CHOW CHUN TIN v. CHOW SO NGOR

HCA 1794/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1794 OF 2009

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BETWEEN

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R U L I N G

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1.  This application for a stay of execution pending appeal to the Court of Appeal has been very well argued on both sides. I have not found the matter entirely straightforward.

2.  This will be an appeal against two orders. Firstly, one dated 15 June this year dismissing the Defendant’s appeal from an order by Master Levy granting her conditional leave to appeal on the Plaintiff’s summons for summary judgment under RHC, Order 14.  The condition was that she should bring into court the entire amount of the claim of $1,657,491.40.  The second ruling which is being appealed is my refusal to lift that condition, it having been submitted that the Plaintiff did not have the financial ability to pay that amount.  That ruling is dated 10 September.  

3.  On the first limb of the appeal, it will be submitted that the matters raised by the Defendant were sufficiently strong to justify unconditional leave to appeal.  On the refusal to remove the condition, it will be said that I erred in not setting aside the condition and that now not to grant a stay of execution will render the Defendant’s appeal nugatory.

4.  The principles to be applied when considering whether to grant a stay of execution have been set out by Ma J (as he then was) in Star Play Development Ltd v Bess Fashions Management Co. Ltd, HCA 4726/2001 at paras. 6-10 of the judgment in the course of which Ma J referred to the relevant authorities in Hong Kong and in England.  I will repeat these principles here:

“6. Though in the court’s discretion whether or not to grant a stay, it is important to bear in mind that the starting point is RSC Order 59, rule 13(1):

‘Except so far as the court below or the Court of Appeal or a single judge may otherwise direct –

(a) an appeal shall not operate as a stay of execution or of proceedings under the decision of the court below;

(b) no intermediate act or proceedings shall be invalidated by an appeal.

7. In other words, unless the defendant can justify a stay of execution, one will not be ordered. The practice of the court is that justification can be demonstrated only if good reasons exist.

8. Good reason can exist in a variety of forms. It will be wrong to set out any exhaustive definition of what would constitute good reasons, but, commonly, reference is made to factors such as whether the absence (or existence) of a stay would render an appeal nugatory (thus bringing into focus the relative prejudice that may be caused to the appellant and to the respondent by a stay of execution), and the merits of the appeal.

9. In the context of these two factors, I would make the following observations:

(1) In determining the question whether or not an appeal would be rendered nugatory, the court must of course first have regard to the nature of the order that is the subject matter of the appeal. If the order appealed against is a money judgment, the court will require evidence as to why the levying of execution will result in the appeal being rendered nugatory, such as, for example, an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal. Sometimes, though, the nature of the order will by itself almost be determinative of the question. Where the relevant order is, for example, an injunction (and particularly so if it is a mandatory injunction), it may well be that, without a stay, an appeal would be rendered nugatory in the event of a successful appeal. Similarly where, as in the present case, the relevant order is one for the possession of premises, again it can readily be appreciated that without a stay of execution, more often than not, it is likely than an appeal would be rendered nugatory: see Ketchum International plc v. Group Public Relations Holdings Limited [1997] 1 WLR 4 AT 10H.

(2) That said, whatever the nature of the order or judgment appealed from, the court will still require evidence as to why an appeal will be rendered nugatory in the event of a stay not being granted. The requisite quality of the evidence will, of course, depend on the nature of the order or judgment appealed against.

(3) I now deal with a common facet relied on in any argument relating to an appeal being rendered nugatory, namely that of financial ruin or serious financial consequences. Where, as in the present case, it is said that the levying of execution would result in financial ruin or serious financial consequences for the appellant, the court will require good evidence to support this contention, such as the production of accounts or other documents to justify the assertion. A bare assertion is unlikely to meet with much sympathy where more substantial evidence is available: see the observations of Mr Justice Litton, JA in Word Trade Centre Group Limited v Resourceful River Limited, unreported, 12 May 1993, Civil Appeal 70 of 1993, Court of Appeal, at 3-4.

(4) An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant faces financial ruin or the loss of all his property. Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough: see Caine Tai Investment Company Limited v Ayala International Finance Limited [1983] 1 HKC 163, a decision of the Court of Appeal which made reference to Wilson v Church (No. 2) [1879] 12 Ch. D. 454.

(5) How relevant then is the court’s consideration of the merits or strength of the appeal? In my view, while it is impractical and even undesirable for the court in dealing with an application for a stay of execution, to go deeply into the merits and strengths of an appeal, it must however form a preliminary view of these aspects. This I believe to be an inevitable consequence of the starting point I have earlier mentioned in referring to Order 59, rule 13(1).

(6) The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay. It can be put this way : the existence of an arguable appeal (that is, one with reasonable prospects of success) is the minimum requirement before a court would even consider granting a stay. In other words, however exceptional the circumstances may be otherwise justifying a stay of execution, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted.

(7) Conversely, however, the existence of a strong appeal or a strong likelihood that the appeal would succeed, will usually by itself enable a stay to be granted because this would constitute a good reason for a stay : see World Trade at 2; Winchester Cigarette Machinery Limited v Payne (No. 2), unreported, 15 December 1993, English Court of Appeal (a case referred to by the Court of Appeal in Fung Wai Kwong William v The Insider Dealing Tribunal [2001] 1 HKC 44).

(8) In most cases, the court will not be dealing with the extreme situations I have referred to. Often, it will be faced with simply the existence of an arguable appeal. Here, it becomes necessary for the appellant to provide additional reasons as to why a stay is justified. The demonstration of an appeal being rendered nugatory is one example, albeit a common one. Here, where it is demonstrated that an appeal would be rendered nugatory if a stay was not granted, the court may require no more than the existence of an arguable appeal. Correspondingly, where it cannot be shown that an appeal would be rendered nugatory if a stay were not granted, the court will require, in the absence of any other factors, the appellant to demonstrate strong grounds of appeal or a strong likelihood of success. This I understand to be the sentiment found in authorities such as World Trade at 2 (in a passage cited with approval by the Court of Appeal in Fung Wai Kwong William at 48) and Mabul Properties Corporation v Ahmed, unreported, 24 June 1987, English Court of Appeal.

(9) I have so far referred to the position of the appellant, it is important to stress that the court must not at any stage forget the position of the successful party. It is always relevant to consider the prejudice that would be caused to the successful party (the respondent in the appeal) in the event a stay is granted and if necessary, to impose conditions so as to minimise the prejudice caused to him. A fortiori, the court must consider any contention that the appeal would be rendered nugatory to him (in the event the appeal is dismissed) should a stay of execution be imposed.

Ultimately, the court embarks on a balancing exercise and uses its common sense, but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success: see Winchester Cigarette Machinery, per Gibson L.J.”

5.  In this matter, it may be helpful to begin at the end, as it were, and to consider matters that have occurred since I handed down the first judgment in June, which is that the Plaintiff has taken out an application to have the Defendant removed as the deceased’s administratrix and replaced by a neutral and professional administrator.  This application is currently before Lam J and I am also told that at the learned judge’s suggestion or encouragement, and I hope that I do not misrepresent the position because this is what I was told by Mr Deng for the Plaintiff, that summons has been amended to add a prayer for the estate to be bankrupted.  In these circumstances, Miss So, for the Defendant, submits that if I do not grant a stay the sanction for not paying the amount of the claim into court will take effect and judgment will be entered.  In such circumstances, it is almost inevitable that the estate will be bankrupted with the result that the trustee in bankruptcy will have to consider whether to pursue the appeal.  Miss So submits that the chances are that the trustee will not take that course.  In such circumstances, what she says is that a perfectly good appeal will have to be abandoned.

6.  She invites me to balance that terminal situation with any prejudice that may befall the Plaintiff, which will be minimal.  There is in existence an injunction granted by Saunders J in January this year which relates to the proceeds of sale of the properties held by the estate protecting the full extent of the claim and in addition the Plaintiff has obtained a charging order absolute in respect of properties as yet unsold by the estate. In such circumstances, Miss So submits that the condition requiring the Defendant to bring into the court the entire amount of the claim is unnecessary. The Plaintiff is amply protected by the injunction and by the charging order absolute and when one puts into the scales the consequences of not granting a stay, as I have just described, the scales must fall heavily in favour of a stay.

7.  This attractive submission is countered by Mr Deng who has drawn attention to the realistic worth of the injunction and the charging order.  There are outstanding mortgages on the estate in favour of the Hang Seng Bank.  The gross value of the estate stands at $14 million but once one takes into account outstanding mortgages that leaves over about $1.2 million which continues to be reduced by accumulating interest and legal costs.  At present, Mr Deng says that his client’s costs are in the order of $500,000.  Therefore, if one adds the full amount of the claim to the estate’s debt burden, it is probably bankrupt.  The injunction and the charging order are for all intents and purposes worthless. 

8.  Mr Deng submits that the estate, as represented by the Defendant, should be left to take its own course.  There is very good reason to say that the Defendant’s sons are more than able to pay the amount of the claim into court and the appeal could then proceed.

9.  In this regard, Miss So has submitted that I adopted the wrong approach in my ruling of 10 September which had proceeded on the basis that the Defendant had not demonstrated that she could not raise the amount claimed from the other beneficiaries, her sons, who it would appear are funding this litigation on her behalf.  They have been notably silent.  It would have been simple for them to file evidence of their means if they wished to say that, like their mother, they could not afford to make the payment into court.

10.  It strikes me that there is much manoeuvring going on in the background so far as they are concerned.

11.  I have not lost sight of Miss So’s submissions about the correctness of my judgment in refusing to give unconditional leave to defend but it seems to me that nothing that she has said on the merits of that decision causes me to say that the appeal is so strong as to require me to grant a stay for that reason alone.

12.  Ultimately, what has caused me to pause is whether there is such a risk of the estate being bankrupted if I do not order a stay, when compared to the prejudice imposed on the Plaintiff by the grant of a stay of execution.  I have decided that where the Defendant has fallen so well short of showing that she, representing as she does the estate which includes the beneficiaries for these purposes, cannot raise the amount of the claim to pay into court, that she and the beneficiaries should be left to take their own course as to whether they wish to pay-in, which will lift the threat of bankruptcy or, to go down with the ship as it were, by not paying-in.  This is entirely in their hands.  Had I considered that, on the evidence as it was presented to me in September, there was any prospect of the Defendant not being able to raise the amount, I would have given her relief at the time.  Nothing has happened since which causes me to doubt that.  The Defendant and the estate must now decide for themselves how to proceed.  I do not propose granting a stay until the appeal is heard.

13.  Nevertheless, what I am willing to do is to grant a temporary stay for 21 days to enable the Defendant to do two things. Firstly, to file her notice of appeal which she undertakes to do by noon on Friday (12 November 2010) and secondly, this is the real purpose for the temporary stay, to get in front of a single justice of appeal to apply for a stay until the disposal of her appeal if that is what she is minded to do.

14.  As to costs, it has been agreed that in the event of my refusing the application, costs will be to the Plaintiff which is the order that I make.

Discussion

15.  Assessed costs of $35,000 agreed.

Earl Deng, instructed by Messrs Philip Chan & Co. for the Plaintiff

Rita So, instructed by Messrs Tony Au & Partners for the Defendant

HCA 1794/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1794 OF 2009

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J U D G M E N T

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Introduction

1.  These are Order 14 proceedings.

2.  On 26 February this year, Master Levy gave the defendant conditional leave to defend the action upon her bringing into court the whole amount of the plaintiff’s claim, which is $1,657,437.40.  The defendant appealed against that order, contending that she should have unconditional leave to defend.  I heard the appeal, which I dismissed. 

3.  In my judgment of 15 June I upheld the Master’s order and directed that the full amount of the claim should be paid into court within 42 days of my judgment. At paragraph 28 I said that I had no evidence that the defendant could not afford to pay this amount in order to comply with the condition to defend the action, leaving it to her to make an application within 42 days to show cause why she could not.

4.  This she has now done, contending that she has no means to comply with the condition which should therefore be removed.

5.  I must now examine the evidence that has been filed in support of this application to decide whether I need to reduce the amount that I ordered to be paid or to do away with it altogether.

The Law

6.  It is helpful to begin by examining the legal principles which govern these situations before I consider the evidence which I need to have regard to.

7.  Quite rightly, Miss So, who makes the application on the defendant’s behalf, begins by referring to the case of  Yorke Motors (a firm) v Edwards [1982] 1 WLR 444, which identifies how the court should approach such matters and the burden that a defendant who has been made the subject of an order requiring him to pay an amount into court needs to discharge in lifting or at least ameliorating the conditions imposed on him.  Save for one additional aspect which I will refer to in a moment, the headnote to the report provides a sufficient summary. 

“It would be a wrongful exercise of discretion to order, as a condition of granting leave to defend an application for summary judgment under Rules of the Supreme Court Order 14, the payment of a sum which the defendant would never be able to pay, since that would be tantamount to giving judgment for the plaintiff notwithstanding the court’s opinion that there is an issue or dispute which ought to be tried, and that is so even though the court might consider the defence ‘shadowy’ or doubt the defendant’s bona fides. The defendant cannot complain because a financial condition is difficult for him to fulfil; he can complain only when a financial condition is imposed which it is impossible for him to fulfil and that impossibility was known or should have been known to the court by reason of the evidence placed before it. Where the defendant seeks to avoid or limit a financial condition by reason of his own impecuniosity, the onus is on him to put sufficient and proper evidence before the court, and in so doing he should make full and frank disclosure.”

9.  In addition to these considerations, it is also important to refer to what Lord Diplock said, which is that the fact that a man has no capital of his own does not mean that he cannot raise any capital.  He may have friends, he may have business associates, he may have relatives, all of whom can help in his hour of need.

10.  The case which has been advanced by the defendant is that she is a widow of limited means and that in such circumstances she is in no position to meet this obligation.

11.  With respect to her, I do not consider that this is a complete representation of her situation, nor is it an answer to what would be expected of a defendant in her position.  The fact is that she stands as administrator of her late husband’s estate, he having become indebted to the plaintiff, and that estate is not without means, which is a matter which I will return to presently.

12.  The law is that an administrator cannot only rely on his or her personal position when considering whether qua administrator he or she is able to meet an order for the payment of money into court.

13.  It is in this regard the issue of obtaining outside assistance and/or using some of the assets of the estate become relevant.  In relation to the obtaining of outside assistance, the Court of Appeal in Kwong Key Construction & Engineering Limited v Sunlink Limited [2003] 3 HKLRD K9 held that a defendant facing an Order 14 summons must satisfy the court that it is not only impossible to meet the conditions, but that its associates, directors or interested parties are unable to assist.  This before unconditional leave could be given.  This echoes what Lord Diplock had said in Yorke Motors v Edwards Supra. 

14.  In the case of Kwong Key Construction, no evidence had been adduced to deal with the issue of whether or not the defendant was able to obtain outside finance, either from its own directors or associates.  Additionally, the court held that a bald statement by a director that she had no money to hand was insufficient.

15.  An analogous situation is to be found concerning appeals where it is said security should be given as a condition for leave to appeal being given.

16.  In the case of Keary Developments v Tarmac Construction [1995] 3 All ER 534, Gibson LJ cited with approval the remarks of the late Bingham LJ, as he then was, in Kloeckner & Co., AG v Gatorial Overseas Incorporated [1990] CA Transcript 250, which is unreported:. 

“In my judgment, the approach to be adopted in cases where, as here, there are good arguable grounds of appeal ... but the appellant contents that the award of security will stifle the appeal, should be the same as the approach adopted in Yorke. The approach, in my view, should be that the onus is on the appellant to satisfy the Court of Appeal that the award of security for costs would prevent the appeal from being pursued, and that it is not sufficient for an appellant to show that he does not have the assets in his own personal resources. As in the Yorke Motors case, the appellate must in my view, show not only that he does not have the money himself, but that he is unable to raise the money from anywhere else.”

17.  On the facts of Keary at page 534H, Gibson LJ said:

“There is no evidence of the directors’ who were the two sons of the senior Keary, there was no evidence of their means, apart from the fact that they were the owners of a house which was being let to the plaintiff at an annual rate of £36,000 a year, that house being mortgaged to a bank for £200,000. There were no accounts of the plaintiff later than the accounts for the period ended 31 May 1991, the directors of the plaintiff being in flagrant breach of their statutory duties in this regard. There is no evidence of who is financing the current litigation, nor how it is being financed.”

18.  These authorities related to the position of companies.  Mr Earl Deng, for the plaintiff, says that the position of a deceased’s estate is no different.  In the case of a company, it must furnish proof of the financial standing of its directors, shareholdings and associated companies in discharging its burden of showing the impossibility of meeting the condition.  In the case of a deceased’s estate, rule 21 of the Non-Contentious Probate Rules, Cap.10A, provides the order of priority for the grant of letters of administration.  The grant accords a beneficiary a fiduciary position in relation to the estate, such as that imposed on a director or a shareholder towards a limited company.

19.  As a company needs to disclose assets of its directors and shareholders or other interested persons who fund litigation involving the company, Mr Deng submits that an identical position is held by an administrator.  The court must be satisfied not only that the estate is impecunious, but at least that all the immediate beneficiaries, including in this case the administrator and the deceased’s issue are impecunious and therefore unable to assist, and so, submits Mr Deng, the administrator who acts on behalf of the estate must prove not only that the estate is impecunious or that its assets are tied up, but also that the beneficiaries, including herself, are unable to contribute.

20.  In my judgment, Mr Deng’s analysis is the correct one and it now becomes necessary to address the evidence to see if that impossibility has been made out.

The Evidence

21.  Mr Deng has referred to a number of areas which the defendant should have disclosed in discharging the onus on her.  Firstly, what has happened to the assets of the deceased’s business which was still trading weeks before his death? 

22.  Mr Deng comments that it would be unlikely that a business which started in 1960 would have disappeared overnight.  He has drawn attention to assets such as stock; capital items, such as machinery; furniture and raw materials and accounts receivable.  He wonders whether any of these assets were transferred to Tung Sun Industrial Company Limited set up by the deceased’s son Kenneth. Also, there has been no explanation put forward as to the business of this new company which bears the same trade name as the deceased’s company.

23.  Then there is the question of the ability of the defendant’s two sons, Kenneth and Wallace, who are successful businessmen in their own right, who were owners of the workshop adjoining their late father’s at the 10th Floor, Million Fortune Industrial Centre. 

24.  It seems to me that it is quite insufficient for the defendant to point to the modesty of her own financial position and not to have dealt with these points in her affirmation in support of the application.

25.  Related to her own limited resources, there has been no mention by her of who is funding the litigation on her behalf.  Presumably she lacks the means to do so herself.

26.  Finally, there is the value of the estate itself, the estate-owned properties that were once valued at $19.2 million.  Now these have become charged to the extent of $14 million and the interest on this debt is $100,000 a month.  There is no doubt that these arrangements have been put in place by her sons rather than by her.  Nobody has done anything to rearrange matters so as to preserve the value of the estate. 

27.  The injunction which is in place only attaches to preserve property to the extent of the plaintiff’s claim of $1.657 million.  There is no doubt that the properties have been manipulated, with sales at undervalues of some of the properties to companies held by members of the deceased’s family.  The injunction was obtained to at least preserve an amount equal to the claim.

Conclusion

28.  Far from demonstrating that it is impossible to meet the conditions, it is clear from an examination of the evidence that the condition can easily be met just from the sale of some of the properties themselves, which the plaintiff is willing to co-operate in in relation to varying the injunction for that to happen; this, quite apart from the absence of evidence as to outside assistance from her sons, which the defendant would in circumstances such as these, be expected to turn to. 

29.  Miss So has focused her application to remove the condition, much too narrowly, on the defendant herself.

30.  For all of the reasons which I have referred to, the defendant has failed to discharge the burden on her. 

31.  The application will therefore be dismissed with costs.

32.  In order to accommodate the defendant to arrange her affairs in relation to the payment in of the total amount of the claim, I will give her a further 14 days from today, which when one considers all the time that has been available since Master Levy made the original order in February, ought to be sufficient.

HCA 1794/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1794 OF 2009

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J U D G M E N T

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Introduction

1.  These are Order 14 proceedings in which on 26 February this year Master Levy gave the Defendant conditional leave to defend.  She directed that the Defendant should bring into court the whole of the amount claimed by the Plaintiff which is $1,657,437.40.  This is an appeal from that order.

2.  The Plaintiff is a licensed moneylender and the Defendant is the widow of Mr Chung Tung Yuen (“the deceased”) and the administratrix of his estate.  He had issued four cheques to the Plaintiff between 4 March and 28 April 2009, totalling the amount of the claim that I referred to in the previous paragraph, all of which have been dishonoured.  The Plaintiff is suing on these cheques.

3.  The Defendant is defending the action and the Order 14 summons on two bases.  Firstly, that the amount represented by the cheques have being paid and therefore that no debt exists and, more vigorously, because of alleged breaches by the Plaintiff of the Moneylenders Ordinance (“the Ordinance”) which are said to render the debt unenforceable.  It is submitted on her behalf that the Order 14 summons should be dismissed alternatively, that she should be given unconditional leave to defend. 

History of Dealings Between the Deceased and the Plaintiff

4.  The deceased owned a business trading in hand bags and babies clothing.  He was a native, as was the Plaintiff, of the Chiu Chow-speaking region of the Mainland.  The Plaintiff in the conduct of his moneylending business would frequently lend money to fellow Chiu Chow-speakers.  Since about 2004 and until his death in 2009, the deceased was a frequent borrower from the Plaintiff.  The Plaintiff says that the loans made to the deceased were “friendly” in the sense that they were not part of his moneylending business and the monthly rate of 2.5% (or 30% per annum) was less than the commercial rate that he would charge his usual customers in the operation of his moneylending business which is registered as the Yat Cheong Private Loans Company which he has been running since 1985.

5.  The evidence is that, in the course of borrowing from the Plaintiff, the deceased or his company the Tung Sun Industrial Company had borrowed a total of $28,731,018.90 represented by 68 cheques.  The deceased or his company had repaid, over the years that these loans were made $29,945,245.30 represented by 127 cheques which were drawn either by the deceased or his company.  The difference of $1,214,226.40 would have been the interest paid on the various loans.  At pages 183-187 of the hearing bundle is a list exhibited to Mr Wallace Chung’s affirmation of 12 February 2010, he being the deceased’s son, which appears to be a complete list of cheques received from the Plaintiff and cheques paid by the deceased or by his company to the Plaintiff.  It is from this list that the two amounts in excess of $28 and $29 million respectively is obtained.

6.  The Plaintiff in his 5th affirmation has said that in 2004 the deceased, with whom he had been friendly since the previous year, asked him if he would be prepared to lend him money.  He said that it was not for him but for his customers who wanted to borrow money.  He said although the money was not for him he would be personally responsible to the Plaintiff to ensure that it was repaid.  In view of their friendship and because he considered the deceased well-off, he owned expensive cars, his home was substantial and in a good area and he had provided expensive wedding receptions for his three sons’ at the Intercontinental Hotel, he was prepared to lend him all the money that he did.  He was confident that it would be repaid.

7.  The deceased had asked him to let him have a discounted interest rate because they were friends.  The Plaintiff says that he usually charged between 3% and 3.5% per month when extending loans through his moneylending business.  In that business he could not be seen to treat customers differently.  And so, in the deceased’s situation he went outside his moneylending business.  What he did was to ask his own friends whether they would be prepared to lend to the deceased.  They were, and so he would collect their contributions to the loans and write out the cheques that one sees in the long list recording their respective transactions.  Because of friendship and the fact that these loans were outside his ordinary moneylending business he felt able to charge less interest which, in the deceased’s case, was 2.5% per month.  The fact that these were transactions which were not part of his business explains why he did not record the loans in a written memorandum as required by the Ordinance which he would have done in the usual course of his business.

8.  At paragraphs 15 to 20 of his 5th affirmation dated 24 February 2010 [pages 81-82], the Plaintiff relates the system that the two men used.  He would write out a cheque to the deceased who would give the Plaintiff a post-dated cheque.  By using cheques it was easy to keep track of payments between them.  He gives an example at para.16 [page 81] in relation to the first loan of $500,000 which was for three months.  The deceased gave the Plaintiff a cheque for $37,500 for the interest over this three-month period and then repaid the principal when it was due.  This represented the pattern of lending and repayment and if the deceased was not able to repay principal on the due date, he would renew the loan by paying a cheque for the interest for the new period of the loan.  The Plaintiff says, and this is plain from the long list of loans and repayments, that they were able to operate successfully in this way for five years without any mishap until the final four cheques which were dishonoured.  These cheques related to a time when the deceased was not well and latterly had been in hospital prior to his death.

9.  The Plaintiff’s case is that this is an unanswerable claim.  The deceased’s sons, principally Wallace, who seems to have conduct of this on behalf of the family, is seeking to take advantage of his father’s death to try and get out of what is owed by taking these specious points on the Moneylenders Ordinance.  The simple fact of the matter is that there exists in the list a full record of the payments and repayments between the two men.  Over the course of five years, the deceased had been pleased to have these considerable amounts of money, over $28 million lent to him (or perhaps for his friends) which he was able to repay together with the agreed rate of interest at 2.5%.  This claim is perfectly straightforward.  The cheques were issued, presented and have not been met.  There is no defence to the claim.

The Defences

10.  The Defendant having adopted this stance, the court is obliged to consider the points taken at face value.  It seems to me that the first issue raised which is that the amounts represented by the cheques have been paid and therefore that no debt is owing simply cannot stand up to any sensible scrutiny.

11.  The arithmetic has been done by Mr Deng, who appears for the Plaintiff on this appeal, by taking the list [pages 183-187 supra] and analysing the four loans which are represented by the four cheques and which are the subject matter of the claim.  This he has done by superimposing on the list coloured in orange the four loans, in issue, advanced to the deceased.  In yellow, he has marked the repayment of interest in respect of the first loan of $521,863.40, the second of $423,628 and the third of $500,000.  The evidential foundation for this is related by the Plaintiff in his third affirmation dated 28 December 2009.  It is helpful to set out his evidence in full as it relates to this [see paras 6-12, pages 39-42]:

“6.  On maturity of the repayment date of a particular loan, the deceased agreed to repay the principal sum of the loan in full.  Yet, the Deceased could seldom repay the loan in full on maturity.  In such circumstances, I would accept the Deceased’s request to extend the repayment date for a further period of about 1 to 3 months in consideration of his payment of interest on principal at 2.5% per month.  Therefore, the Deceased or his staff used to bring along 2 cheques to my office on maturity date of the loan to extend the repayment date further.  One cheque was dated at the maturity date for the amount of interest from the date after maturity until the extended date for repayment.  I would deposit this cheque to my bank account on the same date. Another cheque was a post dated cheque for payment of the principal amount of loan and post dated to the extended date for repayment of the loan.

7.    Therefore, the various cheque payments from the Deceased to me as set out in the said Affirmation of Chow So Ngor represent repayment of interest only whereby I agreed to extend repayment date of the principal of the loan in consideration of payment of further interest from the Deceased.

8.  As the 56 cheques paid to me by the Deceased as set out in the said Affirmation of Chow So Ngor only represent the interest of various loans, I set out hereunder the corresponding principal amount of loan with agreed repayment terms to show that the 56 cheques from Deceased only represent interest paid by the Deceased in order to extend the repayment date of the principal of the loans.

Agreed repayment terms of the loans

Item	Principal	Agreed duration of loan	Agree Interest at 2.5% per month to extend the repayment date	Agreed extended date for payment	Date of payment by the Deceased as shown in the said Affirmation of Chow So Ngor
1	$513,684.50	63 days	$26,968.40	8/11/2006	6/ 9/2006
		63	26,968.40	10/1/2007	8/11/2006
		57	24,400.00	8/ 3/2007	10/1/2007
2	$403,829.50	60	20,191.50	21/11/2006	22/9/2006
		63	21,201.00	23/1/2007	21/11/2006
		58	19,518.40	23/3/2007	23/1/2007
		61	20,528.00	22/5/2007	30/3/2007
		60	20,191.50	20/7/2007	22/5/2007
		62	20,864.50	20/9/2007	20/7/2007
		61	20,528.00	20/11/2007	20/9/2007
		63	21,201.00	21/1/2008	20/11/2007
		63	21,201.00	25/3/2008	22/1/2008
		45	15,143.60	8/ 5/2008	25/3/2008
		61	20,528.00	8/ 7/2008	8/ 5/2008
3	$521,863.40	56	24,353.60	21/12/2006	26/10/2006
		82	35,660.70	13/3/2007	21/12/2006
		30	13,046.60	12/4/2007	13/3/2007
		61	26,528.10	12/6/2007	12/4/2007
		58	25,223.40	9/ 8/2007	14/6/2007
		60	26,093.20	8/10/2007	9/ 8/2007
		64	27,832.70	11/12/2007	8/10/2007
		76	33,051.30	26/2/2008	11/12/2007
		63	27,397.80	29/4/2008	26/2/2008
		59	25,658.30	27/6/2008	29/4/2008
		60	26,093.20	26/8/2008	23/6/2008
		63	27,397.80	28/10/2008	26/8/2008
		62	26.962.90	29/12/2008	28/10/2008
		64	27,832.70	4/ 3/2009	29/12/2008
4	$43,825.50	63	22,933.30	7/ 2/2007	7/12/2006
		30	10,920.60	9/ 3/2007	7/ 2/2007
		60	21,841.30	8/ 5/2007	9/ 3/2007
		57	21,113.20	5/ 7/2007	8/ 5/2007
		61	22,205.30	5/ 9/2007	4/ 7/2007
		62	22,569.30	6/11/2007	5/ 9/2007
		60	21,966.30	4/ 1/2008	6/11/2007
		60	21,841.30	4/ 3/2008	4/ 1/2008
		35	12,740.70	8/ 4/2007	4/ 3/2008
		64	23,297.40	11/6/2008	8/ 4/2008
		62	22,569.30	12/8/2008	1/ 6/2008
		63	22,933.30	14/10/2008	12/8/2008
		63	22,933.30	16/12/2008	14/10/2008
5	$386,538.70	62	19,971.20	29/5/2007	28/3/2007
6	$305,864.30	57	15,548.10	28/8/2007	28/6/2007
		59	15,038.30	26/10/2007	28/8/2007
		62	15,803.00	27/12/2007	26/10/2007
		60	15,293.20	25/2/2008	22/12/2007
		30	7,646.60	26/3/2008	25/2/2008
		57	14,528.60	22/5/2008	26/3/2008
		61	15,548.10	22/7/2008	22/5/2008
		63	16,057.90	23/9/2008	22/7/2008
7	$423,628.00	61	21,534.40	17/9/2008	17/7/2008
		62	21,887.50	18/11/2008	17/9/2008
		63	22,240.50	20/1/2008	18/11/2008
		63	22,240.50	24/3/2008	20/1/2009
8	$500,000.00	61	25,416.70	28/4/2009	26/2/2009

9.    from the above table, it appears I have lent 8 several sums of loan to the Deceased.  Yet, the above items 1, 2, 4, 5 and 6 have been repaid by the Deceased before his death and replaced by items 3, 7 and 8 which are 3 out of the 4 dishonoured cheques claimed in this action.  It is misconceived for the Defendant to allege that part of the loans have been repaid.  In fact, only the agreed interest to extend the repayment date of the principal of the loans have been paid.

10.a) From the above table, it appears the payment dates and the amount of payment by the Deceased as shown in the said Affirmation of Chow So Ngor coincide with the mutually agreed repayment date and the amount of interest to extend the repayment date of the loans.  The following example is an illustration.

b) Item 1 of the above table shows that the Deceased had borrowed $513,684.50 from me.  The due date for repayment is 6/9/2006.  However, the Deceased could not repay the loan in full on 6/9/2006.  Then, I and the Deceased had agreed to extend the repayment date for 63 days i.e. 8/11/2006 in consideration of his payment of interest forthwith at 2.5% per month for 63 days i.e. $26,968.40.  Therefore, the said Affirmation of Chow So Ngor shows a record of payment to me by cheque for the aforesaid sum of $26,968.40 on 6/9/2006.  On maturity i.e. 8/11/2006, the Deceased still cold not repay the loan in full to me.  Then, I and the Deceased had agreed to extend the repayment date for another 63 days i.e. 10/1/2007 in consideration of his payment of interest forthwith a 2.5% per month for another 63 days i.e. $26,968.40.  Therefore, the said Affirmation of Chow So Ngor shows another payment to me by cheque for $26,968.40 on 8/11/2006.

c) The remaining records of cheques paid to me as set out in the said Affirmation of Chow So Ngor were made to me in similar circumstances as above in order to extend the repayment date of the loans.

d) Although, there is no loan agreement between me and the Deceased, the above particulars of payment support my contentions that the Deceased had borrowed money from me and the principal sum and interest remain unpaid.

11.  From my own records and documents, I cannot find any evidence of payment of the cheque for $6,250.00 from the Deceased on 28^th October 2008 as alleged by the Defendant in the said Affirmation of Chow So Ngor.  Therefore, I believe the cheque for the said sum was not paid to me.

12.  In such circumstances, I verily believe that there is no defence to this action.”

What all this amounts to, as the coloured-in list annexed to Mr Deng’s submission shows, is that there remains outstanding these four cheques totalling $1,657,491.40.  This represents a simple arithmetical fact which the Defendant cannot dispute and so had this been the only issue raised by the Defendant, the Plaintiff would have been entitled to his summary judgment.

12.  However, there is a second broad limb to the defence which relates to defences available under the Moneylenders Ordinance.

13.  It is true to say that it was not until his 5th affirmation that the Defendant revealed that he was a registered moneylender.  It is a fact that the deceased was perfectly content to deal with the Plaintiff for five years on the basis which has been described by the Plaintiff in paras.39-42 supra of his 3rd affirmation without troubling over the statutory safeguards contained in the Ordinance.  Now that he has died the Deceased’s estate is crying foul and refuses to pay hoping to be vindicated by the court.  The various points having been taken, these will need to be considered and dealt with on their merits.

14.  By virtue of section 18 Moneylenders Ordinance, the following formalities are required to have been complied with in respect of transactions to which the Ordinance relates:

“18.  Form of agreement

(1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless—

(a)within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrow, and a copy of such note or memorandum is given to the borrower at the time of signing; and

(b)there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.

(2) The note of memorandum shall contain all the terms of the agreement and in particular shall set out—

(a) the name and address of the money lender;

(b) the name and address of the borrower;

(c) the name and address of the surety, if any;

(d) the amount of the principal of the loan in words and figures;

(e) the date of the making of the agreement;

(f)  the date of the making of the loan;

(g) the terms of repayment of the loan;

(h) the form of security for the loan, if any;

(i)   the rate of interest charged on the loan expressed as a rate percent annum, or the rate percent per annum represented by the interest charged as calculated in accordance with Schedule 2; and (amended 69 of 1988 s.15)

(j)    a declaration as to the place of negotiation and completion of the agreement for the loan.”

The Plaintiff accepts that these formalities have not been complied with in respect of any of the loans that were made to the deceased and most particularly including these four cheques.  Two issues arise on this.  Firstly, the fundamental one that although a registered moneylender, these transactions were not part of the Plaintiff’s moneylending business and secondly, the question of the court’s discretion to enforce a loan notwithstanding non-compliance with sub-sections (1) and (2) of section 18.

15.  The discretion to overlook non-compliance with these sub-sections is set out in sub-section 3 of section 18 which says this:

“(3) Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may order that such agreement to security is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable. (Amended 69 of 1988 s.15).”

16.  It is convenient to first consider the question of whether these loans fell outside the Plaintiff’s moneylending business.  In this regard, it is important to apply Order 14 principles.  The burden rests on the Defendant to raise a triable issue once the Plaintiff has established the basis of his case.  In this matter the Plaintiff, suing as he does on these four cheques, it being trite law that a cheque is as good as cash, plainly has established his case.  The matter therefore falls to be determined on the basis of whether the Defendant can show that there are triable issues.  It is sufficient for this purpose to refer to the case of Man Earn Ltd v Wing Tong Fong [1996] 1 HKC 225 which explains how this comes about in practice.

17.  In deciding whether these numerous transactions represented by so many cheques over a period of five years in which a total (going both ways) of over $56 million changed hands at, on the Plaintiff’s case, annual interest of 30% [2.5% per month] fell outside his moneylending business, the Plaintiff is always going to be very hard pressed indeed to show that these transactions fell outside that business and were distinct “friendly” loans.  There is no doubt that on the authorities, it is possible for a registered moneylender to lend money to friends and relatives outside his core business.  Whether this is so depends on the evidence in each case and with such matters will always be a question of fact and degree.  In this case, at the very least, it is highly arguable that this was the Plaintiff lending on a commercial basis as part of his business.  Whilst, I appreciate that there are points that can be made going the other way, a definitive resolution of this issue would need the matter to go to trial.  And so, on this aspect the Defendant has shown a triable issue.

18.  The next more contentious issue is the question of whether at this stage, it is open to the court to exercise its discretion, under section 18(3), in Order 14 proceedings in circumstances where the Plaintiff accepts that there never has been compliance with section 18(1) and (2).  Indeed, the Plaintiff has sought to rely on this fact as demonstrating the “friendly” nature of the two men’s dealings based on friendship and trust.

19.  I am satisfied on the authorities to which I have been referred that a court can, even on a paper proceeding such as this, exercise its discretion to excuse non-compliance.  There is no need per se to defer such a decision to a trial at which the witnesses could be cross-examined.  This is plain from a consideration of the cases of Emperor Ltd v La Belle Fashions Ltd [2003] 6 HKCFAR 402, Strong Offer Investment Ltd (in Liquidation) v Nyeu Ting Chuang [2007] 3 HKC 234 and Treasure Spot Finance Co. Ltd v Li Chik Ming & Anr (unreported HCA 5387/2001).

20.  The sub-section requires the court to look at all the circumstances.  The undoubted fact is that the Plaintiff and the deceased had been accustomed to doing business in this way for five years.  There is nothing in the record of transactions as represented by all of these cheques that would indicate that the Defendant had in any way been deceived or short-changed.  The Plaintiff’s explanation of how they proceeded, which I have recited extensively, holds together as a sensible narrative.  Short-term loans were advanced at 2.5% per month and when the deceased was not in a position to repay the principal, he merely rolled-over the loan for a further short period on payment of the requisite interest.  This is all accurately reflected in the list which I have set out above.

21.  Another feature is that the deceased was an experienced businessman in business for about 40 years.  He may have needed these loans for himself or for his friends, it matters not which it was, and presumably could not raise the money from a cheaper source such as a primary bank and therefore had to look to somebody like the Plaintiff to provide the funds at considerably higher rates of interest which he was willing to pay and which over the years he did pay.  It is submitted by Mr Deng that he knew what he was doing and obviously was content to obtain loans in this way.  As between lender and borrower, the Plaintiff and the deceased, who it would appear enjoyed a cordial relationship, I would have thought that after all these years of uneventful and perfectly orderly dealing between them that it would be (to use the words of the Ordinance) inequitable not to enforce the loans as now represented by these four cheques.  There is no evidence that in these transactions over the years, there was any pressure on the deceased to enter into the loans and he was willing and apparently able to “roll them over” by paying the appropriate amount of interest for the periods of extension of the paticular loan.

22.  In such circumstances, I would have been prepared to exercise my discretion under sub-section 3 as between the two principals in favour of enforcement of the loans and this would also have related to any irregularity contravening section 22 which prohibits compound interest being charged, as it does prohibitions on the repayment of loans by instalments and the rate or amount of interest beingincreased by reason of default in the payment of sums due under the agreement.  I can discover no irregularities of this sort here but had there been, again as between the two principals, I would have exercised my discretion to enforce the agreement to the extent appropriate having regard to any irregularity which would have required the agreement to be suitably modified and enforced accordingly [see section 22(3)].

23.  The question that now arises is whether the matter is to be viewed differently due to the fact that it is the deceased’s estate that is being sued.  Should the administratrix be given more leeway, as it were, in defending this application for summary judgment despite the fact that the court might well have entered judgment against the deceased had he been personally sued during his lifetime.  Before I attempt to answer this, it is as well that I should refer to one other matter that is relied on by Mr Kenneth Chan, who appears for the Defendant.

24.  The evidence of Mr Wallace Chung is that in 2005 at his father’s office, he had been introduced to the Plaintiff by his father [pages 70-73].  Shortly after that meeting, he discovered a business card in the Plaintiff’s name with a company name “Yat Cheong Finance Company”.  Since this has all come to a head, Mr Chung has done a company search and he has not been able to find any business in the Plaintiff’s name under Yat Cheong Finance Company.  His registered moneylending company, which has been so registered since 1985, is Yat Cheong Private Loans Company.  What I am asked to conclude from this, or at least hold that there must be a triable issue meriting further investigation and explanation at the trial, is that the Plaintiff was conducting, at least in 2005, an unregistered, unlicensed and therefore illegal moneylending business which if proved would make any loans through it illegal and, of course, irredeemably unenforceable.  And so, this evidence as well is placed before the court as an obstacle in the Plaintiff’s way which should prevent him obtaining summary judgment.

The Defendant’s Arguments

25.  Mr Chan has submitted that the points that I have referred to taken either individually or in combination are sufficient to require the Plaintiff to be taken to trial and without the imposition of any conditions.  He submits that this is the sort of case, given the Defendant’s position as administratrix of the deceased’s estate, in which there are at worst some other reasons for trial as prescribed under O.14 rr.3 and 4 and to that extent therefore an administratrix is perhaps at an advantage over a living principal debtor to a series of transactions such as these.  For this, Mr Chan has relied on Miles v Bull [1969] 1 QB 258, a decision of Megarry J (as he then was).  This was of course a case decided on its own facts.  These are sufficiently recited in the headnote to the report as follows:

“The defendant and her husband separated, and the husband thereafter sold the matrimonial home, in which the defendant was still living, to the plaintiff.  The sale was for the sum of£10,000, completion taking place on the day on which the contract was made.  The plaintiff subsequently brought an action against the defendant for possession of the property, and sought summary judgment under Order 14.  The Master gave the defendant unconditional leave to defend the action.  On appeal by the plaintiff, the defendant sought to contend by way of defence to the action that the sale to the plaintiff had been a sham with the object of depriving her of her right, as against the husband, to occupy the property:-

Held, dismissing the appeal, that, on the evidence before the court, the defendant had failed to establish that she had an arguable defence to the plaintiff’s claim; but that, since the transaction was one which, in the interests of justice, ought to be carefully scrutinised, especially as the relevant facts were within the control of the plaintiff, there ‘ought for some other reason to be a trial’ within the new wording of R.S.C., Ord. 14, and the defendant had rightly been given leave to defend the action.”

Having considered the facts of the case, Megarry J decided that the Defendant’s wife had no arguable defence to the claim but that this was a transaction that ought to be scrutinised with some care because, on those facts, it bore the appearance of a device to evict the Defendant.  He then went on to consider the effect of the then new rules 3 and 4 of Order 14.  Under rule 3(1), if a defendant satisfies the court “that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial” then it would be inappropriate to enter summary judgment.  Megarry J. then discussed the significance of these words which bear repetition here:

“These last words seem to me to be very wide.  They also seem to me to have special significance where, as here, most or all of the relevant facts are under the control of the plaintiff, and the defendant would have to seek to elicit by discovery, interrogatories and cross-examination those which will aid her.  If the defendant cannot point to a specific issue which ought to be tried but nevertheless satisfies the court that there are circumstances that ought to be investigated, then I think that those concluding words are invoked.  There are cases when the plaintiff ought to be put to strict proof of his claim, and exposed to the full investigation possible at a trial; and in such cases it would, in my judgment, be wrong to enter summary judgment for the plaintiff.  In the present case the plaintiff’s evidence initially consisted of a single affidavit in which brevity could scarcely be carried further.  He has now amplified this by further evidence, but this is certainly not exhaustive or conclusive.  The words ‘there ought for some other reason to be a trial’ seem to me to give the court adequate powers to confine Order 14 to being a good servant and prevent it from being a bad master.  If I may adapt the language of Lord Parker of Waddington in Daimler Company Ltd. v. Continental Tyre & Rubber Co. (Great Britain) Ltd., referred to in the notes to Order 14 in the Supreme Court Practice, 1967, p.122, if the circumstances of the case are ‘such as to require close investigation,’ this will ‘preclude the propriety of giving leave to sign judgment under Order 14, r.1.” [Pages 265G to 266D]

In that case, the Master had given the wife unconditional leave to defend and Megarry J upheld his decision.  Here also, Mr Chan submits, I should also give this defendant the same accommodation.

26.  What Mr Chan is saying is that in the absence of the deceased, it is only the Plaintiff who can provide first-hand evidence of their relationship in respect of these loans.  He should be obliged to give that evidence at the trial where his account will be closely investigated and tested in cross-examination.  Before that he will be required to provide discovery of his moneylending business and he will have to fully explain the persistent breaches of section 18(1)(2) of the Ordinance and provide a full history of his dealings.  Only then, having established what the Plaintiff has said, the court can properly decide whether to enforce the loans notwithstanding the breaches of the Ordinance.  He will also need to explain his calculations as to interest, it not being accepted that these payments are at a rate as low as 2.5% per month.  He will also have to explain the name on the business card that was found by Wallace Chung in 2005 which is in the name of a company that is not a registered moneylending company.

Conclusions

27.  Certain conclusions need to be arrived at by me before I can decide how the appeal should be disposed of.  Firstly, there is an eminently arguable case for saying that all of these transactions were on a commercial, as opposed to a friendly basis and were therefore conducted under the umbrella of the moneylending business.  This being so the terms of the Ordinance must apply.  There have been serial breaches of section 18(1)(2).  As to this issue, the balance of the evidence must favour a defendant in her particular position.  That means the Plaintiff needs to persuade the court to exercise its discretion to overlook breaches of section 18 and (if any) section 22 and enforce the debt as appropriate to the breaches that will need to be forgiven.  The history of the relationship between the deceased and the Plaintiff would suggest that if this were an action between the two of them I would have been disposed to have exercised my discretion in the Plaintiff’s favour.  However, this is not an action between these two.  In this case, the position of the administratrix needs to be given added consideration, rather in the way that Megarry J considered appropriate in his judgment in Miles v Bull supra.  I have already held that as a matter of arithmetic I am satisfied that the claim is a correct one which only leaves over the issues covered by the Ordinance.

28.  I have decided therefore that the issues that I have discussed in the previous paragraph require the scrutiny that only a trial can provide.  I say this notwithstanding that there is a distinct element in this application that those advising the administratirix have been busy scrambling about looking for ways of getting out of honouring these four cheques.  In the event, they have got there for the reasons that I have given, albeit standing on shaky ground.  I do not think that this is a case for unconditional leave to defend.  I agree with the Master that the Defendant will have to bring into court the whole of the claim within 42 days of the date of this judgment.  I have not been provided with any firm evidence why she cannot do so.  If she is able to show cause why she cannot pay any or all of this amount into court, she must apply to me and provide detailed and compelling evidence why she cannot comply with this condition.

29.  The appeal therefore must stand dismissed as will the appeal against the refusal to stay execution of the order in this case because I have provided a further 42 days for the Defendant to comply with the requirement to pay into court during which time the Defendant will be able to apply to show cause why she cannot do so.

Costs

30.  These should follow the event to be taxed on a party and party basis if they cannot be agreed.  The costs order will be an order nisi.