Standard Chatered Bank (Hong Kong) Ltd v. Ma Lit Kin, Cary

HCA 62/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 62 OF 2006

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BETWEEN

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Before: Hon. Reyes J in Chambers

Date of Hearing: 22 January 2007

Date of Judgment: 22 January 2007

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J U D G M E N T

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I.   INTRODUCTION

1.There are 2 issues.  The principal one is whether summary judgment was rightly granted in the Bank’s favour against Mr. Ma. The second is whether a telephone conversation was made by Mr. Ma “without prejudice” to his liability.

II.   BACKGROUND

2.Mr. Ma had an account with an overdraft facility at the Bank.

3.The Bank granted the facility by a letter dated 29 December 1999.  The overdraft was repeatedly renewed under terms set out in 4 facility letters issued between March 2002 and November 2003 and in a General Customer Agreement (GCA) dated 4 January 2000.

4.The Bank now claims about $3.4 million as due from Mr. Ma on his overdraft.

5.Mr. Ma is a director of Moulin Global Eyecare Holdings Ltd. (Moulin), formerly a listed company, now in liquidation. 

6.He says that the facility was thrust upon him by the Bank. He says that he did not need the extra money from the overdraft.

7.Mr. Ma alleges that, when the facility was granted, he told the Bank that:-

“If monies were drawn down from the OD account, they would have been for Moulin’s use, and would be repaid by Moulin, instead of myself.”

8.Given the alleged understanding with the Bank, Mr. Ma denies liability.  He admits that from time to time he signed the various facility letters as well as the GCA.  But he claims that he signed these documents “upon request” and “as usual” did not read anything before signing.

9.On 23 October 2006 Master Wong gave summary judgment for the outstanding amount on the overdraft.  Master Wong found Mr. Ma’s defence that Moulin (and no one else) was responsible for the overdraft as incredible.

10.As part of its case, the Bank adduced evidence of a telephone conversation between Mr. Ma and Mr. Stephen Wong of the Bank’s solicitors on 3 February 2006.

11.Mr. Ma initiated the call.  He told Mr. Wong that he owed money to the Bank as claimed.  But Mr. Ma said that he was already paying Hang Seng Bank (HSB) $30,000 a month under a debt settlement previously reached.  Mr. Ma claimed that he could not afford to pay more than a total of $30,000 to HSB and the Bank every month.  He proposed that HSB and the Bank discuss how they might apportion a $30,000 monthly payment as between themselves.

12.Mr. Ma never informed Mr. Wong that what was being said over the telephone was “without prejudice”. 

13.The telephone conversation described above was recorded by the Bank’s solicitors in a letter dated 6 February 2006 to Mr. Ma’s solicitors.  The summary in that letter of what was said is not substantially disputed by Mr. Ma.  Only the admissibility of what was said is disputed.

14.Master Wong held that, independently of his views on Mr. Ma’s credibility, he would have granted judgment on the basis of Mr. Ma’s clear admission of liability over the telephone. 

15.Mr. Kenneth Ng (appearing for Mr. Ma) challenges Master’s Wong’s reliance on the call.  Mr. Ng says that, even if not expressly so characterised, the telephone conversation was “without prejudice”.  It was thus inadmissible as evidence of anything against Mr. Ma.

16.Mr. Ng goes further.  He submits that, having been presented with evidence of the call, Master Wong should immediately have recused himself.  His mind having been fatally poisoned by his knowledge of the call, Master Wong could not (Mr. Ng suggests) have gone on to find Mr. Ma liable.  In proceeding nonetheless, Master Wong (Mr. Ng suggests) would not be regarded by any fair-minded observer as having acted impartially.

17.To the extent then that Master Wong found Mr. Ma to be liable independently of the telephone conversation, Mr. Ng says that Mr. Ma was denied a fair hearing.

III.   DISCUSSION

A.   Whether summary judgment rightly granted

18.In my view, this was an appropriate case for summary judgment.

19.First, assume that there was some sort of understanding that Moulin would pay Mr. Ma’s overdraft debt from time to time or, alternatively, that the Bank should look to Moulin first to pay off any overdraft.  Mr. Ma’s affidavit posits the former version of the understanding.  Mr. Ng in submission only advances the latter, more toned-down version. 

20.Neither version of the understanding could mean that Moulin was solely responsible for outstanding monies or that Mr. Ma had no ultimate liability to make good any deficit of funds.  Even Mr. Ma does not explicitly state in his affidavit that there was an understanding that Moulin and Moulin alone would be liable for the overdraft account.

21.Who remitted monies into Mr. Ma’s account to pay off any debts standing due from time to time, would be of little concern to the Bank.  The Bank’s main concern would be to ensure that ultimately Mr. Ma was liable for any shortage. 

22.Thus, any understanding that Moulin would pay off any debts is neither here nor there.  It has little (if any) bearing on the real issue of contractual liability for any deficit.

23.As to such contractual liability, there can be no doubt.  The fact that Mr. Ma did not read the facility letters or GCA before signing them does not constitute a defence at common law. Mr. Ma is liable to make good any overdraft in accordance with the contractual terms which he signed.

24.Mr. Ng suggests that his version of the alleged understanding gives rise to a promissory estoppel.  This means (Mr. Ng suggests) that the Bank could not “pull the plug” and pursue a strict legal right of repayment until Mr. Ma had been given reasonable notice.

25.But why is there an estoppel in the first place?  There is nothing inconsistent about Moulin paying off debts from time to time and being liable as primary debtor, but Mr. Ma being ultimately liable for any accrued debt in keeping with the documents which he signed.

26.Second, consider either version of the alleged understanding.  Both are incredible. 

27.Neither version is supported by any document.  On the contrary, over the years Mr. Ma simply signed facility letters and the GCA, acknowledging personal liability, without demur. 

28.Mr. Ma alleges that the reason why Moulin would pay off any overdraft debts was because Moulin operated the account.  Mr. Ma claims to have signed blank cheques for Moulin to fill in as and when Moulin required funds.  The impression which Mr. Ma seeks to convey is that the account was almost exclusively used by Moulin.

29.But that is plainly incorrect.

30.A perusal of the relevant bank statements shows frequent debits for payments to the Hong Kong Jockey Club, the Aberdeen Marina Club and Park ‘N Shop.  These debits were routinely made at times when the account was in deficit and appear to have been personal expenses of Mr. Ma. 

31.The Jockey Club debits, for example, concern a Jockey Club Telebet facility which Mr. Ma operated in conjunction with his account at the Bank and which the Bank (at Mr. Ma’s request) guaranteed.

32.In relation to Jockey Club expenses, Mr. Ma says that the use of the overdraft facility was “exceptional”.  He states:-

“I had to use this account because the Plaintiff bank was the only bank with whom I had an account which was on the Jockey Club’s approved list of banks.  I could not use other accounts I had with other banks.”

33.That is unconvincing.  Perusal of the account shows that Jockey Club expenses were regularly incurred. 

34.Further, the purported explanation raises more questions than it answers.  Why did not Mr. Ma open his own truly personal account with the Bank or some other bank approved by the Jockey Club?  Why did he instead in potential breach of his fiduciary duties to Moulin allow his personal expenses to become mixed with those of Moulin?

35.By the alleged understanding, Mr. Ma is asking the Court to believe that he told the Bank in no uncertain terms that he would not be responsible or would not be responsible as primary debtor for whatever happened to the account.  This would be regardless of the documents signed by him (which should then only be treated as mere formalities) and regardless of the fact that from time to time he would be using the account for his own personal matters. 

36.As Master Wong cogently pointed out, a Bank would not enter into such an arrangement which defies commercial sense.  If the account was to be for Moulin, the Bank would have opened it with Moulin and entered into a direct contractual relationship with Moulin.

37.Third, assume that there is some sort of promissory estoppel as Mr. Ng claims.

38.Mr. Ng accepts that the estoppel would at best be suspensory of the Bank’s rights.  But (Mr. Ng maintains) the Bank would have to give reasonable time for Mr. Ma to pay the amount due on the overdraft.  Mr. Ng says that a reasonable period would be 6 months.

39.Mr. Ng argues that the Bank’s letter of demand dated 20 June 2005 (which asked for payment by the next day) did not constitute reasonable notice.  Mr. Ng says that the letter was thus invalid as a demand and since then no valid demand has been made.  The Bank is thus (Mr. Ng. asserts) not entitled to bring the current action.

40.I disagree.

41.The requirement of a demand to trigger liability for repayment of Mr. Ma’s facility arises from GCA clauses 1 and 9.  Neither stipulate any period of time which should be allowed to the account-holder before he has to pay up.  Accordingly the demand letter of June 2005 complied with GCA clauses 1 and 9.

42.If there is a promissory estoppel, the critical question is not whether the letter of demand stipulated a particular time frame for payment.  The critical question is instead one of fact: has the debtor had reasonable notice that his creditor will no longer abide by the alleged understanding, but will insist on his strict legal rights?

43.The answer is self-evident.  The letter of demand was issued in June 2005.  The writ was not issued until January 2006. Master Wong heard the matter in September 2006.  By any yardstick, at the time of the writ and the hearing before Master Wong, Mr. Ma would surely have had ample notice of the Bank's intention to enforce its strict legal rights and reasonable time in which to pay up.

44.Indeed, on Mr. Ng’s suggested requirement of 6 months, the writ itself should readily qualify as a valid demand for payment at law.

45.Consequently, however one looks at the matter, Mr. Ma has no defence to the Bank’s claim.  Summary judgment was rightly granted.

B.   Whether admission made “without prejudice”

B.1  Law

46.It is strictly unnecessary to consider the “without prejudice” issue in light of the conclusion in Section III.A.  Nonetheless, in deference to counsel’s submissions, I briefly set out my views.

47.The law regarding “without prejudice” communications was recently considered by Kwan J in Re Jinro (HK) International Ltd. [2002] 4 HKC 90 (at §§13-18).  She discerned the following principles:-

(1)     For a claim of “without prejudice” privilege to succeed, the party claiming it must show that the communication was made:-

(a)     in a bona fide attempt to settle a dispute between the parties; and,

(b)    with the intention that, if negotiations failed, the communication could not be disclosed without the consent of the party making the communication.

(2)     In establishing that there was a bona fide attempt to settle a dispute, the party seeking to assert privilege must show that, at the time of his communication:-

(a)     a dispute existed between the parties in respect of which legal proceedings had commenced or were contemplated; and,

(b)    the communication was made in an attempt to further negotiations to settle that dispute.

(3)     The mere fact that a communication concerns a dispute between the parties is not sufficient to confer privilege.

(4)     The communication need not be expressed to be “without prejudice,” if it is clear from the surrounding circumstances that the parties were generally seeking to compromise their dispute.

(5)     But there is an exception to the “without prejudice” privilege.  This exception applies where the exclusion of the evidence would act as a cloak for perjury or other “unambiguous impropriety”.  This exception should only apply in the clearest of cases, since otherwise it could undermine the “without prejudice” privilege altogether.

B.2  Application of law to fact

48.Mr. Ng submits that all Mr. Ma was doing when he telephoned Mr. Wong was to ask for further time to pay. 

49.This (according to Mr. Ng) would have constituted little more than an attempt to settle a then ongoing dispute without further recourse to the Court.  This case (Mr. Ng says) is thus little different from Leung Kwok Tim v. Builders Federal (HK) Ltd. [2001] 3 HKC 527 or Forster v. Friedland, unrep., UKCA (Civil Division), 10 November 1992.

50.In Leung the plaintiff sent invoices to the defendant.  The defendant neither admitted, nor denied liability.  It merely asked for more time in which to pay.  Burrell J held that there was no admission in those circumstances.

51.In Forster, Friedland held a number of meetings with Forster. 

52.Friedland told Forster that, although he regarded himself as bound in honour to acquire certain shares, he would nonetheless deny liability if it came down to litigation.  Friedland said that what he really wanted was more time in which to acquire the shares. 

53.After several meetings, the parties prepared a document entitled “Interim Agreement” whereby Friedland was to make periodic payments.

54.The question before the Court was whether secretly-made tape recordings of the meetings between Forster and Friedland were privileged or were admissible as evidence.  The meetings were never expressly stated to be “without prejudice”.

55.The English Court of Appeal held that in all the circumstances the meetings constituted “without prejudice” negotiations aimed at settling the parties’ disputes to avoid litigation.

56.In my view, we are far away from the situations in Leung and Forster.

57.Unlike Leung, there was a clear admission here that Mr. Ma was indebted to the Bank.  Mr. Ma simply asked for more time to pay.

58.Unlike Forster, the admission of liability was unequivocal.

59.It is one thing for a person to say (as Friedland did) that he feels bound to stick to an agreement as a matter of strict honour or morality.  But it does not follow from such statement that the person accepts that he has a legally enforceable responsibility under the relevant contract.  Friedland was merely positing that, although morally bound, he had for technical reasons no actual legal liability to buy the shares.

60.But here Mr. Ma made no qualification.  He simply admitted that he owed money to the Bank and needed time to pay.

61.Thus, it cannot be said that the telephone conversation was within the policy of the “without prejudice” rule.  The conversation was a frank admission of liability coupled with a confession of an inability to pay up immediately.

62.It is true that Mr. Ma asked for concessions in relation to the payment of what he admittedly owed.  But, as Hoffmann LJ observed in Forster, “not every request for more time [to pay] is automatically to be treated as opening a negotiation without prejudice”. 

63.In the context of the admission of liability at the start of the telephone call, I do not think that the request for time to pay can here be characterised as part of a negotiation.  It was simply pointing out the stark reality of Mr. Ma’s cashflow difficulties to the Bank.

64.Mr. Ng refers to Mr. Ma not having distinguished in his mind between Moulin’s debts and his own at the time of his call. Mr. Ng also suggests that at the time of his call Mr. Ma had not had sufficient opportunity to consider his position and discuss the matter with solicitors.  Thus, Mr. Ng submits any admission by Mr. Ma could not have been an informed one.

65.I am unable to accept this.  As a director of a listed company, it can safely be assumed that Mr. Ma would have been aware of the elementary reality of his responsibility to discharge the amount standing due on an overdraft in an account opened in his personal name.  I do not for one moment believe that Mr. Ma made the admission without himself understanding all relevant facts and matters in relation to the overdraft.

B.3  Whether any unfairness to Mr. Ma    

66.Assume, however, that I am wrong and the telephone communication is privileged.

67.The reasoning in Section III.A above ignores the telephone conversation altogether, but still concludes that Mr. Ma has no defence.  The admissibility or otherwise of the telephone conversation is irrelevant to the question of summary judgment.

68.Mr. Ng contends to the contrary.  He says that knowledge of the telephone conversation would so taint the mind of a master (or for that matter a judge) that he could not act fairly.  He should instead recuse himself.

69.I disagree. 

70.As part of its daily work, the Court (whether master or judge) must regularly sift through admissible and inadmissible evidence.  The Court habitually excludes from its mind irrelevant or inadmissible material and comes to a conclusion based solely on admissible and relevant evidence.

71.The judge or master is different from a jury which is comprised of lay persons and which comes to a verdict without giving reasons.

72.Even if the call were privileged, the present case would be little different from a trial or other hearing where inadmissible evidence is adduced and looked at “de bene esse” by a Court.  In such case, the Court (whether master or judge) simply rules the evidence inappropriate and proceeds with the hearing.  There is no question of recusal or unfairness.

73.This is not an exceptional case.  I reject the suggestion that Master Wong ought to have recused himself in the circumstances here.

IV.  CONCLUSION

74.Mr. Ma’s appeal is dismissed.  I shall hear the parties on costs and consequential orders.

Mr. Jonathan Wong, instructed by Messrs. Tsang, Chan & Wong, for the Plaintiff

Mr. Kenneth W. H. Ng, instructed by Messrs. F. Zimmern & Co., for the Defendant