Rainier International Bank v. Chevy Chase Ltd and Another

HCA004005/1983

BETWEEN

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Coram: Hon. Clough, J.

Date of Hearing: 9 December 1983

Date of Delivery of Judgment: 16 January 1984

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JUDGMENT

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1. On the 9th December 1983 1 allowed in part an appeal under O.58 from the decision of a Master giving summary judgment under O.14 to the Plaintiff in the sum of $4,018,074.04 with interest against the 1st Defendant. At the same hearing I adjourned sine die, with liberty to restore on two days notice, a Summons by the 1st Defendant in this action for a stay of execution of the Master's order under O.14 which had been made on the 2nd September 1983. I now give my reasons for the order made by me on the 9th December 1983.

2. The background of this action and the history of the proceedings leading up to the application for summary judgment under O.14 which is the subject of this appeal is as follows.

Background

3. The parties, together described in the heading to this action as the 2nd Defendants, namely Mr. Wong Che and Madam Kwan Wai Lin are husband and wife. They are evidently people of some considerable means. In 1981 they incorporated a private company which is the 1st Defendant in this action. They are the sole directors and shareholders of the 1st Defendant which they incorporated as a vehicle for the purchase of some property in Shaukiwan ("the Tai Cheong House property"). The 2nd Defendants intended to exploit the property for use for meat storage purposes . Unknown to them the only authorised user for the premises was that of a children's playground.

4. To finance the purchase of the Tai Cheong House property the 2nd Defendants approached the Tsimshatsui Branch of the Plaintiff with whom they had had previous dealings. On the 26th January 1981 the 2nd Defendants guaranteed the payment of monies owing by the 1st Defendant to the Plaintiff with interest, to the extent of a principal sum not exceeding $3,450,000, together with interest. On the 25th March 1981 the purchase of the Tai Cheong House property was completed and the property itself was mortgaged by the 1st Defendant to the Plaintiff. Evidently part of the purchase price of the Tai Cheong House property was raised by another mortgage dated the 9th February 1981 of a property of the 2nd Defendants situated in Hennessy Road ("the Hennessy Road mortgage").

5. The transaction proved to be a financial disaster for the Defendants. Soon after it was completed it was discovered by the Defendants that the Tai Cheong House property could only be lawfully used for playground purposes and not for the purposes of meat storage as contemplated by the Defendants at the time of the purchase. In 1981 the 1st Defendant began an action in the High Court (No. 5206/81 "the 1st Defendant's action") against the vendors of the Tai Cheong House property and also against various solicitors who had acted for the 1st Defendant in this action and others.

6. After a period of apparent inactivity during 1982, the Plaintiff demanded repayment on the 29th March 1983 from the 2nd Defendants as guarantors in respect of the 1st Defendant's liability to the Plaintiff under the guarantee executed on the 26th January 1981. This was followed on the 9th April 1983 by the issue by the Plaintiff of the writ in the present action against the 2nd Defendants, initially named as the only Defendants. The claim under the amended writ dated the 10th May 1983 is for the sum of $4,018,074.04 together with interest.

7. On the 2nd May 1983 the Plaintiff issued a Summons for summary judgment under O.14 against the 2nd Defendants. The application was supported by an affirmation of Mr. Simon Kwong, a pro-assistant manager of the Plaintiff. It was opposed by the affirmation of Mr. Wong Che filed on the 21st May 1983. The substance of the proposed Defence of the 2nd Defendants as outlined by Mr. Wong Che in his affirmation was that Mr. Dobbin Fung, the Manager of the Plaintiff's Tsimshatsui Branch who had arranged banking facilities for the transaction to the extent of 70% of the purchase price, had induced the 2nd Defendants to execute the guarantee dated the 26th January 1981 by representing to them that the Plaintiff would not exercise any of its rights under the guarantee until the Plaintiff had executed its mortgagee's power of sale in respect of the mortgaged property and then only if there were a deficiency as a result of the exercise of that power.

8. The evidence of Mr. Wong Che in opposition to the Plaintiff's application under O.14 against the 2nd Defendants was supplemented by an affirmation made by the 2nd Defendants' solicitor Miss Carcy Wong filed on the 25th May 1983 to which was exhibited the Amended Statement of Claim in the 1st Defendant's action and also a copy of a consent order made in that action onthe 2nd February 1983.

9. On the 23rd May 1983 the Master gave unconditional leave to the 2nd Defendants to defend the action.

10. Having failed to obtain summary judgment against the 2nd Defendants, who were then the only defendants in this action, the Plaintiff applied on the 22nd June 1983 to amend its writ by adding the 1st Defendant as an additional defendant. This application was not in terms made pursuant to O.15 r.6 but, nevertheless, on the 5th July 1983 an order was made by the Master adding the 1st Defendant as a party to the proceedings and authorising appropriate amendments to the Plaintiff's Statement of Claim to enable the Plaintiff to claim against all the Defendants the same sum and interest as had originally been claimed only against the 2nd Defendants.

The application for judgment under O.14 against the 1st Defendant

11. On the 21st July 1983 the Plaintiff issued a Summons under O.14 for summary judgment against the 1st Defendant. This application was again supported by an affirmation of Mr. Simon Kwong who exhibited thereto the mortgage dated the 25th March 1981 and a letter of demand dated the 28th January 1983.

12. In an affirmation opposing the application filed on the 28th July 1983 Mr. Wong Che raised matters which were not relied upon on the subsequent appeal before me. They related to alleged misjoinder of the 1st Defendant and included the contention that the sum claimed by the Plaintiff was already the subject of the consent order made on the 2nd February 1983 in the 1st Defendant's action in which the Plaintiff had by then added as the 5th Defendant.

13. On the 29th July 1983 the 1st Defendant made an application under O.15 r.6 for an order that the 1st Defendant be struck out as a party to the action, alternatively that the Re-Amended Statement of Claim against the 1st Defendant be struck out under O.18 r.19. The return date for the O.14 Summons was the 2nd September 1983. The return date for the Summons issued under O.15 r.6 was the 7th October 1983.

14. By an affirmation filed on behalf of the 1st Defendant on the 1st September 1983 its solicitor Miss Carcy Wong contended that the pending applications of the Plaintiff and the 1st Defendant respectively should be heard together. She exhibited correspondence which indicated that the Plaintiff's solicitors did not agree to that contention.

15. On the 2nd September 1983 the Master gave summary judgment for the Plaintiff against the 1st Defendant for the sum of $4,018,074.04 with interest but ordered a stay of exeuction pending this appeal by the 1st Defendant. Notice of appeal was filed on the 7th September 1983 and on the 27th September 1983 the 1st Defendant withdrew its application to be struck out as a party to this action.

16. The date fixed for the hearing of the 1st Defendant's appeal against the Master's order for summary judgment was the 20th October 1983. Two days before the hearing date, namely on the 18th October 1983, the 1st Defendant filed an affirmation made by Mr. Wong Che. As a result the hearing of the appeal did not take place on the 20th October 1983. Instead I gave leave, albeit with some misgivings, to the 1st Defendant to file Mr. Wong Che's affirmation, gave further directions as to evidence and adjourned the hearing of the appeal to a date to be fixed. As the additional evidence had been filed very late and as the 1st Defendant was shifting its ground for resisting summary judgment on the appeal it was ordered to pay the costs thrown away by reason of the adjournment.

17. At the effective hearing of the appeal on the 9th December 1983 the evidence before me was different from that which had been adduced before the Master and for all practical purposes the grounds for resisting summary judgment under O.14 before me were completely different from those considered by the Master and rejected by him, in my view rightly.

18. In his affirmation filed on the 18th October 1983 Mr. Wong Che, on behalf of the 1st Defendant, contended that in about April 1981 when it was discovered that the Tai Cheong House property could only be used as a children's playground the 2nd Defendants had approached Mr. Dobbin Fung and complained of negligence of the Plaintiff bank's solicitors when handling the mortgage in failing to ascertain the permitted user of the property. They had also, he alleged, complained of the failure of the Plaintiff to ascertain the proper user of the property before making the mortgage advance.

19. According to Mr. Wong Che Mr. Fung admitted that the solicitors had been negligent, saying they would be responsible for the mistake and were insured. Mr. Fung allegedly said that both the Plaintiff bank and the Defendants had been unlucky and suggested that the matter be resolved privately with the solicitors rather than by litigation.

20. Mr. Wong Che contended that he told Mr. Fung that the Defendants would stop payment of the monthly instalments of $43,216.03 under the mortgage and Mr. Fung did not say anything to this.

21. Mr. Wong Che affirmed that in about July 1981 the 1st Defendant stopped paying the monthly mortgage instalments and proceedings were taken by the 1st Defendant in the 1st Defendant's action for rescission of the purchase of the Tai Cheong House property. The solicitors concerned in the transaction were, he affirmed, subsequently joined as defendants in that action.

22. He exhibited correspondence showing that in September 1981 the Plaintiff had demanded payment of the July and August mortgage instalments and threatened proceedings, and had been informed by the Defendants' solicitors that payments had been suspended until the final outcome of the 1st Defendant's action arising out of the purchase and mortgage of the Tai Cheong House property.

23. Mr. Wong Che alleged that he and his wife had also mortgaged to the Plaintiff other premises in Hennessy Road under the Hennessy Road mortgage to raise money to purchase the Tai Cheong House property. He exhibited the relevant mortgage dated the 9th February 1981. He affirmed that on various occasions in October, November and December 1981 the 2nd Defendants went to see Mr. Fung about the payment of the instalments under this mortgage. During those visits, Mr. Wong Che alleged, Mr. Fung had asked them how the case was proceeding but had never pressed them for instalment payments under the Tai Cheong Mortgage.

24. When the Plaintiff had by its solicitors' letter dated the 10th December 1981 demanded payment within 14 days for all monies owing under the Tai Cheong mortgage, Mr. Wong Che had, he alleged, instructed his solicitors to reply by a letter dated the 14th December 1981 pointing out his solicitors' previous explanation on the 30th September 1981 to the Plaintiff's earlier demands.

25. Mr. Wong Che affirmed that the 2nd Defendants had also approached Mr. Fung and told him that if the Plaintiff sued the 1st Defendant they would have no alternative but to stop payment of the instalments under the mortgage of the Hennessy Road property. He further alleged that he told Mr. Fung that they would join the solicitors in the action and would also sue the Plaintiff for damages because the solicitors who prepared the mortgage were appointed by the Plaintiff.

26. According to Mr. Wong Che Mr. Fung requested the 2nd Defendants not to institute more proceedings and promised that if they proceeded diligently with the 1st Defendant's action and continued the payments in respect of the Hennessy Road mortgage the Plaintiff would not institute proceedings against the 1st Defendant seeking repayment of monies in respect of the Tai Cheong mortgage until the outcome of the 1st Defendant's claim for rescission and damages against the defendants in the 1st Defendant's High Court Action was known.

27. After the above evidence Mr. Wong Che continued as follows in his affirmation -

"It was accordingly then agreed by Mr. Fung and us that on condition that the 1st Defendant proceeded diligently with High Court Action No. 5206 of 1981 and that the payment of instalments under the Yau Kwong Building mortgage were continued, that the Plaintiff would not sue the 1st Defendant for repayment of the loans and the monies would only be repaid to the Plaintiff upon the 1st Defendant recovering the same in the said action."

28. Mr. Wong Che went on to say that "Pursuant to the said agreement", the Defendants had continued payment of the instalments under the Hennessy Road mortgage (referred to as the "Yau Kwong mortgage") and were proceeding with the 1st Defendant's action.

29. Mr. Wong Che went on to say that when the consent order was made by the Master on the 2nd February 1983 in the 1st Defendant's action he was under the belief that the agreement reached between the parties was still binding and would be acted upon by them. He affirmed that payment of the instalments under the Hennessy Road mortgage had been continued up-to-date.

30. In reply to the evidence of Mr. Wong Che, which sought for the first time to raise a proposed defence which was never put before the Master, the Plaintiff relied on the affidavits of Mr. James Fu, a solicitor who previously acted for the Plaintiff and of Mr. Cheung Sut Loi, the Senior Vice President and General Manager of the Plaintiff together with an affirmation of Mr. Dobbin Fung. All these witnesses contradicted the evidence of Mr. Wong Che.

31. Mr. James Fu deposed that in or about January 1982 he had been instructed by the Plaintiff in relation to the default of the 1st Defendant in repaying banking facilities secured by the Tai Cheong mortgage and had been given written instructions by the Plaintiff in June 1982 to begin legal proceedings against all the Defendants for repayment of the mortgage advance.

32. He further deposed that he had instructed consel, whom he named, to advise and settle the necessary documents and in the mean time the Plaintiff had been joined as the 5th Defendant by the 1st Defendant in its action. The same counsel had, he asserted, been instructed to advise the Plaintiff in connection with the 1st Defendant's action.

33. However the counsel concerned had failed to give any advice or do anything at all in relation to Mr. Fu's instruction to him despite numerous written reminders and in early December 1982 instructions were withdrawn from the counsel concerned and another counsel, whom Mr. Fu named, was instructed instead.

34. Mr. Fu deposed that thereafter the Plaintiff altered its instructions slightly in that only the 2nd Defendants who were the guarantors under the mortgage were to be sued. The reason for the change of instructions, according to Mr. Fu, was that the 1st Defendant is a "shell company" with paid up capital of only $20.00 and has no assets other than the mortgaged property which is subject to litigation under the 1st Defendant's action. The Plaintiff had, Mr. Fu deposed, decided that there would not be much point in obtaining judgment against the 1st Defendant. Further, as the 2nd Defendants were persons of considerable means, the Plaintiff believed that it should pursue the guarantors in the first instance and they would probably effect full payment when legal proceedings were issued against them. It would be unnecessary, he deposed, in such event to sue the 1st Defendant and costs would thereby be saved.

35. Mr. Fu deposed that on the 4th January 1983 he sent full instructions to counsel for advice on how best to pursue the 2nd Defendants and on his advice another formal demand was sent to the 1st Defendant on the 28th January 1983. He exhibited a copy of that demand and of the covering letters to the 2nd Defendants dated the 28th January 1983.

36. According to Mr. Fu he gave written instructions to counsel on the 16th February 1983 to settle formal letters of demand to each of the 2nd Defendants and also to settle a draft writ.

37. Counsel did not, he deposed, settle the demand letters and writ and in March 1983 Mr. Fu ceased to act for the Plaintiff in this matter. To his personal knowledge there was never, he deposed, any mention or suggestion by the Plaintiff or by the Defendants' solicitors at any time of any agreement by the Plaintiff not to enforce payment against either the 1st Defendant or the 2nd Defendants. In fact, he deposed, the Plaintiff was at all times very anxious to enforce payment against the Defendants and was greatly offended by the inordinate delay caused by counsel in advising the Plaintiff on its claim against the Defendants.

38. The evidence of Mr. Fu was supplemented and supported by that of Mr. Cheung Sut Loi, the Senior Vice President and General Manager of the Plaintiff. He deposed that the 1st Defendant's default in making repayment of its monthly mortgage instalments was referred to him by Mr. Dobbin Fung and the deponent then referred the matter to Messrs. Deacons for advice and action by a letter dated the 22nd October 1981 which prompted Messrs. Deacons to write to the 1st Defendant their letter dated the 10th December 1981 which was exhibited to the affirmation of Mr. Wong Che filed in these proceedings on the 18th October 1983.

39. Mr. Cheung deposed that Messrs. Deacons withdrew from this matter by reason of conflict of interest and that he then instructed Mr. James Fu whose evidence he confirmed. He also confirmed that Mr. Dobbin Fung as Manager of the Plaintiff's Tsimshatsui Office had no authority to represent to or agree with the 1st Defendant that the Plaintiff would not sue the 1st Defendant or enforce payment until the 1st Defendant recovered money from its action. He concluded by stressing that at all material times it was the Plaintiff's intention to proceed to enforce payment of the amount due by the 1st Defendant expeditiously and instructions were given to Mr. Fu's firm to do so.

40. Mr. Dobbin Fung's evidence also contradicted that of Mr. Wong Che. He understandably pointed out that it was not for him to satisfy the Plaintiff that the Tai Cheong House property was worth the amount for which the loan was required. It was, he affirmed, the 2nd Defendants who told him they were buying the property for use as a shop and it was neither for him to, nor did he, tell the 2nd Defendants whether the premises were suitable for that purpose.

41. He contended that he had told the 2nd Defendants that the fact that the property could not be used as a shop and that they were taking action against the solicitors did not affect the liability of the 1st Defendant to repay the Plaintiff. It was not true, he affirmed, that he had said anything about the failure or refusal of the 1st Defendant to make payment and he believed that his Assistant Mr. Simon Kwong and later he himself had demanded that the 1st Defendant should make payment. When this demand was not met letters were sent in September 1981 making further demands for payment. Furthermore he contended that he had in fact pressed the 2nd Defendants for payment in October, November and December of 1981 and he had referred the matter to Mr. S.L. Cheung when the Defendants continued to ignore his demands. After that the Head Office of the Plaintiff had taken over the matter and he did not press the Defendants as hard as before but, he affirmed, he had continued to do so.

42. Mr. Fung flatly denied Mr. Wong Che's allegation that he had requested the 2nd Defendants not to institute more proceedings and promised that the Plaintiff would not institute proceedings against the Defendants if they continued to make payments under the Yau Kwong Building mortgage and proceeded diligently with their action against the defendants in the 1st Defendant's action. He further contended that the Defendants had never suggested that they might take any action against the Plaintiff on the ground that the solicitors were appointed by the Plaintiff or for any other reason. He added that he had absolutely no reason to make any promise that the Plaintiff would not institute action against them and he certainly did not do so.

43. Mr. Fung went on to explain that the 2nd Defendants' flat at the Yau Kwong Building had been purchased in their names with two separate mortgages in favour of the Plaintiff, one for securing banking facilities to a company, Iron Bond Limited, and the other for securing banking facilities to the 1st Defendant under a separate account. He contended that there was no reason why the Plaintiff required a further assurance from the Defendants to make payments under these mortgages.

44. He also pointed out that the Plaintiff was not at that stage even concerned with the 1st Defendant's action and he repeated that he had made it clear to the Defendants that the matters arising in that action did not affect their obligations to pay in any way. He concluded by affirming that he did not in any event have any authority from the Plaintiff to agree with a customer that the Plaintiff would not take action for the non-payment of loans.

45. For the sake of completeness 1 refer to the affirmation of Mr. Wong Che filed on the 6th December 1983 in support of the 1st Defendant's application for a stay of execution in the event of the appeal against the O.14 judgment being dismissed. In that affirmation Mr. Wong Che alleged that in July 1981 Mr. Cheung Sut Loi had met the 2nd Defendants at the Plaintiff's head office and informed them that the Plaintiff's solicitors had been negligent. According to Mr. Wong Che, Mr. Cheung had held himself out as a middle man acting for the solicitors in question to negotiate with the 1st Defendant for the purchase of the shares in the 1st Defendant so as to put an end to the 1st Defendant's action against the relevant solicitors. Mr. Wong Che affirmed that Mr. Cheung had told the Defendants at the same time that the Plaintiff was not concerned to recover back all the monies advanced under the mortgage with interest accrued since the solicitors would be held absolutely responsible for what had occurred and were insured.

46. According to Mr. Wong Che no agreement could be arrived at because of difficulty in agreeing a selling price for the shares and he had told Mr. Cheung that the solicitors were appointed by the Plaintiff and that they were negligent in assuming that the children's playground could be used as shops.

47. Mr. Wong Che affirmed that he informed Mr. Cheung that if the solicitors and the 1st Defendant could not reach an agreement about the purchase of the shares then the 1st Defendant would stop payment of the monthly instalments until the conclusion of the litigation. Mr. Cheung had, according to Mr. Wong Che then said that the Plaintiff would sue the 1st Defendant if the 1st Defendant stopped payment of the instalments. To this Mr. Wong Che claimed that he had replied that if the Plaintiff bank sued the 1st Defendant then the 1st Defendant would sue the solicitors for negligence and would also claim damages from the Plaintiff. According to Mr. Wong Che Mr. Cheung had then said "you try your best to solve it yourselves".

48. Mr. Wong Che concluded his affirmation by submitting that the real purpose of the Plaintiff in suing the 1st Defendant at such a late stage was to put pressure on the 1st Defendant to prevent the 1st Defendant from continuing with its action against the solicitors in the 1st Defendant's action. He apprehended that if the summary judgment under O.14 against the 1st Defendant were upheld, then the next step would be a winding-up petition by the Plaintiff against the 1st Defendant if the latter did not satisfy the judgment. The aim of such a move would be, he contended, to prevent the 1st Defendant from pursuing its remedies in its pending action.

49. In contending that the 1st Defendant should be given leave to defend leading counsel for the 1st Defendant relied on three matters. First he relied on the agreement alleged by Mr. Wong Che to have been made between Mr. Fung on behalf of the Plaintiff on the one hand and the 2nd Defendants on behalf of the 1st Defendant on the other hand whereby allegedly the Plaintiff agreed to defer taking proceedings against the 1st Defendant for repayment of the loans made to finance the purchase of the Tai Cheong property on condition that the 1st Defendant proceeded diligently with the 1st Defendant's action and kept up payment of the instalments under the Yau Kwong Building mortgage.

50. Secondly leading counsel relied on an alleged estoppel arising from the allegation of Mr. Wong Che that Mr. Fung had requested the 2nd Defendants on behalf of the 1st Defendant not to institute further proceedings against the Plaintiff and had promised that if the 1st Defendant proceeded diligently with its action and continued payments in respect of the Yau Kwong Building that the Plaintiff would not institute proceedings against the 1st Defendant seeking repayment of monies in respect of the Tai Cheong property until the outcome of the' 1st Defendant's action was known.

51. Thirdly leading counsel contended that, on the evidence, there had been shown to be "other reasons" for a trial of the Plaintiff's claim for the purposes of O.14 r.3(1). He cited Miles v. Bull (1968) 3 W.L.R. 1090 at p.1095F and Bank fur Gemeinwirtschaft Aktiengesellschaft v. City of London Garages Ltd. (1971) 1 W.L.R. 149 at p.158F.

52. The substance of leading counsel's argument under the third ground was that it was unconscionable for the 1st Defendant to make the repayment claimed to the Plaintiff with the alternative of being forced into liquidation where the alleged representations of Mr. Fung had been made to the 2nd Defendants and where there had been such delay in suing the 1st Defendant which was not in a position of a borrower who had had the benefit of money by way of loan and then withheld it from the lender. In any event, he contended, the interval of delay until the 1st Defendant's own action was determined would be short, particularly if the initial delay before bringing proceedings against the 1st Defendant were borne in mind.

53. In my judgment the evidence of Mr. Wong Che regarding the alleged agreement between the 2nd Defendants and Mr. Fung outlined above is almost but not quite incredible. I accept counsel for the Plaintiff's submission that the allegation that the Plaintiff who had lent money to the 1st Defendant agreed not to enforce repayment until conclusion of the 1st Defendant's own action hinges upon the assertion that because the Plaintiff appointed solicitors to act in the mortgage transaction the Plaintiff could be sued for their alleged negligence and that this proposition does not make commercial sense, particularly as the Plaintiff was only added as a Defendant in the 1st Defendant's action for purely technical forensic reasons.

54. I also agree with the contention of counsel for the Plaintiff that it is very strange that the alleged agreement is only advanced at the eleventh hour, a few days before the hearing of this appeal, and there has been no explanation for the previous silence.

55. However I am dealing with this matter on affidavit evidence without cross-examination and I have borne in mind the analysis of the relevant authorities by Webster J. in Paclantic v. Moscow Narodny Bank (1983) 1 W.L.R. 1063 and I do not consider that I can properly reject Mr. Wong Che's evidence regarding the alleged agreement made between Mr. Fung and the 2nd Defendants on behalf of the 1st Defendant because I am unable to conclude that it is inherently unreliable as distinct from being almost incredible.

56. I apprehended that counsel for the Plaintiff himself felt the same difficult on this issue because he submitted primarily that this was at the very least a case where only conditional leave to defend should be granted. Be that as it may I concluded, albeit with some reluctance, that the evidence of Mr. Wong Che on this issue could not be properly rejected as inherently unreliable when there was a clear issue between him and Mr. Fung whose evidence contradicted Mr. Wong Che's testimony.

57. I accepted counsel for the Plaintiff's agrument that if there had ever been any estoppel arising out of the alleged conversation between Mr. Fung and the 2nd Defendants the basis for that estoppel had been removed by the unequivocal demand for repayment made by the Plaintiff upon the 1st Defendant by the Plaintiff's solicitors' letter dated the 28th January 1983 and by the clear terms of the subsequent consent order made on the 2nd February 1983 in the 1st Defendant's action in which the Plaintiff in the present action is now the 5th Defendant. I also accepted the argument by counsel for the Plaintiff that the present case does not give rise to "some other reason" for a trial for the purposes of O.14 r.3(1). The circumstances contemplated in the authorities cited by leading counsel for the 1st Defendant on this point are, in my judgment, clearly distinguishable from the present case. Furthermore I do not accept that the motive of the Plaintiff in bringing these proceedings against the 1st Defendant are either suspicious or unconscionable. The possible threat of liquidation for non-payment of its debts must be accepted by the promoters of any "shell" company.

58. However, having concluded, for the reasons given above, that there is just and arguable defence on the agreement issue outlined above and that under the circumstances of this case such a defence can be nothing more than extremely shadowy, I held that this was a situation where leave to defend should be conditional.

59. Thereupon leading counsel submitted that the court does not necessarily order the full amount of the claim to be paid into court or secured in every case as a condition for giving leave to defond under O.14. He emphasised that this was not a case where money had been lent and hidden away. He also pointed out that the Plaintiff's own evidence, contained in paragraph 8 of Mr. Fu's affidavit was to the effect that the 1st Defendant was a $20 company with no assets other than the mortgaged property which has a user restricted to playground purposes. After a short adjournment, leading counsel informed the court that his instructions were that the 1st Defendant had no assets other than those referred to in Mr. Fu's affidavit.

60. Counsel for the Plaintiff cited M. V. Yorke Motors v. Edwards (1982) 1 All E.R. 1024 (H.L.) per Lord Diplock at p.1028 for the proposition that the fact that a party may have no capital of its own does not mean that it cannot raise any capital and reminded the court that the 1st Defendant had already raised $400,000 as security for costs in its own action in which it is the Plaintiff. In the absence of evidence of means adduced by the 1st Defendant counsel for the Plaintiff submitted that the court should impose the condition of payment in of the full sum with liberty to apply.

61. I accepted that contention as manifestly correct and accordingly I gave leave to the 1st Defendant to defend the action conditional upon the payment into court by the 1st Defendant of the sum of $4,018,074 or the furnishing of security for that sum to the satisfaction of the Registrar within 28 days. I also gave liberty to the 1st Defendant to apply on 4 days notice before the expiration of the 28 day period to vary the condition.

The 1st Defendant's application for a stay of execution

62. As the 1st Defendant had been given conditional leave to defend, the application for a stay fell away and the 1st Defendant's Summons was accordingly adjourned sine die with liberty to restore on 2 days notice.

Representation:

Mr. B. Yu instructed by M/s Kao, Lee & Yip for the Plaintiff.

Mr. Richard Mills-Owens, Q.C. with Mr. Peter Cheung instructed by M/s Tsang, Chau & Shuen for the 1st Defendant.