CHEUNG CHI PO v. KE JUN XIANG

CACV 170/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 170 OF 2011

(On Appeal from HCA No. 1168 of 2009)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Cheung JA:

1.  On 10 June 2009 the plaintiff entered judgment against the defendant for the sum of $25 million by reason of the defendant’s default in filing his acknowledgment of service of the writ. On 17 December 2010, 18 months after the judgment had been entered, the defendant applied to set aside the judgment. On 20 April 2011 the Master set aside the judgment. The judgment was affirmed by Deputy High Court Judge Coleman S.C. on 30 June 2011. On appeal by the plaintiff, this Court allowed the appeal to the extent that the setting aside is conditional upon the defendant paying into the court the sum of $25 million within 28 days. I now give my reasons for the judgment.

Background

The pleaded case

2.  The plaintiff pleaded that pursuant to a Chinese promissory note dated 1 November 2007 and signed by the defendant, it had on 1 November 2007 lent $25 million to the defendant which was repayable on 31 December 2007 together with interest at the agreed prime rate plus 2.5% per annum from 1 November 2007 until repayment.

3.  Demand for repayment was made by the plaintiff’s solicitors on 4 May 2009 but ignored by the defendant.  The plaintiff commenced the proceedings on 11 May 2009.

The defence

4.  The defendant admitted that he had signed the promissory note but denied that he had received $25 million from the plaintiff.

5.  The defendant claimed that he was the chairman of a listed company in Hong Kong. In May 2001, his company was in financial difficulties.  A winding up petition was presented against the company.  The shares of the company were suspended from trading.  Although the trading later resumed, it was suspended again in April 2004.  As it was difficult for the company to raise funds, he had to borrow money in his personal capacity and used it for the company’s purpose.

6.  In mid 2007, he discussed with the plaintiff about raising a loan.  The plaintiff requested a promissory note to be signed in advance by the defendant but assured him that the ‘deal would be called off’ and the promissory note would be destroyed if the plaintiff did not advance the money.  The defendant agreed and signed the promissory note.  However, the plaintiff failed to advance the money and told the defendant that he was unable to raise the fund and the deal was called off.  When the defendant asked for the return of the promissory note, the plaintiff told him that he would destroy it.

7.  The defendant admitted that he had received the letter of demand but on inquiry with the plaintiff he was assured by him that there was a misunderstanding and the action was wrongly taken.  The plaintiff told the defendant that there was no need to respond to the demand.

8.  About one year later, the defendant was informed by a friend that there was an advertisement of a Statutory Demand against him based on the judgment.  He was unable to contact the plaintiff.  He then sought legal advice.

The plaintiff’s response

9.  The response by the plaintiff was that the defendant had since 2003 borrowed money from him in order to help his company or for his own use.  The plaintiff said that the loan under the promissory note was not a one-off transaction.  Since 2003, the plaintiff had been lending the defendant money, sometimes in cash, sometimes paying his debtors directly and sometimes, as the defendant’s own accounts were frozen, transferring money to his wife’s bank account.  By 2007, the loans accumulated to about $25 million.  The plaintiff asked the defendant to make repayment but without success.  What then happened was stated in the plaintiff’s affirmation dated 25 January 2011 that

‘ 10. ……Feeling so unsecured and disappointed by him repeatedly, I felt that it would be at least more securing and protecting my own interest by asking him to sign a promissory note for repayment. That was how the Chinese Promissory Note came about. I met the defendant at the Chinese restaurant, Summer Palace in the Island Shangri-La Hotel with the presence of the defendant’s assistant, Shao Wei Hong (邵偉宏), also an executive director of CIL and my assistant, Yiu Ching Fong. The defendant was asked to sign on the Chinese Promissory Note as an acknowledgment of the debt(s) due to the defendant to me.’

The promissory note

10.  The content of the promissory note and its translation are as follows:

「 本人 柯梭翔因週轉需要，向 張志寶借款2500萬港幣，本人同意訂立下列各項條款，以資遵守：

1. 年息為銀行最優惠利率加2.5% (P+2.5%)

2. 借款期限：自2007年11月1日起至2007年12月31日止，期限屆滿之日，全數清償

2500 萬港幣本人已親自收訖無誤，並立此為據」

‘ I, Ke Jun Xiang, due to cash flow problem, borrow from Cheung Chi Po HK$25,000,000.00 on the following terms and conditions and to agree to comply with as follows :-

1. interest at the bank’s best lending rate plus 2.5% per annum (P + 2.5%)

2. Term of repayment of money :

from 1^st November 2007 to 31^st December 2007, full repayment upon the expiry date on 31^st December 2007

I have personally received the said sum of HK$25,000,000 correctly and made this Agreement.’

Principles

11.  This being a regular judgment, the defendant in order to set aside the judgment has to show that he has a real prospect of success on the merits of the case : Premier Fashion Wears Ltd and Broadway Sportwear Ltd v. Chow Cheuk-man & Another [1994] 1 HKLR 377.  The court is required, not merely to consider what the defendant had said but also to assess whether what he said was credible.  The court is required to consider all the circumstances of the case including the defendant’s conduct after the proceedings were served on him.

12.  Further this being an appeal from a discretion, the court will only interfere if the discretion was wrongly exercised under the well established principles.

My view

13.  I do not find that the defendant has any substantial defence to the claim of $25 million.  The part of the promissory note, namely, ‘2500萬港幣本人已親自收訖無誤 (i.e. ‘I have personally received the said sum of HK$25,000,000’) constitutes a clear admission by the defendant that he had received the money.  These words do not contradict the plaintiff’s claim that $25 million was lent over a period of time.

14.  What the defendant said about the circumstances in which he signed the promissory note is inherently incredible and lacks conviction.  The starting point is that he is not someone without any commercial experience.  He is the chairman of a listed company in Hong Kong and, according to him, had been involved with the restructuring of his company.  For him to agree to sign a promissory note without actually receiving the money is incredible.  While it is correctly pointed out that the document he signed, although described as a promissory note, is not in the nature of a promissory note, nonetheless the document which he had signed is clearly an acknowledgment and an admission that he had received $25 million from the plaintiff.  The terms ‘creditor’ and ‘debtor’ were used in the document.

15.  The defendant’s case about what he did after being told by the plaintiff that the loan would not be advanced and after he had received the solicitor’s demand is again incredible bearing in mind his position in the commercial world.  The Judge accepted that there are inherent improbabilities in the defendant’s story.

16.  Had the matter rested there, one would expect the Judge to refuse to set aside the judgment.  However, the Judge instead held that in the light of the defence that no money was actually lent, the plaintiff should have produced at least some evidence that at least some part of the $25 million had actually been lent.  In doing so, the Judge fell into the same error that Godfrey JA had described in Premier Fashion Wears Ltd at 383, namely,

‘ The Judge seems to have thought that, if the defendant can show he has an arguable defence, a default judgment against him ought to be set aside unless there is incontrovertible evidence before the court to negate it. With all respect to him, that approach is not a correct approach’.

17.  In my view the Judge had exercised his discretion erroneously, either on a basis not recognized by the established principles on setting aside a regular judgment, or had not actually applied the principles.

18.  The only reason why this Court did not wholly allow the plaintiff’s appeal but imposed the condition requiring the defendant to make payment into Court of $25 million is because of the way the plaintiff presented its case.  While he had pleaded that the $25 million was lent on 1 November 2007, he now said in his affirmation that this sum was the accumulated total of money he had lent to the defendant from time to time.  Pursuant to the Civil Justice Reform, the plaintiff had signed a statement of truth confirming the facts stated in the Statement of Claim and the plaintiff had chosen not to amend the Statement of Claim in order to bring it in line with his case that the money was lent prior to the date of the promissory note.  But any defence arising from the way the plaintiff pleaded his case must necessarily be shadowy because irrespective of whether the plaintiff had lent $25 million all at once on 1 November 2007 or spread over a period of time, the defendant had admitted that he had received $25 million from the plaintiff.  Hence the condition was imposed.

19.  This is in accordance with the approach considered in L & M Specialist Construction Ltd v. Wo Hing Construction Co. Ltd [2000] 3 HKLRD 262 where this Court held that the situations where a payment into court is made a condition of setting aside a judgment are not exhaustive.  It was expressly recognized that a condition may be imposed where a defence is shadowy.

20.  Ribeiro JA (as he then was) held in that case that,

‘ there is a certain logical tension between a court deciding that the defendant has real prospects of succeeding in his defence and the court considering at the same time that the defence is in shadowy realms. While I do not consider such an outcome impossible, I would expect it to be exceedingly rare.’

21.  The approach adopted in this case is to give recognition to the requirement of the reform and an assessment of the strength of the defendant’s case.  The logical tension does not really exist in this case.

Costs

22.  The plaintiff substantially succeeds in his appeal and he is entitled to the costs of the appeal.

23.  The costs order below is not disturbed.

Hon Yuen JA:

24.  I agree.