in the ordinary way.  In any case, even if the Ladd v. Marshall conditions do not apply in their full rigour, that does not mean they are irrelevant.

17.  I agree with Mr Lam SC.  Order 58, rule 1(5) was introduced to curb the undesirable practice before the Civil Justice Reform when parties sought to adduce a further round(s) of evidence on appeal after an unfavourable decision from a Master.  Rule 1(5) aims at effecting a change of culture so that parties should prepare their application properly at the earliest possible opportunity and lay all cards on the table prior to the hearing before a Master.  The spirit of this rule will be defeated if a party is allowed to revert to the pre-CJR practice.  Without disrespect, I decline to follow the approach in Forward v. West Sussex County Council (a pre-CPR decision) set out in paragraph 13 above.

18.  With the above principles in mind, I now turn to the facts.

THE FURTHER EVIDENCE TO BE ADDUCED

19.  The new evidence disclosed in the two affirmations can be categorized as follows :

(a)     Evidence going to the irregularity ground :

(i)      evidence of forgery of Yeung’s signature on the acknowledgement of service in the form of a handwriting expert report from Guangdong dated 28 June 2010 (“the 1^st expert report”);

(ii)      evidence of forgery of Yeung’s signature on the acknowledgement of service in the form of an additional handwriting expert report from Hong Kong dated 28 September 2010 (“the 2^nd expert report”);

(iii)      evidence from another security guard of the Properties (where the originating summons and notice to occupants were allegedly served) to the effect that those documents were never served;

(iv)      two documents in the files of the solicitors for the defendant showing that the defendant had no knowledge of both the originating summons and the judgment even as at August 2008;

(v)      a draft letter of appointment dated August 2008; and

(vi)      a letter dated 25 August 2008 from the previous defence counsel to the defendant’s solicitors.

(b)     Evidence going to the merits ground :

(vii)        an audit confirmation from the plaintiff to the defendant for the year ended 31 March 1984 which demonstrates that the price of gold for the purposes of the Gold Loan was “locked”; and

(viii)     evidence showing that the defendant has paid $42 million to the plaintiff on 18 August 2010 pursuant to the terms of the Consent Summons dated 30 July 2010.

20.  I now proceed to consider each category of documents.  I bear in mind that a judge hearing the appeal will be entitled to consider the evidence afresh.  It will not be appropriate for me to predict how he will ultimately view a piece of evidence or decide on a particular issue.

Category (i)

21.  The acknowledgement of service was never filed with the Court nor served on the plaintiff’s solicitors.  The plaintiff’s case has all along been that no acknowledgement of service had been filed.  Yeung was adamant that the purported signature of hers on the acknowledgement of service was a forgery. She made a report to the police on 7 December 2009.  It was only after a letter from the defendant’s solicitors dated 26 February 2010 that the police asked for her specimen signatures.  It was only after the Hearing that the statement of a witness previously employed by the plaintiff was provided by the police to the defendant and the plaintiff’s solicitor was notified that Yeung’s complaint had been sent to the Department of Justice for advice.  Unhappy with the lack of progress of the police investigation, the defendant obtained the 1^st expert report which states the opinion of the expert that the signature on the acknowledgement of service and those specimen signatures provided by Yeung did not come from the same person.

22.  The authenticity of the acknowledgement of service was a clear dispute in the proceedings below.  It might have been reasonable, with a view to saving costs, for the defendant to wait for some time for the police verification of forgery after she has made the report.  However, the defendant failed to ascertain from the police when the result of investigation would be forthcoming.  And what if the investigation turned out to show that there was no forgery?  The defendant has failed to obtain an expert report in view of the impending Hearing.  I agree with Mr Lam SC that whatever the standard of diligence, the defendant has fallen short of that.  The 1^st condition of Ladd v. Marshall cannot be met.

23.  Moreover, the 1^st expert report is unlikely to satisfy the 2^nd and 3^rd conditions of Ladd v. Marshall. The expert has only examined a copy as opposed to the original of the acknowledgement of service.  He failed to state the methodology employed and the grounds for his findings.

24.  There was, in addition, no reason why the defendant should wait for about three months since the 1^st expert report to take out this application. No notice was given by the defendant to the plaintiff of its existence until three months later. 

25.  Ms Wong SC submits that to uphold the judgment would be to uphold it on the basis of a forged document.  The Court should not permit it to be done: Chan Yau v. Chan Calvin, HCA666/2007.  Accordingly the expert report should be placed before the judge on appeal.

26.  It is, however, clear that the learned Master did not place weight on the acknowledgement of service.  If the judge on appeal were to uphold her judgment, it would not be on the basis of a forged document.

Category (ii)

27.  The 2^nd expert report was commissioned by the defendant only earlier this month at the suggestion of Yeung’s friend.  There was no reason why a second expert report should be obtained, except for the obvious reason that the 1^st one was not good enough.  For the reasons given in paragraphs 21, 22, 25 and 26, the 2^nd expert report also fails to meet the 1^st condition of Ladd v. Marshall although the 2^nd and 3^rd conditions can be met.

28.  Further, the application to adduce the 2^nd expert report under the 2^nd summons came only the day before this hearing. The fact that the defendant might have approached the wrong expert in the first place was no answer to the delay.  This delay alone would have been sufficient to refuse leave to adduce it.  Otherwise, the plaintiff will have to be given time (four weeks as suggested) to prepare evidence in answer.  That may result in vacating the hearing date of the appeal on 13 October 2010. 

Categories (iii) to (vi)

29.  These documents and evidence from witnesses were clearly in existence before the Hearing.  The fact that legal advisers or a party took a wrong view of the evidence or failed to appreciate its significance is not a reason for granting leave to adduce such evidence on appeal.  The first condition of Ladd v. Marshall is not satisfied.

30.  In Sunny Square Ltd v. Artsland Properties Investment Ltd & others, CACV34/1999 and CACV35/1999, the witness left her employment with the 3^rd defendant and was out of Hong Kong for part of the material time.  A director of the plaintiff wrote several letters to her address.  It was held that ：

“Notwithstanding the lesser standard of diligence that may well be required of the plaintiff here, I do not think this can be regarded as a reasonable diligence, particularly as the reason that the additional evidence for which leave is now sought was not put in was that the then solicitors took the view that the evidence filed was sufficient to resist the strike-out application.”

Category (vii)

31.  The audit confirmation was admittedly in existence before the Hearing.  According to the defendant, it was only during preparation of the appeal that it was advised that the audit confirmation for the year 1984 should be produced.  It reveals that the plaintiff itself treated the price of gold as having been “locked” at the price of $3,524 per tael since 30 August 2003.

32.  The defendant was represented throughout in the proceedings before the Master.  Failure to appreciate the significance of a document until change of counsel is not a reason for giving leave.  Condition 1 of Ladd v. Marshall is not satisfied.

Category (viii)

33.  It is the defendant’s case that the $42 million was paid by the defendant to the plaintiff after the date of the learned Master’s reasons for decision. The money represents the principal and interest payable under the Gold Loan according to the defendant’s case.  The Court should exercise its discretion to admit the evidence because it goes to show that the defendant’s purpose of lodging the appeal is not to avoid its rightful obligations under the Gold Loan but to undo what has been wrongly imposed on it by the judgment and the learned Master’s order.

34.  This category is not opposed by the plaintiff.  Given this stance, one wonders whether a fresh affirmation is needed as opposed to just informing the appeal judge of this admitted fact by consent.

OTHERS

35.  There is one statement from Mr Luk Shing Chuen dated 15 April 2010 which the defendant only obtained from the police after the Hearing.  It was not listed as a category of documents in the skeleton submission of defence counsel.  For completeness sake, I have also considered it.  Mr Luk, the person in the plaintiff handling and responsible for filing and keeping documents relating to these proceedings until August 2008 stated that he had never seen the acknowledgement of service.  Luk’s statement appeared to satisfy the conditions in Ladd v. Marshall.  I give leave to the defendant to adduce it on appeal.

ANY PRESSURE OF TIME?

36.  If I am wrong in the above analyses of Categories (i) to (vii), I find that there has been no pressure of time on the defendant to warrant adopting a more relaxed approach to the application of Ladd v. Marshall.  Prior to the Hearing, the defendant has had ample opportunities to and did in fact put in further evidence despite the usual directions that no further evidence be filed without leave.  In the course of the 14 months between October 2008 and December 2009, the defendant has put in a total of 11 affirmations. The last of those was filed some four months before the Hearing. 

37.  The present application is inordinately and inexcusably late.  It was made five months after the Master’s decision and three weeks before the appeal is due to be heard by a judge.  As such, the application should be rejected as the defendant has failed to act with reasonable speed.

38.  Lifely v. Lifely [2008] EWCA Civ. 904 does not apply because the new evidence to be adduced in that case was more complicated.  The Court of Appeal considered it totally reasonable for time to be taken for the full facts to be marshalled and advice to be given about appealing out of time and admitting that evidence.  The evidence in the present case is much more confined and simple.

CONCLUSION

39.  The categories of new evidence sought to be produced do not meet the tests laid down in Ladd v. Marshall.  In addition, the two summonses are taken out late.  Granting of leave may cause vacating of the hearing date of the appeal.  In the premises, save for category (viii) consented to by the plaintiff and Luk’s statement, leave to adduce further evidence on appeal as sought under the two summonses dated 22 and 28 September 2010 are refused.  I allow abridgement of time for service of the latter summons. 

COSTS

40.  The plaintiff has substantially succeeded in resisting the application. I order, nisi, that costs should follow the event and be to the plaintiff with certificate for counsel.  There shall be summary assessment of costs on 21 October 2010.  The plaintiff shall file and serve its costs statement by 14 October and the defendant shall file and serve its grounds in opposition by 20 October.  The summary assessment will be done on the papers and attendance of the parties is dispensed with.