MTR CORPORATION LTD v. CHINA LUCK ENTERPRISES LTD AND OTHERS

HCA 1633/2021

[2024] HKCFI 1099

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1633 OF 2021

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JUDGMENT

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I. INTRODUCTION

1.  I refer to my Judgment of 13 March 2024 in these proceedings.  The speedy trial to which I referred in that Judgment took place before me today.  The background facts were set out in sections I and II of my previous Judgment and will not be repeated here.  I will use the same abbreviations in this Judgment that I used previously.  The key issue that I must determine is whether Chan signed the Surety Deed.  Chan was represented by solicitors and counsel at the hearing before me on 13 March 2024.  In today’s trial, he appears in person.

II. DISCUSSION

2.  Having heard Chan’s cross-examination by Mr. Tom Ng (appearing for the MTR) and Chan’s responses to my questions from the bench, I have concluded that the signature on the Surety Deed is not his.  In all probability, Leung and Cheung forged his signature on that document.  In other words, I accept Chan’s evidence to be true.

3.  As mentioned in my previous Judgment, Chan’s case is that he was unaware of the Surety Deed purportedly signed by him until after the summary judgment hearing on 21 November 2022 before Master Lai.  Under cross-examination before me, Chan clarified that, until he saw the Surety Deed, he thought that he was being pursued by the MTR because he had been a director of China Luck when the Tenancy Agreement was executed on 1 June 2018.  He equated being a director with being a guarantor for the payment of a company’s debts.  In 2019, Chan ceased to be a director of China Luck, but remained a shareholder.  Nonetheless, Chan believed that, having been a director when the Tenancy Agreement was signed, he remained liable as a guarantor of China Luck’s debts to the MTR under the Tenancy Agreement, including for unpaid rent and fees.  For this reason, on several occasions, Chan referred to himself as “本案的擔保人”.  Chan’s erroneous view as to a director being ipso facto a guarantor was reinforced by what had been briefly explained to him of his liability by WHS (then acting as solicitors for China Luck, the Leungs and Chan at the early stage of these proceedings).  WHS never showed Chan (or asked him about) the Surety Deed.  Instead, WHS simply referred in Chan’s presence to Chan being sued as a guarantor.

4.  Prior to and immediately after the summary judgment hearing before Master Lai, Chan (by then acting in person) was unaware that he was entitled to see the documents in this case as a party to these proceedings.  Chan could not obtain case documents from WHS, as the firm had not been paid by China Luck or the Leungs and was exercising a lien over the case papers in their possession.  Chan was likewise unable to obtain company documents from banks and other institutions because he was no longer a China Luck director in 2022.  Chan only saw the Surety Deed after the summary judgment hearing, when the MTR was pressing him for payment of what was due pursuant to Master Lai’s judgment.  At the time, Chan decided to conduct further investigation into the case and, with the advice and assistance of a solicitor friend, finally obtained copies of the court documents relating to this case.  It was then that he realised that he was being sued not as a former director, but as an alleged signatory of the Surety Deed. 

5.  Before the substantive summary judgment hearing in front of Master Lai, there had been a directions hearing in front of Master Matthew Leung.  In his Order dated 8 August 2022 at the end of the directions hearing, Master Leung recited that he had seen the Affirmation of Au Yin Tin filed on 13 July 2023 in these proceedings.  That affirmation referred to the Surety Deed, stating that it had been executed by Cheung and Chan.  The affirmation exhibited the Surety Deed. But, despite having appeared before Master Leung on his own behalf, Chan never saw (much less read) the Affirmation of Au Yin Tin.  Chan did not realise that he was entitled to a copy of the same and did not ask for a copy. 

6.  On 21 November 2022, Chan appeared in person before Master Lai.  The Surety Deed was specifically mentioned by Master Lai at the time.  But that was in the context of monies (in particular, interest) due under the Tenancy Agreement and Chan mistakenly thought that Master Lai was referring to the Tenancy Agreement and Chan’s liability as a guarantor thereunder because he had been a director of China Luck when the Tenancy Agreement was signed.

7.  Mr. Ng in closing submitted that Chan’s account was implausible, given that Chan has an MBA from HKUST and must be taken to understand what a Surety Deed is.  But Chan is not claiming ignorance about the nature of a Surety Deed.  Instead, the difficulty arises because Chan has a confused idea of the scope of a director’s legal liability.  Chan is not a lawyer, and this case demonstrates that often a little legal knowledge may be worse than no legal knowledge.  In response to questions from Mr. Ng and myself, it became apparent that Chan has been (and might still be) labouring under a misapprehension that, merely by being a director, one becomes legally liable to make good a company’s debts as some sort of quasi-guarantor.  This misconception led Chan mistakenly to regard the proceedings against him up to the summary judgment hearing as the consequence of his having been a director of China Luck.  As a result, he never questioned why he was being sued as a surety.  Never having signed and having no knowledge of the Surety Deed, he never considered that there was some other basis for the proceedings against him, until he finally obtained the documents in this case. In my view, seen in context, Chan’s conduct is entirely plausible.

8.  Mr. Ng stressed the Statement of Truth at the end of the Defence in this action.  Paragraph 9 of the MTR’s Statement of Claim pleaded the Surety Deed and alleged that the same had been executed by Cheung and Chan.  The Defence responded in its paragraph 5: “The Defendants admit the Surety Deed and the terms of the Surety Deed as pleaded in Paragraph 9.”  The Defence as filed on behalf of all the defendants was verified by Statements of Truth by Cheung on behalf of China Luck, Cheung on behalf of herself, and Chan on behalf of himself.  Chan agreed that he signed the Statement of Truth.  He accepted that, when signing the Statement of Truth, he believed that the facts pleaded in the Defence were true.  But he stated that, when he went to WHS’ office, the pleading had been laid out and the place where he had to sign had been flagged by WHS.  There was only a short explanation of what he had to sign by WHS.  Following the explanation, he signed and left.  He was only in WHS’ office for about 20 minutes in all. He neither read the Statement of Claim nor the Defence, much less attempt to match paragraphs in the Statement of Claim with corresponding paragraphs in the Defence. 

9.  I accept Chan’s evidence as to what happened in WHS’ office.  Simply taking it for granted that the solicitors had carefully vetted and accurately stated the facts, Chan signed.  Mr. Ng suggests that, if this was truly what happened, Chan must be treated as having acted in contempt of court.  But it seems to me that, based on what he had been told by WHS, Chan genuinely thought that everything pleaded in the Defence was correct and he signed the Statement of Truth accordingly.  While Chan’s signature of the Statement of Truth without reading and fully understanding the underlying Statement of Claim and Defence may have been unfortunate and foolhardy, I am unable to conclude that he acted with any contumelious intent towards the court.  No longer a director of China Luck at the time, Chan left the drafting of the Defence to WHS under the instructions of China Luck and the Leungs.  Chan throughout was misled into thinking, as the Leungs falsely told him, that the Defence was merely part of a negotiating strategy with the MTR to bring about the early settlement of the proceedings.

10.  It follows from the foregoing that the MTR’s claim against Chan fails.  It is unnecessary in consequence of my conclusion to consider the damages to which the MTR would be entitled if I had found Chan to be liable.  Therefore, on damages, I will confine myself to two short observations. 

11.  The first observation is to note that, with one exception, I accept the evidence of Yu Kang Chung and Ng Siu Ling in support of the MTR’s case on damages.  In their Statement of Claim, the MTR sought (1) arrears in rent and other fees in the amount of HK$460,190.55; (2) HK$3,164,654.69 in consequential damages; and (3) compound interest on the foregoing amounts.  The exception is in relation to Yu’s evidence.  At trial, Yu twice affirmed that he had seen a calculation of the amounts due from China Luck to MTR and that to his knowledge such calculation took account of the deposit of HK$681,684 that China Luck had paid at the start of its tenancy.  In closing, Mr. Ng frankly acknowledged that the deposit of HK$681,684 had not in fact been set off against the amounts claimed by the MTR.  I accept on this matter that Yu had simply been mistaken.  In all likelihood, Yu truly believed that he had seen a calculation setting off the deposit and did not intend any disrespect for the court.  Given Mr. Ng’s concession, I would have deducted HK$681,684 from the principal amounts claimed by the MTR. 

12.  The second observation relates to interest.  Based on the Surety Deed, the MTR asks for compound interest at 3% per annum above HSBC’s best lending rate “calculated on a daily basis and compounded at monthly intervals”.  I am not sure what the words “on a daily basis” add to the interest sought.  I also question why interest should be 3% over HSBC’s best lending rate and compounded on a monthly as opposed to (say) a quarterly or even annual basis.  A contractually agreed rate of interest is certainly a factor that a court can take account of when deciding how much interest to award.  But I do not think that the court’s discretion is fettered by what has been contractually stipulated.  The court still must consider the overall fairness and reasonableness of the agreed interest rate. On this, there has been scant evidence.  To my mind, simple interest of 1% per annum over the HSBC’s best lending rate as typically awarded in Hong Kong commercial cases would have been more appropriate here.

13.  For the avoidance of doubt, neither of my two observations affect the summary judgment which the MTR obtained from Master Lai against China Luck and Cheung.  Neither China Luck nor Cheung have appealed against the summary judgment.  The amounts adjudged due by Master Lai therefore stand, as far as China Luck and Cheung are concerned.

III. CONCLUSION

14.  The MTR’s action against Chan is dismissed.  I shall now hear the parties on costs and consequential orders.