Gm Commercial Consultants Corp. v. Euro Asia Zhong Ji (HK) Ltd and Another

HCA 651/2019

[2021] HKCFI 2941

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 651 OF 2019

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Before:  Deputy High Court Judge Le Pichon in Chambers (by Paper disposal)

Date of Plaintiff’s Written Submissions: 24 June 2021

Date of 1^st Defendant’s Written Submissions: 5 July 2021

Date of Plaintiff’s Reply Written Submissions:  12 July 2021

Date of Decision:  30 September 2021

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DECISION

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1.This is P’s application dated 26 May 2021 for leave to appeal from the Decision of this court dated 13 May 2021 (“the Decision”). For convenience, the nomenclature used in the Decision is adopted.

2.By the Decision, this court

(1)  allowed D1’s appeal from the order of Master Rebecca Lee dated 21 October 2020 which dismissed D1’s default judgment summons and D1’s 2^nd time summons;

(2)  set aside the default judgment;

(3)  discharged the charging order absolute granted on 7 August 2019;

(4)  made an order nisi of costs of the appeal in favour of D1, such costs to include the costs of the hearings of the default judgment summons, and

(5)  made no order on the relief summons and the new evidence summons.

3.The relevant background facts and the findings made based solely on P’s case as disclosed in its pleadings and evidence it filed are set out in the Decision to which reference should be made. 

4.Section I of the Decision addressed 3 matters: 

(A)  the question whether P’s cause of action is defective (considered by reference to 5 aspects[1]of P’s pleaded case where the deficiencies are identified, rendering the pleading defective);

(B)  the limitation issue (with the court concluding that P (i) failed to discharge the initial burden of proof to show that its cause of action fell within the limitation period; and (ii) P was unable to raise a prima facie case that D1 received “the said sum” (ie the specific sum of HK $7,523,955 pleaded in §1of the SOC); and

(C)  P’s claim to ownership of the 21.5% in JST (with the court concluding that P’s claim is not plausible).

5.P’s grounds of appeal which are set out in its draft notice of appeal (“NOA”) are addressed below.

(1) Errors on findings of fact

6.P singled out §46 of the Decision, criticising the court for overlooking the so-called “2 pieces of evidence” when making a finding that “the absence of a reply to the 2014 letter cannot be equated with an agreement on Liu Hao’s part”.

7.However, it is clear from §§44-45 of the Decision that the court did consider the alleged “evidence” said to have been overlooked.  Reasons were given for rejecting the submission that they constituted “evidence” and I maintain that view.  What P relies on is but its own bare assertions.

8.P identified no other alleged “error” on findings of fact, despite the description “errors” being used in NOA, §1.  It is not understood how the alleged “error” could have undermined other findings of fact made in section I (A) which P failed to identify.

(2) NOA §2 – P’s claim to ownership of a 21.5% share in JST

9.P relies on the 2001 STA whereby BHL (which held 30% of JST) sought to transfer a 21.5% interest in JST to P.  As explained in the Decision §§9-10, Zhongji Holdings’ case is that the transfer could not take effect under PRC law for want of consent by the other stakeholders.  It is therefore incorrect for the P to state that that fact “cannot be disputed”.  To the contrary, it was credibly disputed by D1.

10.BHL sold its 30% interest in JST to Zhongji Holdings in 2008.  It could not have done so unless the 2001 STA was ineffective.  The 2008 sale is evidenced by annexures to P’s expert’s 2^nd opinion, the effectiveness of which was considered in §§38-43. 

11.For the reasons therein expressed, P’s stance that those documents (exhibited by his own expert) are sham documents was rejected.  I see no reason to resile from that view.

(3) NOA §3 – error in holding that PRC law does not recognize the concept of beneficial ownership

12.In concluding that P has no plausible claim to ownership of the 21.5% share in JST, I rejected P’s case that the 2001 STA was effective as a matter of PRC law.

13.In so far as P’s claim related to any “beneficial interest” in JST, I noted the total absence of any evidence from P’s expert on that issue and referred to Jessop & Baird (Hong Kong) Limited v Neo Hwee Khim [2020] HKCFI 2264 at §65 for the well-established proposition that the concept of trust assets as understood in common law jurisdictions does not exist under PRC law[2].

14.The nub of P’s submission is that this court was not entitled to make findings on PRC law on this issue in the absence of expert evidence.  What P overlooks is that in the absence of any evidence on that issue from Hong (P’s expert) to support the existence of a beneficial interest. This meant that the court was entitled in any event to reject P’s claim in so far as it related to any claim to a beneficial interest 21.5% of JST.

(4) NOA §§4-5: s 26 (1) of the Limitation Ordinance (“LO”) and unjust enrichment

15.P submits that the relevant provision is s 26(1) rather than s 4 of the LO.  Yet, s 26(1) only surfaced as part of P’s case in P’s Brief Note of Reply dated 28 April 2021 which was the day of the hearing itself.  It transpires from P’s Reply Submissions in relation to its leave application, that notwithstanding its own pleading, P’s cause of action is for unjust enrichment.

16.In so far as P’s pleaded case is concerned (a claim for money had and received), the relevant limitation period is governed by s 4 of the LO and P has not shown that that cause of action is not time-barred.

17.P’s complaint is that this court failed to apply the framework formulated in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §§66-77.  But that framework is irrelevant unless it can be shown that the facts upon which P’s case is founded support an unjust enrichment claim. 

18.The 2001 STA does not establish P’s entitlement to 21.5% of JST.  Nor has it been shown that D1 was aware of the 2001 STA or of the 2008 transaction since D1 was not incorporated until 2011. 

19.The 2014 letter takes the matter no further since it was sent only to Liu Hao who ceased to be chairman of Zhongji Holdings in 2007 and there is no evidence that he held any position in Zhongji Holdings in 2014.

20.In my view, P’s unjust enrichment claim does not even get off the ground, leaving aside the total absence of particulars of fraud.  This ground is wholly misconceived.

(5) NOA §§ 6 – 7: delay and the exercise of discretion

21.P complains that the court failed to appreciate the gravity of the delay which it considered egregious.

22.The court was well aware of the delay as well as the highly unusual procedural history of the proceedings.  Where, in the court’s view, P’s pleading was “palpably bad and defective”, a refusal to set aside the default judgment would be tantamount to upholding a judgment that was not founded on a valid cause of action.  The ends of justice would not have been served by such an outcome.

Conclusion on the leave application

23.For the reasons set out above, P ‘s application for leave is refused.

24.Costs would follow the event and it would be appropriate for such costs to be summarily assessed.  However, D1 seeks that the costs of the leave summons be summarily assessed on an indemnity basis. 

25.D1 relies on 2 matters.  First, it was submitted that P has demonstrated a reckless disregard for the truth and/or veracity of its allegations.  By way of illustration, D1 highlighted a letter dated 1 March 2021 from P’s solicitors to the Officer-in-charge of the Court Language Section objecting to D1’a solicitors’ request to certify WeChat records, asserting that “WhatsApp or WeChat messages are not admissible in Court” and querying the addressee’s authority to certify the same.

26.Second, it was submitted that in its ex parte application for default judgment, P failed to draw the Court’s attention to the limitation issue.  D1 submitted that such material non-disclosure is inexcusable when D2 had already raised the limitation defence[3].  D1 relied on Elitt Engineering Consultants Ltd v SNE Engineering Co Ltd, unrep., HCA 603/2012 and HCA 1312/2012, 17 December 2012 at §§4-12 for the proposition that material non-disclosure with no explanation at all is recognized as a factor that will likely attract indemnity costs.

27.It is clear from Elitt that the judge was applying the principles summarised by Suffiad J in China Chance Corporation Limited v Rockefeller Group International Inc, unrep., HCA 2165 of 2009, 2 February 2011 at §16[4] .  In Elitt, the judge found “underhand conduct in handling the plaintiff’s claim” and abusing the interlocutory remedy of a Mareva injunction by using it as a means of compelling the defendant to submit to paying the plaintiff’s claim.  I do not read Elitt as authority for the proposition D1 has put forward. 

28.I do not consider the present case to be a proper and appropriate case for an indemnity costs order.  Accordingly, D1’s application for costs on an indemnity basis is refused.

29.As D1 has already lodged its statement of costs, P is directed to lodge its objections (if any) within 7 days from the date of this Decision.

Variation of the costs order nisi

30.P seeks to vary the order nisi made, essentially relying on Ko Sin Yun v Chan Chuen & Another [2007] 1 HKLRD 324 where (at §21) Cheung JA held that where a judgment was set aside not because of it being irregular but because of a meritorious defence, the general rule is that the defendant should bear the costs of the application to set aside the default judgment.  As an alternative the costs of the application can be in the cause of the action.

31.D1 opposes the variation, submitting that the costs order nisi should be rendered absolute. 

32.D1 submits that the setting aside is not based on D1 showing a meritorious defence.  Rather, P’s SOC, being palpably bad and defective, discloses no cause of action, is embarrassing and frivolous and is liable to be struck out.  For that reason, the general rule is inapplicable. 

33.I respectfully agree.  Accordingly, the costs order nisi made is affirmed.

Mr Tony Ko, instructed by George Y.C.  Mok & Co, for the plaintiff

Mr Howard Wong, instructed by Anthony Siu & Co, for the 1^st defendant