CHEONG SHING LTD v. YU KWAN

CACV 68/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 68 OF 2010

(ON APPEAL FROM HCA NOS. 12021 OF 1998 AND 2183 OF 2001)

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HCA 12021/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12021 OF 1998

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a decision of Deputy High Court Judge Burrell given on 16 March 2010 whereby the judge, upon the hearing of an application by the first and second plaintiffs, struck out the re-amended counterclaim of the third defendant and dismissed the third defendant’s counterclaim against the first and second plaintiffs with costs, including the costs of that application.

2.  At the conclusion of the hearing, this appeal was dismissed with reasons to be given in writing.

Background

3.  The initial claims in these proceedings were commenced in 1998.  There were two actions which were consolidated.  By the re-amended statement of claim the first and second plaintiffs claimed various sums including, in particular, the return of the sum of $28,260,000 which was pleaded as being the outstanding balance in respect of what was said to have been a loan of $38,760,000, credit having been given for payments by the third defendant of $6,500,000 and $4 million.

4.  The trial judge, who was also the judge below, gave judgment in favour of the plaintiffs for the sum $28,260,000 against the first, third and fifth defendants on the basis that the sum claimed had been a loan.  The third defendant had counterclaimed for the return of the sums of $6,500,000 and $4 million on the basis that the first sum had been a loan to the first plaintiff and the second sum had been extracted from him by duress.  The judge dismissed the third defendant’s counterclaim.  He said that whether what had happened to the third defendant amounted to duress was borderline.  But he made no specific finding that it was duress.  He said that the money had been owing and that the plaintiffs were entitled to it.

5.  On appeal the third defendant did not seek to challenge the findings of fact, in particular the fact that the judge did not hold that there had been duress was not the subject of an appeal.   This court upheld the judgment below.  The matter then went to the Court of Final Appeal.  In brief, in a judgment handed down on 29 October 2008, the Court of Final Appeal held that the plaintiffs’ claim was not in respect of a loan but, nevertheless, held that the plaintiffs were entitled to judgment against the first and fifth defendants for the same amount namely $28,260,000 on the basis of restitution.  In the course of giving his judgment, with which all the other members of the court agreed without making any additional remarks themselves, Litton NPJ said:

“52. …The judge made his award of $28.26 million in the plaintiffs’ favour in terms of restitution, but it is clear from the rest of the judgment that, in truth, he was ordering the repayment of a loan. The matter must now be looked at afresh.

53. The position as I see it is as follows :

(1) The money was paid in pursuance of some commercial enterprise which was never proved. Why it was never proved could be because the parties themselves, in the heady days of July 1997, were muddle-headed and had not agreed the precise terms of the enterprise, or because they were not prepared to reveal the whole truth; or because they were both muddle-headed and untruthful. It matters not how this unusual result came about.

(2) One thing is certain. The $38.76 million was not intended as a gift.

(3) The money was received by Mr Lo; the judge having found that Cheong Shing, a British Virgin Island Company with nominal capital, was his mere nominee. To this extent, Mr Lo was enriched.

(4) But Minshen Hong Kong is not out of pocket to the tune of $38.76 million. Its claim has always been for $28.26 million, having received the two sums mentioned in para. 31 above. Any claim on the basis of unjust enrichment must then be confined to the sum of $28.26 million, leaving it to the party who had partially relieved Mr Lo of his personal liability to seek repayment from him.

(5) On the evidence, Xian Minshen has received full payment. It is Minshen Hong Kong which is out of pocket. Judgment should be given in favour of Minshen Hong Kong alone.” [Underlining has been added]

6.  Then a little later after saying that the third defendant’s role was obscure and that the judgment against him should be discharged, he said:

“56. Mr Chain, counsel for Mr Kong, submits that if this Court should conclude that the $38.76 million was not a loan, we should then give judgment on his counterclaim and order repayment of the two sums referred to in para. 31 above. In his pleadings the $6.5 million was said to be a loan to Mr Yu made in early 1998, and the $4 million was said to be money extracted from him by duress in August 1998. The judge had made no findings with regard to those two sums upon which this Court, in its appellate capacity, can act. Whether Mr Kong has some claim by way of subrogation against Mr Lo in consequence of the judgment of this Court is not something which requires our consideration.” [Underlining has been added]

7.  The orders made by the Court of Final Appeal were that the orders of the courts below were discharged, judgment was given for the same amount as before, but against the first and fifth defendants only, and there were orders nisi that there be no order as to costs.  However, there was then an application to vary the costs orders.  This court’s attention was not drawn to that.  Nevertheless the judgment of 8 December 2008 on that occasion has come to light since the hearing of this appeal.  The first matter to note is that, in paragraph 3, Chan PJ giving the decision of the court said:

“3. Before dealing with the question of costs, we would dispose of one matter raised by Mr Kong in his written submission. He seeks leave to file further submissions on “why he should have judgment for $5 million against Mr Yu”. This is part of his counterclaim which was for one reason or another not dealt with by the trial judge. At the hearing before us, we indicated that since there was no finding by the judge on this issue, it would be inappropriate for this Court to deal with it at this final appellate stage and that Mr Kong, if he considered it appropriate to do so, might wish to pursue the matter at first instance. For the same reason, we refuse his application to file further submissions on this matter.”

8.  Later when dealing with the costs of the action and specifically in relation to the third defendant’s Chan PJ said:

“9. …However, it is clear from the evidence that Mr Kong had played an active and crucial role in the whole episode and his evidence was not accepted.

10. Having regard to all these matters, although Mr Kong was successful in his appeal, we do not think he should be awarded all his costs before the Court of Appeal and this Court. We take the view that he is only entitled a portion of such costs and taking a broad brush approach, we think that it is appropriate that he should only get one half of such costs.”

9.  The third defendant did not pursue the matter, still less request that an order be made remitting the matter of the counterclaim to the trial judge.  After waiting 5 months, the third defendant then wrote to the clerk of the judge below seeking directions as to the determination of the third defendant’s counterclaim.  This brought an immediate response from the Registrar indicating that the judge had directed that it was not appropriate for the court to give the directions sought.  Then on 19 June 2009, more than 6 months after the hearing of the application in respect of costs, the third defendant’s solicitors wrote to the Registrar of the Court of Final Appeal seeking directions from that court as to the determination of the counterclaims of the third defendant.  There was then a gap of some 6 months before the Registrar of the Court of Final Appeal wrote to the parties saying that Chan PJ had directed:

“Having consulted other members of the Court and having considered the matter, it is directed that the 3^rd Defendant Mr Kong Kai Cheung’s Counterclaim and any matter relating thereto including the costs of such counterclaim be remitted to the trial judge for disposal.”

10.  Given the fact that it was a direction and not an order, and given the fact that the direction referred to “disposal” of the counterclaim rather than the hearing of it, the impression is clearly given that having regard to what was said in the underlined passages in the above quotations from the judgment of Litton NPJ, it is clear that the court considered that the third defendant’s only possible claim was against Mr Lo.  What the court clearly accepted was that the third defendant had partially relieved Mr Lo of his personal liability in a matter in which he had “played an active and crucial role in the whole episode”.  There was, therefore, no scope for any further hearing of the counterclaim against the first and second plaintiffs.  Mr Kong’s claim, if any, would have been against Mr Lo.  Furthermore, I would also draw attention to the reference to the question of costs in Chan PJ’s direction.  Had it been expected that the counterclaim would be retried, then there would be no call for there to be any reference to the court deciding questions as to costs because courts hearing and trying cases naturally have jurisdiction, and do, decide questions of costs.

11.  Mr Chain, who argued this appeal to his utmost, indicated that one of the matters which the third defendant wished to have opened again was the question as to whether the $4 million had been obtained under duress.  It has to be pointed out that there has already been a trial of the counterclaim.  The third defendant was not successful in that respect.  Although the order made by the judge was set aside by the Court of Final Appeal there has been no order or direction of the court for the matter to be retried.

12.  In my view, the judge was clearly right to take the course he did.  It was for these reasons that I considered that the appeal should be dismissed.

Hon Le Pichon JA:

13.  I agree with the Reasons for Judgment of Rogers VP.

Hon Stone J:

14.  I agree with the Reasons for Judgment of the Vice-President.