XCHRX SWORDLIGHT ENTERPRISES LTD. v. CHIU TAO and Another

1995, No.A918

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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(By Counterclaim)

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J U D G M E N T

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1. The plaintiff claims against the 1st and/or the 2nd defendant for the delivery up of share certificates of 10 million shares of China Investments Holdings Ltd. being the property of the plaintiff said by the plaintiff to have been wrongly detained and converted by the defendants.

2. It is not in dispute between the parties that the shares are the property of the plaintiff and by a letter described as "the trust letter" dated 18th February 1993, the plaintiff delivered 10 million shares of China Investments Ltd. to Very Nice Development Ltd. unconditionally as security for the latter to raise a loan on its behalf. Half of the loan so raised was to be given to Mr Wong Ying Kin ("Mr Wong") of Swordlight Enterprises Ltd. The remaining half was to be given to Mr Deng Liu Gen ("Mr Deng") of China Weal Ltd. for his disposal. The expenses and interests incurred in respect of raising the loan was to be borne by Swordlight Enterprises Ltd.

3. The shares were deposited with the Union Bank Securities Ltd. and it is the case for the defendants that a loan of $8,331,000 was raised on security of the shares half of which was handed to Mr Deng to be paid by him to Mr Wong, the balance being applied in part satisfaction of a loan owed by Mr. Deng to Very Nice Development Ltd.

4. The defendants counterclaimed against the plaintiff.

5. In January 1995, the plaintiff issued a writ for the recovery of the shares. Defence and counterclaim were filed in June 1995, a reply of the plaintiff and a defence to the counterclaim in August 1995; the defence and counterclaim of the 2nd defendant, by counterclaim, in August 1995; then the reply and defence to the counterclaim of the 2nd defendant in September 1995. Nothing occurred thereafter until 12th December 1995 when the plaintiff took out an O.14 summons for summary judgment.

6. On 4th March 1997, Master Chiu heard the arguments of the parties in respect of the O.14 summons and ordered that leave to the 1st and 2nd defendants in the original action be given to defend conditional upon their paying into court $4.1 million within 21 days from the date of the order with cost of the application to be costs in the cause. That order is now appealed before me.

7. The plaintiff by its appeal seeks that the order be rescinded and that final judgment be entered against the 1st and 2nd defendants by original action and sets out the terms of the judgment to be entered.

8. It is common ground between the parties that the shares are the property of the plaintiff and it is common ground that they were given to the 2nd defendant for the purposes set out in the trust letter. Matters in dispute between the parties related to whether a loan was raised, whether monies were paid by Very Nice to Mr. Deng or were used to satisfy part of his indebtedness to Very Nice, and the relationship between the various personalities and the companies.

9. I am referred to the case of Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155, where Godfrey J.A. said :

"In an application under O.14 or O.86 RSC it is not a proper course for the court to embark on a mini-trial of the action on affidavit evidence. In future, it is sufficient for the court to ask itself whether the defendant's assertions are believable, not whether they are to be believed."

10. The defendants in the original action say that the following issues are raised by the plaintiff in its statement of claim : firstly, did the 2nd defendant raise a loan on the 10 million shares delivered to it; secondly, was that loan utilised for the benefit of the plaintiff through its Mr Wong and Mr Deng; and thirdly, was the transfer of the shares into the 1st defendant's name lawful. It is the defendants' case that Mr Deng was indebted to the 2nd defendant in respect of substantial sums of money and that Mr Deng arranged the lending of the 10 million shares by the plaintiff, to the defendants for the purpose of raising a loan on the security of those shares for the benefit of Mr. Deng and Mr. Wong. They say a loan of $8.331 million was raised and that half of that loan was applied to set off Mr Deng's indebtedness and to the 2nd defendant has been agreed between them. The balance of the sum was paid to Mr Deng on his undertaking that it would be paid by him to Mr Wong. The defendants have produced, in the affidavits of Mr Chiu Tao, copies of his margin account with the Union Bank and those of his sister with the same bank showing, as was said by the defendants, the deposit of the 10 million shares in the margin account to raise the sum of $13 million which the defendants say is partly the $8.331 million loan given to Mr Deng and partly a loan raised by the 1st defendant on his own behalf and for his own use.

11. The plaintiff argues that on the face of the documents, a sum of $13 million was raised at the Union Bank and, notwithstanding the evidence contained in Mr Chiu Tao's affidavit, that there is no documentary or direct evidence of the sum of $8.331 million said by the defendants to have been raised.

12. I need go no further in my consideration of this matter than to this issue. The question of whether or not such a loan was raised in response to the trust letter is clearly an issue and one that is relevant to the resolution of the claims between the parties. On the one hand, the plaintiff by the affidavits of Mr Deng and Mr Wong aver that no such loan was made and that they received no part of the sum of $8.331 million. On the other hand, the evidence from Mr Chiu Tao is that such a loan was raised and he points to the record of $13 million being advanced on his margin account by the Union Bank.

13. The test I must apply is to ask myself whether the defendants' assertions are believable and not whether they are to be believed. The defendants point to evidence of the deposit of shares in the 1st defendants name and the name of his sister with the Union Bank and the raising of the sum of $13 million at or about the time when these events took place as being evidence of the raising of the loan. I find that those assertions are believable. Accordingly, this appeal is dismissed.

14. I have, in dismissing the appeal, borne in mind that the Order of Master Chiu made on 4th March 1997 ordering that leave be given to the 1st and 2nd defendants by original action to defend was conditional upon their paying into court $4.1 million within 21 days from the date of the Order. I can see no reason to interfere with the condition placed upon the defence of this action by the defendants and do not interfere with that Order save that the defendants do have a further 14 days from 21st March 1997 to make payment of the sum of $4.1 million into court.

15. The costs of this appeal are to be to the 1st and 2nd defendants by original action in any event with a certificate for two counsel.