Case Detail

HCA919/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.919 OF 2002

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BETWEEN

	SECRETARY FOR JUSTICE	Plaintiff
	and
	CHUN KAM CHIU	Defendant

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Before : Hon Waung J in Court

Date of Hearing : 6-10, 13 & 21 June 2005

Date of Judgment: 21 June 2005

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J U D G M E N T

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1. This is the trial of an action which commenced on 6 June. It is a trial of action that was listed for three days, but has lasted a great deal more than a week. I have heard today submissions from both parties and I have also received the written submissions of both parties. I have allowed and directed special arrangements be made so that Mr Chun Kam Chiu, the defendant, who is acting in person, could be given special access in prison to prepare for the written submissions.

2. The trial has been doubled by interruptions and by wastage of time, all coming from the defendant. The two judgments that I have delivered, one on 8 June, dismissing the application for amendment of the defence, and the other on 13 June, rejecting the application for adjournment of the trial, are indications of the trouble the trial was subjected to.

3. We have now come to the end of the trial. Five witnesses gave evidence for the plaintiff. The defendant gave evidence for himself. The trial was in relation to a claim by the Government for an enforcement of a guarantee given by Mr Chun in respect of a judgment debt due to the Government by the company Keen Lloyd (Holdings) Ltd (hereinafter called “Holdings”) in which he had a substantial beneficial interest as well as being a controlling director.

4. The circumstances of the giving of the guarantee can be very briefly summarized. Holdings was a company that was to use perhaps a neutral word, involved in substantial business on the property side in the 1990s and the Government was owing by Holdings substantial sum of tax. The collection of the tax by the Government was not very successful which resulted in the first round, if I may call it that way, of an agreement by the Government for the payment of tax of Holdings in the form of instalment payments and resulting in, also, a giving of a guarantee by Mr Chun ― this can be seen at page 83 of the Bundle, a Guarantee dated 28 May 1999 whereby Mr Chun guaranteed that the company Holdings would pay by instalments a total of some $30 million of tax. A few payments were made but then there was default, which resulted in the Government taking action in the District Court and obtaining a judgment in the District Court on 8 October 1999 (page 154) in the sum of $23 odd million. It is as a result of the Government having obtained that judgment and putting pressure on Holdings to effect payment that then came what I will call the second round of attempt to effect payment by instalments. Negotiations started with a letter dated 3 January 2000 (page 167) with Deloitte Touche Tohmatsu, the accountant, writing to the Inland Revenue, representing Holdings and also Ever Lucky, a sister company, to settle the outstanding profits tax liability. The role of Deloitte was to negotiate and act on behalf of Holdings to pay the outstanding amount by instalments. It was largely a cash flow problem of course. The company was in financial difficulty. It did not had the cash flow, I assume, to pay the $23 million and attempt, therefore, was made with the help of the accountants to negotiate with the Inland Revenue to effect payment by instalments. This, of course, was the second time that this had happened.

5. There was, leading on from this, an offer by the Government in the form of a crucial letter dated 14 March 2000 (pages 282 to 283) whereby a deal was offered by the Government for payment by instalments as requested by Deloitte. I would read the key paragraph which has been the subject matter of much debate in the course of the trial :

“After various discussions between your tax representative and our officers, I write to advise that approval has been given for you [i.e. Keen Lloyd (Holdings) Ltd] to settle the outstanding Profits Tax, costs and judgment interest as provided under Section 49 and 50 of the District Court Ordinance in the manner as set out in Appendix A enclosed subject to (a) receipt of the sum totalling $100,000.00 on or before 27 March 2000, (b) application for charging orders on the properties listed in Appendix B enclosed, and (c) the provision of personal guarantee by Mr Chun Kam Chiu in the format as per the guarantee enclosed, on or before 27 March 2000, for security of the full settlement of all payable sums set out in Appendix A. In connection with the provision of the personal guarantee, please arrange to complete and sign the enclosed guarantee and return the original and one copy of the signed guarantee to this Department on or before 27 March 2000.”

6. Appendix A attached to this letter set out a schedule of the timetable for the payment of the tax. Two payments were supposed to be made on 27 March of $50,000.00 each, and these two payments are the ones the subject matter of (a) ― the $100,000.00 referred to in the paragraph that I have just read out.

7. This offer was accepted by the letter dated 27 March 2000 (page 308) from Deloitte. It says :

“ We refer to your letter dated on 14 March 2000. On behalf of our above-named client, we enclose the following documents for your attention :—

1. a cheque of HK$100,000 payable to the Hong Kong Special Administrative Region being the company’s 1^st & 2^nd tax installments due on 27 March 2000;

2. an original signed letter for charging orders on the selected properties; and

3. an original signed letter for the personal guarantee by Mr Chun Kam Chiu.”

Attached to that letter of 27 March from Deloitte are : (1) a cheque dated 27 March in the sum of $100,000.00 (page 309); (2) the Guarantee of Chun (from page 310 to page 313) dated 27 March; and (3) Schedule B, a list of the properties which charging orders will be applied.

8. The parties thereafter acted on the basis that the deal had been struck, that the offer of 14 March of the Government had been accepted, that the cheque was cashed and the payment of $100,000.00 was received — although there is no clear evidence as to whether it was actually received into the bank account of the Government on 27 March or a day or two later. The old guarantee under the first set of instalments was returned to the defendant.

9. Pursuant to this deal of payment by instalments, many of the instalments set out in the Schedule and also set out in the Guarantee were paid. I think there is little dispute that the last payment made was the 15^th instalment. So very substantial sum was paid pursuant to the arrangement and everyone acted on the basis that there was a valid agreement — a deal of payment by instalments, and in return, of course, the Government obtained a guarantee, a charging order and payments by instalments.

10. The cash flow problem caused Holdings to have difficulty in effecting from the 16^th instalment onwards and by letter dated 24 May 2001 (at page 448), notice was given that there had been default and that there should be payment of the outstanding sum of $400,000.00.

11. Eventually, there were something like four instalments totalling the sum of $1.65 million that were unpaid and by a letter dated 7 September 2001 (at page 451) which was a registered letter sent to Mr Chun and which was never returned to the Inland Revenue, the Inland Revenue gave notice to the defendant of the four payments which had gone into default. The last paragraph of the letter says :

“This is to give you notice that the amount of $1,650,000.00 is due and payable by you at the expiration of seven days after the date of this letter. If you fail to make payment of $1,650,000.00 within twenty-eight days of this notice, I shall refer the case to the Secretary for Justice to enforce the guarantee to recover the whole of the outstanding total debt.”

This was sent to Mr Chun at his registered office address and was never returned. I have, therefore, no doubt that this was received and the appropriate notice as required in the Guarantee had been given. No payment was made after the issue of this notice. The Government therefore issued the present action to pursue Mr Chun for recovery of his liability under the Guarantee.

12. The Defence that was filed consists of, if I may call it, principally one defence, a principal defence of global settlement. The global settlement is alleged to be an arrangement whereby it was alleged the Government had agreed that time would be given to the sister company, i.e. Keen Lloyd Energy Ltd to put together its accounts and no assessment would be made until Energy could prepare its accounts and then file its returns.

13. That principal defence was refined somewhat in the challenged board minute to the effect of the time given was 12 months. The substance of that original defence of the global settlement defence is Keen Lloyd Energy was given time to put in its returns and because the Government had broken that undertaking, therefore the Guarantee should not be enforceable.

14. The solicitors were, of course, representing Mr Chun until about three or five days before the trial. Witness statements have been filed and, as I have described in my earlier judgment on the events leading up to the trial, the defendant dismissed the solicitors and filed a notice to act in person literally days before the trial so that when the trial started Mr Chun himself acted in person.

15. During the course of the trial, as a result of what I may call incremental development, the defendant decided that his original defences were not viable and informed the court that he was abandoning the global settlement defence. First he attempted to raise a new defence of misrepresentation ― this was the subject of my judgment given on 8 June 2005 rejecting that amendment application. Then on 10 June, the defendant submitted to the court Exhibit D-3 stating his abandonment of global settlement defence and raising two new issues :

(1) whether the agreement of 14 March reached between the parties are valid or not; and

(2) whether the defendant needs to shoulder the responsibility under the defendant’s signed guarantee provided to the Inland Revenue on 27 March 2000.

16. What was extraordinary, having abandoned the global settlement defence, was for Mr Chun, despite repeated warnings from the bench of the dangers inherent in the course he was adopting, to decide not to adopt his witness statement prepared by lawyers, which was signed by him, but instead he wished to give his evidence, verbally by examination-in-chief without regard to his witness statement. His evidence-in-chief of course, unfortunately, did not deal with many of the areas covered by his witness statement. The various areas in the witness statement not covered by his evidence-in-chief (as stated in paragraph 2 of Mr Mok’s Final Submission) include defences under the Heading The Global Settlement, Provisions of Guarantee, Inland Revenue Breach of the Global Settlement, Prejudice Suffered by the Defendant and Dubious Evidence from the Plaintiff. Therefore the whole of the witness statement relating to his possible defences were abandoned.

17. In the circumstances, the court is left with no choice but to come to the view that as all the original defences had been abandoned because there is no evidence on it, therefore, the real question is really what is left?

18. Before I come to the new defence which Mr Chun now seeks to rely on in his final submissions, I should say first a few words about one document which was the subject matter of his evidence and where its relevance would have had disappeared as a result of the abandonment of the global settlement defence. This is the document Exhibit D-4 which is a purported copy of a Board Minute of Holdings held on 27 March 2000 in relation to this proposed deal with the Inland Revenue as to instalment payments. The original of this was not produced in court. Various reasons were given or rather were speculated upon by Mr Chun as to the non-availability in court of the original of this document which is the subject of authenticity notice. There is therefore a dispute as to whether the document is genuine. Having regard to the global settlement defence being no longer on the menu, strictly speaking, the materiality of this document has disappeared. But for our present purpose, the materiality of this document is in paragraph 1 where there was reference to the 12 months being allowed by the Inland Revenue to Keen Lloyd Energy to file its return. The inference now sought to be drawn from this document by the Government is that the document is false and that it shows the lack of bona fide or the lack of credibility of Mr Chun throughout this case.

19. I accept the submission made by Mr Mok on behalf of the plaintiff set out in paragraph 4 of his skeleton on this. There is however one point, perhaps, I should emphasize that, in relation to paragraph (e), if there was any substance in the allegation contained in paragraph 1 of the Board Minute (which is a disputed minute), then that is totally contradicted by the contemporaneous actions or non-action of Mr Chun and his company Enercy. If one merely looks at pages 330, 364 and 365, these are all steps taken contemporaneously in relation to Keen Lloyd Energy in respect of its non-filing of returns for the relevant years, and if there had been an agreement in March to extend time by 12 months as alleged, then it is inconceivable that pages 330, 364 and 365 would have taken that form. I have therefore very little doubt that the document is not genuine. I have very little doubt that nothing put forward by Mr Chun can be believed unless it is corroborated by either agreement of the parties, that is, lack of dispute by the Government or by undisputed contemporaneous documentation.

20. Having made that observation, I can now turn to the only three defences put forward now by Mr Chun. I say three, but really there is only two, because the 2^nd and 3^rd is a variation of the same. I would, perhaps, summarise it briefly in this way.

21. The 1^st defence is what I have been calling “the cash point”. The cash point being this : Mr Chun’s argument, which is totally not pleaded, nowhere raised earlier, is that the letter of 14 March 2000 stipulated three conditions. The first of the three conditions being (a) receipt of the sum totalling $100,000 on or before 27 March 2000 — he says the cheque was not actual payment because there was no cash received by the Inland Revenue on 27 March 2000 and, therefore, on 27 March 2000 that Condition (a) was not met, and the contract between the Government and Holdings never came into being and therefore there was no valid guarantee that could be given for a contract that did not come into being.

22. The second issue (as points 2 and 3 really come to the same thing) is that the 10 properties given under Condition (b) in the letter of 14 March 2000 were not resorted to by the Government. The Government had obligation to resort to them, and either his liability under guarantee did not bite until the Government started to selling them or alternatively the Government was in breach of the obligation to sell these and therefore his guarantee liability is discharged. Just two ways of putting it. I would deal with each purported defence in turn.

23. I start with the first observation that both of these defences were not pleaded. No witness statement had been given. There were no examination of these issues and therefore they should not be fit for consideration at the trial. But assuming I am wrong, assuming that they can be looked at and they can be considered, is there any substance in these two new defences? I would take New Defence One first.

24. This is the cash point. There was no cash of $100,000 paid on 27 March 2000, therefore it was argued there was no payment as required by Condition (a) in the letter of 14 March 2000. Of course it is a case of construction of the written contract, and this is of far more value than the oral evidence of the parties, especially when the person giving them may not be the person who directly made the deal. The words there are : “receipt of the sum totalling $100,000.00 on or before 27 March 2000”. There was no doubt that the cheque was received. The question for the purpose of argument is whether giving the words a sensible commercial construction, it could be said that the receipt of the cheque and the acceptance of the cheque on 27 March 2000 of the $100,000 by the Inland Revenue did not amount to a satisfaction of that Condition (a). In my view, it clearly is a wrong argument. The parties deemed fit and this is their most commercial arrangement to effect payment by cheque. One party saw fit to make the payment, the other party saw fit to receive the payment, by cheque. The parties acted on the basis that it was a valid payment and was a satisfaction of Condition (a). The parties acted on the basis that this was a completed deal. Thereafter instalment payments were made. The Government acted on the basis that the Guarantee was good and, throughout, there was no suggestion that there was a late payment and therefore Condition (a) was not met.

25. Mr Mok has helpfully referred me to Chitty on Contracts, General Principles. At 21-073, it said :

“…. If, however, [a creditor] accepts a negotiable instrument, such as a bill of exchange, promissory note or cheque, it is a question of fact depending on the intention of the parties, whether it is taken in absolute satisfaction of the debt, or only in conditional satisfaction. In either event, the acceptance of the instrument gives the debtor a good defence to an action for the debt, at least until the instrument matures.”

Then at 21-074, it said :

“Normally, where a creditor accepts a negotiable instrument for his debt it is presumed to be taken by him as a qualified or conditional payment, and, accordingly, although the original debt is still due during the currency of the instrument, the creditor’s remedy is suspended until it is due. If it is then paid, this amounts to payment of the debt; …. It has been held that a claimant who accepts a cheque for part of the debt claimed by him cannot sign judgment in default of appearance for the full amount claimed unless the cheque is dishonoured. …”

26. So, it would seem that in law there is a complete answer to the artificial argument presented by Mr Chun. There was payment and there was receipt of the sum, but it was conditional payment and conditional receipt. If the cheque should bounce, then of course there would be no receipt and no payment, otherwise everyone would consider it as good payment and good receipt on 27 March 2000.

27. The other way, perhaps, of looking at the point is to look at the Guarantee. The Guarantee refers to two considerations : one is the refraining from taking action against Holdings and the other is the payment by instalments. Both of which had been met, strictly speaking, that is all that is necessary for the validity of the Guarantee to be effective. A Guarantee stands very often independently of any underlying contract.

28. The conclusion therefore I have reached is that there is no substance in the point made by Mr Chun. Mr Chun refers me to a large number of authorities about time being of the essence, ranging from charter party cases to conveyancing cases. But in my view they do not help him. They turn on different factual situations in support of different legal propositions. This is not a case where time of payment is of the essence. This is a case where one has to give commercial sense to the construction of letters exchanged between the parties to see what the agreement was, and whether, in any way, that agreement did not come about or whether that agreement did come about and was acted on by the parties.

29. I now turn to the 2^nd New Defence that was raised. The 2^nd New Defence is the non-realization of the so-called properties that had been pledged or charged to the Government. The short answer to that complaint is that it was never pleaded. That issue was never properly explored factually in documents or in discovery, and that certainly could not be done at the trial.

30. Things are said by Mr Chun about these properties not having negative value and that something could be realized from the sale of the properties. What is clear, however, is that neither the company nor Mr Chun took any steps to say to the Government : “You should sell this property and you could have obtained this net sum.” On this question, there was no correspondence, nothing in the pleadings or the witness statements, or even in any document put before the court. The point made by Mr Chun is that : “Oh, the Government had several securities, (1) in the form of a Guarantee from me, (2) in the form of 10 properties pledged to the Government, the Government should protect my interest, that is, the guarantor’s interest, to sell the properties first before resorting to me.”

31. But that is not the law, with all respect to Mr Chun. The law is that the creditor has no obligation to resort to any security in any order or at anytime. It is his right to enforce his several securities in the way he sees fit. Of course, there could not be a variation of the original agreement between the creditor and the debtor so that for example, instead of giving time to the debtor to pay (which is of course properly permissible), the creditor should compound with the debtor and enter into agreement to give him a right to pay in different way. Then that could affect the Guarantee, but that is not what is alleged.

32. What is alleged is the non-taking of the action against the properties, and it is said that either therefore it discharges the Guarantee (which as I said is not the law) or that it is contrary to what he understood to be the position which is an allegation of misrepresentation. But that misrepresentation was never made to him by anyone on behalf of the Government. If it was made to him, it was made to him either by Deloitte or whoever else of his own staff, and that cannot form a valid defence to enforcement of the Guarantee. I therefore come to the view that there is really no substance to that argument based on the non-resort (if I may call it that) by the Government against the properties.

33. Mr Chun had the good fortune to persuade the Government again and again to give him, as well as Holdings, time to pay. But unfortunately he could not arrange affairs so that the payment could be made as arranged. His 1^st guarantee was returned to him in exchange for the 2^nd guarantee. Notwithstanding the Government’s repeated indulgence and frustration in trying to collect the outstanding tax, Mr Chun has been able to delay the evil day very successfully until today.

34. The delay must stop now. In my view, judgment must be entered for the Government in the sum claimed :

(1) in the sum of $19,344,988.00 that is the outstanding judgment debt at Prayer (i) of the Statement of Claim;

(2) in the amount of $5,785,361.31, being the interest on the balance of the judgment debt, at Prayer (ii) of the Statement of Claim; and

(3) interest on the total sum of $19,344,988.00 from 9 March 2002 up to today at the appropriate judgment rate fixed by the Chief Justice under section 50 of the District Court Ordinance.

So there will be judgment for these three sums, and, of course, interest thereafter will run at the judgment rate on the total of the three sums. I also order that costs be awarded in favour of the Government in the action.

(William Waung)
Judge of the Court of First Instance
High Court

Mr Mok Yeuk Chi, instructed by Department of Justice, for the Plaintiff

Defendant, appeared in person

HCA919/2002

IN THE HIGH COURT OF

THE HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE ACTION

NO.919 OF 2002

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BETWEEN

	SECRETARY FOR JUSTICE	Plaintiff
	and
	CHUN KAM CHIU	Defendant

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Before : Hon Waung J in Court

Date of Hearing : 13 June 2005 (Day 6)

Date of Judgment : 13 June 2005

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J U D G M E N T

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1. I have an application before me by Ms Vivian Ho on the instructions of Messrs Waller Ma Huang & Yeung, acting for the defendant Chun Kam Chiu, for an adjournment of the trial today, Day 6 of the trial. The grounds advanced by Ms Ho, who has said everything that could be said for the defendant, are two :

(1) that there was insufficient time for the defendant to seek legal representation after the former solicitors have left the scene; and
(2) that points of law had arisen in the trial which he found to be more difficult than he could cope with.

2. I will deal with each point in term. But before I do that, I think it would be sensible first to see of what had happened.

3. This trial had been set down and the trial dates had been fixed a long, long time ago. Just, I believe, three, four or five days before the trial was due to begin (the trial started on 6 June 2005), a summons was issued by the then solicitors for the defendant dated 27 May 2005 seeking an order that Messrs Alvan Liu & Partners ceased to be the solicitors for the defendant, and this summons was supported by an affirmation of Miss Winnie Leung dated 27 May 2005 and the principal grounds set out in support of the application was that the solicitors were not receiving proper instructions from the defendant.

4. On the day of the hearing, that is, 1 June 2005 of that summons for ceasing to act, the court found that there was already a notice of the defendant to act in person, dated 30 May 2005. Having regard to the fact that there was already a notice of the defendant to act in person, the summons of the solicitors for order to cease to act was withdrawn because the two were obviously inconsistent with each other, and the court acted on the basis of the notice of the defendant to act in person. It was a voluntary act and choice of the defendant to act in person. The defendant who sought to act in person must be aware of the dangers involved in not having representation. When the trial started, there was no question put to the court of “could we have a short adjournment of the trial so that I could find alternative lawyer”.

5. The transcript showed that the defendant repeatedly asked for an adjournment on the basis that he was depressed — he was suffering depression therefore he should not be forced to proceed with the trial. I believe it was probably towards the 3^rd or 4^th day of the trial, then there began murmurs about legal representation, and that is, of course, after the opening by Mr Mok when the strength of the plaintiff’s case or, rather, the hopelessness of the defendant’s case which centred on a defence of global settlement was apparent to everyone in court, including the defendant. It was at that stage that the defendant sought more and more to delay the trial, either in the form of his continued complaint about depression or a new theme of wanting lawyers.

6. By Friday, 10 June 2005, the theme of wanting lawyers became a louder song. That was when I said to the defendant that if he wished to, he could have a lawyer to appear before me today, which explains Ms Ho’s presence today. So, on the 1^st ground that he did not have sufficient time to find a lawyer to take up the case, this is simply not the case.

7. I do not believe that he even tried to find lawyers. He himself wanted to act in person and was very happy to act in person. The fact that Ms Ho could come so quickly shows that there were lawyers who could take up the case and, if a lawyer said to me : “I have been approached on such and such day and I could not take up the case because (of whatever reason)”, that is another matter. But that is not the case. So I reject the ground that there was insufficient time to find lawyers and that he had tried and had failed. In my view, he did not try, and there is no question that he could not find lawyers to represent him. It was his choice to dismiss his lawyers or deliberately not to want lawyers so that he thought he could have a better chance to act in person. With his theatrical excuses constantly displayed before the court, so far he has done extremely well. The trial had been delayed by at least two or three days by his constant interruptions.

8. I now turn to the 2^nd ground. The 2^nd ground is that, because legal points had emerged which turned out to be more difficult, therefore he required legal representation. In my view, that is not a good ground. When a person decides not to use lawyers, he has to decide in the context of the risk he has to run. He knew the case that was coming up. He knew legal points would be involved. He could not say : “I now take the view that I don’t need lawyers, but when I do, I can get adjournment.” That is not the way the cases are managed in this court. The trial cannot stop because someone says : “I suddenly find some difficulty.” He decided not to have lawyers, and so be it. And if he thereby suffers as a result of his decision because the case turns out to be more difficult or whatever may be the reason, that is part and parcel of the consequence of his decision. So, that is no ground.

9. The court must have regard not only to the interest of the defendant but also to the interest of the plaintiff, as well as to the interest of everyone else waiting in the queue in the court, namely, waiting for a judge to be free to deal with many of the other cases that are coming up in the court. The defendant does not have a monopoly of the time of this court or of any court.

10. I therefore reject the application of the defendant for an adjournment. The application is dismissed with costs which I will now assess by way of gross sum assessment.

(William Waung)
Judge of the Court of First Instance
High Court

Mr Mok Yeuk Chi, instructed by the Department of Justice, for the Plaintiff

Miss Vivian Ho, instructed by Messrs Waller Ma Huang & Yeung, for the Defendant

HCA919/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE ACTION

NO.919 OF 2002

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BETWEEN

	SECRETARY FOR JUSTICE	Plaintiff
	and
	CHUN KAM CHIU	Defendant

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Before : Hon Waung J in Court

Date of Hearing : 7-8 June 2005

Date of Judgment: 8 June 2005

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J U D G M E N T

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1. This is Day 3 of a trial that started on Monday, three days ago. At the end of hearing after the submissions made by Mr Chun, the defendant and Mr Mok, acting for the plaintiff Secretary for Justice, I have come to the conclusion that the application for amendment of the defence to introduce a new plea of misrepresentation must be rejected.

2. The case involves a claim by the Government in the form of the Inland Revenue against the defendant in relation to a guarantee given by Mr Chun in the year 2000 in relation to judgment entered by the Inland Revenue against a company which we have in the trial called Keen Lloyd (Holdings) Ltd (hereinafter called “Holdings”),for a sum in excess of some $20 odd million.

3. The guarantee was given in circumstances in March 2000 as part of a package agreed between the Government on the one side and Holdings on the other, whereby in return for the government agreeing to accept the paying-off of the judgment sum by instalments, the company with Mr Chun being the beneficial owner agreed to put forward firstly, the personal guarantee of Mr Chun, secondly, a basket of properties to be charged, and thirdly, a sum of $100,000 in the form of a cheque. That was pursuant to the acceptance of a letter of offer dated 14 March 2000.

4. The Defence that had been filed was filed as long ago as May 2000. A number of points were pleaded in Defence but there was certainly no plea of misrepresentation. There were the filing of witness statements and the main defence that was relied upon was what was called, throughout the hearing so far, as a global settlement defence. I do not need to go into the detail of the question of that defence for the purpose of considering the application for amendment of Mr Chun to rely on misrepresentation.

5. Yesterday morning, as a result of the very fair and clear opening by Mr Mok on the global settlement defence, seeing that there is really no substance in the alleged defence on global settlement, Mr Chun in one of his constant interruptions stood up and said to the court that he wished to abandon the global settlement defence but wished to rely on a new defence of misrepresentation. He admitted that the new defence of misrepresentation had not been pleaded, he admitted that the new defence of misrepresentation was not the subject matter of his witness statement, but he nevertheless said he wished to rely on it. He did not elaborate what was the misrepresentation defence and I directed that he should put it down on a piece of paper so that we could have the details of that misrepresentation defence.

6. Today, notwithstanding what he had said he would do — to put it down on a piece of paper, as a result of question and answer, he had informed the court and it would seem that the substance of this defence was this, that some time in February and March, at the office of Holdings, two male staff of Deloitte Touche Tohmatsu had made representation to him, which thereby caused him to sign the guarantee, and the misrepresentation was wrong and, therefore, he was entitled to be relieved from the guarantee.

7. The misrepresentation was in relation to the enforcement as to when the guarantee would be in force. It was described to him by the Deloitte Touche Tohmatsu men that it was only after the Government could not obtain any money from the company and only after they had sold all the properties that had been charged and still did not obtain sufficient money would the guarantee be then be enforced with written notice. This, of course, was quite contrary to the terms of the guarantee that was actually signed and that is now been enforced.

8. The real question it seems to me is that, notwithstanding the lateness, whether there is any real prospect of this plea of misrepresentation succeeding. I can categorically say that in my view, there is no chance of that plea succeeding. In order for the plea to succeed, it must be established that the persons making the misrepresentation were acting on behalf of the Inland Revenue and that they were authorized to so act and in the course of so acting on behalf of the Inland Revenue, they made the misrepresentation.

9. It was clear from the documents that is now before the court, in particular the opening correspondence letter dated 3 January 2000, from Deloitte to the Inland Revenue, at p.167 of the bundle, that they were appointed by the company (and not by Inland Revenue) to act for the company in relation to the question of tax, and the letter of 3 January also enclosed two letters of appointment by the two respective companies, that is Holdings and its sister company Ever Lucky, whereby Deloitte was appointed to act on behalf of Holdings and Ever Lucky to deal and negotiate and discuss with the Inland Revenue about the tax affairs of Holdings and Ever Lucky.

10. There is, whether on the documents or by common sense, no possibility ever of Deloitte, the accountants acting on that occasion or any occasion on behalf of Inland Revenue to discuss tax of this kind. So, factually, there is no way that there is a possibility of this plea of misrepresentation ever succeeding.

11. On that basis alone, it would be sufficient to reject the plea. If there is any substance in the plea, of course Mr Chun could have a cause of action against Deloitte, but that does not mean that it gives rise to any defence to the claim. In any event, at this late stage when we are already into Day 3 of the trial, it would be grossly unjust to allow this last-minute plea to be accepted. Inevitably it would have to involve a long adjournment of the trial so that there could be further pleadings, further witness statements, possibly a joinder of Deloitte.

12. The question that has always to be asked is : could this amendment have been made earlier? Mr Chun was well represented by lawyers for a long time and this only stopped last Wednesday. The plea of misrepresentation, if it has any substance, could have been made a long time ago — it was not, and we are now into Day 3 of the trial and this new application can only suggest that it was a desperate last-minute attempt to create further delay. There is, therefore, in my view, no basis on which any court can grant the application sought.

12. The application therefore is dismissed and the defendant must pay the costs of the application. I will hear Mr Mok on the gross sum assessment of what is the estimated time spent in dealing with this matter.

(William Waung)
Judge of the Court of First Instance
High Court

Mr Mok Yeuk Chi, instructed by Department of Justice, for the Plaintiff

Defendant, appeared in person

HCA000919A/2002

HCA 919/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 919 OF 2002

____________

BETWEEN
	SECRETARY FOR JUSTICE	Plaintiff

	AND

	CHUN KAM CHIU	Defendant

____________

Coram: Deputy High Court Judge A Cheung in Chambers

Date of Hearing: 13 November 2002

Date of Judgment: 26 November 2002

_______________

J U D G M E N T

_______________

1. This is an appeal brought by the Defendant against an order made by Master June Wee on 15 October 2002, granting the Plaintiff summary judgment in this action.

2. The Defendant is and was at all material times the person behind a group of companies, which used to be very active in the property market. With the collapse of the property market following the onset of the Asian economic crisis, the group went into difficulties. Two of the companies within the group owed to the Inland Revenue Department substantial amounts of unpaid profits tax. Judgments were obtained by the Commissioner in the District Court in relation to the unpaid taxes. A third company within the group was very much behind in its filing of the tax return. In those circumstances, the Commissioner was quite entitled to make assessment of his own relating to the assessable profits and demand payment of tax accordingly.

3. By two personal guarantees both dated 27 March 2000, the Defendant agreed to guarantee the repayment of the outstanding taxes/judgment debts of the two companies within his group by instalments respectively. Initially, repayments were indeed made by instalments, although payments were very often made late. But eventually no further payment was made.

4. The present action based on the two guarantees was therefore commenced against the Defendant in respect of the outstanding taxes in March 2002.

5. In the meantime, the Commissioner had, in the exercise of his statutory power, assessed the assessable income of the third company within the group which had failed to file the necessary tax return, made a demand in payment, and indeed obtained settlement of the tax demanded by serving notices for recovery on the purchaser of a property belonging to that company and the solicitors acting for the purchaser.

6. In this appeal, the Defendant through counsel runs two points. First, he argues that the two guarantees were the products of negotiations between the department and his staff. They represented only part of the "overall agreement" reached as a result of the negotiations. He asserts that as part of the overall agreement, the department agreed and undertook to grant an indulgence of 12 months to the third company in the group for its preparation and filing of the outstanding tax return. Yet in breach of this part of the overall agreement, the Commissioner made his own assessment and demanded payment of tax before the expiry of the 12-month period. The Defendant argues that as a result, he is discharged from performance of the two guarantees.

7. In support of this story, the Defendant as well as a fellow director have filed affirmations, detailing the negotiations in question and the reaching of the agreement, as well as exhibiting some documents to show that there was indeed reached this oral agreement.

8. Mr Chau, appearing for the Plaintiff, argues that this assertion of an overall agreement whereby the Commissioner agreed to grant an indulgence to the third company for the filing of its tax return within 12 months is wholly incredible or unbelievable, this being the test that should be adopted in an Order 14 application regarding factual assertions made by a defendant on whom a threshold burden lies to show an arguable defence whether in law or on facts: Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, 158G; Hong Kong Civil Procedure 2002 Vol. 1 paras 14/4/9 and 14/4/11.

9. Mr Chau points out to me the undeniable fact that the guarantees themselves made no mention whatsoever of this overall agreement or undertaking by the Commissioner to grant an indulgence relating to the filing of a tax return by the third company. No such mention can be found in many of the other contemporaneous documents or correspondence between the parties or their representatives. Indeed, after the Commissioner made his own assessment of the assessable profits of the third company, and demanded payment of tax accordingly, not only was there no complaint from the Defendant or his group of companies relating to the (alleged) breach of the Commissioner of the overall agreement (as per the Defendant's story), the Defendant actually complained in one of his affirmations that by the conduct of the Commissioner, he had been prevented from receiving money that he could otherwise use to pay the outstanding instalments due to the Commissioner pursuant to the two guarantees. Mr Chau also says that the first time that the overall agreement, the undertaking to grant an indulgence relating to the filing of tax return, and the allegation of breach by the Commissioner thereby entitling the Defendant to regard himself as having been discharged from the guarantees, were mentioned was when the defence was filed in May this year.

10. On the other hand, there is in evidence a copy minute of a board meeting of one of the two companies/judgment debtors held on 27 March 2000, the very day the guarantees were signed, clearly saying that the company had reached an overall agreement with the Inland Revenue Department, whereby the department agreed to allow the two companies within the group to repay the outstanding taxes/judgment debts by instalments, and to allow the third company a further period of 12 months to file its tax return, by reason of which agreement the Defendant, as a director of the company in question, agreed to personally guarantee the repayments by instalments. Mr Chau very fairly and properly refrains from suggesting, on the material and instructions available to him presently, that this board minute is not a genuine document, or that for any other reasons, its content is unreliable or does not mean what it says. Needless to say, this board minute is a piece of evidence supporting the Defendant's allegation of an overall agreement and the content of it. It cannot simply be brushed aside as an internal document within the Defendant's group of companies.

11. Moreover, in evidence is another copy memorandum dated 3 August 1999 written by a former staff member within the group directly responsible for negotiating with the Inland Revenue Department to the Defendant, reporting that the department had basically agreed with the group's suggestion to conduct negotiations on the basis of an overall repayment scheme; the memorandum also referred to the proposal made to the department that further time be granted to the third company for the filing of its tax return. This, in my judgment, also provides some contemporaneous documentary support to the Defendant's present factual assertion. Likewise, Mr Chau finds himself not in a position to suggest that this copy memorandum which has been exhibited to one of the latest affirmations filed by the fellow director of the Defendant (who supervised the negotiations done by the former staff member who wrote this memorandum) is not an authentic document.

12. This is not a case in which the Defendant has made a bare factual assertion of an oral agreement, which flies completely in the face of the contemporaneous documents. Apart from the board minute and the memorandum that I have specifically singled out for mentioning above, I also bear in mind a number of factors which tend to suggest that the Defendant's case is not totally unbelievable:

(1) The fact that the 2 guarantees were of essentially identical terms and signed on the same day, thus suggesting that at least in relation to the two companies in question, their outstanding taxes/judgment debts were being handled together in a global manner.
(2) The two guarantees were admittedly in the standard form used by the Commissioner. To some extent, this could potentially explain why in the body of the two guarantees, one could not find any reference to this alleged undertaking to grant an indulgence for the filing of tax return by the third company. Had one been concerned with a specifically drafted guarantee covering the two judgment debts in question, the Plaintiff's case would have been very much stronger.
(3) The Defendant's story is not inherently incredible. There is nothing inherently incredible about the Defendant wanting to come to some sort of agreement with the Inland Revenue Department on a global basis relating to all the companies in his group which were having trouble with the Inland Revenue Department. Indeed, some of the correspondences exhibited quite clearly show that the group handled the outstanding taxation matters with the department on a global basis. Thus for instance, there was a request by the group to the department to set off the tax of one company in the group that had already been paid but was thought to be refundable against the outstanding tax due and payable by another company within the group.

(4) In the light of the allegation of the existence of such an orally reached overall agreement with the department, none of the officers of the Inland Revenue Department who were personally involved in the negotiations have put in any evidence to rebut the allegation. None of the internal records of the department of the negotiations, apart from several exceptions, were put in evidence to refute the allegation of the existence of the oral agreement. Of course, I bear in mind that the burden is on the Defendant to show an arguable defence. But in the light of the assertions made in the affirmations filed by the Defendant, as well as the documents that have been exhibited to the affirmations filed by or on behalf of the Defendant, the absence of such response from the department is something that I can take into account. For the sake of completeness, I should point out that the affirmations filed on behalf of the Plaintiff in support of the present application and in response to the evidence put in by the Defendant were all made by officers who apparently were not personally or directly involved in the negotiations in question.

13. Much of all this has been canvassed at the hearing, and Mr Chau did try his best, by pointing out to me many documentary evidence as well as the general circumstances of this case, to neutralize or rebut the above-mentioned factors that would tend to support the Defendant's case.

14. But I must resist the temptation to try this case at this stage, particularly to try this case on paper. As has been said many many times before, the test here is not whether the Defendant's story is to be believed, which is a question that can only be answered by the trial judge on the entirety of the evidence presented before him or her at trial; rather the test is whether the Defendant's story is believable.

15. In my judgment, having seriously considered all the above-mentioned matters as well as the general circumstances of this case, I am unable to conclude that the Defendant's story is unbelievable. For this reason, the Defendant should not be shut out from the judgment seat.

16. Mr Chan also refers me to some textbook passages to the effect that in construing a guarantee, normally no extrinsic material can be looked at. Certainly that is correct. But the difficulty facing him is more fundamental: whether apart from the guarantees, something else has been (orally) agreed between the parties? Extrinsic evidence is admissible to answer that question by way of an exception to the parol evidence rule. This question has to be dealt with before one reaches the question of construction, to which the textbook passages relate.

17. Ms Wong, appearing for the Defendant before me at this hearing but not below, also argues that it is at least arguable whether the department has agreed to give the two companies, the outstanding taxes of which formed the subject matters of the two guarantees, time to pay, thereby discharging the Defendant from his obligations under the guarantees. In the light of my above conclusion, I need not, and indeed should not, express any definite view on this argument. All that I would like to say is that had this been the only argument raised by the Defendant in opposition to the application for summary judgment or in relation to this appeal, I would have much difficulty in concluding that the Defendant should be given a chance to defend the present action. There is much persuasion in Mr Chau's argument that mere passivity on the part of the Inland Revenue Department in demanding payment of the outstanding taxes in accordance with the instalment payment schedules was quite insufficient to constitute a legally binding agreement to give time; moreover, such an agreement would require the provision of adequate consideration to support. See generally Andrews & Millet, Law of Guarantees (3rd ed) paras 9.30 and 9.36.

18. However, given my conclusion relating to the first argument of Ms Wong, as I said, I do not wish to express any definite view on the validity of this argument.

19. In conclusion, I make an order allowing this appeal. It must be apparent from my above judgment that my decision relating to the first argument was to a substantial extent influenced by the copy board minute and copy memorandum exhibited to the second affirmation of the fellow director of the Defendant, which was only filed after summary judgment was granted by the learned Master below, and was indeed only filed two days before the hearing. My decision was also influenced to some extent by the lack of a full response from the department in relation to the matters alleged in that late affirmation and the lack of evidence in reply to address the implications of the exhibits to that affirmation, particularly from those officers who were personally involved in the negotiations. (At the hearing, I gave leave to the Defendant to file and rely on the late affirmation, but I indicated quite clearly that I would listen sympathetically to any application for an adjournment on the part of the Plaintiff. No doubt for good reasons of his own, Mr Chau did not ask for an adjournment but indicated to me that his side was prepared and ready to proceed with the hearing of the appeal.)

20. In those circumstances, I do not agree with Ms Wong that I should in fact dismiss the Order 14 summons which was taken out after the filing of the defence, which raised amongst other things, the two arguments that Ms Wong runs before me at this appeal.

21. In my judgment, the correct order to make is that the Defendant be given unconditional leave to defend the present action.

22. For the same reasons, as regards costs, in my judgment, the costs below should be made costs in the cause, with a certificate for counsel; the costs of this appeal should be paid by the Plaintiff to the Defendant in any event, such costs to be taxed if not agreed, the Plaintiff having already been awarded the costs of the Defendant's application at the hearing to adduce further or additional evidence.

23. The time for filing a reply has long expired. Mr Chau has not indicated to me that the Plaintiff would like to file a reply in case the appeal is successful. Given my decision, I am of the view that I should give directions for the further conduct of this action, which has to be resolved by means of a trial:

(1) the parties do file and serve a list of documents within 14 days from the date of this judgment;
(2) there be inspection of documents within 7 days thereafter;
(3) the parties do file and serve signed witness statements as to fact within 90 days from the date hereof, such statements shall stand as evidence in chief of the makers of the statements, subject to any further or other directions by the trial judge;
(4) liberty to apply for further directions.

24. I would like to thank counsel for the helpful assistance that has been rendered to me.

	(Andrew Cheung)
	Deputy Judge of the Court of First Instance High Court

Representation:

Mr Anthony Chau, Government Counsel of the Department of Justice, for the Plaintiff

Ms Lisa K Y Wong, instructed by Messrs Alvan Liu & Partners, for the Defendant

HCA000919/2002

HCA 919/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 919 OF 2002

____________

BETWEEN
	SECRETARY FOR JUSTICE	Plaintiff

	AND

	CHUN KAM CHIU	Defendant

____________

Coram: Deputy High Court Judge A Cheung in Chambers

Date of Hearing: 13 November 2002

Date of Ruling: 13 November 2002

____________

R U L I N G

____________

1. This is the hearing of an Order 14 appeal. The Defendant lost before Master June Wee in respect of an application for summary judgment. The summons for summary judgment was taken out on 8 August 2002, whereas the writ was issued back in March 2002 and the defence was filed in mid-May 2002.

2. The notice of appeal was filed within time on 28 October 2002. Today is 13 November 2002. On Monday, i.e. 11 November 2002, the Defendant filed and served a 2nd affirmation of a Ms Tsang Siu Lan Jones dealing with the subject matter of this claim. The Plaintiff opposed the late filing of evidence particularly at this appeal stage. To their credit, the Plaintiff managed to put together a short affirmation by a Madam To Yee Man in response to the 2nd affirmation of Ms Tsang. The Defendant through Ms Tsang prepared a 3rd affirmation in reply yesterday.

3. At today's hearing, Mr Chau appearing for the Plaintiff, strenuously opposes the application of Ms Wong, appearing for the Defendant, for leave to rely on the two latest affirmations of Ms Tsang for the purpose of her appeal. It should be noted that Ms Wong is new to this case in the sense that she did not appear for the Defendant before the learned Master and another counsel was instructed to represent the Defendant.

4. Mr Chau urges me to adopt the same approach adopted by the Court of Appeal in this type of situation, i.e. the Ladd v. Marshall test. The test is of course applicable to an appeal to the Court of Appeal in relation to a summary judgment granted under Order 14: see Hong Kong Civil Procedure 2002 Vol.1 para. 59/10/9. However, in relation to an appeal from an order or judgment of a master to a judge in chambers of the Court of First Instance of the High Court, in my judgment, the test is not the same: see Hong Kong Civil Procedure 2002 Vol. 1 para. 58/1/2. Indeed prior to Kaplan J's judgment in Core Resources Far East Limited v. Sky Founders Limited [1992] 1 HKLR 193, it was the common practice of the profession to put in further or additional evidence by affidavit or affirmation in an appeal of this sort almost as a matter of course. Whilst the judgment of Kaplan J pointed out that the Court does retain a discretion in this type of matter relating to the admission of further evidence, the previous practice of the profession is understandable. After all, an appeal from a judgment or order of a master to a judge in chambers is by way of a de novo hearing. Unless the further or additional evidence raises a totally different or new defence or matter that had not been argued below before the master, one would have thought that given the nature of the appeal, the admission of further or additional evidence should not be too objectionable.

5. Moreover, precisely because of the practice of the Court of Appeal relating to the admission of further evidence, it is of paramount importance to all parties to an appeal before a judge in chambers that they have put in all the evidence that they think they require in relation to the appeal. In other words, given the stringent requirements relating to admission of further evidence before the Court of Appeal, the appeal before the judge in chambers represents to the parties, in practice, their last chance of putting their respective houses in order. That, in my judgment, explains the latitude that the Court has been extending to parties in this type of appeals relating to the admission of further evidence, whether before or after the very learned judgment of Kaplan J in Core Resources Far East Limited.

6. As I said, if the new evidence sought to be adduced raises a totally different matter or if a party has taken his stand on the evidence as it stood before the master, the judge in chambers may, in his discretion, by analogy with the practice in the Court of Appeal, refuse to allow him to adduce further evidence. In other circumstances, the Court would usually adopt a more relaxed attitude and as I have tried to explain above, that is supported by good sense.

7. Turning to the present case, having read the latest additional or further evidence, I am of the view that the matters raised in the latest affirmations of Ms Tsang only serve to supplement what has already been said by her as well as other deponents on behalf of the Defendant at the hearing below. What she says in her two latest affirmations is indeed quite consistent with the defence that has been filed by the Defendant. In fact, as I said, the defence was filed in May. So I can really see no real objection to the admission of the latest affirmations of Ms Tsang in this appeal.

8. Now, Mr Chau very understandably tells me that in any event, his side would need a decent opportunity to consider its response to the latest evidence, notwithstanding that the Plaintiff has managed to prepare a short affirmation in response to the 2nd affirmation of Ms Tsang. Mr Chau points out to me that if I should grant leave to admit the further evidence, the Plaintiff would be obliged to ask for an adjournment of today's hearing. Although he is not prepared to go so far as to suggest that the late filing of evidence or the filing of further evidence at this stage of the proceedings is a deliberate tactic employed by the Defendant to delay the hearing of the present appeal, he does submit that I should take into account the potential delay to the hearing of the appeal in considering how my discretion should be exercised.

9. Ms Wong has very helpfully referred me to the chronology of the proceedings. In my judgment, the Plaintiff has taken her time in deciding whether to take out the Order 14 summons. Once the summons was taken out, the application was heard within a very short period of time; and after judgment was given against the Defendant, the Defendant lodged an appeal on 28 October and was given today's hearing date which is approximately two weeks from the date of the notice of appeal.

10. Moreover, as I mentioned above, Ms Wong is new to this case; it is very understandable that Ms Wong, after having sight of the papers, might take a different view regarding the sufficiency of the evidence required to support this appeal.

11. So in my judgment, first, I do not believe that this is a deliberate delaying tactic employed by the Defendant to force upon everyone involved an adjournment of today's hearing. Secondly, given the chronology in question, I do not think that any adjournment of today's hearing, assuming that one is applied for in the event that I give leave to admit the evidence, would cause any real or substantial prejudice to the parties relating to the expeditious resolution of the present appeal.

12. So, bearing in mind all the above matters as well as the general circumstances of the case, in the exercise of my discretion, I give leave to the Defendant to file and serve as well as to rely on in this appeal, the 2nd affirmation of Tsang Siu Lan Jones. I give leave to the Plaintiff to file and serve and rely on in this appeal, the 1st affirmation of To Yee Man which, as I said, was prepared in response to the 2nd affirmation of Ms Tsang. For the same reason, I give leave to the Defendant to file and serve and rely on in this appeal, the 3rd affirmation of Tsang Siu Lan Jones.

13. I will now hear the parties in relation to the further hearing of this appeal.

[Submissions by counsel]

14. Having heard the parties further, I order that the costs of and occasioned by the Defendant's application to put in further evidence be paid by the Defendant to the Plaintiff in any event, to be taxed if not agreed.

	(Andrew Cheung)
	Deputy Judge of the Court of First Instance High Court

Representation:

Mr Anthony Chau, Government Counsel of the Department of Justice, for the Plaintiff

Ms Lisa K Y Wong, instructed by Messrs Alvan Liu & Partners, for the Defendant

SECRETARY FOR JUSTICE v. CHUN KAM CHIU

Related cases with same parties

Files (5)

“	We refer to your letter dated on 14 March 2000. On behalf of our above-named client, we enclose the following documents for your attention :—

	1.	a cheque of HK$100,000 payable to the Hong Kong Special Administrative Region being the company’s 1^st & 2^nd tax installments due on 27 March 2000;

	2.	an original signed letter for charging orders on the selected properties; and

	3.	an original signed letter for the personal guarantee by Mr Chun Kam Chiu.”

(1)	whether the agreement of 14 March reached between the parties are valid or not; and

(2)	whether the defendant needs to shoulder the responsibility under the defendant’s signed guarantee provided to the Inland Revenue on 27 March 2000.

(1)	in the sum of $19,344,988.00 that is the outstanding judgment debt at Prayer (i) of the Statement of Claim;

(2)	in the amount of $5,785,361.31, being the interest on the balance of the judgment debt, at Prayer (ii) of the Statement of Claim; and

(3)	interest on the total sum of $19,344,988.00 from 9 March 2002 up to today at the appropriate judgment rate fixed by the Chief Justice under section 50 of the District Court Ordinance.