LOONGFUNG HING YIP (HOLDINGS) LTD. v. KAN MING CONSTRUCTION INVESTMENTS LTD.

CACV 443/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 443 OF 2001

(ON APPEAL FROM HCA 19328/1999)

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J U D G M E N T

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Hon. Rogers VP:

1. This is an appeal from a decision of Chung J given on 27 February this year. He was hearing an appeal on an Order 14 application. The Master below had given judgment for the plaintiff on two cheques of $720,800 and $1,820,000 respectively. The Judge, on hearing the appeal, not only reversed the decision of the Master but dismissed the application.

2. The dispute between the parties over the cheques arises as part and parcel of a larger series of transactions. These arose out of dealings between the parties on seven agreements which were made on behalf of the parties by their respective agents in order to develop property in the New Territories. The kernel of the agreements is set out in the re-amended defence and counterclaim which has been filed in this action subsequent to the hearing before the Judge. It is said that each of the development agreements involved, or would involve, causing the rights and interests in the relevant lots of land in the New Territories to be vested in indigenous villagers, causing applications to be made to the District Lands Office for obtaining building licences, carrying out of construction works, applying for the removal of the non-alienation clause in the relevant grant of the land upon the completion of the development, and pay the premiums for the removal of the non-alienation clause and selling the village houses.

3. In respect of the transactions I will have something to say at the end of this judgment, but the plaintiff's case is that the two cheques were given to the plaintiff in January of 1999. The plaintiff and Mr Lai, who appeared on behalf of the plaintiff today, could not point to any specific matter, or item, in respect of the two agreements in respect of which these cheques were given. It is clear, therefore, that these cheques were given as part of a running account between the two parties.

4. The defendant's case is that the plaintiff was, under this running account, only entitled to some $30,827,800, but it had in fact received a sum of approximately $41,948,733. The defendant's case is that the plaintiff had been overpaid more than $11,000,000.

5. The plaintiff, by Mr Xu in his affirmation of 31 August, did not answer the defendant's case specifically but said that some $35,000,000 or more was owing.

6. There is another action which is outstanding at this time which also relates to matters arising out of these seven development agreements, and that is Action No. 19519 of 1999. In that action the plaintiff claimed against the defendant a sum of some $6,990,000, which was said to be owing, and the defendant originally counterclaimed a sum of $7,411,363. But those have now been amended to, respectively, a plaintiff's claim of some $27,087,390 and the defendant's counterclaim of some $11,120,933.

7. The Judge below came to the conclusion that, in this case, the defendant had at least an arguable defence to the claim which was based on the cheques because the debt for which the cheques were given had been fully paid, whether at the time the cheques were given or subsequently.

8. It seems to me that, in the circumstances of this case, the Judge was correct in his approach to the matter. Although in most cases involving cheques, the court will approach the matter on the basis that the cheque should be paid and that any items of account or cross-claim should be a matter for settlement thereafter, whether by counterclaim or otherwise, in this case the situation is different. In this case there seems to be reasonable grounds to believe that the defendant may be correct that there has been an overpayment. If there had been an overpayment, either at the time the cheques were given, clearly it would be wrong to order payment on those cheques now as there was, in fact, no consideration for the cheques. If the repayment had been made subsequently to the time when the cheques were given or the time they were presented, then the amount owing on those cheques has been discharged.

9. Mr Lai drew our attention to a schedule in his statement of claim in the other action which indicates that a large sum of money of approximately $20,000,000 has in fact been paid by the defendant to the plaintiff since October of 1989. That date is relevant because it is the defendant's case that the cheques were given to the plaintiff in October. Mr Lai argued strenuously that the defendant's case amounted to a counterclaim and that his client was entitled to payment on the cheques. But in this case where the only claim which the plaintiff can point to is a running account and no specific debts due in respect of which these cheques were given can be shown, either on the papers or in argument, it seems to me that the Judge was correct.

10. The Judge then went on in his judgment to consider the strength of each party's case. He came to the conclusion that there was a shadowy aspect to both parties' case and that this therefore was a case where unconditional leave to defend should be given. He said:

"The parties have not produced undisputed (or indisputable) documents to establish the exact state of the 'running account'. The plaintiff's reason for this is that the accounting documents are incomplete, that some of the matters were not in writing and some of the documents are unclear as to their meaning. In these circumstances, I consider that there is a shadowy aspect to both parties' case and this is therefore a case where unconditional leave to defend should be given."

11. I, for my part, would not disturb the Judge's discretion in this respect. I would mention, as the Judge held, that the accounting documents are incomplete and that must be a matter of concern to the Court.

12. A further matter was raised on this appeal, the importance of which relates to costs. The Judge referred to a letter of 22 August 2000 from the plaintiff's solicitors to the defendant's solicitors in which it was indicated that they were prepared to advise their clients that the defendant was likely to be given conditional leave to defend and that, in those circumstances, they were prepared to recommend to their clients that the defendant be given unconditional leave to defend and that costs should be in the cause. The Judge then went on to dismiss the summons under Order 14, Rule 7, on the basis that the plaintiff must have known that the case was doomed to failure from the start.

13. When referring to the letter of 22 August, I consider that the Judge when giving his ex tempore judgment perhaps overemphasised the importance of that letter but, nevertheless, it seems to me that the Judge's approach was correct, that this application was doomed to failure. Whether the summons was dismissed or the defendant was given unconditional leave does not really matter. What the Judge clearly felt was that the matter should not have proceeded, at least after the defendant's evidence had been filed. In those circumstances, it appears to me to make very little difference whether the summons was actually dismissed, or whether unconditional leave to defend was given, because it was open to the Judge to hold that the plaintiff should pay the defendant's costs and to order costs against the plaintiff accordingly.

14. I would therefore not, myself, be prepared to disturb the Judge's order because it would be a futile exercise. In my view, this appeal should be dismissed.

15. Before concluding this case it is necessary, however, to mention one further matter. There are grounds to suspect that the seven agreements that were made between the parties representing the plaintiff and the defendant in this case were illegal. It is unnecessary and, indeed, undesirable to say a great deal about it at this stage. Nevertheless, I would say this much. It would appear that there are grounds to consider that the agreements inevitably required that misrepresentations would be made to the Director of Lands through the District Land Offices as to the intention on the part of the various indigenous inhabitants to occupy the houses that were to be built. In this respect I would draw attention to two cases. The first is a judgment of this Court of 22 May of this year in the case of Madam Chung Mui Teck & Ors v Hang Tak Buddhist Hall & Ors, and the other is a decision of Yuen J of 24 April this year in the case of Best Sheen Development Limited v The Official Receiver and Trustee of the Property of Lai Thomas, A Bankrupt.

16. In the circumstances of this case, and the matter having come to the attention of this Court, I consider that it is necessary for this Court to direct that the papers in this case should be sent to the Director of Lands for his consideration in the matter.

Hon. Le Pichon JA:

17. I agree.