HUAXIN (HONG KONG) CO LTD v. CHEERFUL CORPORATION

HCA 621/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 621 OF 2003

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J U D G M E N T

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Introduction

1.  This case has been a catalogue of misfortune and procedural error for the Plaintiff which now threatens to bring its claims against the 2^nd and 3^rd Defendants to an end even before it has got going.

2.  The action itself is straightforward enough.  The Plaintiff is a licensed money lender.  On 20 December 1996, the Plaintiff and the 1^st Defendant entered into an agreement in writing [in Chinese] whereby the Plaintiff agreed to make available to the 1^st Defendant, $31 million which would be due and payable 6 months after the date of the advance.  By two separate deeds of guarantee, also dated 20 December 1996 the 2^nd and 3^rd Defendants’ agreed to guarantee the 1^st Defendant’s indebtedness.  A second loan agreement was subsequently entered into between the Plaintiff and the 1^st Defendant on 24 December 1996 under which the sum of $30 million was to be made available to the 1^st Defendant on the same terms, to which the 2^nd and 3^rd Defendant’s guarantees also extended.  As at 8 October 1998, the 1^st Defendant owed the Plaintiff over $22,000,000, the repayment of which was then deferred by agreement until 31 March 2000, together with interest on that amount at 2.5% above prime rate.  By 15 February 2003, the amount of principal and interest owing to the Plaintiff had reached $31,840,997.  It is this amount that the Plaintiff seeks repayment of, plus accruing interest.

3.  By its defence filed on 17 March 2003, the 1^st Defendant has pleaded defences under sections 18 and 22 of the Moneylenders Ordinance (“the Ordinance”) with which I am not concerned.  The 2^nd and 3^rd Defendants, to which the summons before me is directly related, have pleaded defences under section 20 of the Ordinance on the basis that the required memorandum had not been served on them within 7 days after the making of the loan agreements and that a statement in writing signed on behalf of the Plaintiff containing the information set out in section 20(1)(c) of the Ordinance had also not been provided. 

4.  Appreciating the force of that plea, the Plaintiff took out a summons to ask for leave to discontinue the action against these two Defendants.  This was supported by an affirmation dated 26 May 2003 from Miss Livasiri, the Plaintiff’s solicitor, the material parts of which is as follows:-

“Counsel has advised that it is arguable that Section 20(4) merely imposes a postponement of the enforcement of the security while a failure to comply with Section 20(1) continues, which postponement will be lifted after the default has ceased.  It was on the basis of such advice that the decision was taken by the Plaintiff to discontinue the action against the 2^nd and 3^rd Defendant so as to enable it to remedy the default as advised by Counsel.  The Plaintiff intends to sue on the guarantees signed by the 2^nd and 3^rd Defendants in fresh proceedings once the default under Section 20(1) is remedied and to consolidate such proceedings with this action in due course.”

This therefore was the course that the Plaintiff had opted for against these two Defendants.  It also took out a summons to amend the writ and Statement of Claim by deleting all reference to the 2^nd and 3^rd Defendants and all allegations against them.  Both of these summonses where listed to be heard at the same time before Master Woolley on 13 June 2003.

5.  In the meantime, the 2^nd and 3^rd Defendants’ solicitors had written to the Plaintiff’s solicitors intimating that they would be applying to the Master on that date to enter judgment in their favour under Order 14A of the Rules of the High Court on the basis that the absence of the section 20 memorandum and the statement was fatal to its claim against these two Defendants.  Notwithstanding the absence of a summons under Order 14A, the Master entered judgment in favour of the two Defendants holding that the defences under section 20 were unanswerable and he also dismissed the Plaintiff’s summons to discontinue the action.  For reasons that are not entirely clear to me, he adjourned to 16 September 2003 the summons for the amendments to the writ and the Statement of Claim before himself.

6.  The Plaintiff then appealed against the Master’s order entering judgment and dismissing the summons for discontinuance which was heard by Muttrie DJ on 19 September 2003.  On 26 September, the judge handed down his judgment dismissing the appeal.

7.  Three days before the hearing of the appeal, that is to say on 16 September, Master Woolley heard and allowed the Plaintiff’s application to amend its writ and Statement of Claim by removing all reference to the 2^nd and 3^rd Defendants.  This was supported by a skeleton argument prepared by experienced counsel who appeared for the Plaintiff on the application.  Presently, I will need to return to how the application to amend was put.

8.  On 23 September 2003, which was after the hearing of the appeal before Muttrie DJ, but before his judgment was handed down, the Plaintiff filed its amended writ and Statement of Claim which had removed all reference to the 2^nd and 3^rd Defendants.  On 9 October 2003, the amendment order of 16 September 2003 was perfected and sealed.  Pausing there, the position therefore was that when Muttrie DJ heard the Plaintiff’s appeal from Master Woolley’s Order 14A judgment, the 2^nd and 3^rd Defendants were still parties to the action because the amended pleadings had yet to be filed and the order had still not been drawn up and sealed.

9.  On 23 November 2003, the Plaintiff appealed against Muttrie DJ’s judgment to the Court of Appeal.  It is not necessary to go into any detail as to the merits of that appeal save to observe that two subsequent decisions of the Court of Final Appeal in Emperor Finance v La Belle Fashions (2003) 6 HKCFAR 402, in November 2003 and in Celestial Finance Limited v Yu Man Hon in October 2004, FACV No. 2 of 2004, suggest that the section 20 point may not be, after all, conclusively determinative against the Plaintiff.  The parties came to argue the matter before the Court of Appeal on its merits; the Court of Appeal [Rogers VP, Le Pichon JA, and Waung J (dissenting)] having reserved its judgment, expressed the view that the appeal against the 2^nd and 3^rd Defendants was not a competent one because by virtue of the order of Master Woolley on 16 September 2003 (perfected on 9 October 2003), removing the 2^nd and 3^rd Defendants from the action, the Plaintiff was not able to appeal in respect of parties that were no longer in the action before it.  This was further argued before the Court of Appeal on 3 December 2004 after which the court held that it was not disposed to hear and determine the appeal whilst this remained the position.  It gave the Plaintiff the opportunity to apply to either set aside or appeal against Master Woolley’s order of 16 September 2003 in order to reverse the effect of that order and to re-instate the action and the pleadings against the 2^nd and 3^rd Defendants.

10.  This therefore is how the matter has made its way before me.  The summons is dated 15 March 2005 [pages 132-133, Bundle A], expressed to be an application for leave to appeal out of time [17 months out of time] against an order made by the Master at the Plaintiff’s invitation.  By virtue of the Court of Appeal’s analysis of the position before it, which was not an analysis that had occurred to the Respondents (the Defendants) to the appeal but which they have, of course, wholeheartedly embraced, the Plaintiff must now try to undo what it had persuaded Master Woolley to order.  It had been suggested and now repeated before me, on affirmation at all events, that this was done through inadvertance.  [See paragraph 20, pages 143-144 of Miss Livasiri’s second affirmation dated 11 April 2005 in support of this appeal].  It is regrettable that Miss Livasiri has now said this twice.  She said so first before the appeal to the Court of Appeal, which was roundly rejected by Rogers VP [paragraph 12 of his judgment, page 78, Bundle B] and now before me in her second affirmation.  Far from being inadvertant, this application to amend the writ and Statement of Claim so as to remove the 2^nd and 3^rd Defendants was done deliberately and advisedly.  This is very clear from counsel’s skeleton before Master Woolley which the Vice-President drew attention to, also at paragraph 12 of his judgment (supra).  The same parts of the skeleton bear repetition here, not only to put the point beyond doubt but also to demonstrate the absurdity of the Plaintiff’s position as a result of the Court of Appeal’s analysis of the effect of the Master having acceded to the Plaintiff’s application to remove the 2^nd and 3^rd Defendants from the action:-

“	4.	On the existing pleading, the Plaintiff claims against the 1st Defendant for recovery of money lent (and interest), the repayment of which was guaranteed by the other Defendants.
	5.	The Plaintiff accepts that Part III of the Money Lenders Ordinance Cap 163 applies to the loans and guarantees, and that it is not (yet) open to the Plaintiff to claim against the 2nd and 3rd Defendants, because of a failure to comply with section 20(1).
	6.	The Plaintiff intends to remedy its default under section 20(1) and to issue fresh proceedings against the 2nd and 3rd Defendants (to be consolidated with these proceedings).
	7.	The amendments in part reflect this.  They also reflect the pleading of material facts and matters on which the Plaintiff intends to rely for the purposes of its claim to the relief identified.”

The argument before me

11.  I have heard helpful and wide ranging submissions from Mr Anthony Chan SC (Mr Paul Lam with him) on behalf of the Plaintiff as to why Master Woolley’s Order should not be allowed to survive and from Mr Chua Guan-hock SC as to why I should leave matters as they are and let the Plaintiff take the consequences of what it had, in the first place, persuaded the Master to do.

Delay

12.  I take this first because, in these peculiar circumstances, I consider that I am able to discount what would usually be a weighty factor in the exercise of the court’s discretion whether to allow an appeal to be brought out of time, especially one that is 17 months out of time.  In the usual case an appeal is brought against an order that is readily seen as being adverse to the Appellant’s interests, the appeal against Muttrie DJ’s dismissal of the Order 14A judgment, entered by the Master, being very typical.  It is rare indeed to have to mount an appeal against an order made at one’s own behest and indeed one that is perceived to have been in one’s interests – in this case clearing the way for the bringing of a separate action against the 2^nd and 3^rd Defendants which would be consolidated with this current action.  In my judgment, this is an appeal which is of the highest technical order – it is procedural in nature – in order that the opposing litigants are again brought before the court which, at present, they are not.  Whilst I appreciate that the outcome of the appeal before me may be crucial to the result of the appeal before the Court of Appeal against Muttrie DJ’s Order, the appeal before me has nothing to do with the merits of that appeal which is all about the correctness of the Master’s Order 14A judgment, as upheld by Muttrie DJ.

13.  The order now appealed against before me is the result of an unforeseen procedural blunder which had not been spotted by either side until drawn to their attention by the Court of Appeal.  Whilst the Defendants’ will suffer the prejudice of being deprived of the argument that the appeal before the Court of Appeal is not a competent one, the fact of the matter is that the Court of Appeal, who could have decided the matter there and then by not allowing the Plaintiff the opportunity of trying to set aside the amendment order, has seen fit to at least have the argument placed before this court.  Whilst it is rightly said that finality in litigation is of great importance in the administration of justice, the fact is that the substantive appeal from Muttrie DJ’s order is currently before the Court of Appeal.  I do not consider that on the basis of lateness, in these peculiar circumstances, that I should shut out this appeal.  I will therefore allow the appeal to be brought out of time by extending time to such extent as is necessary.

The merits

14.  In my judgment, this appeal must turn on the true interpretation of the effect of Master Woolley’s order on 13 June 2003 entering an Order 14A judgment in favour of the 2^nd and 3^rd Defendants.  In doing so, he, quite rightly, in order to be consistent with what he had done in entering judgment for the Defendants, dismissed the Plaintiff’s application to discontinue the action against the 2^nd and 3^rd Defendants.  All of this was predicated on the basis that by virtue of the section 20 Moneylenders Ordinance point, as pleaded in the defence, the Plaintiff was bound to fail against these two Defendants.  Subject to an appeal against those two orders, which went before Muttrie DJ, it is difficult to see how, conceptually, a court properly directing itself could then proceed to remove from an action, the two successful parties who at that time had the benefit of a judgment in their favour, by the amendment order asked for on 19 September 2003. 

15.  In my judgment, this amounted to an aberration.  Why the point was not taken on behalf of the Defendants on 19 September is difficult to comprehend.  It also becomes even more difficult to understand how such an application could have been made by the Plaintiff even before the outcome of its appeal to Muttrie DJ was known.  Had that appeal succeeded, the Plaintiff would presumably have been allowed to discontinue the action, or at least have that summons remitted back to the Master to have it heard on its merits, as to whether discontinuance would be unconditional or on terms.

16.  The question then becomes this.  Was the order a nullity or an irregular one.  It had been submitted before the Court of Appeal (I hasten to add not by Mr Chan nor his junior who have not appeared at any earlier stage of this litigation) that the Master’s order was a nullity, so that the court could simply ignore it.  That analysis has been rejected by the Court of Appeal and Mr Chan has therefore restricted himself to saying that the order is an irregular one which should be set aside.  In my judgment, this order is irregular.  I uphold Mr Chan’s submission and I do so because the effect of the Order 14A judgment was such as to make any application to “amend out” of the case [which amendment would have dated all the way back to the date of the writ], parties who had already obtained judgment, an impossibility.  If that were so they could not, on a true interpretation of the effect of the amendments, enjoy the benefit of that judgment including, of course, enforcing the order for costs which they had obtained on having secured their Order 14A judgment.  [Pages 75-77, Bundle A]

17.  Mr Chua, with his usual diligence and persuasiveness, has sought to resist the appeal on a number of bases.  One of his approaches has been to say that even if the order was irregular, there are degrees of irregularity, and that not all irregular order’s need to be set aside, this being one of them.  The Plaintiff should be left to suffer the consequences of its erroneous approach in applying for the amendments.  In my judgment, this irregularity is so fundamental, going to the very root of the effectiveness of the Master’s Order 14A judgment that it should not be allowed to stand.  The removal of a successful party from the record of the proceedings [dating back to the issue of the writ] after it has obtained judgment in its favour is not something that should be allowed to stand.  This was the effect of the amendment order.  I will therefore allow the appeal and set aside the Master’s order.  The result of my having done so is to restore the pleadings and the writ to what they were before the order was made.

Costs

18.  I have already heard provisional argument as to costs.  It seems to me that although the Plaintiff has succeeded, it should bear the costs of the making of the application and of the argument before me.  Mr Chua is right in saying that it has brought this on itself and, given the way that the point has arisen, it was up to the Plaintiff to come and undo its mistake.  The Defendants have reacted perfectly properly in resisting the appeal which was bound to have been heard.  I don’t think that it can properly be said that the Defendants should have allowed the Plaintiff to have its order by default.

19.  I will give both parties liberty to apply as to the precise terms of the order consequent upon my having allowed the appeal.