K CASH LTD v. SO WANG FUNG BY SO WANG MING HIS GUARDIAN AD LITEM

DCCJ 5085/2014

[2019] HKDC 1317

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5085 OF 2014

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DECISION

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Introduction

1.  This is an application by the plaintiff for leave to appeal against my judgment in this case.

2.  This is originally a loan agreement dispute. The plaintiff, being a licensed money lender, claimed against the defendant, being a mentally incapacitated person, for repayment of a loan of HK$600,000 (“Loan”) with interest under a Loan Agreement dated 12 November 2014 (“Agreement”).

3.  By a judgment handed down on 27 December 2018 (“Judgment”), I dismissed all the plaintiff’s claims for repayment of the Loan or any part thereof[1], on the basis that the Agreement was illegal and unenforceable as a result of the plaintiff having been in collusion with others to deceive the defendant into signing the Agreement and obtaining the Loan so that they could cheat him of the money[2], and that the plaintiff’s contention of restitution and unjust enrichment also failed[3].

4.  By a summons dated 23 January 2019, the plaintiff applied for leave to appeal against the Judgment (“Application”). The defendant objected.

Leave to appeal application – the basic principles

5.  The starting point is that, under s. 63A(2) of the District Court Ordinance, Cap. 336, leave to appeal to the Court of Appeal shall not be granted unless this Court or the Court of Appeal is satisfied that the appeal has a reasonable prospect of success, or that there is some other reason in the interests of justice why the appeal should be heard.  Leave to appeal is not lightly granted.  Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be probable[4]. The burden of proof is on the applicant (here the plaintiff) for leave to appeal[5].

My analysis

6.  There are altogether 5 grounds of appeal relied upon by the plaintiff.  I shall deal with them one after another.

Ground 1

7.  Ground 1 concerns my finding of the Agreement being illegal and invalid.  The plaintiff argues that there was no legal basis for me to rule that the Agreement was illegal and invalid as the defendant did not specifically plead “illegality” about the collusion allegation.  It is also argued that I was not entitled to pronounce that the Agreement was illegal and invalid when all the necessary facts were absent from the evidence.

8.  I first deal with the plaintiff’s criticism of the defence’s failure in adequately pleading “illegality” of the Agreement.

9.  Here is a summary of the relevant parts of the Amended Defence dated 1 June 2016:-

(a)  It was pleaded in paragraph 2 that “a man named Mr. Chan Cheong yin and/or … acting in collusion with the Plaintiff, together with the Plaintiff, fraudulently induced, misled and/or deceived the Defendant into … (2) the Plaintiff’s Loan Agreement … where the Plaintiff was at all material times with full knowledge of the Defendant’s retarded mental incapacity.  The Plaintiff’s Loan Agreement is therefore void and unenforceable against the Defendant.”

(b)  It was pleaded in paragraph 6(i) that “At all material times, the Plaintiff well knew or ought to have known that the Defendant is a mentally handicapped person. Despite the said knowledge, the Plaintiff, together with Mr. Chan and/or … acting in collusion with the Plaintiff, misled and/or deceived the Defendant entering into … (2) the Plaintiff’s Loan Agreement …” 

(c)  It was pleaded in paragraph 7 that “Further or in the alternative, the Plaintiff’s Loan Agreement is an illegal agreement within the meaning of Section 24 of the Money Lenders Ordinance, Cap. 163 (“MLO”) and unenforceable as against the Defendant.”

(d)  It was pleaded in paragraph 8 that “Further or in the alternative, the Plaintiff’s Loan Agreement is an illegal agreement within the meaning of Section 27 of the MLO and unenforceable as against the Defendant.”

10.  There were altogether 8 triable issues as agreed between the parties for the trial[6] and I accordingly dealt with all of them in the Judgement.  In particular, Issues (5) to (7) were:-

Issue (5) – Whether and how the plaintiff had been colluding with other parties to deceive the defendant as alleged

Issue (6) – What acts or conduct the plaintiff had committed in colluding with others to deceive the defendant as alleged

Issue (7) – Whether the Agreement is unenforceable as alleged

11.  At the trial, the defendant abandoned his defence under s. 24 of the Money Lenders Ordinance, Cap. 163 but proceeded with that under s. 27 of the same Ordinance.  Nevertheless, I considered s. 27 inapplicable in this case[7].

12.  In the plaintiff’s closing submissions dated 14 June 2017, the plaintiff in fact had taken issues with the pleadings but only two “pleading” issues, which were different from the current one, were taken.  One was in relation to s. 29[8] of the Money Lenders Ordinance, Cap. 163 as follows[9]:-

“In respect of the argument placed on the Money Lenders Ordinance, the Defendant has not pleaded s. 29 in his Defence. By virtue of O. 18 r.8(1), the Defendant must plead every statute that he intends to rely on to allege illegality: see Whitebook 2017 Vol. 1 commentary 18/8/16. In any event, s.27 and/or s. 29 are inapplicable for no ‘costs, charges or expenses’ were incurred even on the Defendant’s evidence. This will be further elaborated hereinbelow.”

The other “pleading” issue was in relation to the intermediary company “Ho Tin” which was not pleaded as a party to the alleged collusion[10].

13.  In other words, at the end of the trial, no “pleading” issue was taken by the plaintiff in relation to the defendant’s case of “illegality” with respect to the alleged collusion between the plaintiff and others.

14.  The relevant principles for this “pleading” issue are usefully summarised in Wing Hang Bank Ltd v Crystal Jet International Ltd & ors[11], as per Ma CJHC (as the Chief Justice then was) at paragraphs 6 to 8 of the judgment:-

“6. If I may, I take this opportunity to reiterate some basic principles: ‑

(1) The purpose of pleadings is fairly and precisely to inform the other side of the stance of the pleading party so that proper preparation is made possible, and time and effort are not expended unnecessarily on other issues. The passage at paragraph 18/12/1 of Hong Kong Civil Procedure 2004 Volume I sets out the rationale for proper pleadings.

(2) In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. Where issues are sought to be introduced that have not been adequately or properly pleaded, amendments must be sought unless the consent of the other party or parties has been obtained. It will simply not do for unpleaded issues to be ‘slipped in’ when evidence is being given in the hope that the other side is not sufficiently alert to object. Much testimony given in the course of a trial may in truth relate to a number of possible aspects or may simply be background information. Obviously, counsel must be astute to object when necessary but the primary responsibility of ensuring that any issue is properly before the Court is on the party seeking to advance that issue. He must do so clearly and not ambiguously, and the usual way of doing so is through the pleadings. Care must be taken to plead issues clearly, and not draft pleadings either vaguely or ambiguously perhaps in the hope that the other side might not readily or easily understand a party’s real case. While vaguely or ambiguously drawn pleadings may enable a party to escape a strike out application (since striking out is only for plain and obvious cases), this is not to say that where a court has to decide whether or not an issue is to be permitted to be run, it will smile kindly on such types of pleading.

(3) On appeal, it will be extremely rare for the Court of Appeal to allow unpleaded issues of fact to be run for the first time. Save in exceptional circumstances (such as where documents can safely be assumed to speak for themselves), the Court will often not be in a position to take the view confidently that the other side has not been prejudiced.

7. What has just been set out is not to be construed as an encouragement to take ‘pleading points’ by which I mean pedantic, small or quite insignificant points of pleadings. Nor will objections as to pleadings have much force where the parties have chosen to disregard the pleadings and conduct the hearing on some unpleaded basis. As Isaacs and Rich JJ said in Gould v Mount Oxide Mines Limited (1916) 22 CLR 490, at 517: ‑

‘But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly thought out, it is impossible for them to hark back to the pleadings and treat them as governing the area of contest.’

Ultimately, a court is to be guided by what is fair and just in the circumstances, not just to the party seeking to rely on the unpleaded case but to all the parties before it. The Court ought also to bear in mind the following passage at paragraph 18/12/1 of Hong Kong Civil Procedure 2004 Volume 1: -

‘The purpose of pleadings is not to play a game at the expense of the litigants but to enable the opposing party to know the case against him’.

8. What is set out above as representing acceptable practice will be all the more emphasized when the Civil Justice Reforms in Hong Kong take shape.  The object is not to invite prolixity in pleadings but to achieve what has always been the position: to fairly inform the other side and the Court of a party’s case, identifying the issues and the true extent of the dispute between the parties.”

15.  First of all, by expressly alleging that the plaintiff having “full knowledge of the Defendant’s retarded mental incapacity” and “acting in collusion” with others, “fraudulently induced, misled and/or deceived” the defendant to enter into the Agreement and contending that the Agreement was therefore “void and unenforceable” in the Amended Defence[12], it was at least implicit in the pleadings that the defendant was seeking to argue on “illegality” of the Agreement on the basis of collusion.  That became clearer when the defendant expressly pleaded “illegality” of the Agreement, although under different headings, by virtue of sections 24 and 27 of the Money Lenders Ordinance, Cap. 163[13].

16.  That is not the end of the matter.  After the pleading stage, the parties must be left with no doubt about one of the live issues being “illegality” of the Agreement on the basis of collusion when they agreed upon the triable issues for the trial, which included Issues (5) to (7), namely, whether and how the plaintiff had been colluding with other parties to deceive the defendant as alleged, what acts or conduct the plaintiff had committed in colluding with others to deceive the defendant as alleged, and whether the Agreement was unenforceable as alleged.  That explains why the plaintiff did not take issue with that particular pleading point at the end of the trial, when two other pleading points in relation to the failure of the defence to plead section 29 of the Money Lenders Ordinance, Cap. 163 and the intermediary company “Ho Tin”, were specifically raised in the plaintiff’s closing submissions[14].

17.  As stated in Wing Hang Bank Ltd v Crystal Jet International Ltd & ors[15], the purpose of pleadings is fairly and precisely to inform the other side of the stance of the pleading party so that proper preparation is made possible, and time and effort are not expended unnecessarily on other issues. It is to make sure that each side knows exactly what the live issues are.  Pleadings are only a means to an end.  No doubt it is the substance rather than the form that matters.  At the end, a court is to be guided by what is fair and just in the circumstances of the case.  Even if that issue of “illegality” in relation to the alleged collusion between the plaintiff and others could or should have been more precisely pleaded in the Amended Defence, the plaintiff was already sufficiently informed of the full defence case at the trial and so was the Court.  There was ample legal basis for me to rule that the Agreement was illegal and invalid on that collusion basis.

18.  The plaintiff also argues that I was not entitled to pronounce that the Agreement was illegal and invalid when all the necessary facts were absent from the evidence, as the defendant did not testify and that there were pending police investigations.

19.  I came to conclude that the Agreement was illegal and unenforceable by having considered, firstly, all the undisputed or unchallenged matters[16]; secondly, my earlier factual finding that the plaintiff through PW1 knew that the defendant was suffering from mental incapacity at the material time[17]; thirdly, all the suspicious circumstances surrounding the granting of the Loan[18]; and finally drawing the reasonable inference that the plaintiff was in collusion with others to deceive the defendant[19]. Before I came to that conclusion, I was fully aware of the plaintiff’s criticism of the absence of the defendant’s evidence[20], the alleged shortcomings of DW1’s evidence[21], as well as the fruitless or pending police investigations[22], and had duly considered all of them.

20.  The absence of evidence in relation to other culprits in this scam did not affect my conclusion on the illegality of the Agreement as I concluded on the basis of the reasonable inference to be drawn from the undisputed matters, the plaintiff’s knowledge of the defendant’s mental incapacity and the suspicious circumstances surrounding the granting of the Loan.  There was proper evidential basis for me to so conclude.

21.  Ground 1 is not reasonably arguable and should fail.

Ground 2

22.  Ground 2 concerns drawing of adverse inference against the defendant’s failure to testify and my acceptance of DW1’s evidence.

23.  The plaintiff argues that I erred in not drawing any adverse inference against the defendant for failing to testify as a witness, and that I erred in accepting DW1’s hearsay evidence.

24.  The principle that the Court may draw adverse inference against a party from failing to call a key witness does not necessarily mean the Court must do so in every single case.  No doubt each case is to be decided on its own facts and circumstances.

25.  The current complaint by the plaintiff against the failure of the defendant to testify was fully ventilated during the trial and in particular, vigorously argued in the plaintiff’s closing submissions[23], which I had fully and carefully considered.  Eventually, I decided not to draw any adverse inference in this respect, in view of the peculiar circumstances, in particular the mental handicap of the defendant[24]. Before I came to that conclusion, I had also borne in mind the observations of Dr Cheung Hung-kin[25] that the defendant was forgetful and that, according to DW1 who was his elder brother, his lack of ability of accurately describing matters even to his close relatives.

26.  As can be seen from one of the principles summarized by Brooke L.J. in Wisniewski v Central Manchester Health Authority[26], an authority relied upon by the plaintiff, “if the reason for the witness’s    absence or silence satisfies the court, then no such adverse inference may be drawn; if, there is some credible explanation given, even if it is not wholly satisfactory, the potential detrimental effect of his/her absence or silence may be reduced or nullified”.

27.  It is also important to note that, the defendant’s mental incapacity as well as the fact that DW1, his elder brother and his guardian ad litem in these proceedings, would give evidence for the defendant were all along made known to the plaintiff.  Knowing at the outset that the defence would call DW1 to adduce hearsay evidence of the defendant and not call the defendant as a witness, the plaintiff could have, with the leave of the Court, called the defendant as a witness and cross-examine him, and/or could have called additional evidence to attack the reliability of the hearsay statement, pursuant to s. 48 of the Evidence Ordinance, Cap. 8.  No such application(s) was/were ever made by the plaintiff at any stage before or during the trial.

28.  The plaintiff also argues that I erred in accepting DW1’s hearsay evidence by not properly applying the considerations under s. 49 of the Evidence Ordinance, Cap. 8.

29.  DW1’s hearsay evidence and its shortcomings was one of the major complaints of the plaintiff at the trial and in particular, labelled as “Preliminary Consideration” and forcefully argued in detail in the plaintiff’s closing submissions[27].

30.  Accordingly, I had dealt with it at the early stage of my consideration of the relevant issues[28].  I expressly stated in the Judgement that, while I had found DW1 to be an honest and credible witness, I was cautious about handling his hearsay evidence, bearing in mind reliability and credibility were two completely different matters; and most importantly, I came to my findings “mainly by relying on the undisputed facts and the reasonable inferences to be drawn instead of relying on the hearsay evidence of DW1 alone”[29], all of which were apparent in the subsequent paragraphs of the Judgment.

31.  Ground 2 is an attempt to re-argue matters which had already been fully canvassed at the trial, it is without merits and must fail.

Ground 3

32.  Ground 3 concerns my finding of the plaintiff’s knowledge of the defendant’s mental incapacity.  The plaintiff argues that I erred in finding that PW1, the plaintiff’s assistant customer service officer, who was all along responsible for handling the Loan and the Agreement, knew of the defendant’s mental incapacity at the material time.

33.  This was apparently a matter of factual dispute at the trial.  The defendant argued that the plaintiff through PW1 had knowledge of the defendant’s mental incapacity at the material time whereas the plaintiff through PW1 denied that.

34.  The plaintiff now argues that I erred in placing no or insufficient weight on the undisputed fact that the defendant had entered into other previous legal transactions, like opening his bank accounts and signing an employment contract as a cleaner.  Further, it is now argued that I erred in placing no or insufficient weight on the defendant’s conversational ability which was demonstrated in the dialogue between himself and PW1 as recorded in the audio disc exhibit P1.

35.  Again, both arguments were advanced in detail at the plaintiff’s closing submissions[30], which I had carefully considered and thoroughly dealt with at different stages[31] in the Judgment.

36.  I had duly considered various matters, which were set out in detail in the Judgment[32], drew the reasonable inference and then found as a matter of fact that PW1 knew that the defendant was suffering from mental incapacity at the material time[33].  It is worth-noting, as I expressly stated in the Judgment[34], that “I do not find the Agreement invalid simply because of the defendant’s mental incapacity.  I find the Agreement illegal and therefore invalid because the defendant had been deceived by others.  The fact that the defendant was suffering from mental incapacity made him more vulnerable to be deceived”.

37.  Ground 3 is without merits and should fail.

Ground 4

38.  Ground 4 concerns my finding of “deception” in this case.

39.  The plaintiff argues that I erred in categorising DW1’s allegation that the Loan money had been “cheated” by Chan as “non-hearsay” evidence.  To be accurate, when I was considering the defence case that the defendant was a victim of a scam and was cheated by Chan of the Loan money, it was my observation that “There is not only the hearsay evidence of DW1 (from what he learnt from the defendant) but that version was also partly supported by documents” (emphasis now added), then I continued to consider the relevant cheques and the bank records[35].  The cheques under the Loan, the subsequent movement of the funds, the bank records etc are not as neutral as the plaintiff now alleges, as the surrounding suspicious circumstances are obviously matters of significance and definitely can assist in drawing inferences[36].

40.  It is important to note, which I did, that, for no legitimate or proper reason offered by the plaintiff (PW1 merely asserted that it was company practice), the Loan money was split into three cheques: the first of HK$226,896 as a cheque marked “A/C Payee Only”, the second also of the same amount of HK$226,896 but as a cash cheque and the third of HK$146,208 made payable to a third party as purported payment for the defendant’s credit card debt.  The defendant’s relevant bank records showed that both the first and the second cheques were immediately deposited into the defendant’s bank account and nearly all the monies were withdrawn within the next month leaving a balance of just HK$6.63[37]. I considered that splitting of the cheques to be most suspicious, came to the irresistible inference that it was to facilitate Chan and/or others to easily obtain from the defendant shortly afterwards at least a substantial part of the Loan in cash[38], and eventually, took into account that splitting of cheques together with other suspicious circumstances, as well as the plaintiff’s knowledge of the defendant’s mental incapacity, to draw the reasonable inference that the plaintiff was in collusion with others to deceive the defendant[39].

41.  The plaintiff also argues that I erred in disregarding the defendant’s own case that there was no “cheating of money” as the money passed to Chan was either to “help the Defendant to manage the money” or “for safekeeping”.  This argument is wholly misconceived. It is more than obvious that such was never the defence case (when the defence case was that Chan and others in collusion cheated the defendant of all the Loan money), and the plaintiff must be well aware of that.   When DW1 mentioned the above in his evidence, he was simply reciting the various excuses used by Chan to deceive the defendant into handing over the money to Chan.

42.  Finally, in relation to the third cheque of HK$146,208 under the Loan, which was made payable to the Bank of China Credit Card (International) Co Ltd, according to PW1, purportedly for the settlement of the defendant’s then credit card debt, I had found that was in fact not for the benefit of the defendant and the whereabouts of that cheque was unknown, as the relevant bank records of Bank of China showed that such credit card debt had already been settled before the signing of the Agreement through an unrelated cheque coming from an earlier loan from another money lender[40].  There is evidential basis for me to find as such.

43.  Again, these current criticisms of DW1’s hearsay evidence[41], the comments on the defence case of the purpose or the movement of the cheque monies[42], and matters relating to the third cheque of HK$146,208[43], were all submitted as arguments in the plaintiff’s closing submissions, which I had duly considered and dealt with as aforesaid.

44.  Ground 4 should also fail.

Ground 5

45.  Ground 5 concerns my finding of collusion in this case.  The plaintiff argues that I erred in that finding and erred in rejecting the plaintiff’s evidence.

46.  Without a doubt, the existence or otherwise of a collusion and whether the plaintiff was a party to it and if so, its involvement, were all key issues in this case.  They are all factual disputes and I eventually came to factual findings on evidence and inferences.  And, during the process, I found as matters of fact that the only witness for the plaintiff, PW1, was not an honest and credible witness and rejected her claim of lack of knowledge of the defendant’s mental incapacity as well as her claim of no association or collusion between the plaintiff and others in this case[44].

47.  I did not equate “suspicions” with “inferences” as now criticised by the plaintiff.  To be accurate, I first set out all the suspicious circumstances surrounding the granting of the Loan with reasons[45].  I did not then jump to the conclusion that those suspicious circumstances were equivalent to the fact that the plaintiff was in collusion with others or amounted to an inference of that.  In fact, I took into account those suspicious circumstances together with my earlier factual finding that the plaintiff knew that the defendant was suffering from mental incapacity at the material time, and only after that, I embarked upon the exercise of drawing the reasonable inference and eventually found that the plaintiff was in collusion with others[46].

48.  The plaintiff also argues that I erred in failing to properly apply the Browne v Dunn principle as the defence allegations of collusion and PW1’s knowledge of the defendant’s mental incapacity were never put to PW1 and that I eventually relied on those to find the Agreement illegal.

49.  The Browne v Dunn principle, that is, the duty to put case, is well settled and widely applied in both criminal and civil cases.  It is not an inflexible rule of procedure but in essence a matter of fairness.  As early as in that relevant case back in 1893, Lord Hershell LC observed that,

“there are cases in which the notice has been so distinctly and unmistakably given, and the point upon which he is impeached, and is to be impeached, is so manifest, that it is not necessary to waste time in putting questions to him upon it.”

50.  In HKSAR v Wong Wang Sang Stephen & anor[47], McMahon J further explained the principle that,

“31. Compliance with the principle of Browne v. Dunn does not require counsel to indulge in a mantra of questions with witness after witness in a formulaic display. All that is required is that counsel puts his case in such a way as to challenge the witness on those salient points of his evidence with which issue is taken. That challenge does not have to be express. It can be inferential so long as it is made clear that those particular aspects of the witnesses’evidence are not accepted: see HKSAR v. Lo Chun Nam [2001] 4 HKCFAR 1.”

51.  In HKSAR v Wong Tak Keung[48], Stuart-Moore VP (as he then was) when considering that “general rule in both criminal and civil proceedings”  of Browne v Dunn principle, cited the relevant paragraphs of Kaifull Investments Ltd v Commissioner of Inland Revenue [2002] HKLRD 858, that,

“… there was no breach of principle if the witness knew or ought to have known that his version of events was being challenged or that adverse inferences might have been drawn against him (at 859) … the principle did not inflexibly require every point which might be used against the witness to be put to him. The paramount consideration was fairness to the witness. In essence, the principle was breached, if in all the circumstances, an omission to cross-examine on a specific point was unfair to a witness (at 860)”

52.  Similar observations on that Browne v Dunn principle can be seen from the more recent authority cited by both parties at different stages, Leung Wing Yi Asther v Kwok Yu Wah[49], where Stock NPJ stated that “such an issue is always case specific” and that “a requirement to put to the witness in terms that they were not telling the truth would have been an insistence for form over substance”.

53.  This argument on the application of the Browne v Dunn principle  was in fact pursued by the plaintiff in the closing submissions[50].  I had accordingly dealt with it with reasons[51]. In summary, I found that those issues, in the circumstances of this case, were clear to both parties and there was no unfairness in any way to the plaintiff.

54.  The plaintiff lastly argues that no Court could properly have concluded in the circumstances that there was sufficient evidence for an inference to be drawn that there was any collusion.  These are matters of factual findings and drawing of inferences from them, for which I had provided my analysis and full reasons in the Judgment as aforesaid.

55.  Ground 5 also fails.

Disposal

56.  Having considered all the grounds of appeal advanced by the plaintiff, I am not satisfied that the appeal has a reasonable prospect of success, or that there is some other reason in the interests of justice why the appeal should be heard.  I accordingly refuse the plaintiff’s Application for leave to appeal.  The relevant summons dated 23 January 2019 is hereby dismissed.  There is no reason why costs should not follow the event.  I make an order that costs of this Application be paid by the plaintiff to the defendant, with certificate for counsel, and to be taxed if not agreed; and that the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.