SILVERLINK (HONG KONG) FINANCE LTD v. ZHANG SABINE SOI FAN AND OTHERS

HCA2783/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2783 OF 1998

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(By Counterclaim)

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R U L I N G

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1. This ruling deals with four summonses, namely :

(1)	the 3rd defendant's summons dated 11 June 2003, for leave to amend its Defence ("the Amendment Summons");
(2)	the 3rd defendant's summons dated 11 June 2003 for specific discovery under Order 24, rule 7 of the Rules of the High Court ("the Discovery Summons");
(3)	the 3rd defendant's summons dated 16 July 2003 for production of documents under Order 24, rule 11 ("the Production Summons"); and
(4)	the plaintiff's summons dated 25 June 2003 for an order that the 3rd defendant's Interrogatories dated 11 June 2003 be withdrawn ("the Interrogatories Summons").

2. This action arises out of dealings between the plaintiff and the 1st defendant, Madam Zhang at the time of the Initial Public Offer of shares in China Telecom in late 1997. The plaintiff was a licensed moneylender and a wholly owned subsidiary of China Merchants Bank ("CMB"). Madam Zhang was the director and principal shareholder of Fortune Bell Venture Ltd ("Fortune Bell"), which had held an account with the 3rd defendant. She approached the plaintiff on behalf of Fortune Bell for a loan for the purchase of China Telecom shares in the IPO.

3. By a Facility Letter dated 9 October 1997 the plaintiff provided to Fortune Bell loan facilities of up to $200,000,000 for the purpose of subscribing to the shares. By the Facility Letter, Fortune Bell was obliged to repay the loan in full one month after the first drawdown. Madam Zhang was to provide a guarantee of Fortune Bell's obligations to the plaintiff.

4. Two drawdowns were made, one of $130,000,000.00 on 9 October 1997, and one on 13 October 1997. The funds were paid into Fortune Bell's securities account ("the Account") with the 3rd defendant. However the loan was not repaid, or not repaid in full; and the plaintiff claimed against Madam Zhang on a dishonoured cheque for $38,434,600. Part judgment was obtained but on 26 January 1999 Suffiad J allowed an appeal against the Master's judgment and gave Madam Zhang unconditional leave to defend.

5. Thereafter on 4 October 1999 the plaintiff amended its pleadings to claim against Madam Zhang, both as guarantor and on the dishonoured cheque and also against the 2nd and 3rd defendants. We are here only concerned with the 3rd defendant. The claim is for $129,210,171.11, being a principal sum of $109,000,000.00 plus interest up to 11 October 1999.

6. The plaintiff's case against the 3rd defendant is that as security for the loan it required control of the Account, which would hold the money advanced and the shares subscribed, and that at a meeting on 9 October 1997 at the offices of the 3rd defendant, it was agreed between officers of and solicitors for the plaintiff, Madam Zhang and her solicitor and an officer of the 3rd defendant, a Mr Edward Tam, that such control would be achieved by appointing the plaintiff's officer, Madam Wang Dawei, as the sole signatory of the account. The plaintiff says that a standard form of mandate was filled in and signed by Madam Zhang as sole signatory to the account, and that Mr Tam confirmed that only Madam Wang would be able to operate the Account. Further, the 3rd defendant at that meeting provided, on the request of the plaintiff's officer, Mr Li, a computer print-out of the status of the Account.

7. The loan was then made in two tranches as indicated above. However, it was later found that Madam Wang was not the sole signatory of the Account, and that other transactions had been made which were not authorised by her, which diminished the value of the assets in the Account. Particulars are given of two debits totalling $100,000,000.00 between 9 and 17 October 1997, the diversion of $25,000,000.00 out of the second drawdown of $70,000.00, and the purchase and sale of various stocks and securities not authorised by Madam Wang.

8. The plaintiff also pleads that if the sums totalling $100,000,000.00 were removed from the Account prior to the pleaded oral agreement and before Madam Wang became the sole signatory, the 3rd defendant either deliberately or negligently misrepresented the status of the Account in the computer print-out on 9 October 1997. If those sums were removed after the pleaded oral agreement and Madam Wang became the sole signatory, the 3rd defendant either deliberately or negligently misrepresented that there were no outstanding unexecuted instructions which would materially change the status of the Account. If there existed on 9 October 1997 some other mandate on which the 3rd defendant was obliged to act in relation to the Account after Madam Wang signed the mandate as sole signatory, the 3rd defendant deliberately or negligently misrepresented to the plaintiff and its solicitors that Madam Wang was the only person authorised to operate the accounts. Finally the plaintiff says that in all the circumstances the 3rd defendant owed the plaintiff a fiduciary duty which prohibited it from operating the Account otherwise than in accordance with the instructions of the plaintiff.

9. The plaintiff accordingly claims against the 3rd defendant for :

(1)	breach of the oral agreement;
(2)	deliberate or negligent misstatement of the true status and contents of the Account in the computer print-out;
(3)	deliberate or negligent misstatement that Madam Wang was the only person authorised to operate and give instructions in relation to the Account; and
(4)	breach of fiduciary duty.

10. The 3rd defendant admits that a meeting was held at its offices on 9 October 1997, but denies that any oral agreement to which it was a party was reached. It is admitted that Madam Zhang on behalf of Fortune Bell signed a form giving Madam Wang authority to operate the Account, but averred that she only became one of the authorised signatories along with Madam Zhang and one other person who were already authorised. The 3rd defendant says that it did in fact act on the instructions of Madam Zhang subsequently in making the transfers and share dealings but denies the particularised breach of agreement, the making of misstatements whether deliberate or negligent or breach of fiduciary duty.

11. It will be necessary to set out in detail what the parties are seeking in the various summonses because that has changed in the course of the hearing which was adjourned part-heard. The 3rd defendant obtained leave for amendment of its proposed amendments, and the plaintiff abandoned its objections to some of the Interrogatories. The plaintiff before the hearing and during the adjournment gave some further discovery and produced some of the documents sought.

The Amendment Summons

12. The 3rd defendant seeks to make various minor amendments which are not in dispute and also to add a paragraph 32 to its defence. I set out this paragraph in full because counsel amended it in the course of the hearing. It now reads as follows :

"32. Further or alternatively, the Third Defendant avers that the Plaintiffs loss, which is not admitted, was caused or contributed to by the acts or omissions of the Plaintiff or its agents.

PARTICULARS

(a) The Plaintiff failed to carry out any or any adequate due diligence in relation to the creditworthiness of either Madam Zhang or Fortune Bell prior to agreeing to grant the Facilities to Fortune Bell or allowing Fortune Bell to draw down under the Facilities.

(b) The Plaintiff failed to check whether funds were in fact urgently needed if the purpose of the funds to be advanced to Fortune Bell were for the purpose, which is not admitted, of subscribing in the Initial Public Offering of shares in China Telecom.

(c) The Plaintiff failed to take any or any adequate steps to verify various representations made by Madam Zhang relating to the funding requirements (both as to amount and timing) for the alleged purpose referred to in paragraph 24 of the Amended Statement of Claim before agreeing to grant the Facilities to Fortune Bell or allowing Fortune Bell to draw down under the Facilities. In particular and without prejudice to the generality of the foregoing, the Plaintiff failed to take any or any adequate steps to verify whether Fortune Bell was to be allotted 20 million shares in China Telecom through the Third Defendant as represented by Madam Zhang to the Plaintiff.

(d) The Plaintiff, in its haste to advance funds to Fortune Bell, decided not to obtain the approval of the Third Defendant's legal department for the amended mandate form prepared by Mr Lau and Mr Tan on behalf of the Plaintiff.

(e) The Plaintiff failed to obtain, and Mr Lau and Mr Tan failed to provide to the Plaintiff, any advice as to the legal effect of the standard form resolution referred to in paragraph 16(a) above and instead allegedly relied upon Mr Tam who did not have, and did not profess to have any legal skill or expertise, for his view as to the legal effect of the document.

(f) None of the Plaintiff's representatives and advisers at the 9 October Meeting, namely Ms Wang, Mr Li, Mr Pang, Mr Lau and Mr Tan read or attempted to read the standard form resolution referred to in paragraph 16(a) above at the 9 October Meeting or at any time thereafter. Alternatively, if they or any of them did read it they failed to realise that it was a resolution to the effect set out in paragraphs 16(a) and 17 above.

(g) The Plaintiff and its advisers accepted and relied upon the standard form resolution referred to in paragraph 16(a) and the Plaintiff did not secure or attempt to secure the control of Fortune Bell at the 9 October Meeting or thereafter.

(h) The Plaintiff and its advisers failed to secure from Madam Zhang or otherwise from Fortune Bell any resolution of Fortune Bell to revoke the existing mandates and instructions given to the Third Defendant or to terminate the authority of the existing signatories in respect of the Fortune Bell Account.

(i) The Plaintiff and its advisers failed to obtain or insist upon obtaining after the 9 October Meeting the amended mandate form which had been amended by Mr Lau on behalf of the Plaintiff.

(j) The Plaintiff and its advisers failed to ensure that the documentation relating to the Facilities was in a form or had an effect that satisfied the Plaintiff's own requirements or was otherwise adequate to protect the Plaintiff's interest.

(k) The Plaintiff failed to realise and Mr Lau and Mr Tan failed to advise the Plaintiff in respect of the risks of and associated with relying on what they allegedly perceived to be oral representations and warranties made or given by Mr Tam (which are denied).

(1) In the premises of the matters pleaded in sub-paragraphs (a) to (k) above, the Plaintiff failed to adopt a reasonably prudent and careful lending and security policy generally expected to be adopted by a reasonably prudent commercial lender."

13. The plaintiff objects to this proposed amendment, except for particulars under sub-paragraphs (e) and (f) basically on the grounds that contributory negligence is no defence to a claim in contract or for fraudulent misrepresentation, and further that the matters raised would not, on a factual analysis, give the 3rd defendant a defence either on liability or on quantum. It is also argued that sub-paragraphs (e) and (f) should be further amended to make it clear that they only relate to the claims for negligent misrepresentation and breach of fiduciary duty. The plaintiff also says that insofar as the amendments go to causation, the concept of causation cannot be divorced from that of contributory negligence, so that if arguments on causation would break down for a particular matter, that matter cannot be raised under paragraph 32.

14. As to sub-paragraphs (a) to (c) and (l), it is argued that the particulars are inadequate in that they do not state what would have happened if the plaintiff had taken the steps which the 3rd defendant says the plaintiff should have taken. In any event these steps would only affect the decision whether or not to lend. Sole control of the Account would have given the plaintiff a complete security, even if the loan was made imprudently, which is not admitted. As to the rest of the sub-paragraphs it is argued, as I understand it, that if there was an agreement that only Madam Wang could operate the account, the steps therein particularised would have been unnecessary.

15. The 3rd defendant accepts as it must that contributory negligence is not a defence in contract or in a claim for fraudulent misrepresentation. However, it is argued that since it is a defence to the other claims the amendments should be allowed and further that the amendments are relevant to causation for the purposes of the contract and fraud claims as well as to contributory negligence in respect of the other claims.

16. Leave to amend is discretionary but bona fide amendments should be allowed for the purpose of determining the real question between the parties. See Tang Kam Wah v. Ming Yat [2003] 1 HKC 532 per Stock JA at 541.

17. The parties are not, I think, in dispute on the law. Contributory negligence is not a defence to the breach of a strict contractual duty at common law. The provisions of the Law Reform (Contributory Negligence) Act 1945 do not apply to give rise to apportionment in breach of contract because they only apply to fault on a plaintiff's part which would give rise to the defence at common law. See Standard Chartered Bank v. Pakistan National Shipping Corporation (Nos. 2 & 4) [2003] 1 AC 959 (HL); Forsikringsaktieselskabet Vesta v. Butcher [1986] 2 All ER 488, at 582. However where the defendant's liability in contract is the same as his liability in the tort of negligence independently of the existence of any contract, it seems that the Act does apply; per Hobhouse J in Forsikringsaktieselskabet Vesta at 508. The position is the same under section 21 of the Law Amendment and Reform (Consolidation) Ordinance, Cap.32. Further, contributory negligence is not a defence to fraudulent misrepresentation; see Standard Chartered Bank above. Whether it applies to breach of fiduciary duty was not argued at any length but I expect it would apply if the breach were negligent rather than deliberate.

18. I am not clear about the basis on which the plaintiff says that the 3rd defendant owed it a contractual duty. The 3rd defendant was Fortune Bell's broker. It would be under a contractual duty to follow the instructions of Fortune Bell given by or through Madam Zhang. It is pleaded that the 3rd defendant had an interest in seeing that the facilities were provided to the borrower since it was to buy the shares as Fortune Bell's broker but whether that would provide the necessary consideration between the plaintiff and the 3rd defendant, given that commission would be payable to under its brokerage contract with Fortune Bell, I do not know, nor was it argued. It may be possible for the trial judge to find negligent misrepresentation but no contract.

19. I do not think that the plaintiff can simply argue that if Madam Wang had been given sole control of the Account, there would have been no loss. The question of causation must come in here. It appears that the proximate cause of the loss was Fortune Bell's failure to repay the loan. If a promise is proved, the question will arise whether Fortune Bell would have failed to repay anyway; or at least, how much it would have paid, because if shares had been bought and had then fallen in value (as they apparently did) Madam Wang's sole control might not have availed the plaintiff.

20. In any event it seems to me that since the plaintiff is pleading negligent misrepresentation the 3rd defendant should be entitled to plead contributory negligence and the steps which it says the plaintiff should have taken, to protect its own interests. Those steps would, I think, include steps taken prior to lending such as due diligence. It must surely be open to the 3rd defendant to question whether the loan should have been made at all. I do not see that it would be necessary to specify that this defence only applied to some but not all of the plaintiff's claims in law (which all seem to rely on the same facts); the trial judge will know that.

21. The plaintiff says that "due diligence" is inadequately particularised. Such an amendment should not be allowed following Perak Pioneer Ltd v. Carrian Holdings Ltd, CACV No.59 of 1985. The 3rd defendant argues that if particulars are inadequate better particulars can be sought and I can still permit the amendments in the exercise of my discretion. Due diligence is a factual question which the 3rd defendant should not be barred from pursuing. I think this must be right. If further particulars are required they can be sought.

22. I propose therefore to allow the amendments sought. There will be an order in terms of the 3rd defendant's summons, but with the draft referred to amended as shown above. Since this ruling is to be handed down the costs order will be nisi but it is proper that the 3rd defendant which seeks the amendments should pay the costs.

The Discovery Summons

23. The 3rd defendant seeks specific discovery, by affidavit, of the documents in the Schedule to the summons, as follows :

"1. Any and all documents concerning the plaintiff's relationship with China Merchants Bank (CMB) in respect of the advance of HK$70 million under a loan (the loan) that was granted by the plaintiff to Fortune Bell Venture Limited (Fortune Bell) under a facility letter dated 9 October 1996 from the plaintiff to Fortune Bell, including any accounting arrangement, further loan arrangement, evidence of any payment or settlement between the plaintiff and CMB.

2.	(a)	Any and all documents relating to the process of credit approval for the Loan (whether such documents pre-dated or post-dated the transfer of the relevant funds);
	(b)	documentation kept by the plaintiff relating to the credit-worthiness of Fortune Bell or its associates (including Ms Sabine Zhang, Mr Tan Xiang Dong and United Securities Limited Liability Company);
	(c)	the meetings or other deliberations of the board of the plaintiff or any committee, delegate or member of the board) relating to the lending process in respect of the Loan or the creation and/or granting of the Loan; and
	(d)	documentation relating to the plaintiff's lending and/or security policies or guidelines for granting secured loan facilities generally in or around October 1997 and thereafter.

3. Any and all written records of the interview referred to in paragraph 9 of the affirmation of Wang Shizhen dated 20 June 1998 relating to or in connection with the creation and/or granting and/or operation of the Loan or the factual circumstances relating to Fortune Bell's default under the Loan.

4.	Any and all :
	(a)	documents comprising or otherwise evidencing a retainer between the plaintiff and/or any other party and Baker and McKenzie (B&M) in connection with the Loan; and
	(b)	fee notes or invoices issued by B&M referencing the identity of the party or parties which B&M acted for in connection with the transaction which took place in the 3rd efendant's offices in Hong Kong on 9 October 1997 (the 9 October Meeting) and/or referring to events which took place at the 9 October Meeting.

5. Any and all documents, including (but not limited to) any notes made or created at or after the 9 October Meeting by B&M and the plaintiff, relating to or in connection with the 9 October Meeting.

6. Any and all documents relating to or in connection with the meeting referred to in paragraph 10 of the witness statement of Mr Li Mingtao dated 18 July 2002, including (but not limited to) documents used at the meeting and any notes made or created by B&M and the plaintiff, whether created at or after the said meeting.

7. Any and all documents relating to or in connection with the meeting referred to in paragraph 17 of the witness statement of Mr Li Mingtao dated 18 July 2002, including (but not limited to) documents used at the meeting and any notes made or created by B&M and the plaintiff, whether created at or after the said meeting."

24. On 23 September 2003 the plaintiff's solicitor wrote to the 3rd defendant's solicitor that the latter would produce, without admitting the propriety of the request for discovery and without waiving any privilege whatsoever, certain documents covered by paragraphs 4, 5, 6 and 7 above. The 3rd affirmation of Kwan Siu Ming, Joseph, filed on 24 September, deals with this. This effectively removes the need for argument in respect of those paragraphs except on the question whether, as counsel for the 3rd defendant argues, there should be an affirmation to the effect that these are the only documents which are or have been in the plaintiff's possession, custody or power.

25. The principles on specific discovery are clear and not in dispute and I do not need to set them out here.

26. On paragraph 1 the 3rd defendant argues that the documents sought are relevant to the question whether the plaintiff suffered any loss at all. Also, the precise funding arrangements between the CMB and the plaintiff are important given that the 1st defendant's case is that there was no real loan at all. Counsel points to the fact that in the Order 14 proceedings between the plaintiff and the 1st defendant, Suffiad J found this to be a triable issue.

27. The plaintiff argues that documents already discovered show, as does Madam Wang's statement, that the CMB borrowed the money from the Bank of America and repaid it. The plaintiff never sought to hide that it was a subsidiary of CMB. In particular reference is made to accounting documents and correspondence showing repayment of the $70,000,000.00 on 12 December 1997 apparently by another subsidiary, Silverlink (Hong Kong) Finance Ltd.

28. This, it seems to me is all very well. No doubt the money was borrowed from the Bank of America by the CMB and repaid by the CMB or a subsidiary but in no way do the documents discovered cast light on the accounting arrangements for these transactions. It is an obvious inference that there must have been some documented accounting arrangements; a large organisation will not keep track of money shifted between accounts just by keeping the figures in someone's head. Such documents are obviously relevant to the question whether there was a real loan, or a dressed-up joint venture; obviously if it was the latter, this will make a very great difference to the plaintiff's case against the 3rd defendant. So it seems to me that such documents prima facie exist and are or have been in the possession, custody or power of the plaintiff; they are relevant under the Peruvian Guano principles; and the plaintiff cannot say that their discovery is not necessary for purposes of rule 8.

29. So far as paragraphs 2(a), (b) and (d) are concerned, these stand or fall with the application for amendment. Since I allow the amendment it follows that documents relating to the exercise of due diligence must be discoverable.

30. So far as sub-paragraph (c) is concerned the plaintiff's evidence appears to be that the approval of the loan was agreed verbally between Madam Wang and the president of CMB, Mr Wang Shizhen. This evidence appears in the 2nd affirmation of the plaintiff's solicitor. It seems unlikely that a large loan of this sort would be agreed "on the nod". One would expect meetings and deliberations and some sort of written record thereof. The 3rd defendant argues that even if the evidence is to be that there were no documentary records this should be given in a proper affirmation by an officer of the plaintiff rather than at second hand by a solicitor. Reliance is placed on the judgment of Yuen J (as she then was) in Tang Man Kit v. Hing Ping Timber Co. Ltd, HCA No.8000 of 1990 to the effect that an affidavit deposing to a list of documents should be sworn by a party personally. With this I respectfully agree. If there are no documents, an officer of the plaintiff should depose to it.

31. Paragraph 3 relates to the interview between Madam Wang and Mr Wang Shizhen covered in the affirmation of the latter. In Madam Wang's most recent affirmations she says that Mr Wang has told her that he cannot remember what were the relevant files and accounts relating to the transaction. He is unwilling to be involved further, and according to her, all relevant documents have been discovered. This is all very well but what she does not say, so far as I can see, is whether or not any written interview records exist. She would certainly know if a record was kept of her interview with Mr Wang Shizhen. I think this needs to be covered in a further affirmation.

32. The plaintiff has now put forward various documents sought under paragraphs 4 to 7. The 4th and 5th affirmations of Madam Wang were filed during the adjournment. The 3rd defendant complains that no reason has been given for late and piecemeal discovery, and argues that an affirmation is required to say whether or not discovery is now complete. The very fact that documents can be discovered in the course of the hearing for discovery supports that.

33. I think this must be right. What the 3rd defendant seeks in the summons is an affirmation stating whether it has or has had the documents sought and, if not, what efforts have been made to find those which it has not, and what became of those which it had but does not have. I think the 3rd defendant is entitled to know that discovery is complete.

34. Accordingly there will be an order in terms of the summons for discovery. Again, the costs order is nisi, but it is proper that they should follow the event and that the plaintiff should pay them, and without any credit being given for last-minute discovery which produced no real saving.

The Production Summons

35. The 3rd defendant seeks :

"1. Drafts of the loan documentation referred to in paragraphs 5 to 7 of the witness statement of Mr. Tan Woo Hin dated 22 November 2000, including (but not limited to) drafts of the following:

(a)	the 'facility letter'
(b)	the 'share mortgage'
(c)	the 'debenture'
(d)	the 'guarantee'
(e)	the 'Broker Letter'
(f)	the fee letter (which is alleged to be signed between Fortune Bell and Ocean Capital Ltd.
(g)	the cover letter which must, by implication, have been sent to B&M to the plaintiff on 8 October 1997, together with the drafts of the loan documentation

2. A copy of the relevant faxed documents and the facsimile transmission report referred to in paragraph 32 of Ms Wang Dawei's witness statement dated 18 July 2002.

3. A copy of each of the 'security documents signed by Madam Zhang' and a copy of the 'pledge' and/or copies of documents evidencing such a 'pledge' referred to in paragraph 8 of the affirmation of Wang Shizhen dated 20 June 1998 ('the Wang Affirmation')

4. A copy set of 'the relevant files and accounts of Silverlink reviewed by Mr. Wang' referred to in paragraph 9 of the Wang Affirmation."

36. Again, in the course of the adjournment documents were produced. The 3rd defendant says that it does not now pursue production of categories 2 and 3 above, though it seeks costs.

37. So far as category 1 is concerned, it appears that the letter of 8 October 1997 and most of the documents referred to therein have now been produced. The 3rd defendant complains that the debenture and share mortgage which were to be forwarded have not been produced. The plaintiff however says that all the documents in existence have been produced. According to Mr Tan, his instructions to draft a share mortgage were countermanded. For the purposes of rule 10, production can only be ordered of a document referred to in pleadings, affidavits or witness statements. By implication of Mr Tan's statement, the share mortgage was never fully drafted.

38. By rule 13, no order for production shall be made unless it is necessary either for disposing fairly of the cause or matter or for saving costs. It seems most likely that all documents have now been produced under category 1. It is suggested that, in case they have not, I make the order, with liberty to apply. I do not see how this is going to dispose of the cause or matter or save costs. It is simply going to increase them, in the search for a document which, given the fact that what is really important here is what was agreed at the 9 October meeting, is unlikely to make any difference to the outcome.

39. Category 4 documents are, it appears, covered as far as they can be by Madam Wang's latest affirmation. Mr Wang Shizhen does not now remember what documents are referred to. I think it must be accepted that the 3rd defendant has got all it is going to get of these documents. There will certainly be no saving of costs if this matter is to be pursued.

40. The result is that the application for production in respect remaining documents referred to but not produced will be refused and the summons dismissed. However, some production was given, and that late. Without the summons, it would not have been. I think the 3rd defendant, having largely succeeded, must have the costs (nisi) of the summons, in any event.

Interrogatories Summons

41. By Order 26, rule 1 of the Rules of the High Court :

"A party to any cause or matter may in accordance with the following provisions of this Order serve on any other party interrogatories relating to any matter in question between the applicant and that other party in the cause or matter which are necessary either -

(a) for disposing fairly of the cause or matter; or

(b) for saving costs."

42. The 3rd defendant seeks answers to a large number of interrogatories; four paragraphs containing in all 34 sub-paragraphs. A few have been withdrawn. The plaintiff seeks an order that the others also be withdrawn. It is necessary to go through the remainder and decide whether each of them meets the above criteria. For the sake of brevity I will not set them out.

43. There is no dispute on the principles to be followed. Cheung J (as he then was) encapsulated most of them in Lee Nui Foon v. Ocean Park Corp. (No.2) [1995] 2 HKC 395. It is helpful to set them out as they appear in the headnote :

"Held, allowing the application :

(1)	The interrogatories must relate to 'a matter in question' between the parties and must be 'necessary' either for disposing fairly of the cause or matter or for saving costs (at 396G).
(2)	The interrogatories must not be fishing, oppressive, prolix or imprecise. An interrogatory will be oppressive if the answer cannot be given without an examination of the respondent's record, with the expenditure of much time and trouble. Parker v Wells (1881) 18 Ch D 477 applied (at 396H-398E).
(3)	The interrogatories must not be questions which went to the evidence
	the opposing party intended to adduce (at 398E-I).
(4)	The interrogatories must not be questions which required an answer which was a matter of opinion or for an expert (at 399A).
(5)	The interrogatories must not be questions which went to the facts which would assist in establishing the opposing party as opposed to the case of the party seeking to interrogate (at 399A-B).
(6)	The interrogatories must not be effectively asking for documents of discovery (at 399B-D).
(7)	If the interrogatories did not comply with the requirement of the rules under O.26, they might not be administered. Even if they did comply with the rules, nevertheless the court retained an overriding discretion as to whether or not to allow them to be administered. Where interrogatories without order were served, the court might order them to be withdrawn (at 99E)."

44. The burden lies on the plaintiff to satisfy the court why each of the specific interrogatories ought to be withdrawn. In many cases the objections to the interrogatories were founded on objections to the proposed amendments but since the amendments have been allowed those objections fall away. I turn to those which remain.

45. Paragraph 1.1(b) and 1.2 : these seek to ascertain who made the fund transfer vouchers for the payments of $130,000,000.00 and $70,000,000. 00 and who made a handwritten note on them. There are three signatures on them. Counsel for the plaintiff says, proper questions about these can be answered by the plaintiff's witnesses Wang, Li or Peng. Given the defence raised by the 1st defendant - which the 3rd defendant is obviously entitled to investigate - it seems to me necessary to know who was involved in authorising the making of these payments. Investigation could be made with such person or persons. These interrogatories will stand.

46. Paragraphs 1.4 to 1.7 : these are relevant to questions of the true nature of the transaction, the plaintiff's relationship with the 1st defendant and the plaintiff's conduct in making the loan. Any objections founded on the contention that the amendments should not be made, or that questions of discovery have not been settled, no longer apply in view of my decisions on these points. These interrogatories will also stand.

47. Paragraph 2.1 : This is relevant to the plaintiff's conduct in verifying the alleged representations of the 1st defendant particularly as to the timing of the subscription to the shares. The 3rd defendant is entitled to obtain an admission. This will stand.

48. Paragraph 2.2(a) : This concerns a meeting at which it is said the loan was discussed. The 3rd defendant was not privy to the meeting, and it is argued that it is relevant for the 3rd defendant to know who attended it for the purpose of investigation and possible subpoena of witnesses, in particular on the question of whether the loan was a real one, or a hidden joint venture. However the plaintiff argues that Madam Wang in her statement adequately specifies who was present, and in any event this interrogatory is "fishing". I think this is right. The interrogatory is unnecessary and must be withdrawn.

49. Paragraph 2.3 (b) and (c) : These concern discussions at a meeting of Messrs Li, Tan and Peng about the control of the Account and how it was to be ensured. The 3rd defendant asks what (with precision to be relied on at trial) were the matters to be discussed. This is surely a matter of evidence. I do not see why the 3rd defendant needs to know it now, for the purposes of making inquiries, calling witnesses or the like. However so far as (c) goes there is, while there may be a question of privilege relating to the advice, if any of Mr Tan I accept the contention of counsel for the 3rd defendant that it is entitled to know whether advice was given and whether privilege is claimed so that the claim and any possible waiver may be tested. The interrogatory at 2.3 (b) is withdrawn but that at 2.3 (c) will stand.

50. Paragraph 2.5 : This has been superseded by events. Discovery has been given of Mr Tan's relevant documentation. This interrogatory is to be withdrawn.

51. Paragraph 2.6 (a) and (c) : The first of these asks is Mr Tan Xiang Dong was present at the meeting referred to in paragraph 17 of the statement of Li Ming Tao. I would have thought that on any sensible reading of that and the previous paragraph, it must be inferred that he was. So this question is not necessary. As to the second, what I have said in respect of the interrogatory at 2.3(b) applies here. The result is that (a) is withdrawn and (c) will stand.

52. Paragraph 2.7 and 2.8 : These go to matters covered by the amendments. Since those amendments have been allowed the interrogatories will stand.

53. Paragraph 2.9 : The answer to (a) appears at paragraph 25 of Madam Wang's affirmation of 28 July 1998, so this question is unnecessary and will be withdrawn. As to whether Mr Tan gave advice, and what advice he gave, what I have said in respect of the interrogatory at 2.3(b) applies so these questions (at (b) and (c) will stand).

54. Paragraph 2.10 : The 3rd defendant asks to whom, at its own office, the draft Broker Letter and Acknowledgment were faxed. In its pleadings the plaintiff says that it does not know who received the communication. I do not understand why this interrogatory should be necessary. If the documents were sent and received, either there was an addressee named or there was not; and if there was the 3rd defendant must know who it was. This is to be withdrawn.

55. Paragraph 3.1 : This relates to whether certain matters were discussed with the lawyers - who, on the statements, were clearly present - at the 9 October meeting, whether the advised, and what advice they gave. Again it seems that the 3rd defendant is entitled to know whether advice was given and whether privilege is claimed. This could save argument in the trial. This will stand.

56. Paragraph 3.3 : I do not understand the necessity for this. It asks who were the "Silverlink personnel" present at the meeting. That seems to be obvious from the statements and it is a matter of evidence. This interrogatory will be withdrawn.

57. Paragraph 4.1: This relates to what Madam Wang reported to Mr Wang Shizhen in order to obtain the prior approval of the loan by him, as referred to in his affirmation. The3rd defendant argues that it is relevant to the plaintiff's conduct and state of mind and as to what was understood and relied on by the plaintiff. I have some difficulty with this. It is true that Madam Wang does not deal specifically with these reports in her statement but nevertheless it goes to her evidence about which she can be asked in cross-examination. She will be able to say what the plaintiff's state of mind was. I also accept that if the questions are asked with a view to testing her consistency with what appears in Mr Wang's affirmation, this goes to credit and is not permissible. I think this interrogatory must be withdrawn.

58. Paragraph 4.2 relates to the "relevant officers of Silverlink" with whom Mr Wang Shizhen had discussions. Granted that he, according to Madam Wang, has suffered a complete lapse of memory, the identity of such persons should be known to the plaintiff and it seems to me that the 3rd defendant is entitled to know who they were so that their evidence may be sought if necessary. This will therefore stand.

59. Paragraph 4.3 is really a continuation of paragraph 4.1; the same applies; I think it must be withdrawn.

60. Accordingly, the plaintiff's application succeeds in respect of those interrogatories which I have ordered to be withdrawn and in respect of those which the 3rd defendant has withdrawn. There will be an order in terms of the summons in respect of those interrogatories. The plaintiff has, I think, largely succeeded, if one counts the interrogatories which the 3rd defendant has abandoned. So the costs (nisi) will be to the plaintiff in any event.

Representation:

Mr S. Wong, instructed by Messrs Deacons, for the Plaintiff

Mr G. Law, instructed by Messrs Freshfields Bruckhaus Deringer, for the 3rd Defendant

HCA2783/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2783 OF 1998

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J U D G M E N T

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1. The Plaintiff's claim in this action is for non-payment of a cheque drawn by the Defendant in the sum of $38,434,600 as pleaded in the Statement of Claim. The Plaintiff applied for summary judgment on 24th March 1998. This application was heard by Master Bennett on 8th October 1998 who ordered that judgment be entered in the sum of $7,000,000 to the Plaintiff and gave unconditional leave to the Defendant to defend the balance with costs in the cause and with certificate for Counsel. The Defendant is now appealing that order and contending that unconditional leave to defend should be given to the whole claim.

2. I must, however, deal first with a preliminary point of procedure. After the Master made his order on 8th October 1998, the Defendant lodged a Notice of Appeal to a Judge in Chambers on 13th October 1998. The Plaintiff did not file any formal Notice of Appeal from the order of the Master but did by letter dated 4th November 1998 inform the solicitors for the Defendant that since the appeal is a complete re-hearing of the O.14 Summons, they will be seeking judgment for the full sum claimed and will be asking the judge to reverse the leave given by the Master to defend the balance of the claim.

3. In short the Plaintiff is seeking to cross appeal the Master's order.

4. In this context, I was referred to the case of Europa Property and Finance Services Ltd. v. Stubbert, The Times 25th November 1991, where the Court of Appeal in England held that on a defendant's appeal against a master's order, under O.14 of the Rules of the Supreme Court, giving conditional leave to defend, the judge in chambers, if satisfied that there was no defence to the claim, was entitled, in the exercise of his discretion under O.14 r.3, to give summary judgment for the plaintiff, notwithstanding that no formal notice of cross appeal had been given by the plaintiff.

5. Furthermore, it has always been accepted that an appeal from a master to a judge in chambers is by way of complete re-hearing of the application.

6. On this basis and given the fact that ample notice had been given to the Defendant by the Plaintiff's solicitors of their intention by their letter of 4th November 1998, so that the Defendant was not in any way taken by surprise or prejudiced, I shall treat the Plaintiff's submissions as a cross appeal for summary judgment of the full amount claimed.

The Plaintiff's claim

7. As already stated above, the Plaintiff's claim is a straightforward claim for the dishonour of a cheque drawn by the Defendant in favour of the Plaintiff for the amount of $38,734,600. The cheque, drawn on the Liu Chong Hing Bank Ltd. and dated 20th November 1997 was presented for payment by the Plaintiff on 17th February 1998 and dishonoured by reason of payment having been countermanded by the drawer thereby notice of honour is dispensed with under section 50(2)(c)(iv) of the Bills of Exchange Ordinance.

8. The only claim made by the Plaintiff in the Statement of Claim is for the amount of this dishonoured cheque on the basis of its having been dishonoured upon presentation. No other claim has been pleaded.

The defence raised

9. In a nutshell the defence is that as a result of negotiations conducted on 6th and 9th October 1997 between the Defendant in her capacity as representing Fortune Bell Venture Ltd. ("Fortune Bell") on the one hand and one Madam Wang Dawei representing China Merchants Bank ("CMB") on the other hand, a joint venture agreement was concluded whereby CMB would provide $200 million for the exclusive purpose of purchasing 20,000,000 shares of China Telecom (Hong Kong) Ltd. ("China Telecom") when it was floated some time later in October, such shares to be held for one month before being re-sold. Apart from the Defendant and Madam Wang, these meetings on 6th and 9th October were also attended by representatives from the solicitors firm of Baker & McKenzie being the solicitors for CMB and also representatives from Goldman Sachs (Asia) LLC and Goldman Sachs International (jointly called "Goldman Sachs") with whom Fortune Bell had an account which would be utilized for the joint venture project of buying and holding the China Telecom shares.

10. However, documents prepared for the joint venture and entered into by Fortune Bell were prepared not as joint venture agreements but as loan documents by which the Plaintiff was named as the lender and Fortune Bell the borrower of the $200 million. This dressing up was necessary because under PRC laws, CMB, being a bank operating in the PRC was prohibited from buying or investing in shares or securities.

11. Another company, Ocean Capital Ltd. was the arranger of the loan and a letter from Ocean Capital Ltd. to Fortune Bell dated 9th October 1997 had the effect of taking upon itself to reimburse Fortune Bell for the amount of interest which Fortune Bell would have to pay the Plaintiff under the loan documents for the $200 million loan.

12. Needless to say therefore that all the agreements involving CMB was made orally only and that CMB would not appear as a party in any of the documents signed.

13. There was also a further tri-partite agreement involving the parties to this joint venture agreement as well as Goldman Sachs such that the account held by Fortune Bell with it would hitherto be transferred to the exclusive control of Madam Wang which account would be used to purchase and hold the shares of China Telecom for one month after their acquisition until their disposal.

14. Upon all the necessary agreements relating to this joint venture being entered into, immediately on 9th October 1997, $130 million was remitted by the Plaintiff into Fortune Bell's account with Goldman Sachs and a further $70 million was remitted on 13th October 1997. In effect these funds came from CMB.

15. On or about 23rd October 1997, when China Telecom shares were floated, the Defendant was informed by Madam Wang that there were insufficient funds in Fortune Bell's account with Goldman Sachs to subscribe for the China Telecom shares as there had been unexplained movement of funds and unauthorised trading relating to that account. Madam Wang then asked the Defendant for help to make good the losses and promised to arrange project finance for the Defendant of $400 million. Pursuant to this request the Defendant had paid over sums of $800,000 on 30th October and $1.2 million on 20th November to Madam Wang. Moreover, a cheque for $43,743,600 was also given to Madam Wang on 9th November 1997 but post dated to 20th November 1997. This cheque, however, was returned to the Defendant on or about 20th November in exchange for a Cashier Order for $5 million and the present cheque sued upon. When this cheque and the cheque which was returned to the Defendant were handed over by the Defendant to Madam Wang, there was an understanding between them that the cheques were not to be handed over to the Plaintiff by Madam Wang nor were they to be cashed but was only for record purposes of CMB.

16. In November 1997 the Defendant discovered that Madam Wang's representations as to arranging project finances were untrue, and as a result she stopped payment on this cheque, the subject matter if the claim herein.

17. Apart from these facts relied on by the Defendant, the Defendant also relies on the following defences to the Plaintiff's claim -

(a) That if the loan agreement alleged by the Plaintiff is a genuine loan agreement, then it contravenes section 18 of the Money Lenders Ordinance, Cap.163 in that it does not comply with the form as provided for in that section and furthermore it contravenes section 22 by prohibiting repayment by instalment and by charging compound interest. The Plaintiff is a licensed money lender and is not a person exempted under Part I of Schedule 1 of that Ordinance. The effect of such contravention of that Ordinance is that section 18 provides that the security (in this case the cheque the subject of this claim) is unenforceable.

(b) That the cheque was obtained by the misrepresentation of Madam Wang and that there was no consideration given for the cheque sued upon, alternatively such consideration had wholly failed.

(c) That the circumstances of this case cries out for a thorough investigation which could only be done if the matter went to trial with all relevant witnesses heard and cross-examined.

The Plaintiff's position

18. The Plaintiff accepts that there are numerous areas of disputed facts between the parties. Some of these areas of dispute are as follows :-

(a) The Plaintiff disputes that the agreement between the Plaintiff or CMB on the one hand with the Defendant and Fortune Bell on the other hand was a joint venture agreement to invest in China Telecom shares maintaining that it was a loan agreement. However, the Plaintiff does not dispute that there was a fee arrangement between Fortune Bell and Ocean Capital by which Ocean Capital would reimburse Fortune Bell the interest it had to pay the Plaintiff for the loan;

(b) Whilst admitting that it was the intention of all parties present at the negotiation that Madam Wang was to be given exclusive control over Fortune Bell's account with Goldman Sachs, the Plaintiff alleges that this was not achieved despite the fact that Goldman Sachs was represented at the meetings in which the negotiations were carried out;

(c) Along with such allegation, the Plaintiff further alleges that the unexplained movement or misappropriation of funds from the Goldman Sachs account of Fortune Bell came about as a result of the Defendant's instructions to Goldman Sachs. In other words the Plaintiff says that it was the Defendant who had misappropriated such funds from the Goldman Sachs account.

(d) After it became known that funds went missing from the Goldman Sachs account, the Defendant admitted the misappropriation to Madam Wang. As a result the agreement to purchase 20,000,000 China Telecom shares was never carried out.

(e) The Plaintiff's case is that the cheque now sued upon was given by the Defendant to the Plaintiff for the purpose of repayment of part of the money so misappropriated by the Defendant.

19. The basis upon which Mr Chan puts the Plaintiff's case in its application for summary judgment is that the Defendant's allegations are incapable of belief. It is on this basis that Mr Chan says I should give summary judgment to the Plaintiff.

The Test

20. Where a plaintiff applies for summary judgment under O.14 on the basis that what the defendant alleges as a defence is incapable of belief, that test is set out in the oft quoted judgment of Ng Shou Chun v. Hung Chun Sang [1994] 1 HKC 155 where at page 158, Godfrey J.A. stated this :

"It will in future be sufficient for the court to ask itself the simple question - is what the defendant says credible. If so, he must have leave to defend, if not the plaintiff is entitled to summary judgment."

21. Going still further back to the case of Murjani and Others v. Bank of India [1990] 1 HKLR 586, where the Court of Appeal was dealing with the approach to the issue of credibility, one of the matters decided by the Court of Appeal was that the Court will test the credibility of an affidavit attesting a triable issue against the conduct of the defendant and contemporary documents.

Determination

22. Applying the above test in this case I readily accept that on an O.14 application, the onus is upon the Defendant to show an arguable case.

23. Whilst there are certain aspects of this case which seem to cast some doubt upon the Defendant's credibility, there are also certain aspects of the documentary evidence which support her allegations. One example is the letter from Ocean Capital to Fortune Bell dated 9th October 1997, which appear to support her allegation that there was a joint venture agreement dressed up as a loan agreement. Another example is that the calling card of Madam Wang exhibited in evidence by the Defendant clearly shows Madam Wang to be a representative of CMB.

24. Secondly, in all the midst of the cross fire of allegations levelled by the parties at each other, there does not appear to be any direct evidence one way or the other from Goldman Sachs.

25. Thirdly, there has been no satisfactory explanation given as to why, when letters of demand were written by Baker and McKenzie (on behalf of the Plaintiff) to the Defendant as early as November 1997, the dishonoured cheque which was dated 20th November 1997, was only presented for payment as late as 17th February 1998.

26. Fourthly, the central issue in this case has to revolve around the question as to who was responsible for misappropriating the funds from the Goldman Sachs account - whether it was the Defendant as alleged by the Plaintiff or whether it was Madam Wang as alleged by the Defendant. Although I was referred to certain written instructions given by the Defendant which is relied on by the Plaintiff in an attempt to show that it was the Defendant who had misappropriated the funds, these written instructions were given to Goldman Sachs at least two days before 9th October 1997, i.e. before the account was put into the exclusive control of Madam Wang. As the evidence stand, it is hardly conclusive of the issue and once again highlights the need for a Court to hear evidence, in particular evidence from Goldman Sachs before a determination can be made on this issue.

27. Ultimately an application under O.14 for summary judgment should not be a trial by affidavit. In all the circumstances of this case and for the reasons I have given above, I am unable to say that the Defendant's allegations are so incredible that she should be deprived of a chance to have the matter litigated at a trial so that all the issues can be determined after hearing evidence.

28. Accordingly the appeal is allowed, the Master's order is set aside and the Defendant will have unconditional leave to defend.

29. I should add here that where the cause of action is on a bill of exchange and where there are no other claims by the plaintiff as in this case, the Plaintiff's claim succeeds or fails in its entirety as a whole based on the amount of the bill. That cause of action is not capable of being severed and is not divisible such that the Plaintiff can be given judgment in part as the Master did here.

Costs

30. I should make the following costs order nisi :-

(a) The Defendant will have the costs of this appeal in any event;

(b) The costs of the hearing before the Master be costs in the cause with certificate for Counsel.

Representation:

Mr Alfred H.H. Chan, inst'd by M/s Stephenson Harwood & Lo, for the Plaintiff

Mr B.K. Ho, inst'd by M/s Liu, Chan & Lam, for the Defendant

HCA 2783/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is an application for a stay of execution pending appeal from the judgment given by Master Bennett on 8th October 1998. The Plaintiff's claim against the Defendant in this action is for non-payment of a cheque drawn by the Defendant in the sum of $38,743,600.00 as pleaded in the Statement of Claim. The Plaintiff applied for summary judgment on 24th March 1998. On 8th October 1998 Master Bennett dealt with that application. He ordered that judgment be entered in the sum of $7,000,000.00 to the Plaintiff and gave unconditional leave to the Defendant to defend the balance with costs in the cause and with certificate for counsel. The Defendant has filed a Notice of Appeal dated 13th October 1998 from that decision contending that unconditional leave to defend should be given to the whole claim.

2. Counsel for the Defendant has submitted that there was nothing in the Statement of Claim to support the judgment in the sum of $7,000,000.00. He correctly, in my view, points out that the Statement of Claim is on a cheque in the sum of $38,743,600.00. There is no other claim pleaded either as a primary claim or an alternative claim. And in so far as judgment has been given in the sum of $7,000,000.00, it seems to me that the Defendant has reasonable prospects of success on the appeal.

3. The appeal has been set down for hearing on 18th January 1999 which is about 7 weeks away. So, in that regard, the period of stay of execution that is sought is a short period.

4. The Defendant has affirmed that she does not presently have any sufficient means to meet the judgment sum of $7,000,000.00 or any lesser amount, and also that she does not have any landed properties which the Plaintiff could execute upon. She also says that if there is no stay her business reputation and standing in the eyes of her business associates would be ruined.

5. In the exercise of my discretion as the period between now and the hearing of the appeal is only 7 weeks away, I grant the Defendant a stay of execution particularly, in view of the fact that the Defendant has reasonable prospects of success in the appeal. I think the costs should be costs in the appeal. I make an order in terms of the summons dated 21st October 1998.

Representation:

Mr. White, of, M/s. Stephenson Harwood & Lo for the Plaintiff

Mr. B.K. Ho instructed by M/s. Liu Chan & Lam for the Defendant