CHUANG, EUGENE YUE CHIEN v. KEVIN HO YAU KWONG

HCA1904/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1904 OF 2001

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J U D G M E N T

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The Plaintiff's claims in the action

1. On 27 April 2001, the Plaintiff instituted the present action by a writ of summons generally endorsed with a claim for $7,495,171, alleged to be "the aggregate of the various sums advanced and/or made available by the Plaintiff to the Defendant and/or on his behalf at his request together with interest". In other words, loans were made by the Plaintiff to the Defendant.

2. These loans were particularised in the Statement of Claim dated 2 February 2001. The Statement of Claim referred to a number of loans and other agreements under which the Defendant's liability to the Plaintiff in the said sum arose, together with interest.

3. It is not necessary to refer to this pleading in any great detail as it is the Amended Statement of Claim that features in the present application before the court. However, I would just set out in full paragraph 11 of the original Statement of Claim which states :

"During 1990 to 1996, the Defendant frequently patronized ballroom hostesses and prostitutes and had sex with them. Normally, the Defendant would book a room either at the Empire Hotel (previously known as the Evergreen Hotel) or the Wharney Hotel both in Lockhart Road, Wanchai and would call the ballroom hostesses and the prostitutes to go to his room to have sex with him. The Defendant paid them all in cash, to the best knowledge of the Plaintiff. From time to time, the Defendant would call the Plaintiff to lend him cash such that he could pay the ballroom hostesses and prostitutes in cash. From time to time, the Defendant would request the Plaintiff or Plaintiff's younger brother Mr. Henry Chuang to book a room at the Empire Hotel or the Wharney Hotel for his use. It was against such background that on the 12th February 19974, the Plaintiff lent the Defendant the sum of HK$300,000.00 in cash at the Wharney Hotel, that on the 20th December 1994, the Plaintiff through his younger brother Mr. Henry Chuang lent the Defendant the sum of HK$50,000.00 in cash at the Empire Hotel, that on the 21st March 1995, the Plaintiff lent the Defendant the sum of HK$10,000.00 in cash at the Wharney Hotel, that on the 22nd May 1995, the Plaintiff lent the Defendant the sum of HK$100,000.00 in cash at the Wharney Hotel and that on the 21st August 1995, the 26th October 1995, the 26th March 1996 and the 6th August 1996, the Plaintiff booked rooms at the Empire Hotel at the request and for the use of the Defendant thereby incurring charges of HK$1,841.00, HK$1,960.00, HK$3,378.00 and HK$4,992.00 for and on behalf of the Defendant. Hitherto, the Defendant has not repaid the respective sums set out hereinabove in this paragraph 11. The Plaintiff therefore says that the Defendant is indebted to him for the same."

The relevance of this paragraph will become apparent presently when I deal with the illegality issue in the present application.

4. The Defence was served on 14 September 2001, pleading among other matters, that the allegations in the Statement of Claim were liable to be struck out.

5. On the same day, the Defendant in fact applied by summons to strike out the Statement of Claim under RHC, Order 18, rule 19 (and the court's inherent jurisdiction); further or alternatively for certain questions be determined under Order 14A. There was also an application made under Order 24, rule 16.

6. On 20 December 2001, the Plaintiff amended the Statement of Claim, most probably in response to the Defendant's summons.

7. The causes of action pleaded in the Amended Statement of Claim can be identified as follows :

(1) Loans advanced by the Plaintiff to the Defendant from about July 1992 to August 1993 amounting to $3,000,000. Particulars are given of various deposits into the Defendant's bank account, some through a company said to be beneficially owned or controlled by the Plaintiff. See : paragraph 8 of the Amended Statement of Claim. (The $3,000,000 loans claim)

(2) Loan of $500,000 from the Plaintiff to the Defendant on 22 September 1994 by another company allegedly owned or controlled by him, paying that sum into the account of Cam Apparels Co. Ltd on behalf of the Defendant (as the latter's investment in a shop). See : paragraph 9 of the Amended Statement of Claim. (The Cam Apparels loan claim)

(3) Loans advanced by the Plaintiff to the Defendant from the 2 September 1994 to 6 August 1996 or payments made by the Plaintiff on the Defendant's behalf totalling $572,171. See : paragraph 11 of the Amended Statement of Claim. (The paragraph 11 loans claim)

(4) On 11 January 1995, the Defendant asked the Plaintiff for a loan of $250,000. The Plaintiff then "arranged" for his brokerage company, CU & D Brokerage Ltd ("CU & D") to pay this to the Defendant. From the Plaintiff's affidavit evidence, this payment to the Defendant was alleged to have been made also on 11 January 1995. See : paragraph 12 of the Amended Statement of Claim. (The CU & D loan claim)

(5) On 9 February 1995, again at the Defendant's request, the Plaintiff made a loan of $200,000 to him by his company Cuve Asset Management Ltd ("Cuve") issuing a cheque in that amount to the Defendant's father. See : paragraph 13 of the Amended Statement of Claim. (The $200,000 loan claim)

(6) On 21 March 1995, the Plaintiff lent to the Defendant the sum of $90,000 by arranging for his friend, one Mr Jacky Chau, to issue a cheque in that amount to the Defendant. Later, the Plaintiff repaid Mr Chau, but the Defendant has not repaid the Plaintiff. See : paragraph 14 of the Amended Statement of Claim. (The $90,000 loan claim)

(7) On 15 May 1995, the Defendant requested the Plaintiff to lend him $650,000. The Plaintiff did so by arranging for another friend, Mr Benny Kwong, to issue a cheque (dated that day) in the sum of $500,000 and for Cuve to issue a cheque (dated 16 May 1995) for the balance $150,000. Mr Kwong was repaid by the Plaintiff. See : paragraph 15 of the Amended Statement of Claim. (The $650,000 loan claim)

(8) On 23 March 1996, the Defendant requested the Plaintiff to make a loan to him in the sum of $100,000. The Plaintiff did so, this time by arranging for Cuve to issue a cheque in that amount to the Defendant. See : paragraph 16 of the Amended Statement of Claim. (The $100,000 loan claim)

(9) On 21 June 1996, upon the Plaintiff's request that he repay the various loans referred to above, the Defendant said he was unable to, but agreed to pay interest on the loans in the sum of $348,000 for the period up to 11 June 1996. The pleaded consideration was that the Plaintiff agreed not to make an immediate demand for the outstanding loans. See : paragraph 17 of the Amended Statement of Claim. (The $348,000 interest claim)

(10) On 21 June 1996, the Defendant asked the Plaintiff for a loan in the sum of $85,000. The Plaintiff arranged for his friend, Dr Lam How Man, to issue a cheque in that amount to the Defendant. Dr Lam was later repaid by the Plaintiff. See : paragraph 18 of the Amended Statement of Claim. (The $85,000 loan claim)

(11) On 25 June 1996, the Defendant made another request to the Plaintiff for a loan, this time in the sum of $300,000. The Plaintiff arranged for another of his companies, Radford Developments Ltd ("Radford"), to issue a cheque in that amount to the Defendant. See : paragraph 19 of the Amended Statement of Claim. (The $300,000 loan claim)

(12) On 28 August 1996, the Defendant requested the Plaintiff for a loan in the sum of $1,500,000. The Plaintiff arranged for Radford to issue a cheque in that amount to the Defendant. See : paragraph 20 of the Amended Statement of Claim. (The $1,500,000 loan claim)

(13) In or about May 1997, the Plaintiff demanded the repayment of the said loans referred to above less the sum of $100,000 that had been paid by the Defendant. The aggregate of the sums demanded was $7,495,171. Upon the Defendant saying that he could only repay when he ceased to be a US citizen (whereupon, allegedly, he could withdraw from a family trust), the Plaintiff agreed with him that the repayment of the loans could be postponed until such time as the Defendant ceased to be a US citizen. In or about January 2001, the Plaintiff informed the Defendant that he had ceased to become a US citizen but has not repaid the outstanding loan. See : paragraph 21 of the Amended Statement of Claim. (The May 1997 agreement claim)

8. On 11 January 2002, the Defendant served an Amended Defence, again denying the claims as a whole and also repeating the assertion that they were liable to be struck out.

The appeal before the court

9. On the same day as the Amended Defence was filed, the Defendant amended the 14 September 2001 summons, principally by deleting the application made under Order 24, rule 16 and also substituting the references to the original Statement of Claim and the Defence by references instead to the Amended Statement of Claim and the Amended Defence.

10. On 16 March 2002, Master K.Y. Chan ordered that paragraphs 8, 9, 11(1), 11(2), 11(3), 12, 13, 14, 21, 21A, 21B and 21C of the Amended Statement of Claim be struck out, but with no order as to costs. He gave reasons for his decision. Both parties were, however, not satisfied. By a Notice of Appeal dated 28 March 2002, the Plaintiff appealed Master Chan's order. By a letter dated 8 April 2002 from his solicitors, the Defendant made it clear that at the hearing of the Plaintiff's appeal, he would seek to have the whole of the Amended Statement of Claim struck out as well as the other relief sought in the amended summons.

11. At the hearing of the appeal on 12 July 2002, Mr Gerard McCoy SC and Mr Anderson Chow appeared for the Plaintiff, Mr Paul Shieh appeared for the Defendant.

12. Neither side addressed me on the appropriateness (or otherwise) of the relief sought under Order 14A. It is therefore unnecessary to deal with this aspect. Suffice it to say that in the light of my views on the issues raised in the strike out summons, it would be inappropriate to give any relief under Order 14A. In the end, it seems to me that the questions raised in the Order 14A application were really the same as those raised by the Plaintiff in the strike out application. The strike out application was therefore effectively the only application before the court in this appeal.

13. The grounds maintained by the Plaintiff in support of his application to strike out, these being more or less the same grounds as he raised before the learned Master, can broadly be stated in the following way :

(1) Some of the Plaintiff's claims accrued more than six years before the issue of the writ (on 27 April 2001). The relevant claims here are those in relation to the $3,000,000 loans, the Cam Apparels loan, a portion of the paragraph 11 loans, the CU & D loan, the $200,000 loan and the $90,000 loan. The learned Master struck out the relevant paragraphs in the Amended Statement of Claim based on this ground. (The Limitation Ground)

(2) The paragraph 11 loans claim is unsustainable by reason of illegality, not in the sense that criminality was involved but on the basis that the purpose of the loans was contrary to public policy. (The Illegality Ground)

(3) The CU & D loan claim is unsustainable on the facts. (The CU & D Ground)

(4) The claims in relation to the CU & D loan, the $90,000 loan, the $650,000 loan, the $100,000 loan, the $85,000 loan, the $300,000 loan and the $1,500,000 loan (even if they were made in the first place) are said to be debts owed in any event only to third parties and not to the Plaintiff. These third parties (being Cuve, CU & D and Radford and also the individuals referred to above), are not before the court. (The Third Party Ground)

(5) The $348,000 interest claim is based on an alleged agreement not supported by consideration. (The Consideration Ground)

(6) All the claims should in any event be struck out under the inherent jurisdiction of the court since they are manifestly without foundation and therefore vexatious, frivolous and an abuse of the process of the court. (The Residual Ground)

The court's approach

14. In dealing with these Grounds, I bear in mind the relevant principles regarding strike out applications. The approach is set out in the notes to Order 18, rule 19 in Hong Kong Civil Procedure 2002, Vol.1. In particular, I bear in mind that :

(1) It is only in plain and obvious cases that an order should be made to strike out pleadings or parts of pleadings.

(2) Accordingly, it is wrong to expect the court to have to conduct a protracted analysis of affidavit evidence in a strike out application. Only in the rarest of cases will this ever be justified, for example where such an analysis will in the end demonstrate clearly that it is plain and obvious that an order striking out should be made. The justification for the protracted analysis would then almost invariably be that although the underlying facts may be complicated or difficult to grasp easily, the ultimate issue is quite simple.

(3) Questions of law may be dealt with in a strike out application provided that the underlying facts are certain. It is sometimes said that the court may decline to determine difficult questions of law in a strike out application : see Hong Kong Civil Procedure 2002, Vol.1, at paragraph 18/19/4. This would therefore explain why applications such as the present one are sometimes made in the alternative under Order 14A or even Order 33, rule 3 : see Hong Kong Civil Procedure 2002, Vol.1, at paragraphs 8/19/3 (at paragraph 5) and 18/19/4. In my view, questions of law can be determined in strike out applications provided that they are crucial and the court has all the relevant facts before it and that these facts are certain. There is, on the other hand, little point in dealing with any points of law, whether in strike out applications or applications under Order 14A or under Order 33, rule 3, if the relevant facts are either not before the court or are in dispute.

The Limitation Ground

15. As I have mentioned earlier, the Defendant's contention here is quite simple : the relevant claims in relation to the loans referred to in paragraph 13(1) above are time barred. It is contended (and accepted by the Plaintiff) that where a loan has been made without any provision as to the time for repayment or even where the loan is expressed to be repayable on demand, the obligation on the borrower to repay is immediately after the loan is made. In other words, the cause of action against the borrower for the repayment of the loan accrues once the loan is made. This is a well-established common law rule : see Brown v. Brown [1893] 2 Ch. 300; Chitty on Contracts (28th edition), Vol.1, at paragraph 29-032. The rule has, however, been modified by statute in England (see sections 5 and 6 of the Limitation Act 1980), but not in Hong Kong.

16. The Plaintiff counters the Limitation Ground by raising the following arguments :

(1) The May 1997 agreement claim keeps alive the claims on the relevant loans.

(2) Further, the factual basis for the May 1997 agreement claim provides also the basis for an estoppel to the effect that but for the Defendant's representation and agreement that once he ceased to be a US citizen he would repay his outstanding loans, the Plaintiff would have demanded that the Defendant repay the loans in or about May 1997 or shortly thereafter. This is pleaded in paragraph 21A of the Amended Statement of Claim. It is implicit from this pleading that had the Defendant not made the representation or agreement, the Plaintiff would if necessary have instituted legal proceedings within the limitation period. My understanding is now confirmed by the Defendant, who seeks, if necessary, to amend paragraph 21A of the Amended Statement of Claim by adding the words "and, if necessary, commenced legal action against the Defendant to recover the Sum" at the end of the second sentence of that paragraph.

(3) I should add here that in the Amended Statement of Claim, paragraph 21C also pleads an implied term to the effect that the cause of action in respect of the said loans only accrued upon demand being made. This has now been abandoned by Mr McCoy and with respect, rightly so as it is contrary to the common law rule referred to above.

17. Mr Shieh contends that both the May 1997 agreement claim and the estoppel alleged by the Defendant are unsustainable and therefore paragraphs 21, 21A and 21B should remain struck out.

18. Mr Shieh's contention regarding the May 1997 agreement claim was essentially that the learned Master was correct to strike out this claim on the basis that no consideration existed for the alleged agreement. In short, there was no benefit to the Plaintiff in exchange for the postponement of the time for the repayment of the loans.

19. However, I am of the view it must be arguable that consideration did pass for the Plaintiff's promise to allow the postponement of the Defendant's obligation to repay. This consisted of the fact that the Plaintiff would be spared the trouble and aggravation of otherwise having to sue the Defendant. Apart from that, there must also arguably have been another factual or practical benefit to the Plaintiff, in that while the Defendant was unable to pay as at May 1997, he would be in such a position (so it was allegedly represented) once he ceased to be a US citizen. As to the concept of factual or practical benefits amounting to sufficient consideration : see Chitty on Contracts, Vol.1, at paragraphs 3-056, 3-063 and 3-064.

20. I am therefore of the view that paragraphs 21 and 21B (which is really an adjunct to paragraph 21) plead a sustainable claim based on contract.

21. Mr Shieh's (as was Mr McCoy's) main focus was on the estoppel plea contained in paragraphs 21 and 21A of the Amended Statement of Claim. Here, it was argued that this plea was bound to fail and should be struck out for the following reasons :

(1) Estoppel could never be an answer to a limitation defence. All aspects of limitation were exclusively governed by the provisions of the Limitation Ordinance, Cap.347, which was intended to be an exhaustive code. In the present case, the only relevant exceptions to the six year limitation period coming into operation to prevent a claim being made, were contained in sections 23(3) and 24(1) of the Ordinance (these provisions dealing with claims for the recovery of debts or other liquidated pecuniary claims). Since estoppel was not expressly mentioned as an exception in the Ordinance, it therefore had no application.

(2) Even if it did, the alleged representation by the Defendant was insufficient to found an estoppel. It was contended that to found an estoppel, it was necessary to demonstrate that the Plaintiff must have been led by the Defendant to believe that the Defendant would not rely on the statutory limitation period. Reference was here made to Hewlett v. London County Council (1908) 72 JP 136.

(3) Finally, paragraph 21A of the Amended Statement of Claim only pleaded as reliance and detriment the fact that but for the Defendant's representation, the Plaintiff "would have demanded the Defendant" to repay the outstanding amounts in or about May 1997 or shortly thereafter. This, it was argued, was insufficient to constitute any form of reliance or detriment, for if the representation was not made and the Plaintiff then made a demand for the outstanding indebtedness, this would not have stopped time running at all. Unless proceedings were instituted on time, the Plaintiff would still have been time barred. It was accepted that the amendment sought to be made by the Defendant (see paragraph 16(2) above) would cure the defect, but Mr Shieh submitted that the suggested amendment should not be permitted in view of the way the Plaintiff has consistently changed his case in the present action.

22. I am not persuaded by these submissions that the relevant paragraphs in the Amended Statement of Claim should be struck out.

23. As to Mr Shieh's first argument, nothing in the Limitation Ordinance prevents the operation of the doctrine of estoppel. It is correct that Part III of the Ordinance is headed : "EXTENSION OR EXCLUSION OF LIMITATION PERIODS IN CERTAIN CASES". However, what follows in that Part is not intended to be an exhaustive list of situations in which the limitation periods stipulated in the Ordinance can be extended or excluded. The language of that Part does not point to this result. Rather, that Part does no more than identify a number of situations in which time limits can be extended or excluded.

24. I would observe that if Mr Shieh's arguments were correct, time limits could not even be extended by agreement. I need only give another example. It is of course well known that limitation must be pleaded in order to be raised as a defence to a claim. If, say, for some reason, the court refuses leave to amend to allow a limitation defence to be run (with the normal consequence, one would have thought, that the expiry of the limitation period is therefore excluded from the court's consideration), again on Mr Shieh's argument, this could not happen. There are other examples that readily come to mind.

25. It is clear on the authorities that estoppel can prevent a limitation defence being taken : see Halsbury's Laws of England, Vol.28 (4th Edition Reissue), at paragraphs 807 and 843. In principle, I see no reason why not. If a defendant represents to a plaintiff that he will not take a limitation point should the plaintiff not commence proceedings against him during negotiations to try to settle the action, I see no justification at all why this could not create an estoppel that will bar any subsequent reliance on the expiry of the limitation period.

26. I perceive that the Plaintiff's main point is really that the facts pleaded in paragraphs 21 and 21A, though expressed as an estoppel plea, in reality constitute an allegation that there has been an acknowledgment of debt. As such, any acknowledgment of the outstanding debts must be in writing and signed by the person making the acknowledgment : section 24(1) of the Limitation Ordinance. As there is no written acknowledgment in the present case, the Plaintiff has therefore been forced to plead an estoppel to get around this.

27. I am unable to accede to this submission either :

(1) The facts as may emerge at trial might not even point to an acknowledgement in the first place. It is to be noted that in paragraph 21 of the Amended Statement of Claim, it is pleaded that the Defendant said that for tax reasons, he "could" only repay after he ceased to be a US citizen, not that he "would".

(2) Even if it was intended by this pleading to allege that the Defendant did promise or represent that he would repay after he ceased to be a US citizen, this goes beyond a mere acknowledgment of the outstanding debts. The true allegation is that the Defendant promised or represented that he would repay at such time as when he ceased to be a US citizen provided that in the meantime, the Plaintiff did not take any action against him. In other words, repayment would be subject to a contingency arising in the future. Thus analysed, the Plaintiff's case here is not that there has been a mere acknowledgment of liability such that time begins to run from the date of acknowledgement (see section 23(3) of the Ordinance), but there was a promise to pay in the future so that time would only start to run from when the Defendant ceased to be a US citizen.

(3) Conceptually, the same set of facts may give rise not only to an acknowledgement of indebtedness but also an estoppel. In this situation, I see no reason why there should be a precise overlap between the two so that an estoppel plea is then forced to be treated in exactly the same way as an acknowledgment of indebtedness.

28. I next turn to Mr Shieh's second submission. Hewlett was the authority cited for the proposition that in order to found an estoppel, the relevant representation had to be that the Defendant would not be relying on the statutory limitation period. This was not the representation alleged in the Amended Statement of Claim and certainly not clearly or unambiguously so, argues Mr Shieh. In further support of this contention, it was said the relevant contingency (viz the Defendant ceasing to be a US citizen) was so indefinite and imprecise that realistically, the so-called promise or representation was equally consistent with the Defendant saying that he might repay in the future but in the meantime the Plaintiff had to take all necessary measures to protect his position.

29. Again, I am unable to agree with these submissions :

(1) On the basis of the pleaded facts, the Defendant was clearly and unambiguously requesting the Plaintiff to postpone the date of repayment of the loans and representing that if the Plaintiff did so, then he would and could repay when he ceased to be a US citizen. In short, the Defendant was asking the Plaintiff not to claim against him at the time and this must, in my view, have included the possibility of instituting court proceedings against him.

(2) Viewed in this way, the Defendant must also necessarily have represented to the Plaintiff that if he did not institute proceedings against him (which was his request), no point would be taken on limitation should the loans eventually not be repaid. I accept for present purposes that a mere admission of liability would not suffice as a representation to the effect that the Defendant would not be relying on the statutory limitation period : see Cotterell v. Leeds Day, unreported, 21 December 1999 (English High Court) referring to The Sauria and The Trent [1957] 1 Lloyd's Rep.396. However, paragraphs 21 and 21A go beyond the mere admission of liability. As I have said, the Defendant was actually requesting the Plaintiff not to commence proceedings against him (and this must have been regardless of whether the limitation period would expire or not) and allow him the indulgence of repaying the loans once he ceased to be a US citizen.

(3) As to Mr Shieh's uncertainty point, in so far as it is relevant, it cannot be regarded, certainly not at this stage in the absence of evidence of what was or was not said between the Plaintiff and the Defendant at the relevant time, as being so remote or uncertain as to amount effectively to a meaningless promise or representation. Mr Shieh said it was akin to as if the Defendant had promised to pay if he won the Mark Six lottery. I cannot agree at this stage that this was plainly and obviously the effect what was said between the Plaintiff and the Defendant at the relevant time.

30. As to Mr Shieh's third submission, I have already stated my views on the meaning of paragraph 21A of the Amended Statement of Claim: see paragraph 16(2) above. In so far as necessary, I give leave to amend to the Plaintiff. I do not regard the amendment as some sort of radical or unjustified departure of what had hitherto be in the Plaintiff's case. Rather, it made certain what I had all along understood to be its case.

31 I have dealt with the Limitation Ground at some length since this was the ground on which Master K.Y. Chan struck out parts of the Amended Statement of Claim and I felt it necessary to state fully my reasons for reversing a substantial part of his decision here. Only paragraph 21C remains struck out.

The Illegality Ground

32. This ground occupied most of the arguments before the court. In the end, however, it can be disposed of relatively quickly.

33. The Defendant's argument was founded on the original paragraph 11 of the Statement of Claim, which I have set out in full in paragraph 3 above. Despite the way which these loans were now described in paragraph 11 of the Amended Statement of Claim (pleaded simply as loans), the Defendant contends that in reality, the Plaintiff's case must be that as pleaded in the original paragraph 11. Following on from this premiss, Mr Shieh then argued that as the purpose of the loans was immoral, their recovery should be prevented on the ground of illegality. He clarified that this was not illegality in the sense necessarily of actual criminal behaviour but illegality based on public policy grounds. Mr Shieh did not develop at all the criminality point faintly raised in his written submissions. It is clear that in the context of the present argument, we are essentially dealing with that category of illegality based on morality : see Chitty on Contracts, Vol.1, at paragraph 17-005.

34. The Defendant relies on the ex turpi causa doctrine. It is contended that the applicable legal principle is this : if a lender knows that the purpose for which the borrower requires the loan is either illegal or immoral, the loan is irrecoverable irrespective of whether the loan was actually used for that purpose. Reliance is placed principally on the case of Pearce v. Brooks (1866) LR 1 Ex. 213. Emphasis is laid on the illegal or immoral purpose for which the loans were intended to be used.

35. Both sides have referred me to numerous authorities on this issue. Without disrespect to the industry of counsel, I do not propose to deal with them at any great length in the view of my conclusion on this ground.

36. In my judgment, paragraph 11 of the Amended Statement of Claim ought not be struck out on the Illegality Ground :

(1) It is by no means clear on the evidence that the Plaintiff is alleging that he actually knew (or willfully shut his eyes to the obvious fact) that the purpose of the loans was for prostitution. Certainly, this is not the way it is pleaded in the Amended Statement of Claim. Whatever paragraph 11 of the original Statement of Claim said, it is now the Plaintiff's case on oath that at the time he was approached by the Plaintiff for the loans in question, it was "mentioned that he [the Defendant] needed cash to pay ballroom hostesses and prostitutes". The actual state of the Plaintiff's knowledge at the relevant times can really only be firmly established at trial. In Pearce v. Brooks, in the judgment of Pollock CB, at 221, it was stated :

"... If a person lends money, but with a doubt in his mind whether it is to be actually applied to an illegal purpose, it will be a question for the jury whether he meant it to be so applied; but if it were advanced in such a way that it could not possibly be a bribe to an illegal purpose, and afterwards it was turned to that use, neither Cannan v. Bryce, nor any other case, decides that his act would be illegal. The case cited rests on the fact that the money was borrowed with the very object of satisfying an illegal purpose."

(2) I should add that the Defendant, of course, disputes the accuracy of the facts and matters pleaded in paragraph 11 of the original Statement of Claim and the contents of the Plaintiff's affirmation evidence.

(3) Even if one could be sure about the state of the Plaintiff's knowledge, the question then arises whether the stated purposes (ballroom hostesses and prostitutes) are of such a character that the court would not enforce the loans intended for such purposes. While the payment of ballroom hostesses and prostitutes for the purpose of having sexual relations is distasteful to many people, the question inevitably arises in the context of illegality whether the immorality is such as to lead to the conclusion that any loan made for such purposes is unenforceable. This question, involving as it does public policy and morality in the present day, is not easy to resolve in a strike out application. The court may, for example, expect evidence of what does or does not constitute modern day morality and whether the patronizing of ballroom hostesses and prostitutes is socially acceptable or not. It is to be noted that prostitution is by itself not unlawful and it may well be the case that their income is taxable by the authorities (thus indicating some form of social acceptability). Nor is the occupation of ballroom hostessing unlawful. Hong Kong has many establishments in lawful operation where such persons operate. The cases relied on by Mr Shieh such as Pearce v. Brooks and the Hong Kong Court of Appeal case of The Ki Hing Lau v. The Shun Loong Lee [1910] 5 HKLR 83 were decided in a bygone age where different standards of morality may well have prevailed. It is clear from the judgment of the Chief Justice in Ki Hing Lau, at 88, that the Court of Appeal was dealing with questions of morality. Whether or not those standards of morality apply now is an important matter that can only really be determined if the court is apprised of the precise facts in the present case (and all nuances) as well as facts going to the more general question of the social acceptability (or otherwise) of the two occupations in question. Public policy is not immutable : see Chitty on Contracts, Vol.1, at paragraph 17-004. I need give but one example. While in another era, cohabitation by unmarried couples was regarded as immoral (and this resulted in agreements in this respect being held to be unenforceable) this is certainly not the case nowadays : c.f. Chitty on Contracts, Vol.1, at paragraphs 17-067 and 17-068. In Mr Shieh's written submissions, he uses the term "something to shock the conscience or similar". The public conscience is not something that is desirable to be dealt with in a strike out application.

(4) Another question of mixed law and fact also arises in the present case that is not easily disposed of in a strike out application. Even where the intended purpose of the loan is unlawful or contrary to public policy, does it make it any difference to the enforceability of the loan or its repayment if the purpose was not actually carried out? Some cases suggest that if the unlawful or immoral purpose was not carried out, then enforceability is permitted : see, for example, Appleton v. Campbell (1826) 2 Car and P 348. There are also passages in Pearce v. Brooks that support this proposition : see the headnote; the judgments of Pollock CB at 218 and Martin B at 219. Mr Shieh disputes the correctness of this proposition and the reading of Pearce v. Brooks in the way I have set out. It is unnecessary for me to arrive at a concluded view of this difficult aspect of the law of illegality. It is sufficient that I regard the point as arguable and again, it should really be determined when all the facts emerge at trial. In the present case, it is of course very much in dispute for what, if any, purpose the loans were in fact used by the Defendant, who in fact denies the existence of the loans in the first place.

The CU & D Ground

37. The pleaded case against the Defendant is that the Plaintiff lent a sum of $250,000 to him by "arranging" for CU & D to pay the sum. This was effected on 11 January 1995. In his first affirmation dated 21 November 2001, the Plaintiff deposed to the fact that he "caused" CU & D to do this.

38. The "arranging" or "causing" third parties to make payments to the Defendant are terms used by the Plaintiff throughout the Amended Statement of Claim. They suggest quite simply that the Plaintiff has used third party vehicles by which to effect loans to the Defendant.

39. This Ground has given rise to much of the affidavit evidence before the court. What emerges clearly from the evidence is that the relevant transaction did not involve simply a payment by the Plaintiff to the Defendant via CU & D at all. Instead, the relevant sum was in fact withdrawn by the Defendant from an account maintained by a company called Hotch Group Incorporated ("Hotch") with CU & D (who, it will be recalled, was a brokerage company said by the Plaintiff to be owned by him). In other words, on its face, there was a payment of $250,000 by Hotch to the Defendant.

40. In the Plaintiff's first affirmation, he said that although Hotch was on the face of the company documents "owned/controlled" by the Defendant, in reality it was "operated" by the Plaintiff. There was, however, no mention in that affirmation of Hotch's involvement in the $250,000 loan.

41. Following evidence from the Defendant that the $250,000 represented a withdrawal by the Plaintiff from the account of Hotch at CU & D, the Plaintiff then made a further affirmation in which it was alleged that the Hotch was in fact "controlled" and "owned" by him. Accordingly, it was asserted, the withdrawal was effectively a loan by the Plaintiff to the Defendant. Much of the evidence thereafter from the Defendant focused on whether or not Hotch was owned or controlled by the Plaintiff. It is unnecessary to resolve this particular dispute which can only really be determined at trial upon testing the conflicting testimony of the Plaintiff and the Defendant. It is quite pointless in a strike out application (or indeed any interlocutory application) to ask the court to adjudicate on disputes of facts in competing affidavits.

42. The above matters considered, nevertheless I am of the view that paragraph 12 of the Amended Statement of Claim should remain struck out. The facts (those which are not in dispute) show the passage of monies from Hotch's account with CU & D to the Defendant. This simply cannot be said to be a loan from the Plaintiff to the Defendant through the Plaintiff arranging for CU & D to pay the Defendant. Indeed, when pressed, Mr McCoy was unable to state just how it was on the facts that the Plaintiff so arranged the payment to the Defendant.

The Third Party Ground

43. I have already referred to the Plaintiff's case in relation to various claims that he "arranged" or "caused" third parties to pay monies to the Defendant, following requests for loans made by the Defendant.

44. The Plaintiff has deposed to these loan transactions having been made. In some cases, the relevant cheques evidencing payment to the Defendant have been exhibited. The Plaintiff says in each case that the loans were made to the Defendant via these third parties following a request by the Defendant for the loans. The third parties (whether the individuals or the companies) were merely the means by which the Plaintiff made the loans to the Defendant. In other words, these persons and entities paid monies on the Plaintiff's behalf.

45. Although the Defendant denies the existence of these loans, his main argument is that even if these loans were made, the relevant paragraphs in the pleading demonstrate at most a liability on the Defendant's part to the third parties but not to the Plaintiff. I am unable to agree. The way that these claims have been pleaded is clear. The Plaintiff claims against the Defendant on the basis of loans made by him to the Defendant using third parties to make the actual payments in question. In other words, the third parties were, as the Plaintiff alleges, his agents for this purpose.

46. It was also contended by Mr Shieh that in relationship to the alleged loans made on the Plaintiff's behalf by the corporate third parties, there was no averment that the Plaintiff had repaid the companies, unlike in the case of the individual third parties. However, in my view, neither the averment of repayment nor the fact of repayment is necessary to complete the cause of action against the Defendant. Put simply, where A has made a loan to B via C, B's liability to repay is unaffected by whether A has reimbursed C.

47. This Ground also fails accordingly.

The Consideration Ground

48. The Defendant challenges the Plaintiff's assertion in his affirmation that on or about 21 June 1996, he met the Defendant at his home on The Peak and when the Plaintiff pressed for payment of the outstanding loans, the Defendant asked for further time (since he was short of money) but agreed to pay interest on the outstanding loans up to 11 June 1996 in the amount of $348,000.

49. It was said that this version of events was "implausible". The basis for this submission is somewhat obscure. The Defendant simply denies it. It is therefore an issue to be tried.

50. It was then argued that there was no consideration for the alleged agreement since (by reason of Brown v. Brown) the Plaintiff was not obliged to demand payment for the loans in the first place. This argument misunderstands the effect of the Plaintiff's pleading. The consideration provided in exchange for the agreement to pay interest was that the Plaintiff would not press for payment at that time (and this would include not commencing proceedings). In my view, this forbearance constitutes good consideration.

51. Apart from that, I would have thought that an agreement on a specific sum for interest must have mutually benefited the parties as well, and for that reason, this also constitutes good consideration for the agreement.

52. This Ground to strike out therefore fails as well.

The Residual Ground

53. This has been the Ground I have had most difficulty in understanding. It runs along the following lines. Since the Plaintiff's case is implausible, inherently improbable or even scandalous and has over the course of this litigation changed so dramatically, the whole claim should therefore be struck out. Particular reference is made here to the paragraph 11 loans claims, the CU & D loan claim and the claims based on loans made via third parties. Other claims are also referred to. The Defendant also relies on the Plaintiff's failure to make full discovery of documents.

54. It is unnecessary to deal with this Ground at length. In my judgment, the arguments in support of it have no substance. Even if it were the fact that the Plaintiff has somehow dramatically changed his case in any respect (which I do not decide), this is no ground to strike out in the circumstances of this case. I accept that in certain circumstances, this may be a good ground to strike out but that is not the position here, not by a long way. Generally, whether a party's claim is plausible, probable or not, is a matter for trial. It is simply an erroneous approach to ask the court to come to such conclusions in a strike out application.

55. As for the other allegations made against the Plaintiff, even if correct (and again I do not decide this), they are insufficient to merit the Plaintiff's claims being struck out.

Conclusion

56. For the above reasons, I would allow the Plaintiff's appeal from the Order of Master K.Y. Chan save that paragraphs 12 and 21C remain struck out. The Plaintiff is also given leave to amend paragraph 21A of the Amended Statement of Claim in the way referred to in paragraph 16(2) above.

57. As to costs, except for the costs of and occasioned in this appeal by paragraphs 12 and 21C of the Amended Statement of Claim (which shall be to the Defendant), the costs of and occasioned by this appeal will be paid by the Defendant to the Plaintiff, all costs to be taxed if not agreed. As for the costs below, owing to the fact that the Plaintiff amended his Statement of Claim after the Defendant had taken out the original summons to strike out, I would not disturb the learned Master's Order. These orders as to costs are of course costs orders nisi.