LIU KE MIAN LORRAINE v. DE XIN DA TRADING CO LTD

HCA 2352/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2352 OF 2015

____________

____________

___________________________________

REASONS FOR DECISION

___________________________________

Introduction

1.  On 3 May 2016, at the hearing of the Plaintiff’s application for summary judgment, pursuant to Order 14 of the Rules of the High Court, I made an order granting the Defendant conditional leave to defend upon payment of the full amount of claim of HK$15,000,000 into court within 28 days (the “Decision”).  On 17 May 2016, prior to the expiry of the period for making payment, the Defendant applied for leave to appeal my Decision.  In the draft notice of appeal, the Defendant proposed four grounds of appeal.  It also sought leave to file the third affirmation of its manager, Fang, and to rely on the intended affirmation in the meantime.  The intended affirmation explains the impecuniosity of the Defendant and its inability to meet the condition.  The applications were heard before me on 30 May 2016.  I dismissed the applications.  Hereunder are my reasons.

Grounds (1) and (2): defence not shadowy

2.  Mr Chiu, counsel for the Defendant, submits that it is reasonably arguable that it was wrong for me to find the defence shadowy in the light of the undisputable circumstances, namely that (1) there were very large transactions in the Defendant’s account with HSBC with over HK$19 million turnover on 24 September 2015 showing strongly that it was an ongoing business; and (2) that there was still HK$12 million in the Defendant’s account despite a time gap of twenty days between the date of deposit of the sum of HK$15,000,000 by the Plaintiff and the date when the Mareva injunction order was served on the Defendant.

3.  At the hearing, I alluded to the fact that the Defendant operates an “underground” currency exchange and remittance business. I was conscious of the fact that the Defendant’s business was an on-going one with substantial turnover on 24 September 2015 of HK$190 million and not HK$19 million as asserted by Mr Chiu.  It is not the Plaintiff’s case that the Defendant was a party to the kidnap and demand for ransom.  The Plaintiff’s case is that the Defendant has been unjustly enriched.  As it is a substantial on-going business and not allegedly involved in the kidnap or the demand for ransom, the fact that there was HK$12 million in its account 20 days after the deposit by the Plaintiff is neither here nor there.

4.  The basis of my Decision is the Defendant’s failure to adduce credible evidence that the sum of HK$15,000,000 was received and paid to Hu in the normal course of its “underground” currency exchange business for the purpose of discharging the obligation for which the funds were received in such a business.  There is no credible evidence of the source of payment in, the instructions as regards payment out, the purpose of such payment out and acknowledgment of receipt by the ultimate recipient.  For the reasons as given in my Decision, that is an inescapable conclusion from the Defendant’s failure to adduce proper credible evidence from its salesman, Jiang; its failure to produce record of the transaction in question; and its failure to produce record of Ye’s previous transactions to substantiate its claim that the transaction was from a known client.  Instead of adducing proper evidence, the Defendant merely tendered the affirmations of its manager, which contained nothing but hearsay evidence of matters which she had no personal knowledge of.  This is what made the defence shadowy.

5.  I have considered the payments by the Wangs to Hu.  The timing and amount suggest that the payments may not be coincident.  However, there is a total absence of evidence to connect the payments by the Wangs as being made pursuant to the instructions of the Defendant, which in turn originated from Ye.  There is also no evidence of receipt by Hu of funds received from the Defendant.  For a substantial business with a turnover of HK$190 million a day, there is no reason why the Defendant does not keep record of any agreement with the Wangs to make transfers on behalf of the Defendant and accounting ledgers evidencing such transfer and set offs or account between the Wangs and the Defendant.  I also repeat the total absence of any evidence from Jiang of Ye’s instruction to remit funds to the specified bank account of Hu. The Defendant has much to hide from this court.  All these are what I find suspicious with the defence and what created a serious doubt in my mind as to the Defendant’s good faith.

6.  In essence, the arguments in support of this ground of proposed appeal had been fully considered and dismissed at the hearing. 

Ground (2) – over stringent requirement for production of documentary evidence

7.  Mr Chiu complains that this court was being over-stringent in expecting the Defendant to produce all business records showing the transfer to Hu as if the Defendant were a legitimate business.  With respect, I disagree.  This court was quick to allude to the Defendant’s business as an “underground” currency exchange and remittance business. This court was also conscious of the criminal activities which the kidnappers and the Defendant’s client who allegedly placed the order for the remittance to Hu were involved.  With these in mind, I approached the evidence adduced by the Defendant with realism and understanding.  I appreciated the Defendant’s difficulties in securing cooperation of Ye.  I never expected the Defendant to keep full records as would be kept in a legitimate currency exchange business.  It was on the above basis that I dismissed many of the Plaintiff’s submissions and found that the Defendant was operating an “underground” currency exchange and remittance business.  However, there was a total lack of proper evidence from proper witnesses to support the Defendant’s case.  The Defendant should have tendered the evidence of Jiang, instead of relying on the hearsay evidence of Fang.  I did not impose any stringent standard on the Defendant without having regard to its peculiar situation.  It was the Defendant who built a firewall around Jiang and two around Ye, making its case of having a contract for currency exchange and remittance with Ye and receipt of the Plaintiff’s funds as transactions in the ordinary course of its business incredible and dubious. 

8.  There was absolutely no business record whatever in support of Ye’s instruction to remit the sum of HK$15,000,000 to Hu; no evidence of the agreement or the arrangement between the Defendant and the Wangs for them to transfer funds on behalf of the Defendant; no evidence of any set off or account among them of any money paid or received; and no evidence of Hu acknowledging receipt of the remittance from the Defendant.  I never required the Defendant to produce all records which would be kept by a legitimate business.  I appreciated that the Defendant may not have formal records of the transactions involved, but it must have at least kept some internal records, written or electronic, to record its transactions for its business purpose, such as calculating its profit and loss, payment of commission, following up of its transactions, fund flows and set offs or account with the Wangs, etc.  But the Defendant simply said it had no record whatever because it is an unlicensed business and produced none, not even an internal ledger.  The Defendant cannot hide behind the shield of its illegitimate business and produce not even the minimal documentary evidence which it is reasonably expected to have in its possession. 

9.  I cannot be said to have been over stringent in requiring production of documentary evidence.

Grounds (3) and (4) – impossible conditions

10.  The Defendant intends to rely on an intended affirmation to be filed by Fang. Fang is a Mainland resident. Her visa to come to Hong Kong has expired and a new one is expected to be issued by about 27 May 2016. Hence, it applies for leave to file Fang’s third affirmation and to use the intended affirmation in the meantime for the purpose of the present leave application.  In essence, Fang says that as a result of the Mareva injunction, the Defendant’s business was put to a halt and is being chased by its clients for the performance of the currency exchange remittance contracts.  She further avers that it is impossible for the Defendant to raise the balance of about HK$3,000,000 to top up on the sum of HK$12,000,000 now frozen under the Mareva injunction so as to meet the condition. 

11.  Mr Chiu quotes Kwong Key Construction & Engineering Ltd v Sunlink Ltd[1] and argues that the court should have given indication that conditional leave would most likely be given and enquired about the Defendant’s means before imposing the condition.  Further, as the Defendant is unable to put up with the additional funds, unconditional leave should have been given. 

12.  While accepting that any condition imposed should be capable of compliance by the defendant, I do not think Kwong Key Construction & Engineering Ltd v Sunlink Ltd has established any hard and fast rule that the judge must first indicate his intention to grant conditional leave and then hold an enquiry as to the defendant’s means in all cases.  There is no magic form of words to be used.  What is important is that the defendant be given an opportunity to raise the issue of means or that compliance is impossible.  How the judge goes about achieving that objective is all a matter of case management discretion for the judge.  How that discretion is to be exercised depends on the circumstances.  But it is incumbent upon the defendant to inform the court that he wishes to be heard about its means and the conditions imposed or to be imposed.  A defendant should not be entitled to raise it for the first time in the appeal[2].

13.  At the hearing, after ruling that the Defendant’s defence was shadowy, I indicated that the usual order was to impose a condition for payment into court of a sum representing the whole of the claim[3].  I then enquired from counsel about the appropriate condition to be ordered and said “how does that sound to both of you?”  I did not expressly invite submission on means.  If means was a problem, the Defendant should inform the court at that stage.  However, as I observed, after discussing with those instructing him, Mr Wong made no submission that the Defendant would be unable to pay the full amount of claim into court.  The exchange between counsel and the court, which then followed, only revolved around discharging the Mareva injunction to enable the payment to be made.  There was no indication whatever that the Defendant would be unable to put up with the additional sum of HK$3,000,000.  Indeed, Mr Wong impressed me that means was not a problem, and all that the Defendant needed was time to pay.  He asked for 28 days.  Accordingly, I deemed it unnecessary to expressly invite submission on means.  But in fact that invitation had been impliedly given.  The Defendant did not make use of the opportunity to raise the issue of means.  It is too late for the Defendant to raise the question of impossibility of compliance at this stage.  On this ground alone, there is no substance in these grounds of appeal.

14.  Furthermore, as submitted by Mr Sze, counsel for the Plaintiff, a defendant seeking to raise such issue must make full and frank disclosure of its means.  The issued capital of the Defendant is HK$10,000. For such a company to be able to carry on business with a daily turnover of HK$190 million, it must have been financed substantially by its shareholders. But the intended affirmation contained no evidence of the means or lack of means of the Defendant’s sole shareholder and director, Zhang.  The intended affirmation would not be able to assist the Defendant’s application.  The application to file the third affirmation of Fang and to use the intended affirmation at this hearing is therefore dismissed.

Conclusion

15.  The first two proposed grounds of appeal are but attempts to re-argue what has been considered and determined at the hearing.  For the same reasons as given in my Decision and in the above, these proposed grounds have no prospect of success.  As for the third and fourth grounds, the Defendant had in fact been invited to address the court on the issue of means but did not take the opportunity to do so.  It is too late to raise it at this stage.  Accordingly, the Defendant’s application for leave to appeal and for leave to file the intended third affirmation of Fang and to use the intended affirmation at this hearing are refused with costs to the Plaintiff.