COPYTRON (HONG KONG) LTD v. LEE CHIN LEONG

HCA1345/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1345 OF 2003

______________________

______________________

______________________

J U D G M E N T

______________________

Introduction

1.  The plaintiff, which is the Hong Kong arm of a Singaporean company which deals in computer printer toner and like products, has obtained judgment in default of defence against the defendant, who is also Singaporean and now resident there, and who was the plaintiff’s manager in Hong Kong between 1997 and 2002.

2.  The defendant has sought to have that judgment set aside before the master (Master Au-Yeung), and has obtained very limited relief from her, and this subject to very substantial terms.  He now appeals against that order. 

3.  Before I set out the material parts of the order that the defendant seeks to have set aside, it is helpful to briefly describe the nature of the action and the chronology which has led to the default judgment.

Background

4.  The period of the defendant’s employment with the plaintiff was from 21 March 1997 until his resignation on 22 February 2002, during which period he was also made a director of the plaintiff, which is controlled by Mr Terry Tan who oversees the plaintiff’s activities from Singapore where the main company is located.  It also operates in mainland China where it is managed by Mr Chen Guo-sheng.  The claim against the defendant, which I will need to consider in a more detailed way presently, is based on the allegation that he has grossly abused his position in Hong Kong by dishonestly getting the company to pay off his credit card and private telephone expenses to the tune of $200,000.  Additionally, and more seriously, he is said to have issued cheques to himself and paid these into his personal bank account in the sum of $878,762, as well as committing other blatant acts of fraud, which appear, and are particularised, in the amended-statement of claim, in excess of $540,000, which has either gone to himself or to other unauthorised persons.  The substance of the action, subject to closer analysis in due course, is that the plaintiff now seeks to recover these sums from the defendant.

Chronology

5.  The plaintiff’s case is that Mr Chen, its mainland China manager, first told Mr Tan of the defendant’s misconduct in June or July 2001.  As a direct result of this, Mr Tan and his wife came to Hong Kong and carried out a three-day investigation into the plaintiff’s books of account and documents.  In either November or December 2001 the defendant resigned - it is not absolutely clear whether this was as a direct result of the investigation by Mr and Mrs Tan - but he was prevailed upon to remain until February 2002 in order to assist a Mr Poon who replaced him.

6.  After further investigation following his departure, the plaintiff says that the defendant’s fraudulent activities were discovered, and six months later, on 15 August 2002, the plaintiff’s Singaporean lawyers wrote what amounted to a letter before action particularising the elements of the claim and seeking repayment of $2,157,121, which is a sum far in excess of what is now sued for. 

7.  Irrespective of the difference in the amount, this was the first intimation of a claim by the plaintiff against the defendant.  This letter was ignored by the defendant.  I have to say that having regard to what he now says is the truth of the matter, his silence in the face of such serious charges is not helpful to his case.  The writ was long in coming.  It was issued six months later on 11 April 2003, and after leave was obtained to serve it outside Hong Kong, it was served personally on the defendant in October 2003, as well as on his solicitors in Hong Kong (not those who now represent him), who acknowledged service and indicated an intention to defend. 

8.  No defence having been forthcoming, judgment in default was obtained on 11 December 2003.  On 2 January 2004, the defendant filed a notice of his intention to act in person.  Nothing appears to have occurred until June 2004, when the plaintiff applied to the Supreme Court of Singapore to register the judgment with a view to its enforcing it there.  This resulted in the defendant instructing lawyers in Singapore to contest registration and on 6 December 2004 he instructed his present solicitors to file their notice to act for him with a view to setting aside the judgment.  The effect of this application is that the Supreme Court in Singapore has adjourned the application to register the judgment in that court in order to await the outcome of this application.

The judgment in default

9.  In order to understand the two orders made by the master on 10 and 24 November 2004, respectively, it is necessary to set out the terms of the judgment in default to which the orders relate.  As I have already observed, it is dated 11 December 2003.  Its material parts are these: [see page 23]:

“	Final and Interlocutory Judgment
	...It is this day adjudged the defendant do pay the defendant:-
	(1)	the sum of $1,411,533.61, together with interest thereon at the rate of 8 per cent per annum, from 11 April 2003 to the date hereof, thereafter at judgment rate until payment;
	(2)	damages to be assessed for the defendant’s conversion of the goods, as pleaded in paragraphs 32 and 44 of the statement of claim.
	(3)	damages to be assessed for the defendant’s breach of his duties owed to the plaintiff, as pleaded in paragraph 8 of the statement of claim.”

10.  It is to be observed that the judgment is in two parts, being both final as to one amount, and interlocutory for damages to be assessed, as to the other.

The Apparent Explanation of the Form of the Judgment

11.  In order to understand how this comes about one needs to refer to the amended statement of claim.  The claim itself is framed under seven heads, A to G. “A” is for $193,463.61, which relates to the settlement of the defendant’s credit card bills which comprised his personal expenditure.  “B” relates to the settling of his private telephone account in the sum of $7,750.  “C” relates to a cheque drawn by the defendant on the plaintiff’s bank account in the sum of $73,150, payable to a person called So Sheung-ming of Universal Well Developed Company Limited.  It is alleged that the plaintiff was not indebted to such a person or company.  “D”, the largest element of the claim, is for $878,762 made up of six cheques drawn on the plaintiff’s bank account and paid by him into his own bank account.  “E” is a claim for $113,370 resulting from the alleged creation of two fictitious invoices in the name of a company called Chung Wah Industrial Company, for goods sold and delivered to the plaintiff in the amount of $144,560.  The case against him is that no such goods were in fact sold.  The transaction was entirely bogus.  He is said to have issued a delivery order to Chung Wah for goods sold and delivered to it for $113,370.  No such goods were in fact sold or delivered to Chung Wah.  Nevertheless the items referred to in the delivery order are missing from the plaintiff’s stock.  He is then said to have applied the sum of $113,370 under this delivery order, payable to the plaintiff by Chung Wah, to the plaintiff as a partial set-off for the sum of $145,560 under the two fictitious invoices, payable by the plaintiff to Chung Wah. He then drew a cheque for $32,190 on the plaintiff’s bank account and paid this into his own bank account.  The amount of $32,190 is the difference between $145,560 and $113,370.  In such circumstances, it is alleged that he has converted the plaintiff’s goods valued at $113,370 referred to in the delivery order.  “F” is for $258,528, relating to a sale of goods by the plaintiff to a company called Jie Teng Commercial Company Limited of Hong Kong.  The defendant instructed Mr Chen Guo Biao of Jie Teng to pay this amount into his personal bank account, which he kept.  Finally, “G” relates to the sum of $100,480.  He is said to have created four fictitious delivery orders from the plaintiff to a company called Improvement Company, purporting to represent the sale of goods to this company for this amount.  No such goods were in fact sold to this company and yet the goods referred to in the delivery orders are missing from the plaintiff’s stock.  The claim under this head is for the value of the goods.

12.  The form of the judgment is to enter final judgment in respect of heads A, B, C, D and F, and only an interlocutory judgment in respect of heads E and G.  The reason for this, according to the plaintiff, is that all the amounts under A, B, C, D and F are readily ascertainable liquidated amounts, which the defendant has had, for which a final judgment is available, the total of these heads of claim being $1,411,553.61.

13.  In respect of E and G, these relate to the claimed value of the missing stock, which will require evidence to be led as to the quantification of the value of the stock and therefore the loss to the plaintiff.  In such circumstances, only an interlocutory judgment can be entered, with damages to be assessed.

The Master’s Orders

14.  Having heard the argument, she was persuaded to adjust the default judgment.  As to heads A, B and C, for which final judgment had been entered she allowed that judgment to stand, as she did in respect of heads E and G, for which interlocutory judgment had been obtained.  In respect of heads D and F, for which final judgment had been obtained for $1,137,190, being the bulk of the final judgment of $1,411,553.61, she considered it right to set aside the judgment on terms that the defendant should bring into court the entire amount of these claims [$1,137,190] within 21 days, as well as a further sum of $350,000 as security for the plaintiff’s costs up to the close of discovery.  She also ordered the defendant to pay the plaintiff’s costs in respect of the heads of claim for which judgment was to stand [A, B, C, E and G] and in addition she ordered him to pay $250,000 being the assessed costs of the plaintiff grossed up in respect of the application before her for the setting aside of the judgment.  These orders are at 30A-B and 30D-E of the bundle.

15.  Before imposing these terms the master held an inquiry, including the extent to which the defendant was capable of meeting such terms.  Failure to comply with the terms within the 21 days specified in the order will result in the plaintiff also being able to enter final judgment under these two heads.

The Appeal

16.  Miss Wee, who appears for the defendant, has attacked the master’s orders on two distinct bases.  Firstly, on technical grounds, that the form of the claims are not amenable to entry of a final judgment and that, as a result, the judgment is an irregular one and should be set aside as of right.  If she fails on this aspect, Miss Wee submits that on the merits, the facts being heavily contested on the affirmations, judgment should be set aside.

Was this a regular judgment?

17.  The question that I need to decide is whether the amounts for which final judgment has been entered are properly within the definition of a liquidated demand.  Order 19 rule 2 of the Rules of the High Court provides for the entry of a default judgment for such a demand.  For these purposes, a liquidated demand is, of course, a readily ascertainable sum.  It therefore becomes necessary to look at the nature of the claims under heads A, B, C, D and F to determine whether these claims come within this category.  These are all for sums of money the defendant is said to have either taken for himself by having the amounts paid into his own bank accounts or which are for debts [A and B] which he incurred and which he caused the company to discharge on his behalf.

18.  Notwithstanding Miss Wee’s sustained argument to the contrary, I am convinced that these are liquidated demands, readily ascertainable, for which a final judgment is available in the plaintiff’s favour.  It seems to me that just because the case has been put in the alternative, such as for damages for conversion of the cheques or for damages for breach of duty by virtue of his relationship with the plaintiff as employee and/or director, cannot alter the primary character of the claim and its basis.  These are all specific amounts of money that it is said the plaintiff has had and which he must now return.

19.  I uphold Mr Chan’s submission that as a matter of construction, these claims are properly described as liquidated demands for which the appropriate form of judgment has been entered.  These are regularly obtained judgments.  This part of Miss Wee’s criticism of the judgment must fall away.  There is also nothing in the point that, by adding up the heads of claim [A, B, C, D and F] to produce a composite judgment, this will somehow vitiate the judgment.  The point is that this total represents a liquidated and certain amount.

20.  The other aspect that Miss Wee has questioned is the way in which the claims have been couched in alternative form which she submits somehow gives rise to a double claim.  This also cannot hold in my judgment.  The plaintiff has now had its judgment and the alternatives must, as a matter of course, fall away.  There is no question of any possible double recovery.  For all these reasons, therefore, the judgment is a regular one.  No criticism is levelled at the interlocutory judgments with damages to be assessed.  Clearly, these are claims for unliquidated amounts for which an inquiry will be necessary before the award can be calculated.

The Merits

21.  The Rules show that attacking a regularly obtained judgment presents distinct problems for a defendant.  He needs to do better than a defendant facing an Order 14 application.  He needs to establish a position where it can be said that he has a “real prospect of success”.  The rubric of the Rule [Order 13/9/14] says that a defendant “...must satisfy the court that his case, and the evidence that he adduces in support of it, is potentially credible and carries some degree of conviction”.  See “The Saudi Eagle [1986] 2 Lloyd’s Rep. 221.  Nevertheless there is an alternative approach to this which also appears in Order 13/9/14 to this effect:

“However, where the ultimate outcome would depend on whose evidence is believed, and no provisional view of the probable outcome of the action can be fought without a trial, the appropriate test to determine whether the defendant has a real prospect of success is whether the defence ‘could well be established’ at trial.”

See Allen v Taylor [1992] PIQR 255 at 259 and a number of other cases, both here and in England, which are to the same effect.

The Affirmation Evidence

22.  What can undoubtedly be said on the defendant’s behalf is that he has mounted a robust and lengthy defence on paper, seeking to provide detailed explanations for each of the heads of claim.  The evidence is there to be read and I do not propose to rehearse it here again.  Central to his defence is that the plaintiff, and he, on the plaintiff’s behalf, on Mr Tan’s directions, has systematically dealt in counterfeit goods for which convictions have been entered both here and in Singapore, and it is this that has driven much of what he has done and, indeed, explains much of what he has done. 

23.  Another aspect of his case is that had he really committed such defalcations, these would have been picked up in successive audits of the plaintiff’s accounts.  Nothing irregular was in fact discovered.  Miss Wee has also referred to the fact that in September 2001, Mr and Mrs Tan had come to Hong Kong, as I have already recounted, and carried out an investigation of their own, but again to no avail.  She also points to the delay in bringing the action following the defendant’s departure.

24.  What all this comes to, submits Miss Wee, is at the very least, a situation of the type where the ultimate outcome must depend on whose evidence is believed, and no provisional view of the probable outcome of the action can be formed without a trial.  In such circumstances, she says I should set the judgment aside in its entirety.  Mr Chan has subjected the defendant’s affirmations to close analysis and he submits that when one does that exercise, there is no room for the defendant to wriggle out of this judgment.  His submissions have been helpfully set out in his written argument at paragraphs 44 to 63, to which I have had regard.

My conclusions on the affirmations

25.  This is not an easy case.  On the one hand the defendant has allowed the action to go by default, and he did not even bother to reply to the letter before action, which tells against him on the question of the general credibility of his assertions.  Nevertheless, it seems perfectly clear that the plaintiff, run as it was by Mr Tan, had been operating illegally by dealing in counterfeit products, for which convictions have been entered in two jurisdictions.  This fact would not of itself disentitle it to judgment, provided the evidence was there to support it.  Having stood back from the factual dispute, and considered its overall effect, I am left with a sense of unease about the whole operation of the plaintiff’s business.  Nevertheless Mr Chan’s analysis of the evidence in support of the judgment I have found to be persuasive.

26.  All of this having been said, it seems to me that this is a dispute that should go to trial, but on terms.  Whilst the defendant has demonstrated that he should not be driven from the judgment seat, the case put forward by him has an all-pervading mantle of suspicion which requires me to impose terms, as the master did.  For my part, I consider that the whole judgment should be set aside, really as a matter of logic.  The general defence that has been put forward covers all of the claims, and whilst claims A and B, in particular, may be said to be, on their face especially impressive, the fact remains that the defendant has offered a global explanation, which should go to trial. 

The Result

27.  I propose to direct that the defendant should bring into court a total of $1.2 million within 21 days.  I have increased the amount of the master’s order slightly to reflect the fact that the defendant will now have leave to defend the entire claim.  I do not believe it would be right to order the entire amount in the amended statement of claim to be brought into court where I have recognised that there is sufficient reason to allow the whole of the action to go to trial; this is very much a matter of broad judgment and feel rather than the adoption of any strict mathematical approach.  This sum must be paid in within 21 days.  The consequences of failure to pay in will be as the master has directed.