XCHRX HEUNG CHIN WAI v. CHAN KWOK YIM AND OTHERS

HCA21806/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.21806 OF 1998

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J U D G M E N T

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1. On 7th May 1999, Master Muttrie heard an Order 14 application taken out by the Plaintiff against the Defendants, who at the material time traded as Ho & Chan. Ho & Chan is, or rather was, a solicitors' firm which, I am told, has disbanded since about November 1998. Master Muttrie ordered, in terms of the Plaintiff's claim, that the Defendants should have conditional leave to defend, conditional upon paying the sum claimed, namely $4.9 million, into Court within 21 days.

2. Against that judgment, the Defendants now appeal by Notice of Appeal dated 11th May 1999. In fact, the Notice of Appeal has been amended to pray not just for unconditional leave to defend, but for dismissal of this summary judgment application.

3. In turn, by a Notice dated 11th June 1999, the Plaintiff has mounted a cross-appeal against the order of the learned Master. This cross-appeal seeks not just confirmation of the order below, but seeks final judgment against all three former partners of Ho & Chan.

4. A few words now about the Plaintiff's case. By his Statement of Claim, the Plaintiff pleads that on 19th November 1997, the Plaintiff, who is the principal of the firm of solicitors bearing his name, paid the sum of $4.9 million to the Defendants as 'earnest money' for the intended purchase of a property situate at 112-134 Wan Fung Street and No.84 Sheung Fung Street, Kowloon. The claim continues that this sum of money was sent to the Defendants "subject to their personal undertaking to return the same" on demand. And, says the Plaintiff, almost a year to the day later, on 10th November 1998, the refund of this sum of money was demanded which "wrongfully in breach of their undertaking", the Defendants had failed so to do. Hence, the claim.

5. The Defendants have filed a number of affidavits. There is an affidavit from Mr Chan, the erstwhile partner of the Defendants who dealt with conveyancing matters. There are also affidavits from Mr Bobby Ho, who was the commercial partner in that firm, and from Mr Paul Emerson, who in fact, as the evidence reveals, was not an equity partner (and thus subject to the full stringencies of the Partnership Ordinance), but a salaried partner.

6. The gravamen of what emerges from these affidavits, looking at them, as Mr Griffiths S.C. suggests is appropriate, 'in the round', is that the transaction in question was solely handled by Mr Chan, the conveyancing partner, and that it was a sham or, at the least, it was not the transaction it purported to be, in the sense that there was never any contemplated property transaction in respect of 112-134 Wan Fung Street and No.84 Sheung Fung Street, Kowloon. Indeed, it is said that in fact a like pretence had been adopted by the Plaintiff twice before, in mid and late 1997, to disguise the true nature of such other transactions. In any event, this transaction, like the others, is said by Mr Chan in the present case to be a loan to a company known as Full Country Development Limited. We do not yet know (and perhaps will never know), the precise relationship between Full Country Development Limited and another company, Keep Point Development Limited, which was the owner of the subject properties but for which, as Mr Griffiths suggests the Plaintiff must have known, the Defendants did not act. So we have the somewhat odd proposition of a purported property transaction (said by one of the Defendants to represent a third party loan), which is followed by a year of complete silence in terms of inter-solicitor negotiation or correspondence between the Plaintiff and the Defendant firm who, in fact, did not act for the purported vendor of these properties.

7. But what happened to the money which was so remitted? Mr Chan, who is the conveyancing partner, does not tell us. But the efforts of his erstwhile partners, Mr Ho and Mr Emerson, have revealed the existence of a ledger within the partnership accounts of Ho & Chan which would appear to indicate that of the $4.9 million, which is recorded in the ledger as 'earnest money', a sum of $3 million was disbursed 'as directed by client' to a company known as Ang Finance Limited, which Mr Emerson says is a money lender, $1 million 'as directed by client' went to a company known as Marbusy International Limited, and a further $100,000 went to an entity known as Mak Kwong Ming, again 'as directed by client'. Perhaps more curiously, the sum of $800,000 was, if this ledger is correct, remitted back to the Plaintiff firm of solicitors on the same day as it was sent, again purportedly 'as directed by client'.

8. Mr Griffiths says, perhaps with good reason, that all of this must have been known to the Plaintiff, whose demand for repayment of the full sum of $4.9 million 'earnest money' one year later was and is consciously disingenuous, whilst the Plaintiff's only response to these allegations which are made on the face of the Defendants' affidavits is that these matters are either 'lies' or an 'irrelevance'.

9. The foregoing provides but a brief overview of the tangled factual matrix that this case undoubtedly presents. Indeed, a case more redolent of triable issues it would be difficult to imagine, the most important of these issues being, of course, the true nature of the underlying transaction, and, in that context, the part played by Mr Heung on the one side and Mr Chan on the other. Flavoured into this cocktail are issues of law, going to whether or not the undertaking was made qua solicitor in the ordinary course of business, and also going to Mr Emerson's position as a salaried partner.

10. In the course of his address Mr Griffiths has reminded the Court of the well known principles governing the approach to Order 14. He has drawn my attention to the observations of Godfrey J.A. in Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 who said :

"...I would sound a note of caution about Murjani which has come to be cited in almost every case under O 14 or O 86 to justify the plaintiff in asking the court to embark on a mini trial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question : 'Is what the defendant says credible?'. If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed, it is whether those assertions are believable."

Godfrey J.A. warmed to the same theme in the leading case of Man Earn Limited v. Wing Ting Fong [1996] 1 HKC 225 where, with respect, he put the proposition crisply when he said :

"Unless it is obvious that the defence put forward by the defendant is 'frivolous and practically moonshine', Order 14 ought not to be applied." : see Codd v. Delap (1905) 92 LT 510 per Lord Lindley at 511.

11. Mr Lam, who appears for the Plaintiff in this Court today, has sought to pursue his cross-appeal. He has had his share of difficulties. The essence of what he had to say was the Court should really look at the undertaking contained in the letter of 19th November 1997, and dismiss or ignore the rest. He will forgive me, I hope, if I thus simplify his address, but that is what it came down to.

12. He did, however, concede, in light of the points made by Mr Griffiths S.C., both in his skeleton argument and from the bar with regard to Mr Emerson's position in Ho & Chan, and in particular what was described as 'the reliance point', that he could not responsibly proceed with his cross-appeal in terms of Mr Emerson. And he was minded not to object, on being pressed by the Court, to Mr Emerson at least being given unconditional leave to defend. However, as I have said, he pressed on with his case with regard to the other two partners.

13. With respect, I think that the learned Master below was entirely correct in divining the existence of triable issues. Indeed, as I have said, this case is full of them. Where I think the learned Master went wrong -and perhaps the matter was not fully presented to him - was in his apparent assumption that the sum of $4.9 million (the 'fund' as the Master apparently regarded it) was still there when in fact the recitation of the facts makes it clear that, at least in light of the ledger entries, no sooner had this sum of money come in than it went out again. So I think that the learned Master was incorrect in attempting to protect this perceived fund, and in ordering conditional leave. This was not, and never has been in my view, a case of conditional leave to defend.

14. Which brings me to the only issue which has exercised my mind in this case. That the case should go to trial and that the full complexity of these matters should be reviewed is, if I may say so, a given. I cannot conceive of how this matter can be the subject of a serious application for summary judgment or, perhaps more accurately, I find it difficult indeed to understand how this case could have been put to this Court, at this hearing, on the basis that the learned Master was wrong below, and that I should now give final judgment for $4.9 million against the two equity partners.

15. The specific point I have been considering is whether the order now should be the normal order as to unconditional leave to defend, or whether this case should attract the sanction of dismissal. At one stage I confess that I was adopting a mind-set of, in effect, 'a plague on both your houses' and simply sending the case to trial without more.

16. But Mr Griffiths has argued strongly that this approach is in error in principle, and that either the Plaintiff must have known the true situation and what was coming by way of defence, or that if he did not know at the time of the issuance of the summons, he certainly knows now. I do not know where the rights and wrongs of this case lie. These waters look pretty murky to me. However, after some reflection, I believe that the correct order is to allow this appeal and to order dismissal of this application. I maintained some hesitation in this regard because of what I see as a less than full affidavit by Mr Chan, the partner of Ho & Chan in charge of this 'transaction', and also what, in retrospect, can only be regarded as an unwise choice of filing a mere holding defence to the claim. Nevertheless I have decided to dismiss the application, and it goes without saying, to dismiss the Plaintiff's own cross-appeal, on the basis that the application has been persisted with at a stage where it must have been obvious to anybody that this matter was not susceptible to summary judgment.

17. My Order therefore is as follows :-

(1) The Defendants' appeal is allowed and the Order of Master Muttrie dated 7th May 1999 is hereby set aside;

(2) The Plaintiff's application for Order 14 relief dated 3rd February 1999 is dismissed;

(3) The Plaintiff's cross-appeal dated 11th June 1999 is dismissed.

I will hear Counsel on the form of the Order and on any submissions as to costs they may care to make.

[Submissions from Counsel]

18. I have now had the opportunity of hearing Counsel. I am satisfied that the correct order is that the Defendants shall have the costs here and below in any event (and this is to include the costs of the stay application before Master Kwan which were specifically reserved to this appeal) save and except that the costs of the issuance of the Order 14 summons, of the affidavit in support and the costs of the affidavit of Chan Kwok Yim dated 16th March 1999; that of Bobby Ho dated 16th March 1999 and that of Paul Emerson dated 16th March 1999 shall be costs in the cause. That is a somewhat unusual order, but in the peculiar circumstances of this case, I think that it is just.

19. I thank Counsel for their assistance.