Green Giant Investments Ltd v. China 3d Digital Entertainment Ltd

HCA 327/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 327 OF 2015

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D E C I S I O N

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THE APPLICATION

1.This is the plaintiff’s summons for final judgment under Order 14 rule 1 RHC.

2.The defendant opposes this application and the parties are legally represented.[1]

3.The facts of this action can be briefly stated below.

THE FACTUAL BACKGROUND

4.The plaintiff sues on a Promissory Note (“the Note”) issued by the defendant in favour of Dragonlott Holdings Limited (“Dragonlott”)

5.The Note contains an unconditional promise in writing and was issued by the defendant (in its former corporate name - Emperor Entertainment Group Limited) in favour of Dragonlott, and it was executed as a deed by the defendant.

6.It contains an engagement to pay a sum certain, namely HK$14,160,000 at a fixed or determinable future time, namely “on the date falling five (5) years from the date of issue of the Note, viz. 18 May 2010.

7.The Note in the present case had annexed to it a “Form of Transfer” (see 1/p.84), and in the body of the Note it was expressly provided:-

“A transfer of this Note shall be effected by completing and signing by both the transferor and the transferee of the Transfer Form in the form attached in the annexture “I””.

8.The Note then goes on to provide that upon receipt of the Transfer Form (“the Form of Transfer”) the Issuer will register the Transfer.  However, the Note also provides that the applicant has to produce the original Note to the Issuer for the issuance of a new Note.

9.By an Assignment executed under seal and dated 9^th May 2011, Dragonlott assigned to the plaintiff all its interest in the Note, and on 16^th May 2011 the “Form of Transfer” was signed by both Dragonlott (the transferor) and the plaintiff (the transferee).

10.The transfer of the Note occurred before its maturity, and attempts were made by the plaintiff to obtain registration by the defendant of the transfer and the issuance of a new Note in the plaintiff’s favour.  The defendant raised a number of reasons for failing or refusing to comply with the plaintiff’s request, namely:-

a. On 16^th May 2011 the plaintiff wrote to the defendant informing it that Dragonlott had assigned and transferred the Note, and enclosed the original Form of Transfer dated 16^th May 2011. The plaintiff asked the defendant to register the transfer and to issue a fresh promissory note in favour of the plaintiff.

b. This was followed by a letter from the plaintiff’s solicitor dated 26^th May 2011, in which it was recorded that a representative of the plaintiff had phoned the defendant and been told that “as the authorized signatory of the transferor (i.e. Dragonlott) could not be recognized and the original Note did not accompany the letter, the registration and reissuance of a new Promissory Note could not be proceeded at the moment” .

c. On 30^th May 2011 the defendant stated “We reiterate that we do not have the old Promissory Note on our hand … If either Dragonlott Holdings Limited or you provide the old Promissory Note, we will issue a new one, which is a condition” .

d. On 1^st June 2011 the defendant stated by email “we must again reiterate that we do not have the old (the original) Promissory Note on our hand.  If the old Promissory Note has been issued out, it is not under our control”.

e. Then, later on 1^st June 2011, the defendant sent an email in these terms: “As the previous person-in-charge, Pearl, has found the original Promissory Note (Attached a Scan copy for reference), the transfer of the Promissory Note will proceed as instructed” (2/p.278) (a copy of that email with the attached scanned copy of the original Promissory Note is at 2/pp.327-332)

f. But thereafter the defendant came up with a number of reasons for failing to register the transfer, relying at one time on Anti-Money Laundering and Counter-Terrorist Finance Issues.

11.The Promissory Note fell due for payment on 19^th January 2015, and was duly presented for payment, as recorded in the Protest dated 20^th January 2015. 

12.The plaintiff has offered security in the form of a personal undertaking.  This was not accepted by the defendant.

THE RELEVANT LEGAL PRINCIPLES

13.By the above factual background, which the defendant has not disputed, the plaintiff has established its prima facie case against the defendant and it is trite that the burden then falls upon the defendant to show to this court that there is triable issue.  Yue Tai Plywood & Timber Company Limited v Far East (Wagner) Engineering Limited [2001] 2 HKLRD 446 at §7; see also Billion Silver Development Ltd. v All Wide Investments Ltd. [2000] 2 HKC 262 C.A. Mayo JA and Ribeiro J. (as he then was) at page 8.

14.To show triable issue or for other reason the issue ought to be tried and the credibility of the defendant’s evidence in affidavit are tested by:

a. the conduct of the defendant and any contemporary documents; and

b. the plaintiff’s documentary evidence and the defendant’s documents.

Therefore, the mere assertion of facts in an affidavit does not necessarily give leave to defend.  O.14, r.3 puts an onus upon the defendant.  It must be described as a threshold onus to show that there is a triable issue in the case. That onus can only be satisfied on the balance of probabilities.  See Paul Y Management Ltd v Eternal Unity Development and Others, (unrep, CACV 16/2008, 12 August 2008 per Cheung JA at §19)

15.In an O.14 application, triable issues must be shown and the court must be satisfied that there is a real or bona fide defence.  The test for an O.14 application was not whether the assertions were to be believed, but whether those assertions were believable in the light of the evidence placed before the court.  Mass International Ltd. v Hillis Industries Ltd & Another C.A. [1996]1 HKC 434

16.The defendant will rely upon that leave to defend should be granted where the defendant raises any substantial question of fact which ought to be tried, or there is a fair dispute to be tried as to the meaning of the document on which the claim is based: Pacific Harbor Advisors Pte Ltd & Others v Winson Federal Ltd & others, (unreported, HCA 1257/2013, 19 November 2015) at §12; Hong Kong Civil Procedure 2016, §14/4/11, p. 272.

THE DEFENDANT’S ISSUES – DISCUSSION

17.The defendant has raised the issues below for the Court’s consideration.

Delay

18.The defendant submits that the plaintiff has delayed in making the application, the delay being 3 months after service of the Defence and that the plaintiff has not given any explanation for the delay.  It relies upon Resona Bank Ltd v Lam Sie & Others [2004] 4 HKC 601 at §19 per Tang J (as he then was).  Here it must be stressed that the Court of Appeal was saying that “in a suitable case, delay of itself would entitle the court to refuse to entertain the application.” 612F.  However, the Court of Appeal further said that delay would not preclude the plaintiff from succeeding.  It said “To order a trial when there was no bona fide defence would only waste valuable court time. ”  See 615E

19.For a brief period of 3 months, I do not consider it a long delay.  What the Court of Appeal referred to as “suitable case” must mean whether the defendant has a bona fide defence.

20.This point does not assist the defendant.

Interpretation of the Note

21.The defendant relies upon the interpretation of the Note, in particular the following paragraphs:

3rd paragraph:

“Subject as hereinafter provided, [D] shall repay the principal sum of HK$14,160,000 (the “Principal Sum”) and all interest accrued thereon under this Note, to the holder of this Note (the “Noteholder”) on the date falling five (5) years from the date of issue of this Note (the “Maturity Date”).”

5th paragraph:

“… [D] shall maintain a register of this Note (“Register”) at the principal place of business of [D] in Hong Kong or such other location as the directors of [D] may decide. All references in this Note to holder of this Note or Noteholder shall refer to the person appearing as Noteholder on the Register, who shall be treated as the absolute owner of this Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it).”

6th paragraph:

“… A transfer of this Note shall be effected by completing and signing by both the transferor and the transferee of the Transfer Form in the form attached in the annexure “I”. [D] shall within 3 Business Days upon receipt of this Note together with the Transfer Form register the transfer on the Register and(a) in the case where the whole outstanding Principal Sum is assigned or transferred, cancel this Note and issue a new Note…”

(emphasis added)

22.The defendant says that the meaning and effect of the above provisions of the Note are clear upon any reasonable reading. “D is not contractually obliged to register a transfer unless the original Note is tendered together with the Transfer Form. Unless and until a transfer is properly effected, D must treat the person appearing on the Register (i.e. Dragonlott) as the Noteholder entitled to payment “regardless of any notice of ownership, trust or any interest in it”.[2]

23.The plaintiff’s answer to the above argument is that the plaintiff’s ability to recover the principal amount of the Note does not depend upon having achieved registration with the defendant.  In any event, by its own wrongful acts the defendant has prevented that from occurring.[3]  It appears that the plaintiff relies upon section 89 of the Bills of Exchange Ordinance (Cap.19) (“the Ordinance”), a promissory note is defined:-

“A promissory note is an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer”.[4]

24.The law does not require registration of the Note.  The contractual provisions raised by the defendant only define the identity of the Note-holder, which cannot affect the legal effect of legal assignment of the chose in action of the Note by Dragonlott to the plaintiff.  This may be the reason why the defendant has not applied to strike out the plaintiff’s action.  The question is whether the plaintiff can claim to be “a specified person or to bearer” under s.89 of the said Ordinance.  The defendant says that since the plaintiff is not the registered owner of the Note, the plaintiff is neither the specified person nor the bearer.  The plaintiff does not possess the original Note.

The prevention principle on the construction of contract

25.The plaintiff then says that the defendant is prevented by law from relying on its own breach of contract in failing to register the plaintiff as Note-holder (Kensland Realty Ltd. v Whale View Investment Ltd and others (2001) 4 HKCFAR 381 at p.410).

26.The defendant argues that “the prevention principle that a person is not permitted to take advantage of his own wrong”[5] has no application in this matter because “it is necessary to show that the relevant party’s “wrong” involves his breach of contract in respect of an obligation owed to the other party to the contract (as opposed to a duty owed to a third party, contractual or otherwise).”[6]

27.The defendant further submits that the defendant has not acted in breach of its contractual obligations to the plaintiff [defendant](sic) under the Note and the plaintiff  has no entitlement thereunder.[7]  So the defendant further argues that even if the assignment were validly executed, it will not assist the plaintiff as “there is a distinction between assignment and negotiation (which ordinarily involves delivery) of a bill.”[8]

28.The defendant does not dispute that notice of the assignment of the Note had been given by Dragonlott to the defendant.  However, it argues that “Notice to a debtor (i.e. D) who has given a negotiable instrument for his debt that the debt has been assigned by the creditor can be disregarded by the debtor if the creditor who has assigned the debt is still the holder of the instrument: see Bence v Shearman [1898] 2 Ch 582 at 585-586 per Lindley MR, cited in footnote 22 of Chalmers & Guest at [5-067].”[9]  However, it can be noted at once that this authority does not apply to this matter because in the authority cited by the defendant, the cheque issuer, a vendor of a property, who had issued a cheque to the property agent as commission, had no notice of the assignment of the debt from the property agent to the purchaser when payment was made by a cheque.  The cheque had been cleared by the property agent and the purchaser then claimed the assigned debt from the vendor by showing to the vendor the memorandum of assignment.  The facts of this case are different from the case under our discussion. This authority does not assist the defendant.

29.As to the application of the prevention principle, the defendant may be right to say that the plaintiff is a third party.  But this party is the assignee of the chose in action of the Note, notice of which had been given by the assignee to the defendant, which the defendant had not denied.  In fact, the assignor had given a letter to the defendant to confirm the assignment. Throughout the process, the defendant had raised no objection on the issue of authenticity of the relevant documents for assignment of the Note to the plaintiff.  In the circumstances, the plaintiff, being the assignee of the Note, becomes the party to the Note.

30.The defendant may also be right to say that literally, it had not breached the terms of the Note to register the plaintiff as the Note-holder as the plaintiff was unable to deliver the original Note to the defendant.  The Note provides that the defendant will only issue a new Note to the applicant upon receipt of the original Note from the applicant.

The prevention principle on substantive principle of law

31.However, when the plaintiff agreed to provide indemnity to the defendant pursuant to s.70 of the Ordinance, which the defendant refused to accept, the prevention principle will operate as the Court of Final Appeal in Kensland said at §96: “…where this “prevention principle” applies, it may be given effect in different ways.” At paragraph 97, the Court of Final Appeal said:

“In many cases, it will be appropriate to implement it as a substantive principle of law that precludes the wrongdoer from taking advantage of his own wrong, whatever the contract may say and however clearly the contract may appear to confer on the wrongdoer an unqualified right to enjoy such advantages. Cases like Rede v. Farr[10] and the New Zealand Shipping case[11], may be considered examples.”

32.Although the Note provides that the defendant is obligated to register the new Note-holder upon receipt of the original Note, it simply cannot refuse to issue a new Note to the Note-holder or its assignee, the assignment of which the defendant had raised no objection, despite the applicant having agreed to give the indemnity under s.70 of the Ordinance for the lost Note.  By refusing to register the applicant, the defendant takes the advantage of not honouring its obligations under the Note.

33.The application of the prevention principle will bar the defendant from relying upon the requirement of tendering the original Note for registration of the plaintiff.  See paragraphs 100 & 102 of Kensland.  As the defendant cannot rely upon registration for its recognition of the Note-holder on its register to meet its liability, the defendant has no valid reason not to meet its obligations under the Note notwithstanding that it was not registered as a Note-holder in the defendant’s register.

34.This will dispose of the defendant’s defences.

35.However, the defendant also says in paragraph 20 of the written submissions:

“It should be clarified that D’s plea of section 90 BEO (on the Note being inchoate and incomplete for want of delivery) only arises as an alternative defence in the event that P contends (and the Court finds) at trial that the Note was still in D’s hands and had not been delivered to Dragonlott in the first place. This issue does not arise for determination for the purpose of this O 14 application unless P maintains such an allegation.”

36.Since the defendant has raised this defence in its Defence, it is incumbent upon this Court to take that into consideration in order to determine whether there is any issue for the trial.  The plaintiff should not obtain a final judgment if there is any triable issue.

37.The plaintiff has raised two issues on this pleaded defence.  First, the plaintiff has in the written submissions paragraph 14(5) said that in the defendant’s email dated 1 June 2011, the defendant had admitted that the previous officer-in-charge, Pearl, had found the original Note and the  transfer of the Note would proceed accordingly.  Second, the plaintiff says that from the defendant’s annual reports open to the public, the defendant had clearly admitted its liability under the Note.  The defendant had answered this issue by saying that the administration did not admit as such, but just to say that such a dispute did exist, subject to adjudication through legal process.

38.As to the first issue, in the 3^rd affirmation of Mr. Shiu Stephen Junior at paragraph 12, Mr. Shiu simply said that the defendant did not presently have possession of the original Note.

39.In Order 14 application, the court is not obliged to accept any evidence adduced by the parties.  See Paul Y Management Ltd.  In the affirmation, Mr. Shiu’s did not deny the existence of the email.  Nor did he explain why such email was issued to the plaintiff.  The contents of the email clearly contradict the fact that the defendant had never had possession of the original Note.  Mr. Shiu only affirmed that the defendant did not “presently” have possession of it.  What about on 1 June 2011 when the email was issued? Without clear explanation, this Court can simply refuse to accept that the defendant had never had possession of the original Note.  On the contrary, this Court is entitled to take the evidence in the email as an admission that as on 1 June 2011, the defendant did have the original Note.  I note that on page 305 of bundle 2, there was an email letter saying that the original Note had been delivered.  However, comparing this letter with the other one I mentioned, with the scanned copy of the Note, this letter is fragile in its evidential value.  In the circumstances, it is an implied term of the Note that the defendant should have delivered the original Note to Dragonlott in the first place, there being no dispute that consideration of the Note had been paid.  Having in its possession of the original Note and refused to process the plaintiff’s application on 1 June 2011, the defendant is clearly in breach of the implied term to the plaintiff, the assignee of the Note.  Again the prevention principle will operate to bar the defendant from taking the advantage of refusing to register the plaintiff as the Note-holder or relying upon the non-registration of the Note to deny its liability to the plaintiff.

40.As to the possibility of having another claimant on the Note as raised by the defendant, I consider that it is too remote for my consideration because Dragonlott had already confirmed that it had assigned the Note to the plaintiff.  The Note has already matured, there is no evidence that someone had presented the original Note for payment.  As the defendant has admitted that it had the original Note, absent any evidence that Dragonlott had assigned it to another party, it is simply fanciful to take this possibility into consideration.

41.I therefore hold that the defendant has no defence to the plaintiff’s claim for final judgment to the plaintiff as per its summons.

COSTS AND ORDER

42.As to costs, there is no dispute that the costs should follow the event.  Since this application gives the plaintiff a final judgment, the costs of the action should be awarded to the plaintiff.  The plaintiff asks the costs to be taxed.  The parties cannot agree on the costs of the action and they submit that the total costs, including the costs for this application be left for taxation.  In the circumstances, this Court accedes to the parties’ request and the costs of the action, including the hearing today, be taxed, if not agreed.  There should be a certificate for senior counsel for this hearing.

43.The defendant applies for a stay of execution pending appeal because the plaintiff is a BVI company.  The plaintiff submits that if the Court grants the application, the money should be paid into court.  The defendant submits that the defendant is a public company, which should have the means to pay the money.  This may be true on the face of it.  However, on principle, I do not consider that the defendant has shown any real prospect of success in its appeal.  As the plaintiff has no strong objection, I grant the stay pending appeal on condition that the defendant shall, within 14 days from the date hereof, pay into court the principal amount claimed.

44.This Court shall now make an order in terms as follows:

a. The plaintiff’s application is granted and final judgment is granted to the plaintiff as per its summons;

b. The defendant’s application to stay is allowed on terms as per paragraph 43;

c. The costs of this action are to be taxed as per paragraph 42.

Mr Charles Sussex SC, instructed by Francis & Co., for the plaintiff

Mr Derek Chan, instructed by Jun He Law Offices, for the defendant