HUAXIN (HONG KONG) CO LTD v. CHEERFUL CORPORATION AND OTHERS

HCA621/2003

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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1. This is an action by a moneylender. The 1st defendant is the borrower, and the 2nd and 3rd defendants the guarantors.

2. The 2nd and 3rd defendants have various defences. They say that in fact their guarantee covers only the first of two loans and that loan has been paid off. They also say that the claim is unenforceable because the plaintiff has failed to comply with sections 18, 20 and 22 of the Moneylenders' Ordinance, Cap.163.

3. It is not clear whether the plaintiff takes issue with the averments of failure to comply with sections 18 and 22. From the documents, these averments seem incontrovertible. In any event, however, the court has a discretion under those sections to enforce the loan even where there has been non-compliance.

4. It is not in dispute that the plaintiff failed to give the 1st and 2nd defendants the notice which a lender must give to a guarantor under section 20(1). Sub-section (4) thereof provides :

"(4) If a money lender fails to comply with subsection (1) or a request to which subsection (2) applies he shall not be entitled, while the default continues, to enforce the security so far as provided in relation to the agreement."

5. By a summons dated 28 April 2003 the plaintiff applied to discontinue the action against the 2nd and 3rd defendants. The matter came before Master Woolley who on 13 June 2003 ordered that under Order 14A of the Rules of the High Court, there be judgment for the 2nd and 3rd defendants on the plaintiff's claim against them; that the plaintiff's summons be dismissed; and that the plaintiff pay the 2nd and 3rd defendants' costs. The plaintiff appeals against the Master's order and seeks in substitution thereof the discontinuance originally sought and further an order that :

"The question as to whether the plaintiff should be permanently barred from commencing any fresh action against the 2nd and 3rd defendants for the same or substantially the same causes of action be adjourned pending the Court of Final Appeal's decision in the appeal against the Court of Appeal's judgment in Emperor Futures Ltd. and another v. La Belle Fashions Ltd & Ors [2003] 1 HKLRD 424."

6. According to Counsel's skeleton argument on the summons, the plaintiff applied for discontinuance on the basis that it intended to remedy its default under section 20(1), commence fresh proceedings against the 2nd and 3rd defendants on the same causes of action once the default ceased, and in due course to apply for consolidation of these proceedings and the new proceedings.

7. In Emperor Futures Ltd the Court of Appeal held in effect that a defect in giving the required notice under section 20(1) was not curable. Rogers VP said :

"Section 20(1) is clear in its terms that the copy of the note or memorandum must be provided within 7 days of the making of the agreement to give surety. In contrast, section 20(2) which requires the provision of a statement after a request has been made, contains no time limit for providing the statement. When the section is read as a whole it is clear that the failure to provide the copy of the note or memorandum within 7 days is a breach. It is not a continuing default. It is a default which occurs at the conclusion of the seventh day. There is therefore no question of the default ceasing : if the copy of the note is not provided within 7 days the breach has occurred and a copy of the note could never be provided as required within subsection (1) namely within 7 days of its making. In contrast, section 20(2) simply requires the furnishing of a statement. Any failure to provide such a statement can be rectified at any stage because there is no time limit."

8. The appeal against this decision is to be heard by the Court of Final Appeal on 13 October this year, i.e. less than a month hence. However, as the law presently stands (or, as Mr Coleman for the plaintiff would have it, as the law is presently stated) the plaintiff has no cause of action against the 2nd and 3rd defendants because it is barred by statute from enforcing its security against them.

9. The plaintiff argues that a plaintiff will normally be allowed to discontinue provided that no injustice will be caused to the defendant. Whether any term should be imposed as a condition of discontinuance is a matter of discretion to be exercised against the totality of the circumstances, and only if necessary for the protection of the defendant or in the public interest. Here there is no question of injustice to the defendants being caused by discontinuance. The bar which the defendant seeks is sought on the basis that any future claim is bound to fail. But this is not necessarily so; for the point of statutory construction on which the defendants rely is to be considered by the Court of Final Appeal, and that court might rule differently from the Court of Appeal. If the Court of Final Appeal upholds the Court of Appeal, that is in effect the end of the matter; the plaintiff cannot institute fresh proceedings because they would be an abuse of process. But if the Court of Final Appeal holds that the failure to comply with section 20 is curable, then it would be unjust to let the defendants "off the hook" by imposing the bar, or by letting the Order 14A judgment stand.

10. Further, says the plaintiff, if the proceedings are discontinued there is no extant issue of law to be decided under Order 14A. If there is such an issue, I should follow the three-step process laid down in Rockwin Enterprises Ltd v. Shui Yee Ltd & Ors (unreported, HCA 19629 of 1999) but should, even if I find that there is a question to be determined under Order 14A, in my discretion decline to embark on that determination at this stage, precisely because of the pending appeal.

11. The defendant argues that the plaintiff in seeking to revive the possibility of further proceedings arising from the same facts is seeking to abuse the process of the court. The modern approach is not to allow the resurrection of discontinued claims. There are no compelling or exceptional reasons for a stay pending the outcome of the appeal to the Court of Final Appeal; the decision of the Court of Appeal is binding until reversed. Further the defendants will suffer prejudice if there is delay; they are entitled to certainty and to the speedy resolution of the case against them. The plaintiff has by seeking discontinuance conceded that it has no arguable claim against the 2nd and 3rd defendants.

12. I do not know how the question of Order 14A came before the Master; the summons was merely for discontinuance. The Order 14A determination could have been applied for orally or made of the Master's own motion. In any event I have to deal with the matter on the basis that it comes before me de novo.

13. As I have indicated, as the law now stands, the plaintiff has no case in law against the 2nd and 3rd defendants because the failure to comply with the provisions of section 20 is not curable. The plaintiff could have discontinued without leave under Order 21, rule 2 but did not. At this stage, it seems to me, discontinuance is not appropriate. The plaintiff has no case in law and the defendant is entitled to a judgment to that effect. There is no point in allowing discontinuance on the terms that no further action be brought. This is not the kind of case where discontinuance is sought in order to avoid evidential difficulties or the like. There is no case in law, so to bring it on again would be an abuse of process in any event.

14. I do not see that I can take a different approach because an appeal is pending. I am bound by the decision of the Court of Appeal. There is no particular reason, or I have not heard any, to expect that the Court of Final Appeal will overturn the Court of Appeal on the point. In any event it would be wrong in principle for a court to fail to apply the law, because there is a chance that a higher court will declare the law to be different. There is always that possibility but one has to deal with matters as they are now.

15. It seems to me, therefore that in the circumstances it is proper that the defendant should have a judgment in its favour. The case is an appropriate one for the application of Order 14A. There is no good reason for the exercise of discretion to decline to apply Order 14A. The appeal is accordingly dismissed with costs (nisi) to the defendant to be taxed if not agreed.