Delco Participation B.V. v. Chiho Environmental Group Ltd (Formerly Known As Chiho Tiande Group Ltd) and Another

HCA 3040/2015

[2020] HKCFI 2511

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3040 OF 2015

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AND

HCA 2939/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2939 OF 2016

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D E C I S I O N
(Leave to Appeal)

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A.      Introduction

1.By summonses dated 6 August 2020 (“Summonses”), the plaintiff (“Delco”) in each action HCA 3040/2015 (“A3040”) and HCA 2939/2016 (“A2939”) seeks leave to appeal from my Decision dated 23 July 2020 [2020] HKCFI 1643 (“Decision”).  I will continue to use the definitions and abbreviations adopted in the Decision.

2.By the Decision, I dismissed Delco’s applications for summary judgment, or alternatively interim payment, against Fang An Kong (“Fang”), the 2^nd defendant in A3040 and 4^th defendant in A2939:

(1) in A3040, summary judgment or alternatively interim payment is sought in the sum of HK$47,446,079, alternatively HK$53,698,079;

(2) in A2939, and on the basis that Fang is only ordered to pay the sum of HK$47,446,079 in A3040, summary judgment or alternatively interim payment is sought in the sum making up the difference being HK$6,252,000.

3.In the Decision, I set out some of the background, including that A3040 and A2939 are two actions generally heard together with a third action HCA 2943/2015 (“A2943”), in which Delco is also the plaintiff and where the defendant is HWH Holdings Ltd (“HWH”), the 3^rd defendant in A2939.  The three actions have been fixed for a trial of 15 days, commencing 12 July 2021.

4.The applications for leave to appeal are being dealt with on paper submissions, filed in accordance with my directions by Delco on 31 August, by Fang/HWH on 14 September 2020, and by Delco on 23 September 2020.

B.      Applicable Principles

5.The principles applicable on applications for leave to appeal are well-established.  Leave can be granted if the court is satisfied that either (a) the appeal has a reasonable prospect of success (meaning more than fanciful without having to be probable), or (b) there is some other reason in the interests of justice widely appeal should be heard.

6.Mr Victor Dawes SC (leading Mr James Man) submits that Delco can demonstrate reasonable prospects of success in the appeal because each of the grounds of appeal set out in the draft Notice of Appeal is reasonably arguable.  (No particular reliance is placed on the alternative limb of showing some other reason for leave).

7.On the other side, Mr Norman Nip (with Mr Roger Phang) submits that the Decision involved an exercise of discretion – where the Court of Appeal is slow to interfere with a judge’s decision to grant unconditional leave to defend on points of fact – and Delco cannot demonstrate any reasonable prospect of success to the standard required.

8.Mr Nip also submits that even if the threshold test of reasonable prospects of success is satisfied, the Court retains a discretion whether to grant leave (though, of course, a reasonable prospect of success would heavily influence the Court’s exercise of that discretion).  I accept that the discretion is retained, and that it may involve considerations of procedural economy and proportionality: see, for example, Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at §§29-30.

C.      Ground 1 – Fraud Exception

9.Mr Dawes submits that whilst I rightly found that, as a matter of law, only fraud against the plaintiff (as opposed to others) would be caught by the fraud exception in Order 14 rule 1(2)(b), I then erred in holding that the Scheme involved a fraud against Delco.  He submits that it is simply impossible for there to be fraud against Delco where Delco Asia had knowledge of the Scheme and had assisted in the Scheme.  The false accounting involved in Delco Asia’s accounts was a “fraud” in part by Delco Asia’s accounts, instead of a fraud on Delco Asia’s accounts.

10.But that misunderstands the point I was making, which was that any fraud shown on the accounts is apparently a fraud against the entity whose accounts show the fraud.  Further, I had also pointed out that Delco’s suggestion that the accounting (which it says is fictitious) was performed with the knowledge of both sides is a matter for trial, and that for Delco to maintain its claims it has pleaded the Scheme in which it relies on fictitious debts which it says Fang had a part in creating.  That seemed to me, and still does, to bring the case within the Hong Kong approach to the fraud exception identified in the Zimmer case.  Nor, where Delco seeks to rely on the Delco Asia accounts – and to an extent thereby stand in the shoes of Delco Asia – does it assist for Delco to seek to suggest some distinction between them so as to say there is no claim of fraud against the plaintiff.

11.But, as Mr Nip correctly identifies, Mr Dawes’s submission in any event overlooks the fact that I also held that, even if the case did not fall within the fraud exception (though I thought it did), I nevertheless would refuse summary judgment in the exercise of my discretion in view of the allegations of dishonesty against Fang, directly impacting on whether Delco’s claim would succeed and to what extent.  I did not, and do not, think that is suitable for summary determination.

12.This was part of a theme, which I consider was clear running through the Decision as a whole, namely that my judgment is that this case at this stage of the proceedings (with a 15-day trial listed to happen within a relatively short period) was simply unsuitable as one in which to try to hive off some element which might be appropriately dealt with on a summary basis.

13.I do not think there is any reasonable prospect of success on Ground 1.

D.      Ground 2 – Fraud and Interim Payment

14.Mr Dawes accepts that I identified that the fraud exception is not applicable to the interim payment procedure. But he submits that I erred in suggesting that if the present case is one which is caught by the fraud exception, it must make it significantly less likely for the Court to grant interim payment.

15.He says that Delco has not relied on any allegations of fraud against Fang for the purpose of applying for interim payment of the Excess Amount, and essentially that there is no connection between the fact that the present case may technically fall within the fraud exception and how the Court should exercise its discretion in the interim payment application.

16.But, as Mr Nip correctly identifies, my ruling on this point did not depend on whether the fraud exception was actually engaged.  I had held that the relevant test essentially puts the burden on the plaintiff to show on the balance of probabilities that it would, and not merely that it is likely to, succeed at trial.  This is not in dispute, and the standard of proof required is high.  I refused to order any interim payment because, in the exercise of my discretion, I was simply not satisfied that (fraud or not) the plaintiff would obtain a judgment for substantial damages against the defendant on any aspect of the claim, or that the defendant has no arguable defence.

17.The fact that I would, at best, have given unconditional leave to defend under Order 14 makes clear that I would not have thought, and I did not think, that the case was suitable for making an order for interim payment under Order 29 rule 10.  An order for interim payment is, in my view, not appropriate where I have held that Delco’s entitlement to recover any sum remains the subject of serious dispute.  My judgment on the materials was that the high standard was not met.

18.I do not think there is any reasonable prospect of success on Ground 2.

E.      Ground 3 – Alleged Inconsistent Stance

19.Mr Dawes submits that Delco is not asking for judgment to be given on a set of facts which it says are untrue, so that my analysis in the Decision was flawed.  To that end, he repeats the submission which I had already acknowledged in the Decision.  He further says that the Chu Wen Jing Jennifer case is distinguishable, so that the present case does not take the Court outside the provisions of Order 14 permitting summary judgment to be entered.

20.But, I was not suggesting that the inconsistency in stance just takes this case outside the permissibility of entering summary judgment.  Rather, in addition to the problem in the inconsistency between the facts pleaded in the Claim and Reply and the factual basis on which I was invited to give summary judgment, I was also pointing out the inconsistency in stance as identifying why I considered in the exercise of my discretion that summary judgment was not appropriate.

21.Looking, as I thought it appropriate, at the totality of the parties’ pleaded cases, it seemed to me that the whole basis for setting off (and not just the individual amounts) are matters encompassing factual disputes between the parties not capable of summary resolution on affidavit, and not amenable to any ‘carve out’.  In any event, the inconsistency remains: Delco relies on an alleged admission against other assumed facts, when at the same time it denies the truth of what is admitted and what is assumed.

22.This point also arose against the overall theme which I have identified.

23.I do not think there is any reasonable prospect of success on Ground 3.

F.      Ground 4 – Dispute as to Admission

24.Mr Dawes submits that Fang has misled the Court into holding that there is a significant dispute surrounding and about the nature of the US$6,275,000, and has done so by filing extensive irrelevant evidence and lengthy submissions.  Mr Dawes submits the reality is simply that Fang has failed to put forward an arguable defence in relation to the Excess Amount.

25.On my assessment of the evidence, I simply disagreed with that proposition.  It seemed to me, and still seems, that there are significant factual disputes surrounding, and going to the nature of, the US$6,275,000.  I noted that, were this the only area of dispute, I would have granted unconditional leave to defend on these factual matters.  Simply re-arguing the same points, whether before me or the Court of Appeal, is not likely to lead to any different result.  Further, once again it seems to me that the questions relating to the US$6,275,000 are wrapped up in the totality of and complexity of the disputes already fixed for the 15-day trial.

26.Insofar as Mr Dawes submits that I did not reject that the admission was made, and that I merely held that there were factual disputes surrounding and going to the nature of the US$6,275,000, I disagree.  It seemed to me that those factual disputes were relevant to whether or not there was, or could have been, an admission of the sort relied upon by Delco in its application for summary judgment or interim payment.  The complicated explanation put forward by Delco in footnote 3 to its first submissions, which Mr Dawes says has simply not been addressed by Fang/HWH in its submissions, does not seem to me to assist.  Nor do I think there are reasonable prospects of showing that I erred in taking into account the factual disputes, as the existence of factual disputes incapable of resolution on affidavits seems to me to be centrally relevant to the consideration of a summary judgment application.

27.In those circumstances, I do not think there is any reasonable prospect of success on Ground 4.

G.      Case Management Issue

28.At the end of his first written submissions, Mr Dawes submits (for completeness) that the case management issue relating to the extent appeal from my refusal to permit an amendment relating to the Chern Debt falls away, given that the appeal has now been fixed to be heard on 13 November 2020.

29.I disagree.  It is not simply the date of the appeal which is relevant to case management issues (although the date may have some relevance).  What seemed, and seems, to me to be more important is the potential result of the appeal, where it may turn out that the Chern Debt falls to be taken into account and might potentially invalidate the entire amount as was sought by way of summary judgment or interim payment.

30.That seemed to me to be, in the exercise of my discretion, a proper basis for identifying yet further circumstances where the grant of summary judgment or interim payment is inappropriate.

H.      Result

31.I do not think there are reasonable prospects of success on any of the proposed grounds of appeal.  Therefore, I would dismiss the application for leave.

32.But, for the reasons which are evident from the theme I have described, as well as against the chronology of these proceedings and the looming trial, even had I thought there was a reasonable prospect of success on any of the grounds proposed, I would still have refused leave to appeal in the exercise of my discretion.

33.This case has already consumed a considerable amount of Court time and resources.  It is obvious that ordering any interim payment would not remove the need to have a trial on matters relating to that payment.  It is also obvious that granting (partial) summary judgment on circumstances relating to the various points of setting off would not remove the need to investigate the totality of those circumstances at trial.  The trial dates were fixed, and Court time was set aside, on the basis that all issues would be heard and determined at the trial.  They will be.  It seems to me it would be poor case management, an inefficient use of limited Court resources, an unnecessary extra expenditure to the parties, and disproportionate to the matters overall, if at this stage of the proceedings there were to be an appeal on summary judgment or interim payment as proposed.  Nor is there any suggestion that Delco would suffer any prejudice from obtaining any monetary judgment (to which it might at trial prove to be entitled) in mid-2021 rather than late 2020, which could not be compensated by an appropriate award of interest.

34.I see no reason why the costs of this application should not follow the event.  Therefore, I order Delco to pay Fang/HWH’s costs.  I will assess those costs on a summary basis, if not agreed, and they will be payable forthwith after that assessment.  The assessment will be performed on the papers.  Fang/HWH shall provide a Statement of Costs within seven days, and Delco shall provide any Objections within seven days thereafter.  No further submissions relating to the assessment will be permitted.

Mr Victor Dawes SC and Mr James Man, instructed by Clifford Chance, for the plaintiff in both cases

Mr Norman Nip and Mr Roger Phang, instructed by Stephenson Harwood, for the 2^nd defendant in HCA 3040/2015 and the 4^th defendant in HCA 2939/2016