LAU KWOK YIN v. CHEONG TIT PING

HCA4559/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4559 OF 2002

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J U D G M E N T

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1. This is an appeal against the order of Master T.L. Wong dated 15 April 2003, dismissing the plaintiff's application for summary judgment.

2. The plaintiff's claim is for $714,000.00, being the balance of a loan with agreed interest thereon. He avers that the defendant was indebted to the plaintiff for $1,200,000.00 being the outstanding balance of a loan lent by the plaintiff in 1997. On 17 April 1999, the defendant wrote and signed an IOU to the plaintiff for this sum, with interest at the rate of 1% per month. The plaintiff was then proceeding with a small house application and it was agreed that the principal should be repaid in full when the application was granted. It was granted in March 2001. The plaintiff demanded repayment. The defendant settled part of the debt leaving a balance of $700,000.00, which the plaintiff claims with interest for the months of October and November 2002, and continuing until payment.

3. The defendant denies the first three paragraphs of the Statement of Claim; that is, he denies that owed the plaintiff $1,200,000.00, that he wrote and signed the IOU, and that the parties orally agreed that interest should be paid on the 25th day of the month. He admits that he knew of the plaintiff's small house application but denies the other averments concerning it.

4. By way of counterclaim, the defendant avers that in about July 1996, he lent the plaintiff $200,000.00, and in September 1996, he lent him a further $30,000.00. The plaintiff told him at the end of 1996 that he and his relatives, being indigenous New Territories villagers, would make small house applications. In April 1997, the plaintiff agreed to put up $1,000,000.00 for the purchase of a half interest in Lot No.723 in DD 193 ("the lot"), in respect of which the plaintiff's nephew was making a small house application, in consideration of which the plaintiff was to procure his nephew to transfer the lot and the house, once built, to the defendant, subject to the nephew's retaining one floor of it. The $1,000,000.00 advance was to include the earlier advances. Pursuant to this agreement, the defendant advanced $800,000.00 to the plaintiff in April 1997. He also paid $77,504.00 as the costs and miscellaneous expenses of the nephew's small house application. In about March 2001, the plaintiff informed the defendant that the nephew's application was granted, but the nephew refused to make the transfer. The defendant demanded repayment of the sums he had put up but the defendant failed or refused to pay them. The defendant says he has suffered loss and damage amounting to $1,107,504.00. Alternatively, the consideration for the payment thereof has wholly failed. The defendant counterclaims for loss and damage, alternatively for $1,107,504.00 being money had and received.

5. The plaintiff has filed a defence to the counterclaim, and a counterclaim to the counterclaim. His case is that he and four others each owned a one-fifth share in the lot. In April 1997, the plaintiff and the defendant agreed that the plaintiff would procure the defendant to acquire an interest in the lot for $1,500,000.00, of which $800,000,00 was to be paid forthwith and the balance when the small house permit for the lot was issued. The plaintiff was to buy out three of the others, and the transfer the lot to the remaining one who is his nephew, and his son. The nephew was to apply to build a small house, and the defendant was to pay the cost of building it, as well as all legal and government fees. Once the house was built, the nephew was to assign all but one floor to the plaintiff who would then transfer it to the defendant. Pursuant to this agreement, the defendant paid up $800,000.00; the plaintiff bought out the other relatives; the small house permit was granted in February 2001; but when the plaintiff asked for the second payment of $700,000.00, the defendant refused to pay it. So, the plaintiff counterclaims against the counterclaim for damages to be assessed, for breach of the contract.

6. The plaintiff now says that this is an open-and-shut case of money due on a loan, and he should have summary judgment forthwith. The defendant, however, says that there is an issue as to the interpretation of the interest rate on the IOU and the intention of the parties in that connection, and an issue as to set-off.

7. The plaintiff has obtained a certified translation of the IOU, the original of which is signed by both parties. It reads :

"It is hereby certified that Cheong Tit Ping owes Mr. Lau Kwok Yin a sum of Hong Kong Dollars One Million and Two Hundred Thousand Dollars (HK$1,200,000.00) and is willing to repay the debt, with a monthly interest of 1%. This is the evidence."

8. The defendant has filed a late second affirmation in which he says that the translation is wrong; the two characters concerned were wrongly translated as 1% instead of 10%. The affirmation was admitted by agreement, subject to the editing out of a paragraph in which the defendant states his understanding that the interest was 10% per month.

9. The use of certified translations in court proceedings is regulated Rule 2 of the Official Languages (Translation) Rules, Cap.5 sub. leg. The court is to admit a certified translation, and presume in the absence of evidence to the contrary that it is an accurate translation. The translator may be summoned and examined on the content of the certified translation.

10. The defendant has not summoned the translator to examine him on the translation. I am told that the plaintiff arranged for the translator's presence before the hearing, but the defendant elected not to call him. It is argued for the plaintiff that in the circumstances, the defendant cannot dispute the translation. However, counsel for the defendant argues that the court must only presume the translation accurate "in the absence of evidence to the contrary", and the defendant has himself given such evidence. There is a triable issue as to what the parties actually agreed.

11. I note that the learned Master seems to have found some uncertainty in the translation because he recorded that the interest recorded in the affirmation could be void for exceeding the maximum allowed under the Moneylenders' Ordinance. Nevertheless, it seems to me that there is nothing in this point. If the defendant were really seeking to attack the translation, he could have had the translator examined on it. More to the point, he has not pleaded that the loan is unenforceable by reason of an illegal interest rate; he has simply pleaded a bare denial of the loan.

12. The plaintiff argues that the defendant's case is to be treated with the utmost caution, precisely because there is only a bare denial of the debt, because the issue of another contract, giving rise to the counterclaim, was never raised before the defence was filed, and because the defendant's evidence is extremely sketchy. In his affirmation, he does not directly deny the loan but simply states that he has been advised that his counterclaim is liquidated and can be set off at law against the plaintiff's claim and that the question of whether he is entitled to recover the amount of his counterclaim raises a triable issue.

13. It is certainly true that the defence is a bare denial. The defendant, while he denies having written and signed the IOU does not condescend to particulars as to how what appear to be his signature and identity card number are on it, e.g. by forgery. It is also true that the issue of the contract was not raised before the counterclaim was filed. At the same time, the plaintiff has put forward as a counterclaim to the counterclaim allegations of breach of what appears to the be the same contract, when the defendant failed to pay $700,000.00; and no previous claim seems to have been made in respect of that.

14. On the question of set-off it is argued for the plaintiff that there can be no legal set-off because the defendant's counterclaim is for unliquidated damages. There is no evidence that the defendant treated the contract as being at an end, and therefore he has no liquidated claim for repayment. There can be no equitable set-off because the counterclaim arises out of a separate and distinct transaction or is wholly foreign to the claim.

15. The orders which may be made in this situation are set out in the Hong Kong Civil Procedure 2002 at paragraph 14/4/14 :

"An analysis of the authorities as to what orders should be made where the defendant raises a set-off or counterclaim shows that there are four different classes or groups of such orders, namely:

(a) where the defendant can show an arguable set-off, whether equitable or otherwise, he is entitled to unconditional leave to defend to the extent of the set-off and the court had no discretion;

(b) where the defendant sets up a bona fide counterclaim arising out of the same subject-matter as the action and connected with the grounds of defence, the order should not be for judgment on the claim, subject to a stay of execution pending the trial of the counterclaim, but should be for unconditional leave to defend even if the defendant admits the whole or part of the claim;

(c) where there is no defence to the claim but a plausible counterclaim for an amount not less than the plaintiff's claim is set up, judgment should be for the plaintiff on the claim with costs, stayed until trial of the counterclaim;

(d) where the counterclaim arises out of a separate and distinct transaction or is wholly foreign to the claim judgment should be for the plaintiff with costs without a stay; the lack of clarity between classes (b) (c) and (d) gives the court freedom to respond to the perceived justice of the individual case. (United Overseas Ltd. v Peter Robinson Ltd., unreported, March 26 1991, CA Transcript 91/0297, Per Bingham LJ)."

It is argued for the plaintiff that the defendant cannot show an arguable set-off, whether legal or equitable, so the case does not come into class (a). The counterclaim arises out of a separate and distinct transaction and one which is foreign to the claim, so the case comes into class (d).

16. The defendant's arguments are that the sum claimed by counterclaim is a readily ascertainable and liquidated sum of $1,107,504.00 which would extinguish the plaintiff's claim. The defendant pleads total failure of consideration; this means that he treats the contract as void ab initio; therefore he is entitled to a legal set-off of his liquidated claim for what he has paid out. So far as equitable set-off is concerned, the counterclaim is closely connected with the same transaction as gives rise to the claim because the plaintiff claims that the loan became due when the small house permit was granted. There was only one small house application, though the pleadings do not make that clear. As I understand it the defendant would put his case either in class (a) or class (b).

17. Sakhrani J explained the difference between legal and equitable set-off in Heng Hing Metal Factory Ltd v. Unionwest Ltd, HCA No.9328 of 2000, as follows :

"The difference between the defence of legal set-off and equitable set-off is succinctly set out in the judgment of Leggatt L.J. in Axel Johnson Petroleum A.B. v. M.G. Mineral Group A.G. [1992] 1 W.L.R. at p.270-274 H :

'....... the state of the law is unsatisfactory that allows a set-off at law of debts which are liquidated, even if unconnected, and in equity of debts which are connected, even if unliquidated, but not a set-off of debts which are both unliquidated and unconnected.'

Legal set-off is available as a defence even where it is unconnected with the plaintiff's claim provided it is a liquidated claim. Equitable set-off, however, is only available where a cross-claim is for a sum of money which is so closely connected with the claim that it goes to impeach the plaintiff's title to be paid and raises an equity in the defendant, making it unfair that he should pay the plaintiff without deduction. There must, however, be a sufficiently close connection between the claim and the cross-claim (para. 430 Vol. 42 Halsbury's Laws of England 4th Edn. Reissue 1999)."

18. The first prayer in the plaintiff's counterclaim is for "loss and damages as pleaded in paragraph 17", i.e. the exact sum of $1,107,504.00. I am not entirely clear why this should not be regarded as a liquidated claim.

19. There is, unfortunately, little real evidence from either side on the question of whether there is a sufficiently close connection between the plaintiff's claim and the defendant's counterclaim. What appears in the defendant's first affirmations is mostly legal argument. The plaintiff in his second affirmation says that the counterclaim is unconnected to his claim, but he does not go further than that; he simply says what his legal advisor has advised him.

20. The Statement of Claim appears to say that there was a loan by the plaintiff to the defendant of an unspecified amount, but more than $1,200,000.00, in 1997. No agreement was made about repayment until 17 April 1999 when the IOU was made. But the principal sum was not to become due until the plaintiff obtained a grant in respect of "his" small house application.

21. The Defence and Counterclaim says that there were, in 1996-1997, advances by the defendant to the plaintiff of $200,000.00, $30,000.00 and $800,000.00. The agreement between the parties related to a small house application which was not directly the plaintiff's, but that of his nephew. The defendant was to get two of the three floors of the house, once built. It is not clear whether the house was ever built or who paid for that. The defendant says that he did not get the transfer of "the land" which appears to mean the lot, and now he wants his money back.

22. The Defence and Counterclaim to Counterclaim appears to refer to the same small house application as that referred to in the Defence and Counterclaim. Here, however, it appears to be an application by the plaintiff's son and the plaintiff's nephew, to build a small house on half of the lot. The defendant had to pay to build the house and he had to pay $1,500,000.00 for an interest in the lot. He was to get all but one floor of it. He paid the first $800,000.00 leaving a balance of $700,000.00 payable on the issue of the permit; and that latter sum he refused to pay. So now he claims damages to be assessed; but he seems to be saying that the defendant owes him at least another $700,000.00 on top of that for which he claims as the balance of a loan.

23. Thought the defendant obtained leave to file a rejoinder, none has been filed. Nor does his affirmation reply to the allegations in the Counterclaim to Counterclaim, though it is dated later.

24. I raised with counsel the question of whether the small house application referred to in the Statement of Claim was the same as that referred to elsewhere. He pointed to the averments at paragraph 10 of the Defence and Counterclaim that :

"...the plaintiff indicated to the defendant that he and his relatives...were going to apply to build small houses in their village"

This appears to be relied on as indicating that the plaintiff must have had his own small house application going on, in respect of some other land and that the loan for which he now claims was only connected with that application, in that it became due when the permit was issued, and has nothing whatsoever to do with the small house application in respect of Lot No.723. That is all very well, but pleadings are not evidence. It does not make the position sufficiently clear.

25. Order 14 is for crisp, simple issues. As Rogers JA said in Ng Lung Sang Anita v. Lam Yuk Lan [1999] 4 HKC 106 at 111 :

"The old adage that if you have to sit down, it is not a case for Order 14 is equally applicable today as it was when it was first coined."

26. On the surface the plaintiff's claim looks crisp and simple enough, but the more one looks at the pleadings, the more unclear it all seems. This is particularly so given that there is nothing much in the affirmations except recitals of what the parties have been advised.

27. In the circumstances, I am not satisfied that the counterclaim arises out of separate and distinct transaction or is wholly foreign to the claim. If it does, there may be an equitable set-off. In any event, I am not sure that the defendant's claim is to be regarded as unliquidated, and if it is not, there could be a legal set-off. So the case may come into class (a), but I cannot say that it comes into class (d). Nor can I say that it comes into class (c). It is not obvious that there is no defence to the loan. The plaintiff should not simply have judgment. It seems to me that the counterclaim probably arises out of the same subject-matter as the action and is probably connected with the grounds of defence, so that the case comes into class (b). In the circumstances, the proper order must therefore be for unconditional leave to defend.

28. The learned Master dismissed the plaintiff's application for summary judgment, and ordered costs in favour of the defendant in any event with certificate for counsel. I cannot see any point in my now giving the defendant unconditional leave to defend, because a defence and counterclaim and indeed further pleadings have already been filed. I think the proper order to be made now is an order simply dismissing the plaintiff's appeal. As to costs, though the plaintiff has succeeded on the translation point, he has not succeeded in obtaining summary judgment, so is in the same position as before and the costs must be awarded against him.

29. The appeal is therefore dismissed, with costs (nisi) to the defendant in any event.