Foshan City Commercial Bank v. Chen Yong Yi and Others
Read the full judgment text of HCA 15922/1998 on BabelCite. This High Court CFI judgment was delivered on 13 January 2000.
1. There were totally 6 interlocutory applications before me:-
Cites 5 cases
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HCA015922/1998 HCA 15922/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 15922 OF 1998 ____________
____________ Coram: Hon Chung J in Chambers Dates of Hearing: 10 - 11 June, 9 July 1999 and 11 - 13 January 2000 Date of Decision: 13 January 2000 Date of Handing Down Reasons for Decision: 17 April 2000 _______________________ REASONS FOR DECISION _______________________ Introduction 1. There were totally 6 interlocutory applications before me:-
2. At the end of a hearing lasting about 6 days and which spanned over June and July 1999 and January 2000, the following orders were made:-
Further, several costs orders were also made. Costs orders relating to the applications at sub-paragraphs (b) and (d) above are disputed and will be discussed under the heading "Costs Order" below. Nature of the Plaintiff's Action 3. The Plaintiff's claim, according to the Statement of Claim, can be summarized as follows. The Plaintiff is and was a banking institution incorporated in the mainland and carrying on banking business in Foshan, Guangdong Province. D1 and D2 are brothers and in control of 2 corporations in the mainland, a Guangdong Foshan City Molik Corporation and a Foshan Molik Computer Industry Company (respectively "Molik Corp" and "Molik Computer" and collectively "the Molik companies"). D3 and D4 are Hong Kong companies engaged in the property development and investment business in Hong Kong. They are "affiliated with" the Molik companies. At some time between about the end of December 1994 and July 1995, the 4 Defendants, the Molik companies and some of the Plaintiff's staff unlawfully conspired to injure the Plaintiff by inducing it to advance loans or grant banking facilities to the Molik companies. The fraud alleged against the conspirators was in substance that the purpose of the loans were falsely pretended to have been for purchasing materials or parts for the businesses of the Molik companies. When the loan money was received by the Molik companies, it was applied by D3 and D4 for the investment, development or improvement of a piece of land and/or 2 commercial premises, in Hong Kong. 4. The amounts of the loans were said to be RMB37.26 million and RMB24 million respectively. The Plaintiff claims that D3 and D4 became constructive trustees of these sums and it became an equitable mortgagee of, and is entitled to a lien on, the said real properties of D3 and D4. 5. In the prayer for relief, the Plaintiff seeks a number of declaratory orders including a declaration that it is an equitable mortgagee of, or entitled to a lien on, the real properties of D3 and D4. I understand the Writ has been registered as a lis pendens. The Application to Set Aside Default Judgment 6. The Writ of Summons was issued on 18 September 1998. Because no defence was filed within the prescribed time, the Plaintiff applied for default judgment and default judgment was entered on 30 December 1998. 7. The formal Order and Interlocutory Judgment respectively dated 29 and 30 December 1998 stated:-
8. Mr Wong for the defence argues that the Default Judgment was entered irregularly because:-
9. In order to decide whether the Default Judgment was irregularly entered, it is necessary to examine the history pertaining to the learned Master's order and the subsequent Default Judgment. 10. The acknowledgement of service was given by the Defence on 3 October 1998. On 11 December 1998, the Plaintiff's solicitors made an application to enter default interlocutory judgment by way of filing an affirmation asking for the same. A draft default judgment (which was in the usual form) was filed on the same day. The Master must have been concerned with the prayer for relief for declaratory orders because an endorsement dated 15 December 1998 was made on the draft as follows:-
11. On 24 December 1998, a Defence was filed by the Defendants (albeit out of time and without leave of the Court). The usual practice to be followed in such a case was set out in The Supreme Court Practice 1999, para. 19/2/1 (at p. 361) and 19/7/4. In relation to a claim for a liquidated demand, the usual practice is:-
The position in relation to claims falling within RHC Ord. 19 r. 7 (other claims) is:-
12. In the Defence filed (out of time) on 24 December 1998, the Defendants in short denied the Plaintiff's allegations in the Statement of Claim. Further, the Defendants averred that the properties referred to in the Statement of Claim were acquired prior to the date of the loans from the Plaintiff. 13. In these circumstances, whether the Master's Order and/or the Default Judgment ought to be set aside depends on:-
14. I consider that point (a) should be answered in the negative. RHC Ord. 19 r. 7(1) provides:-
Ord. 19 r. 7(3) provides that an application under r. 7(1) must be by summons or motion. On the other hand, as stated in Anson v. Trump [1998] 1 WLR 1404, there is no place for such an application to be made when default judgment is entered pursuant to Ord. 19 r. 2. 15. Ord. 19 r. 7(1) expressly covers claims not mentioned in Ord. 19 rr. 2 to 5 but it does not expressly deal with the manner in which a plaintiff should proceed with his application for default judgment where his statement of claim consists both of a claim under rules 2 to 5 and of other claim(s). I consider that the intention of the rules must be that he still needs to proceed by way of summons or motion in accordance with Ord. 19 r. 7(3). First, the part(s) of the Statement of Claim setting out the "other claims" (which fall outside rules 2 to 5) is clearly covered by Ord. 19 r. 7(1). Secondly, this intention can be inferred from Ord. 19 r. 6, which prescribes the procedure to be adopted (which is different from that prescribed in Ord. 19 r. 7(1)) where a plaintiff makes 2 or more claims mentioned in rules 2 to 5 but no other claim. Since the provisions of Ord. 65 r. 9 are inapplicable to a summons or motion taken out pursuant to Ord. 19 r. 7(3), any such summons or motion would have to be served on the defendant. 16. What has happened here can be described as an application striding between Ord. 19 r. 2 and Ord. 19 r. 7(1). It is clear that the Plaintiff only intended to enter a default judgment pursuant to Ord. 19 r. 2 and yet the procedure adopted is akin to (but not in accordance with) that prescribed in Ord. 19 r. 7. No summons or motion was in fact taken out (and hence served) in the present case and the opposing parties have not been given an opportunity to be heard on 29 December 1998. The Order and Default Judgment were therefore irregularly made/entered. 17. In coming to this conclusion, I have borne in mind Anson v. Trump [1998] 1 WLR 1404, a decision relied upon by the Plaintiff. In my view, the Court's conclusion that the default judgment therein was entered regularly despite a defence having been "served" on the date of the default judgment (but without the plaintiff's knowledge) was based on the following finding:-
This was not what took place here because the way in which the matter proceeded was in effect a semi-judicial process and a semi-administrative one. 18. Whether or not an irregular default judgment ought to be set aside "as of right" was dealt with in inter alia the following cases:-
I do not propose to repeat the observations made in those cases save to say this. I consider that irregular default judgments should usually be set aside without regard to the merits of the defence. However, the Court retains a discretion in exceptional cases to consider that aspect as well in a setting aside application. 19. Bearing in mind the principles set out in the above cases, I consider that the extent of the irregularity herein justifies the setting aside of the Order and Default Judgment without the need to consider the merits of the defence. It may be appropriate for an enquiry (in writing) to be made by the Court as to whether the applicant for a default judgment intends to abandon the other claims in his statement of claim so as to bring the ex parte application within Ord. 19 r. 2. For such an applicant to appear before the Court without taking out the proper application and, more importantly, without affording the opposite party an opportunity to be heard on the application, is in my view an irregularity involving a breach of the fundamental rule of natural justice. 20. Even if (contrary to my conclusion reached above), the way in which the matter was proceeded with was within the Master's jurisdiction, I consider that the Default Judgment ought to be set aside by reason:-
The standard of proof which I applied in concluding that the Default Judgment should also be set aside on the merits of the defence has been set out in my earlier decision in Redland Concrete (above, at pp. 19 to 22 of the transcript) and will not be repeated herein. The Application for the Discharge/Continuation of the Mareva Order 21. There are in short 4 grounds on which the Defendants contend that the Mareva Order ought to be discharged:-
These will be dealt with under separate sub-headings. (1) Material Non-disclosure and/or Misleading Evidence 22. The matters relied upon by the Defendants regarding this point include:-
23. Mr Wong refers to Liu Pui Man v. Wong Mei Yin [1998] 1 HKLRD 84 and argues that the Judgment of the Hong Kong Court of Appeal shows that the alleged "sham" transaction was in fact a usual practice used by Hong Kong developers regarding real property developments in the New Territories. The Liu Pui Man case discussed whether such kind of transfer (using indigenous villagers' names as registered owners) was illegal and/or against public policy. The Court of Appeal in effect recognised this method as a means of dealing with Government's "small house policy" and concluded that Government must have accepted the method. Further, the Defendants have filed evidence showing that such kind of transfer has been common and has a long history. 24. Having considered the materials before me, I agree with this part of Mr Wong's submissions and conclude that the Plaintiff has provided misleading information at the ex parte hearing. 25. As regards the letter dated 22 December 1993, I consider it was not incumbent upon the Plaintiff to comb through piles of documents in order to meet the requirement of making full and frank disclosure: see A.M.D. Pack Rack Ltd v. The Barrons Leasing Ltd [1992] 2 HKLR 50. I also accept the argument of Mr Fung for the Plaintiff that there is no evidence that the Plaintiff must have been aware of the existence of this letter at the time of the ex parte hearing. 26. I find that the attention of the ex parte Judge ought to be drawn to the Defence, especially when it alleges that the real properties in question were acquired before the dates of the loans. 27. For the above reasons, I conclude that misleading evidence had been placed before the Court at the ex parte hearing and there was a failure to refer to material information. (2) No Risk of Dissipation of Assets 28. Mr Wong submits that there is no evidence of any risk of dissipation of the Defendants' assets, especially those of D3 and D4 and therefore there is no basis for granting a Mareva injunction. 29. With respect to Mr Wong, I disagree with his submission. The Court in Honsaico Trading Co. v. Hong Yiah Seng Co. Ltd [1990] 1 HKLR 234 held that an unacceptably low standard of commercial morality is a good reason for concluding that there is a risk of dissipation of assets. I agree with the Plaintiff's contention that a fortiori in a case involving fraud and dishonesty, such a risk cannot be ignored. 30. Nothing in this Judgment is intended to comment on (or decide) the merits of the parties' case in this action. Purely for the purpose of this application, and as stated under the sub-heading "Should a Fresh Order be Granted?", the Defendants' representation(s) regarding the purpose of the loans can be found in the loan-related documents and the use to which the loans were in fact put does not appear to be disputed. There is at least an arguable case of fraud and dishonesty against the Defendants. Further, as stated under the sub-heading "Adequacy of a lis pendens", the real property development might be at risk. I therefore conclude that there is evidence regarding the risk of dissipation of assets. (3) No Proper Claim against D3 or D4 31. This has been set out under the heading "The Application to Strike Out the Statement of Claim" and will not be repeated again. For those reasons, I conclude that no proper claim has been pleaded against D3 or D4. However, I agree with Mr Fung's argument that from the materials before me, there is (at least) an arguable case as to whether they played a role in the alleged conspiracy. (4) Should the Ex Parte Order be Discharged? 32. At the end, this is a matter for the Court's discretion. But in exercising this discretion, the Court should be guided by the following observations:-
33. In view of the conclusion reached under the sub-heading "Material Non-disclosure and/or Misleading Evidence", and bearing in mind the observations set out above, I find that the ex parte order should be discharged. (5) Should a Fresh Injunction be Granted? 34. This matter is also one for the Court's discretion. The learned editors of The Supreme Court Practice 1999 made the following observations:-
35. Mr Fung submits that the materials filed herein show that (at least) there is an arguable case as to whether the Defendants had been involved in instances of fraud. He points out that the Defendants' representation(s) to the Plaintiff can be found in contemporaneous documents such as those relating to the applications (and the agreements) for the loans. Moreover, there is no dispute as to the actual use to which the funds have been put. Having perused the documents filed herein, I agree with these submissions. 36. In these circumstances, I find that this is a case where if there had not been the non-disclosure or misleading information referred to above, the ex parte injunction would still have been granted. Allegations of fraud and dishonesty have been raised in this case. In these circumstances, and bearing in mind the way in which the Defendants responded to these allegations, I consider my discretion should be exercised in granting a fresh order after having discharged the ex parte order. (6) Adequacy of a lis pendens 37. One of the matters contended for by the Plaintiff herein is that there is evidence that D3 is financially unsound and this may put the scheme relating to the real property development at risk. In these circumstances, I agree with Mr Fung's submissions that the mere registration of a lis pendens may be insufficient without the aid of a Mareva injunction. The Application to Strike Out the Statement of Claim 38. The basis of the Defendants' application can be summarised as follows. As stated earlier (under the heading "The Nature of the Plaintiff's Action"), the Plaintiff alleges that there was a conspiracy involving all the Defendants. The plea setting out the conspiracy is paragraph 5 of the Statement of Claim:-
The overt acts of each of the alleged co-conspirators in pursuance of the said conspiracy were set forth in paragraph 6 thereof:-
39. Mr Wong complains that the plea is defective and ought to be struck out. He refers to the following passages of A.D.S. v. Wheelock Marden [1994] 2 HKC 264 for support:-
40. Having heard the parties, I agree with Mr Wong's arguments insofar as they relate to D3 and D4. I have perused the whole Statement of Claim and the averments relating to their alleged role in the conspiracy can only be found at paragraphs 6(d) (set out above), 10 and 14 (which respectively aver):-
41. It is to be noted none of the above paragraphs in the Statement of Claim alleges that D3 or D4 "knowingly" received the money in question. Paragraph 6(d) merely refers to the "receipt of the Loans", paragraph 10 to "Upon receipt" of the loans and paragraph 14 to "Having knowingly participated in the said fraudulent or dishonest design". 42. Insofar as it is said that the Plaintiff's case is that D3 and D4 "knowingly" received the loans and thus became constructive trustees, such a plea has not in fact been made. Even if somehow it can be said such a case had been made, there is a lack of the requisite particulars relating to knowledge. The only other plea which may be relevant is the allegation that D3 and D4 are "affiliated with" the Molik companies, but this is at best a very vague plea. 43. Insofar as the Plaintiff relies on "Having knowingly participated in the said ... design", this in substance is a repetition of the plea at paragraph 5 of the Statement of Claim. There is not even an attempt to set out the overt acts as to how D3 or D4 "knowingly participated in the said ... design". 44. For these reasons, I agree with Mr Wong that the Statement of Claim against D3 and D4 ought to be struck out. On the other hand, having so decided, I agree with Mr Fung's submissions that in view of the materials placed before me relating to the possible role of D3 and D4 in the alleged conspiracy, an opportunity ought to be given to the Plaintiff to amend its claim against them. For the above reasons, I consider it appropriate to make the order set out earlier under the heading "Introduction". 45. The Defence also seeks to strike out the whole of the Plaintiff's claim on the grounds that:-
46. I disagree with Mr Wong's point (a) above because paragraphs 5 and 6 of the Statement of Claim clearly and sufficiently (save as to D3 and D4) plead a conspiracy involving the Defendants. I also do not agree with his point (b) above because paragraphs 5 and 6 thereof read together amount to an allegation of a conspiracy to practice fraud against the Plaintiff: paragraph 5 contains an express plea of "unlawfully conspired ... by inducing the Plaintiff by fraud ... to advance loans ... ". As regards his point (c) above, paragraphs 6(a) and (b) of the Statement of Claim in effect allege that D1 and D2 as agents or servants of the Molik companies misrepresented the purpose of the loans. It is trite law that an agent can also be liable for a tort he committed on his principal's behalf. I therefore disagree with his point (c). 47. It should also be noted that in relation to the issue of "double actionability" regarding point (c) above, the Plaintiff has filed expert evidence in support of this part of its claim. The matter is hence more appropriate for trial than for a striking out application. 48. On the other hand, I do not find there is any substance in the Plaintiff's argument that the Defence is barred from taking out this application by the merger of the cause of action with the Default Judgment. This is because the bar is more apparent than real; if necessary, the Court can always decide on the setting aside application first (as happened in this case) before considering this application. The Application for the Plaintiff to Cease to be a Party 49. The Defendants took out this application alleging in essence that the loans were granted by an entity other than the Plaintiff. 50. Without disrespect to the industrious work and detailed submissions of the parties' legal advisers, I consider that the matter clearly could not be properly disposed of by way of this application by the time of the hearing in January 2000. This is because the parties have filed conflicting expert evidence regarding the issue of whether:-
51. I have dealt with the Plaintiff's argument regarding the "merger" of the action with the Default Judgment under the heading "The Application to Strike Out the Statement of Claim" and will not repeat them again, even though this point is also raised in this application. The Application to Amend the Defence 52. At the beginning of the hearing on 11 January 2000, Mr Wong informed me that this application would depend on whether the Defendants would succeed in their application to set aside the default judgment. Although they were successful in that application, the Plaintiff was also given an opportunity to amend its Statement of Claim. In these circumstances, I consider (and the parties did not object) that the application to amend the Defence should be withdrawn with no order as to costs, with leave to the Defendants to file and serve an Amended Defence within 42 days after the service of the Plaintiff's Amended Statement of Claim. The Application for Security for Costs 53. There was insufficient time to deal with this application and it was therefore adjourned to a date to be fixed for argument (with an estimated hearing of 2 hours). Costs of this application should be reserved. Costs Orders 54. At the end of the hearing on 13 January 2000, the following costs orders were made:-
The parties did not raise any argument regarding the above costs orders in view of the outcome of the 2 relevant applications. Arguments, however, were raised in relation to the costs regarding the striking out application and the application to discharge/continue the Mareva order. (1) Costs of the Application to Discharge/Continue the Mareva Order 55. The Defendants argue that they should be entitled to these costs whereas the Plaintiff contends that they should be in the cause. 56. I find that the costs of the ex parte order and its discharge should be paid by the Plaintiff to the Defendants forthwith, adopting the approach in Bir v. Sharma, The Times, 7 December 1988. However, I do not consider an award of costs on an indemnity basis is justified. This is because the Plaintiff has at most only advanced an exaggerated case regarding the alleged "'sham' transaction" part of its case by "putting the defendant in the worst possible light" (rather than by relying on fabricated evidence). 57. On the other hand, as regards the costs of the inter partes order, since the Plaintiff has been successful in this application, those costs should be costs in the cause. (2) Costs of the Application to Strike Out the Statement of Claim 58. The Defendants claim that they should be entitled to the costs of this application while the Plaintiff argues that they should be in the cause of the action because the Plaintiff was substantially successful and the Defence only succeeded in striking out the claim against D3 and D4. On the other hand, the Defence contends it is substantially successful in the outcome of this application. 59. I consider that the costs of this application should be awarded to the Defendants in any event because:-
60. Certificate for two counsel is given for all costs orders made above (save as regards the costs of the application for security for costs). Further, there is a cost order nisi that the costs incurred and thrown away by the amendment of the Statement of Claim and those of any consequential amendment be to the Defendants in any event.
Representation: Mr D Fung SC leading Mr J Mok, instructed by Messrs Ng & Shum, for the Plaintiff Mr R Wong SC leading Mr P Carolan, instructed by Messrs Wong, Poon, Chan, Law & Co., for the Defendants |
Cases cited in this judgment
Further hearings and rulings under HCA 15922/1998