Chow Man v. Wang Hong Chun and Another

CAMP 288/2022

[2022] HKCA 1784

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 288 OF 2022

(ON AN INTENDED APPEAL FROM HCA NO 1458 OF 2020)

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BETWEEN

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J U D G M E N T

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Hon G Lam JA (giving the Judgment of the Court):

Introduction

1.This is a renewed application by the plaintiff for leave to appeal against the judgment of B Chu J handed down on 16 March 2022 (“Judgment”).[1]  In the Judgment, the judge refused to grant the plaintiff leave to serve the writ of summons on the 1^st defendant outside the jurisdiction of Hong Kong, and also adjourned sine die the defendants’ summons to dispute the courts’ jurisdiction. 

Background

2.The disputes between the parties arose out of the 1^st defendant’s gambling debts in Macao.  On about 6 September 2009, the 1^st defendant incurred gambling losses of $75,500,000 in Macao.  The debt was evidenced by a handwritten debt note apparently signed by the 1^st defendant and dated 6 September 2009, acknowledging a debt in the amount of $75,500,000 owed to 「集美公司」,  i.e. Jimei International Club of SJM Holdings Ltd (澳門博彩控股有限公司集美國際貴賓會)  (“Jimei”).[2] According to the Amended Statement of Claim filed on 28 April 2022 (the draft of which was placed before the judge), the plaintiff provided a personal guarantee of the 1^st defendant’s debt to Jimei, and after the 1^st defendant defaulted on repayment, the plaintiff settled the debt with Jimei in tranches and had fully repaid it by 2016.  The 1^st defendant acknowledged that in September 2009 the plaintiff advanced him monies in that amount and paid the debt to Jimei.  This debt to the plaintiff was referred to in the Judgment as the “1^st Loan”.  The plaintiff’s version of the facts as to how he lent the 1^st Loan is somewhat different, but the difference is not material for present purposes.

3.The plaintiff’s case is that, subsequently, part of the 1^st Loan in the amount of Rmb 36,000,000 was the subject matter of a separate agreement, whereby that part of the debt was used to purchase certain shares in a company from the 2^nd defendant, and that because the company did not become listed as planned, the defendants came under an obligation to repurchase the shares from the plaintiff.  On that basis, the plaintiff had commenced litigation against both defendants in the People’s Court in Yixing, Jiangsu Province, to recover, inter alia, the sum of Rmb 36,000,000.  In Hong Kong, the plaintiff has therefore revised his claim to seek repayment of the remaining part of the 1^st Loan, which is said to be in the sum of $39,500,000.  Quite how $39,500,000 would remain after deducting Rmb 36,000,000 from $75,500,000 is not clear.

4.In addition, the plaintiff claims that the 1^st defendant owes him a debt of $30,000,000 (referred to in the Judgment as the “3^rd Loan”)  as evidenced by a loan receipt (借條)  handwritten and apparently signed by the 1^st defendant dated 6 September 2009.

5.Lastly, the plaintiff claims that on 10 November 2013, upon the plaintiff’s personal guarantee, the 1^st defendant borrowed $20,000,000 from a company called Wing Cheok (永卓俱樂部國際娛樂有限公司)  of MGM Guangdong Sky Club 3 in Macao (“Wing Cheok”). According to the plaintiff, the 1^st defendant defaulted on repayment, as a result of which the plaintiff paid the debt to Wing Cheok in full, and accordingly claims $20,000,000 from the 1^st defendant (referred to in the Judgment as the “4^th Loan”).

6.The defendants reside in the Mainland.  The plaintiff’s application for leave to serve the writ outside Hong Kong was premised on Order 11 rule 1(1)(e)  of the Rules of the High Court (Cap 4A), which provides that service of a writ out of the jurisdiction is permissible with leave of the Court if:

“ (1)  … in the action begun by the writ —

(e)  the claim is brought in respect of a breach committed within the jurisdiction of a contract made within or out of the jurisdiction ……”

The Judgment below

7.On 19 January 2022, the judge heard the plaintiff’s application (made by affirmation)  for leave to serve out, as well as the defendants’ application made by summons dated 1 March 2021 disputing the Hong Kong courts’ jurisdiction.  At the hearing, the plaintiff made clear that he no longer made any claim against the 2^nd defendant.  (The action was subsequently discontinued as against the 2^nd defendant on 22 April 2022.)

8.The plaintiff’s counsel referred the judge to Komala Deccof & Co SA & others v Perusahaan Pertambangan Minyik Dan Gas Bumi Negara (Pertamina) [1982] HKLR 158 at 161A for the test as to whether there is a case for service out of Hong Kong on the basis that a failure to pay was a breach of contract committed within the jurisdiction.  There the Court of Appeal set out the following two questions:

“ (i)  have the plaintiffs a good arguable case for contending that they formed an associated group of companies whose trading activities vis-à-vis the defendant were conducted from Hong Kong.

(ii)  If so, have the plaintiffs a good arguable case for contending that the defendant’s obligation under the relevant contracts was to pay at the place from which the plaintiffs’ activities were conducted, namely Hong Kong.”

9.These two questions were referred to in the Judgment as “Question 1” and “Question 2”. At [25], the judge further quoted the 3-stage inquiry that was held in Komala Deccof, at p 162, to be involved in Question 2:

“ The purpose of stage 1 was to enquire whether the parties had expressly agreed a place of performance.

The purpose of stage 2 was to investigate whether the parties had impliedly agreed such a place. This stage was governed by the usual principles covering the implication of terms into a contract with the object of ascertaining the parties’ real but unexpressed intentions.

Stage 3 was only reached if the inquiries at stages 1 and 2 produced no result. At this stage the court applied a rule of law, namely that a debtor had to pay the creditor at the creditor’s place of business.”

10.For Question 1, the judge noted that there was very little evidence as to the plaintiff’s own background or occupation.  She was not satisfied that the plaintiff had a good arguable case for contending that his trading activities vis-à-vis the 1^st defendant were conducted from Hong Kong, for the reasons set out at [34] – [36] of the Judgment:

“ 34. The agreement for the 1^st Loan, namely D1 requesting P to help in securing D1’s release and P guaranteeing D1’s repayment of the gambling debt of HKD 75,500,000 was arrived at on 6 September 2009 in Macau. Thus the 1^st Loan arose out of transactions (gambling activities)  in Macau. It was also on the same day that the 3^rd Loan was said to arise, and the transaction in relation to the 4^th Loan (also for gambling activities)  arose on 10 November 2013 in Macau.

35. P was not a Hong Kong permanent resident at the time of the above 3 relevant loan transactions in the ASOC. There is no evidence that P has held any fixed assets in Hong Kong after he sold his Grand Promenade property in 2018. The only evidence of trading and/or investment activities P has in Hong Kong is buying and selling publicly listed shares in Hong Kong.

36.  Moreover, more importantly, P’s own evidence is that he entered into the 3 loan transactions with D1 not for any business reasons or business activities but out of his friendship with D1 of over 20 years.  There is no evidence of any business/trading activities between P and D1 conducted in Hong Kong.  Having considered all the evidence, in my view, Question 1 cannot be answered in P’s favour.  I am not satisfied P has a good arguable case for contending that his trading activities vis-à-vis D1 were conducted from Hong Kong.”

11.As for Question 2, for Stage 1, there was no suggestion that the parties had expressly agreed that the place of repayment was to be Hong Kong.  For Stage 2, the judge found at [38] – [44] that all the evidence showed that the plaintiff and 1^st defendant had sought each other out, and had dealt with each other, in Macao or the Mainland.  At [44], the judge explained why she was not satisfied that the inquiry at Stage 2 could be resolved in the plaintiff’s favour:

“ 44. As set out above, the dealings, communications, country of residence and background leading to the 1^st Loan, the 3^rd and the 4^th Loan were all conducted in either Macau or Mainland China. The fact that there was/is foreign exchange control in Mainland China does not mean the parties had impliedly agreed to Hong Kong being the place of performance. I do not find there is sufficient evidence for any inference to be drawn that the parties had impliedly agreed to the place of performance, or the repayment of those 3 loans was to be in Hong Kong.”

12.As for Stage 3, the judge was not satisfied that the rule applicable at that stage would assist the plaintiff.  At [46], the judge noted that in 2009 and 2013, both the plaintiff and the 1^st defendant were Mainland residents.  Further, at [48], the judge noted that there is no sufficient evidence that the plaintiff’s place of business is in Hong Kong since his share trading activities in Hong Kong can be conducted from a place outside Hong Kong.

13.In light of the above, the judge was not satisfied that there is a good arguable case that the plaintiff’s case falls within the ambit of Order 11 rule 1(1)(e). 

14.Nevertheless, the judge went on to consider whether Hong Kong is the appropriate forum for the trial of the action.  The plaintiff had submitted that Hong Kong is the proper forum because he is a Hong Kong resident and the payments to Jimei and Wing Cheok were made from his Hong Kong bank accounts.  However, the judge also noted that the plaintiff had maintained his Mainland identity card and residential address in the Mainland throughout, and the defendants also reside in the Mainland.  There was no evidence as to where the representatives or potential witnesses of Jimei or Wing Cheok were resident, save that they worked in Macao.

15.The plaintiff submitted that he would suffer a juridical disadvantage if he had to sue in the Mainland because gambling debts are not enforceable there.  To that end, the plaintiff relied on an expert opinion from a Mainland law firm.  However, because, as the evidence indicates, the agreements for the 1^st, 3^rd and 4^th Loans were all made in Macao and there was no reason or evidence that those loans would not be enforceable there, the judge was not satisfied that Hong Kong is clearly the appropriate forum.

16.Accordingly, the judge refused to grant the plaintiff leave to serve the writ on the 1^st defendant outside Hong Kong.  The defendants’ summons was adjourned sine die with liberty to restore.

17.The plaintiff duly applied for leave to appeal, which was refused by the judge in her decision of 20 July 2022.[3]

Intended appeal to this Court

18.By summons dated 3 August 2022, the plaintiff applies to this Court for leave to appeal.  Five intended grounds of appeal have been raised, which may be summarized as follows:

(1)  The judge erred in treating Question 1 as set out in Komala Deccof as determinative.  The requirements of Order 11 rule 1(1)(e)  can be met if the place of performance of the contract is expressly or impliedly agreed to be Hong Kong.

(2)  The judge erred in asking whether the parties had “sought each other out” or “dealt with each other” in considering whether there was an implied agreement for the loans to be repaid in Hong Kong.  The parties could not have agreed for repayment to take place in Macao or in Mainland China.  Applying the usual test for implication, there is a good arguable case that there was an implied agreement for the loans to be repaid in Hong Kong.

(3)  The judge failed to take into account relevant matters and/or took into account irrelevant matters, in not finding that there was sufficient evidence for a good arguable case that the parties had implicitly agreed that the repayment was to be in Hong Kong.

(4)  In considering Stage 3 of Question 2 as stated in Komala Deccof, the judge applied the wrong standard of proof, and/or failed to take into account relevant matters and/or took into account irrelevant matters, and/or was plainly wrong, in finding that the plaintiff’s place of business and/or residence was not in Hong Kong.

(5)  In finding that the plaintiff would not suffer a juridical disadvantage if his claim was to be brought in Mainland China, the judge misinterpreted the plaintiff’s expert evidence and failed to take into account that the claim for the 1^st and 4^th Loans would be barred in the Mainland due to public policy considerations, and that the plaintiff’s claims for the Loans would be barred by the limitation period of two years.

Discussion

19.In Dynasty Line Ltd v Sukamto Sia [2009] 4 HKLRD 454, this Court[4] explained at [29] that in order to obtain leave under Order 11 rule 1 to serve a writ outside Hong Kong, a plaintiff must satisfy the court that:

(1)  there is a good arguable case that the plaintiff’s case comes within the ambit of Order 11 rule 1(1);

(2)  the discretion should be exercised in its favour in that:

(a)  there is a serious issue to be tried on the merits of the case;

(b)  Hong Kong is the appropriate forum under the principle governing forum conveniens for the trial of the action.

20.The two main issues which were before the judge and are raised now in the intended appeal are whether there is a good arguable case that the plaintiff’s case falls within the ambit of Order 11 rule 1(1)(e)  (i.e. a breach of a contract committed in Hong Kong), and whether Hong Kong is the appropriate forum for the trial of the action.

Ground 5

21.We propose to deal with Ground 5 first.  In this Ground, the plaintiff says that the court below failed to take into account that the plaintiff would suffer a juridical disadvantage if proceedings were brought in Mainland China.  In our view this criticism is not to the point, because the substance of the judge’s reasoning is that the 1^st, 3^rd and 4^th Loans all arose in Macao and there is no reason or evidence that these loans would not be enforceable there: see [59] – [63] of the Judgment.  Further, third-party witnesses from Jimei and Wing Cheok worked in Macao: Judgment, [54].  Whether or not the plaintiff would suffer a juridical disadvantage in the Mainland may be relevant to the defendants’ cross-application, which asserts that the People’s Court of Yixing, Jiangsu Province, is the more appropriate forum, but is irrelevant to whether Hong Kong would be a more appropriate forum than Macao. 

22.For the plaintiff’s own application for leave to serve the writ out of the jurisdiction, the burden is on the plaintiff to demonstrate not only that Hong Kong is the appropriate forum for the trial of the action, but that this is clearly so.  This involves identifying the jurisdiction with which the action has the most real and substantial connection.  Apart from the parties’ places of residence or business, it is relevant to have regard to the location of witnesses as well as the governing law of the relevant transactions.  The judge was clearly not satisfied that the plaintiff had discharged his burden.  This conclusion is hardly surprising, in light of the fact that the agreements for the Loans were probably all made in Macao, the 1^st and 4^th Loans related to debts incurred by the 1^st defendant in Macao, the law governing the loan agreements is likely to be the law of Macao, and the third-party witnesses from Jimei and Wing Cheok may well be located in Macao.

23.The scope for challenging on appeal such an evaluative judgment, which is akin to the exercise of a discretion, is limited: Bright Shipping Ltd v Changhong Group (HK)  Ltd (No. 2) [2019] 5 HKLRD 30, §§5-11.  The plaintiff has in our view wholly failed to show how the judge’s assessment can be impugned.  There is no reasonable prospect of success on appeal under Ground 5.

24.This would be sufficient to dispose of the present application, since if the plaintiff is unable to show that Hong Kong is clearly the appropriate forum for the trial of the action, leave to serve out should not be given whether or not the case falls within a gateway under Order 11.  For completeness, we deal with the remaining grounds of appeal below.

Ground 1

25.For Ground 1, the plaintiff submitted that the judge erred in holding that Question 1 as set out in Komala Deccof must be answered in the affirmative in order for the plaintiff’s case to fall within Order 11 rule 1(1)(e).

26.The short answer is that the judge did not so hold.  It is clear from the Judgment that the judge went on to consider Question 2, even though she had answered Question 1 in the negative.

27.Although Question 2 as set out in Komala Deccof begins with the words “If so”, it is plain that the court did not intend to lay down Question 1 as a threshold condition. What the court said there must be seen in the context.  It was a case where there was neither an express nor implied term that the place of payment was Hong Kong.  Stage 3 was therefore engaged.  It was submitted to the court that where the plaintiffs had two places of business, the debtor could seek out his creditor at either place.  This was rejected by the court, which held that in that scenario the plaintiffs’ relevant place of business is that from which they had dealt with the defendant in relation to the transaction in question. Since the court had found that that place was Hong Kong (i.e. Question 1 was answered in the affirmative), the plaintiffs were able to satisfy the requirements for service out.  It is clear from the court’s reasoning that Question 1 arose in that way, and not as a threshold test which must be satisfied before proceeding to Question 2.

Grounds 2 and 3

28.The plaintiff’s main argument under Ground 2 is that the correct test is not whether the parties had sought each other out or dealt with each other in a specific jurisdiction, but rather whether there was an implied agreement as to the place of repayment on the basis of obviousness and/or necessity for business efficacy.  The plaintiff elaborated that the parties could not have agreed for repayment to take place in Macao or Mainland China, because:

(1)  neither the plaintiff nor the 1^st defendant is resident in, or conducts any business, in Macao, and there is no evidence the plaintiff has any bank account in Macao to receive repayment;

(2)  because the currency for repayment of the Loans is Hong Kong dollars, repayment in Mainland China would be impracticable having regard to foreign exchange controls applicable there.  The plaintiff further adds that the 1^st and 4^th Loans would be unenforceable on public policy grounds in the Mainland.

29.The plaintiff also relies on his case that he was ordinarily resident in Hong Kong in 2009 and 2013.

30.The principles governing the implication of terms in a contract are well known.  It was also emphasised in Komala Deccof at p 163 that what is involved in Stage 2 is to find whether a term, imposing an obligation, is implied in the contract.  In referring to where the parties sought each other out or dealt with each other, the judge was simply describing the facts and evidence.  We do not think it is arguable that she applied the wrong test.

31.Like the judge, we do not think that the plaintiff has established a good prima facie case for the implication of the term in question.  As the judge said, all the dealings between the parties took place in Macao or the Mainland.  No particular method of repayment was prescribed by the contracts.  The 1^st and 4^th Loans were incurred in connection with gambling debts or expenses in Macao, and the agreement for the 3^rd Loan was probably also made in Macao (see below).  The burden was on the plaintiff to show an implied term, against this background, not only permitting but requiring repayment to be made, not in the place of their dealings, but in Hong Kong.  The plaintiff did not adduce evidence that he did not carry on any business in Macao and had no bank account or agent there.  To say that there was no evidence that the plaintiff had any bank account in Macao is to reverse the burden.

32.Even if the plaintiff had no bank account or business in Macao at the time, we do not think there is a good prima facie case that it follows that it was so obvious or necessary for business efficacy that a term should be implied that repayment must be made in Hong Kong.  There is nothing to suggest that payment by a bank draft or money order to the plaintiff in Macao would not be feasible.

33.It is unnecessary to deal with the alleged difficulties of repayment or enforcement in the Mainland since if Macao is not excluded by implication, it is difficult to see how it can be said to be obvious or necessary that repayment must be made in Hong Kong.

34.The other criticisms of the plaintiff on the Judgment on this Ground are immaterial since the plaintiff has failed to discharge the burden on him to show (on a good prima facie case basis)  the implied term.

35.For these reasons, there is no reasonable prospect of success on appeal under Grounds 2 or 3.

Ground 4

36.Ground 4 concerns Stage 3 of the Komala Deccof test, i.e. where the inquiries under Stages 1 and 2 produce no result, the court will apply the rule of law that a debtor had to pay the creditor at the creditor’s place of business.

37.For Stage 3, the plaintiff’s case is that as he was ordinarily resident in Hong Kong throughout 2009 and 2013, and as the 1^st, 3^rd and 4^th Loans were in the nature of personal loans rather than loans made in the course of a business, the place of repayment should be his residence in Hong Kong.  The plaintiff criticized the judge for focusing on the location where those loans were made or entered into, when determining whether the plaintiff had a place of business in Hong Kong.

38.However, as this Court pointed out in Komala Deccof at pp 163I to 164A, where the creditor has more than one place of business, the relevant place of business for Stage 3 is the one from which the creditor dealt with the debtor in relation to the transaction in question.  In this case, both the Amended Statement of Claim and the evidence indicate that at the relevant times, the plaintiff was resident in both Hong Kong and the Mainland.  The location where the 1^st, 3^rd and 4^th Loans were made or entered into is consequently a relevant factor for determining where the plaintiff dealt with the 1^st defendant.  It was not an error for the judge to consider the location of where the loans were made or entered into.

39.It is not specifically pleaded or shown by evidence that on 6 September 2009 and 10 November 2013 the plaintiff dealt with the 1^st defendant from a place of business or residence in Hong Kong.  Indeed, the evidence indicates that the plaintiff was in Macao on 6 September 2009: see the Judgment at [32]-[34].  As for the 4^th Loan arising from the guarantee on 10 November 2013, the plaintiff’s passport[5] suggests that the plaintiff was in Mainland China between 8 and 16 November 2013.

40.As the evidence does not indicate that the plaintiff dealt with the 1^st defendant from or within Hong Kong on the relevant dates, it is difficult to see any error in the judge’s conclusion in relation to Stage 3 of the Komala Deccof test.  There is no reasonable prospect of success on appeal under Ground 4.

Conclusion

41.For the reasons above, there is no reasonable prospect of success on the intended appeal.  The plaintiff’s summons of 3 August 2022 is accordingly dismissed, with costs to the 1^st defendant.  The 1^st defendant’s costs are claimed in the amount of $135,407.  We assess the costs payable in the sum of $108,000.

42.Since we take the view that the intended appeal has no prospects at all, we make an order under Order 59 rule 2A(8)  that no party may request for this determination to be reconsidered at an oral hearing inter partes.

Written submissions by Mr Lai Chun Ho, instructed by Nixon Peabody CWL, for the Plaintiff

Written submissions by Mr Jerome Liu and Ms Tsang Hing Ting, instructed Chiu, Szeto & Cheng, for the 1^st Defendant