FITTO ENTERTAINMENT CO. LTD. v. IP CHI MING JIMMY

CACV26/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL APPEAL NO. 26 OF 1998

(On Appeal from H.C. Action No. A4810 of 1997)

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REASONS FOR JUDGMENT

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1. On 30th March 1999 Master Cannon made an order in both actions that:

1. the money standing to the credit of the Defendants after taxation of the costs of the appeal of the Plaintiff be paid to the Plaintiff in partial satisfaction of the judgment herein; and

2. the costs of and occasioned by the application be to the Plaintiff.

2. On 16th June 1999, I dismissed the appeals in both actions from the said orders of Master Cannon. I now give my reasons.

Background

3. The Plaintiff in HCA 4810 of 1997 is Fitto Entertainment Co. Ltd. and the Defendants are Ip Chi Ming Jimmy ("Jimmy Ip") and another. The Plaintiff in HCA 4811 is Emperor Finance Ltd. and the Defendant is Jimmy Ip. The Plaintiffs in both actions obtained summary judgment against the Defendants before a Master. The Defendants appealed to a Judge in chambers. The appeal was dismissed. The Defendants then issued notices of appeal to the Court of Appeal in both actions.

4. The Plaintiffs took out an application for security for costs of the appeal against the Defendants. On 22nd April 1998, Mayo J.A ordered that the Defendants in both actions do, within one month from the date of the order, furnish security in the sum of HK$300,000.00 in each action for the Plaintiffs' costs of and occasioned by the Defendants' appeal from the decision of the Judge. The security for costs was ordered to be paid into court. The Defendants in both actions later applied for an extension of time to provide the security and in support thereof they relied on an affirmation of Liu Kwok Fai Alvan ("Alvan Liu") affirmed on 22nd May 1998. I shall come back to this affirmation later on. An extension of time was granted and the sum of HK$300,000.00 was paid into the court in the name of the Defendants on 29th May 1998 in each action.

5. The Defendants subsequently abandoned their appeals. On 23rd November 1998, a request for dismissal of the appeal by consent was lodged in respect of both appeals. On 24th November 1998, the appeals were dismissed by consent by Mortimer V-P. with costs to the Plaintiffs to be taxed if not agreed.

6. On 24th November 1998, the Plaintiffs in both actions issued a summons returnable before Mortimer V-P. for an application for an order that:

(1) the money standing to the credit of the Defendants in the action after taxation of the costs of the appeal of the Plaintiff be paid to the Plaintiff in partial satisfaction of the judgment herein; and

(2) the costs of and occasioned by the application be to the Plaintiff.

7. As the appeals were abandoned, it was anticipated that after taxation of the costs of the appeal there would remain a sum of money standing to the credit of the Defendants in court.

8. On 27th November 1998, Mortimer V-P. ordered that:

(1) the money standing to the credit of the Defendants be paid to the Plaintiff in satisfaction of the Plaintiff's costs of the appeal after taxation if not agreed; and

(2) the Plaintiffs' application for balance of the money after deducting the Plaintiffs' appeal costs ("the balance") be adjourned to be heard before a Master;

(3) 14 days' notice of the said hearing before the Master be given to Ms. Veronica Yip who issued the cheque to provide the security for costs paid into court.

9. Veronica Yip is the sister of Jimmy Ip and the person who provided the HK$600,000.00 which was paid into court as security for costs of the appeals.

10. By letter dated 31st December 1998 which was served on Veronica Yip on 2nd January 1999, she was given notice of the hearing before Master Cannon on 25th March 1999 at 10:00 a.m. and informed that she was required to attend the hearing. She was also served with the relevant documents. The address at which she was served was the address that was given to the Plaintiffs' solicitors by her brother's solicitors. On 24th March 1999, the Defendants issued an interpleader summons which was served on the Plaintiffs and also on Veronica Yip at the same address where she had been served by the Plaintiffs.

11. At the hearing of the interpleader summons and the summons of the Plaintiffs dated 24th November 1998, Master Cannon made the orders on 30th March 1999 mentioned above. She also dismissed the interpleader summons issued by the Defendants. Veronica Yip did not appear at the hearing before Master Cannon, either in person or by a representative. There is also no appeal from the decision of Master Cannon dismissing the interpleader summons.

The Defendants' contentions

12. It was contended on behalf of the Defendants that the money put up by Veronica Yip was subject to a constructive trust of the kind considered by the court in Barclays Bank Ltd v. Quistclose Investments Ltd. [1970] A.C. 567. It was contended that if such a trust did exist, then upon the failure or partial failure of the purpose for which the money was put up the person providing it has an equitable right to recover it and that the money cannot be applied for any other use, particularly, it cannot be used to partially satisfy the judgment debt in favour of the Plaintiffs in these actions. It was further contended that whether or not such a trust arose, the court in the exercise of its discretion in dealing with an application under O. 49, r. 9 R.H.C., should, in all the circumstances, refuse the order as sought by the Plaintiffs.

13. There is no dispute between the parties as to the law.

14. I accept that in law an arrangement for the payment of a person's creditors by a third person may give rise to a relationship of a fiduciary character or trust in favour, as a primary trust, of the creditors, and secondly, if the primary trust fails, of the third person. (Barclays Bank Ltd v. Quistclose Investment Ltd., supra) But that, of course, depends on the facts of each case. On the facts of the Quistclose case, it was clear that the mutual intention of the lender and the debtor was that the sum advanced should be used exclusively for a specific purpose, namely, payment of dividend. A necessary consequence of this was that if, for any reason, the dividend could not be paid, the money was to be returned to the lender. I accept also that on the authority of the Quistclose case, the fact that the transaction was one of loan giving rise to a legal action of debt did not exclude the implication of a trust enforceable in equity. There was no difficulty in recognising the co-existence in one transaction of legal and equitable rights and remedies. It depends on the facts of each case.

The evidence

15. The Defendants relied on the affirmation of Alvan Liu affirmed on 22nd May 1998. Para. 3 of that affirmation states that the deponent received a call from Jimmy Ip who informed him that he had arranged with his sister Ms. Veronica Yip:

"to advance to him a total of HK$600,000.00 for the purpose of providing security for costs under the 2 orders of the Honourable Mr. Justice Mayo dated 22nd April 1998. However, since Ms. Ip is now in the United States of America, according to Mr. Ip, the advancement of money located in Hong Kong by Ms. Ip shall take a few more days."

16. In para. 4, he states that he then successfully contacted Ms. Yip in the USA on 22nd May 1998 and that Ms. Yip confirmed to him that she was willing:

"to advance HK$600,000.00 to Mr. Ip as she was making arrangement for the provision of money by way of a cheque drawn against a bank account in Hong Kong."

17. He then produced a copy of a cheque issued by Ms. Yip payable to the solicitors' firm in the sum of HK$600,000.00. That affirmation was filed to support an application for an extension of time to pay the money into court.

18. In a later affirmation of Alvan Liu, namely, the 3rd affirmation, the deponent produced a copy of a deed entered into between Jimmy Ip and his sister Veronica Yip. However, counsel for the Defendants informed me in his reply submission that he did not rely on the deed. He relied purely on the said affirmation of Alvan Liu of 22nd May 1998.

19. Counsel for the Plaintiff, correctly in my view, criticised the deed that was produced and submitted that I should place very little weight on it. It is clear that the deed was not a contemporaneous record of the purported agreement of the parties thereto. It was a post record of what had taken place much earlier. The deed was made on the same day as the request for the dismissal of the appeals by consent was filed. The deed was probably prepared with a view to preventing the Plaintiffs from claiming the proceeds of the balance in court as it must have been anticipated that there would be a sum remaining in court standing to the credit of the Defendant after payment of the costs of the appeal.

20. Cl. 2 of the deed provided that the money that had been provided as security was not a loan from Veronica Yip to Jimmy Ip and the parties never intended for a transfer of the ownership in the money. This is, in my view, a direct contradiction of Alvan Liu's affirmation of 22nd May 1998 where it is clear that Jimmy Ip had informed his solicitors that his sister Veronica Yip had agreed to advance him the total of HK$600,000.00 for the purpose of providing security for costs. An advance is, in my view, clearly a loan.

21. Also, Cl. 3 of the deed provided as follows:

"Mr. Ip hereby declares and confirms that the property right and interest of and the money has never passed or transferred to Mr. Ip from Ms. Yip."

There is no doubt that the money paid into court was standing to the credit of the Defendant. The Defendants had a legal title, at the very least, to the money. Legal title to the money must have passed to the Defendants. It cannot be right that property rights and interest of and in the money had never passed or been transferred to Jimmy Ip from Veronica Yip as stated in Cl. 3. I agree with counsel for the Plaintiffs that I should place very little weight on the deed. Counsel for the Defendants quite rightly did not rely on the deed.

22. The fact that Veronica Yip issued a cheque in the sum of HK$600,000.00 payable to the Defendants' solicitors is, in my view, a neutral point. The fact that she knew that the purpose of the payment was to provide security for costs does not mean that there must be a trust imposed on the money. Nowhere in the affirmation of Alvan Liu on 22nd May of 1998 is there a suggestion that it was the mutual intention of Jimmy Ip and his sister Veronica Yip that the money was to be provided for the sole or exclusive purpose of providing security for costs.

23. It is significant that Veronica Yip has not filed any evidence in these proceedings. She has also not appeared either by herself or by a representative at the hearing before Master Cannon to assert any claim to the balance. She has also not responded to the Defendants' interpleader summons which was served on her as counsel for the Defendants has informed me. I do not see why the court should infer from what has been stated in the said affirmation of Alvan Liu of 22nd May 1998 that the HK$600,000.00 was provided for the sole or exclusive purpose of providing security for costs. I find that the evidence falls short of establishing a resulting trust in favour of Veronica Yip in respect of the balance.

Exercise of discretion

24. The Defendants' contention is that quite apart from the question of a trust, the court should in the exercise of its discretion refuse the Plaintiffs' relief as sought in the summons dated 24th November 1998. The Defendants relied on Goodpoint Holdings Ltd. v. Seabrook [1997] 2 HKC 541 and Tsang Yuk Kiu v. Lobley Co. Ltd & another [1997] 3 HKC 717. However, both those cases are distinguishable on the facts. An important difference from this case is that in both those cases there were in fact claimants who were seeking the funds in court.

25. The making of an order under O. 49, r. 9 is, of course, discretionary. It was submitted that the discretion should not be exercised in the Plaintiffs' favour because the HK$600,000.00 came from the personal resources of Veronica Yip and the money was paid in for the limited purpose of providing security for costs for the appeal. I accept that these are matters to be taken into account. However, the realities of the situation are that Veronica Yip makes no claim to the balance. Neither do the Defendants. The affirmation of Alvan Liu affirmed on 23rd March 1999 makes it plain that the Defendants claim no interest to the balance. In the circumstances, I see no reason why the discretion should not be exercised in favour of the Plaintiffs in both actions. In my judgment, the Plaintiffs were entitled to the orders it sought.

26. I observe also that the said affirmation of Alvan Liu of 23rd March 1999 also states that the Defendants do not in any manner collude with Veronica Yip or the Plaintiffs to the balance and that they are willing to dispose of the same in such manner as the Court may order or direct. That being so and particularly, since they claim no interest to the balance, it is surprising that the Defendants should have pursued these appeals.