CHINA SCIENCES CONSERVATIONAL POWER LTD v. CHAT TAT CHEE

HCA 870/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 870 OF 2009

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BETWEEN

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J U D G M E N T

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I. Introduction

1.  Chan sues Hon as Third Party in High Court Action 870 of 2009 and as Defendant in High Court Action 1234 of 2009.  Both Actions are related to ongoing criminal proceedings in the District Court (DCCC 661B/2006). 

2.  Hon applies to stay the Actions pending the conclusion of the criminal proceedings.  Without a stay, Hon would have to file Defences in the Actions in order to avoid a default judgment.  Hon says that, if he is made to file pleadings, he would in effect be prematurely disclosing his defence in the criminal proceedings.  That (Hon claims) would undermine his constitutional right to silence guaranteed by the Basic Law.

3.  Hon also applies to set aside the Order of Registrar Au-Yeung ordering that, unless Hon file a Defence by 14 August 2009, Chan be at liberty to enter judgment against Hon in Action 1234.

II.      Background

4.  Hon was a former director and chairman of China Sciences Conservation Power Limited (CSCPL), a listed company.  Chan was also a former director and chairman of CSCPL.

5.  Hon and Chan were arrested by the ICAC in September 2005 for alleged offences involving the misappropriation of CSCPL’s monies for their private purposes.  The misappropriations are said to have taken place in 2004 and 2005.  

6.  Chan faced 14 charges, Hon 11 charges; 7 of the charges were joint.  Other persons were also charged along with Chan and Hon.

7.  Chan pleaded guilty to some of the charges against him.  As a result, Chan’s trial was split from the criminal proceedings against Hon and the other defendants.  Chan became a witness against Hon and the other defendants.

8.  The criminal proceedings against Hon and the other defendants started in April 2008.  After several adjournments, the trial began in January 2009.  Chan testified against Hon.  The prosecution closed its case in July 2009.

9.  Hon sought 2 adjournments of the trial because he wanted to call evidence from witnesses in the Mainland.  The assistance of the Mainland authorities was sought for the taking of evidence from those witnesses in the Mainland.  Discussions took place among the parties (assisted by the Hong Kong Government) on arrangements for the taking of such evidence. Those discussions have so far not led to anything concrete.

10.  On 4 November 2009, District Court Judge Stanley Chan (the trial judge) refused to grant any further adjournment to await developments in the discussions with the Mainland authorities.  On the following day, Hon elected not to give evidence.  The proceedings were then adjourned to 16 November 2009 to enable Chow Ho Tung (one of the other defendants to the criminal proceedings) to give evidence.  Chow’s evidence was concluded on 20 November 2009.

11.  Hon applied for yet another adjournment.  Judge Chan agreed to adjourn the trial until 25 January 2010.  On the latter date, Judge Chan refused a further adjournment.  The judge was then informed that Hon’s counsel would apply for a permanent stay of the criminal proceedings.  The ground for the stay application would be that, without the evidence of the Mainland witnesses, the trial against Hon could not be a fair one. 

12.  Judge Chan directed that the hearing of the stay application commence on 31 May 2010.  That hearing has since been further adjourned to 16 August 2010.

13.  On 23 July 2010 Hon applied for the case to be mentioned before Judge Chan.  In doing so, Ho relied on evidence to the effect that certain witnesses were apparently prepared to give evidence on his behalf in the Mainland.  According to Hon, in light of this development, he might revisit his election not to give evidence.  By letter dated 8 August 2010 Judge Chan refused the application for a mention hearing. 

14.  Action 870 involves a claim by CSCPL against Chan for the return of misappropriated monies.  In support of its claim, CSCPL pleaded and relied on Chan’s guilty plea in the criminal proceedings against Chan.  On 19 January 2010 Deputy High Court Judge Burrell gave judgment in CSCPL’s favour on the strength of Chan’s admissions in the criminal proceedings.  Chan sought to appeal out of time against Judge Burrell’s judgment.  Chan’s application to appeal out of time was finally dismissed by the Court of Appeal on 29 July 2010.

15.  CSCPL essentially made 3 claims against Chan. 

16.  The first claim was for the reimbursement of $11.183 million paid by Henan Cable TV to CSCPL.  Chan was said to have diverted that sum to Sino Push, a company under his control.    

17.  The second claim was for the reimbursement of $4 million which Chan misappropriated by transferring the same from Sharpo Solutions Ltd. (a CSCPL subsidiary) to companies under Chan’s control.

18.  The third claim was for the reimbursement of $10 million which Chan misappropriated by transferring the same from Beijing Yuk Chak to Telegoal (a company controlled by a friend of Chan).

19.  In his Third Party Notice against Hon, Chan pleads that insofar as he appropriated CSCPL’s monies, Chan did so on the strength of representations by Hon.  Chan alleges that Hon (as then director and Chairman of CSCPL) represented to him that it was lawful to use CSCPL’s monies in settlement of debts alleged to be due from Hon to Chan.

20.  Hon says that the monies claimed in Action 870 are some of the very monies which he is accused in the criminal proceedings of having misappropriated.

21.  In Action 1234 Chan seeks the repayment of loans which he claims to have made to Hon between 2003 and 2005.  The loans claimed add up to some $230 million. 

22.  Hon suggests that, as far as the prosecution’s case in the criminal proceedings is concerned, the loans which are the subject of Action 1234 constitute the motive for Hon’s alleged misappropriations.  Hon is said to have been so heavily indebted to Chan that Hon was prepared to embezzle from CSCPL in order to reduce his indebtedness.

III.    Discussion

23.  I will assume that (as appears to be the case) there is a significant overlap between the subject matter of both Actions and that of the criminal proceedings against Hon.

24.  Where there is an overlap between a civil action and pending criminal proceedings, there is no general rule that the former should be stayed pending the outcome of the latter.  The Court has a discretion to stay the civil proceedings:-

“if it appeared to the court that justice - the balancing of justice between the parties - so required, having regard to the concurrent criminal proceedings, and taking into account the principle, which applies in the criminal proceedings itself, of what is sometimes referred to as the ‘right of silence’ and the reason why that right, under the law as it stands, is a right of a defendant in criminal proceedings.” [Megaw LJ in First Jefferson Ltd. v. Bhetcha [1979] 1 WLR 898, at 904 ff.].

25.  The authorities are adamant that there is:-

“no principle of law that a plaintiff in a civil action is to be debarred from pursuing that action in accordance with the normal rules for the conduct of civil actions merely because so to do would, or might, result in the defendant, if he wished to defend the action, having to disclose, by an affidavit under Order 14, or in the pleading of his defence, or by way of discovery or otherwise, what his defence is or may be, in whole or in part, with the result that he might be giving an indication of what his defence was likely to be in the contemporaneous criminal proceedings. The protection which is at present given to one facing a criminal charge - the so-called ‘right of silence’ - does not extend to give the defendant as a matter of right the same protection in contemporaneous civil proceedings.” [Megaw LJ in First Jefferson, at 904 ff.]

26.  The burden is on a defendant to show that it is “just and convenient that the plaintiff’s ordinary rights of having his claim processed and heard and decided should be interfered with”.  See Petroliam Nasional Berhad v. Tan Soon Gin [1990] 1 HKLR 4 (CA), at 8, citing First Jefferson with approval.

27.  Helpful examples (marked as Examples A, B and C in the passage below) of when a Court might grant a stay were provided by Megaw LJ in First Jefferson (at 905):-

“Of course, one factor to be taken into account and it may well be a very important factor, is whether there is a real danger of the causing of injustice in the criminal proceedings. There may be cases - no doubt there are - where that discretion should be exercised. In my view it would be wrong and undesirable to attempt to define in the abstract what are relevant factors. By way of example, a relevant factor telling in favour of a defendant might well be the fact [Example A] that the civil action, or some step in it, would be likely to obtain such publicity as might sensibly be expected to reach, and to influence, persons who would or might be jurors in criminal proceedings. It may be [Example B] that, if the criminal proceedings were likely to be heard in a very short time ... it would be fair and sensible to postpone the hearing of the civil action. It might be [Example C] that it could be shown, or inferred, that there was some real - not merely notional - danger that the disclosure of the defence in the civil action would or might, lead to a potential miscarriage of justice in the criminal proceedings, by, for example, enabling prosecution witnesses to prepare a fabrication of evidence or by leading to interference with witnesses or in some other way.”

28.  It will be noticed that Examples A and B identified above are not applicable in the present circumstances. 

29.  As to Example A, Hon’s trial is being heard by a District Court judge without a jury. 

30.  As to Example B, the progress of the trial has been beset by protracted adjournments.  It has run from April 2008 to the present without a conclusion in sight.  The trial can by no means be described as occurring over a “short” time.  If evidence is to be taken in the Mainland as Hon suggests might happen, the trial is bound to run for much longer before it reaches any end.

31.  That leaves Example C.  Here the specific situation identified by Megaw LJ is inapplicable.  The prosecution has closed its case against Hon.  There is therefore no question of evidence being “fabricated” or tailored to meet any Defences advanced by Hon in the Actions.

32.  Are there any other matters which might (adopting the language of Example C) lead to a miscarriage of justice in the criminal proceedings against Hon if a stay of the Actions is refused?  I am unable to see any.

33.  Ms Po Wing Kay (appearing for Hon) observes that Hon’s defence in the criminal trial is not yet closed and Hon may yet change his mind on whether or not to give evidence.  Ms Po asserts that, if the Actions proceed and Hon files Defences therein, “it will undermine his rights in the Criminal Proceedings”.  Ms Po’s submission is tantamount to saying that, merely because there are ongoing criminal proceedings, a defendant is entitled as of right to a stay of pending civil actions.  As noted above, there is no such general principle of law.

34.  On the contrary, it is for Hon to explain, realistically and not fancifully, why a stay of the Actions is necessary to avoid injustice.  But Hon has not even sketched out any details of alleged prejudice in his affidavit evidence.  It is not enough to state that Hon may elect to give evidence or may call witnesses (whether in Hong Kong or the Mainland) on his behalf.  That is stating nothing more than that a trial remains ongoing.

35.  In those premises, the balancing exercise which the Court has to conduct can only point towards the refusal of a stay.  The underlying claims in the Action concern events which took place some time ago in 2003, 2004 and 2005.  Civil claims need to be prosecuted with despatch.  It is not right that they should be stayed or warehoused for an indefinite period for no good reason.  On the other hand, any detriment to Hon is likely to be minimal, especially since the prosecution has closed its case.

36.  Ms Po notes that Chan has applied for a stay of bankruptcy proceedings against him pending the conclusion of the criminal trial against Hon and the other defendants.  Ms Po suggests that what is sauce for the goose, must be sauce for the gander.  Accordingly, if Chan wishes a stay of the bankruptcy proceedings against him, he must consent to the stay of the civil proceedings brought by him.

37.  The bankruptcy proceedings against Chan are not before this Court.  It is unclear what (if any) factors Chan is relying on in support of his application. Chan may be applying for a stay, for instance, insofar as he claims to have significant monies due to him from Hon.  Chan might be saying that he should not be prejudiced by a bankruptcy order unless and until he has a chance to recover those alleged debts from Hon.  It is presently unknown whether Chan’s application for a stay will succeed.  The application will apparently not come up for substantive hearing until at least 18 August 2010.

38.  But the result of Chan’s bankruptcy proceedings can have little (if any) bearing here. The Court has to decide whether to grant a stay on the facts before it and, in particular, in light of the factors adduced by Hon as potentially giving rise to some unfairness to him.  Here there is simply no cogent material before the Court upon which it can exercise its discretion to grant a stay.

IV.     Conclusion

39.  A stay of the Actions is refused.  The application to set aside Registrar Au-Yeung’s Order is dismissed.  I will now hear the parties on consequential orders, including whether the time specified in Registrar Au-Yeung’s Order should be extended.

Defendant in person in HCA 870/2009 and Plaintiff in person in HCA 1234/2009 - present

Ms Po Wing Kay and Mr Kestrel Lam, instructed by Messrs Michael Cheuk, Wong & Kee, for the Third Party in HCA 870/2009 & the Defendant in HCA 1234/2009

   HCA870/2009

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   ACTION NO. 870 OF 2009

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BETWEEN

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D E C I S I O N

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1.  By three summonses the plaintiff company (which was formerly known as Central China Enterprises Limited) applies for summary judgment pursuant to Order 14, entering judgment on admissions pursuant to Order 27 and the striking out of substantial parts of the defendant’s defence.

2.  The defendant was a former director of the plaintiff company. In September 2006, the defendant was “D1” in a criminal trial in the District Court. He was one of four defendants who faced various allegations of commercial crimes involving the plaintiff company.

3.  At the beginning of the criminal trial, he pleaded guilty to three charges (Charges 1, 6 and 10 on the charge sheet). In all, the charge sheet contained 22 charges of which 15 involved this defendant. His pleas were accepted by the prosecution. He also agreed to become “PW1” and gave evidence against the remaining defendants all of whom had pleaded not guilty. His evidence took 44 days. The evidence in the trial has now finished (subject to a defence application to adduce further evidence currently being investigated in the PRC), the verdict is pending.

4.  The defendant, as part of his guilty pleas, made detailed admissions in the form of a written summary of facts. There is no dispute that he made these admissions and the document became evidence in his case. On the basis of his pleas and admissions he was convicted on Charges 1, 6 and 10. He will be sentenced after the verdicts on the remaining defendants have been announced.

5.  The plaintiff’s claim is based entirely on his admissions, his pleas and his conviction. Since his conviction there has been no application to reverse his pleas or amend the agreed facts. Ms Diana Cheung, counsel for the defendant, has noted in this application that in some respects, albeit minor, his evidence in the District Court was at variance with the agreed facts. Ms Cheung further conceded however that such differences as there may be did not alter the fact that each ingredient of each offence was proved by the admissions and there had been no formal attempt to resile from them in any way.

6.  Thus the defendant stands convicted of the following three offences :

(1)  Dealing with property known or believed to represent proceeds of an indictable offence, contrary to sections 25(1) and (3) of the Organized and Serious Crimes Ordinance, Cap. 455.

The particulars of this offence being that :

Chan Tat Chee, between the 6^th day and the 13^th day of April 2004, in Hong Kong, knowing or having reasonable grounds to believe that property, namely the sum of $11,183,600.00 Hong Kong currency, which was equivalent to about ¥12,000,000.00 Renminbi, in whole or in part directly or indirectly represented the proceeds of an indictable offence, dealt with the said property.

(2)  Conspiracy to steal, contrary to section 9 of the Theft Ordinance, Cap. 210 and sections 159A and 159C of the Crimes Ordinance, Cap. 200.

The particulars of this offence were that :

Chan Tat Chee, Hon Ming Kong, Chow Ho Tung, Anthony and Lai Kan, also known as Lai Lai Kan, Kan and Lai Kam Tung, between the 1^st day and the 7^th day of January 2005, in Hong Kong, conspired together and with Chan Kwai Fan, Chow Suk fun and Pang King Pong, Michael to steal a chose in action, namely a debt in the amount of $4,000,000.00 Hong Kong currency owed by The Hongkong and Shanghai Banking Corporation Limited to Central China Enterprises Limited (“the Company”), later renamed China Sciences Conservational Power Limited, or the proceeds thereof, property belonging to the Company.

(3)  Theft, contrary to section 9 of the Theft Ordinance, Cap. 210.

The particulars were that :

Chan Tat Chee on or about the 28^th day of August 2004, in Hong Kong, stole a thing in action, namely a debt in the amount of $10,000,000.00 Hong Kong currency owed by The Hongkong and Shanghai Banking Corporation Limited to Central China Enterprises Limited (“the Company”), later renamed China Sciences Conservational Power Limited, property belonging to the Company.

7.  The agreed summary of facts (relating to the defendant’s criminality arising out of the three charges to which he had pleaded guilty) ran to nine pages and 46 paragraphs. I do not propose to recite the entire document herein. As already mentioned Central China Enterprises Limited was the name of the plaintiff company at the time of the offences.

8.  Stripped of the factual details the crucial admissions were that :

(a)  For Charge 1, in April 2004 the defendant, whilst chairman of the plaintiff, caused $11,183,600 out of proceeds of a sale due to be paid to the plaintiff, to be deposited in a bank account under his control with intent to use it for his own purposes.  He then did deal with the money for his own benefit by disbursing it to various parties other than the plaintiff.

(b)  For Charge 6, in January 2005, whilst an executive director of the plaintiff, with others created false documents enabling a cheque for $4 million to be drawn from the plaintiff’s bank account and transferred, via other bank accounts under the defendant’s control into his own personal account with the Wing Hang Bank.

(c)  For Charge 10, in August 2004, the defendant caused $10 million to be transferred from the plaintiff’s account ultimately to six different accounts upon the defendant’s instructions which he then used to discharge various of his personal liabilities.

9.  In each case, it was admitted that the money in question was the property of the plaintiff, in each case the money was transferred to the defendant for his own use and under his control, and in each case the plaintiff states that no money has since been repaid and neither is there any plea by the defendant that any repayments have been made or offered.

10.  The statement of claim, dated 27 March 2009, sets out the brief facts in relation to each sum, pleads its loss and damage of each sum and, relying on the above facts prays, inter alia, for the return of each sum plus interest.

11.  The pleaded Defence deals with the convictions and admissions by stating that “the admission of guilt to the alleged charge bears no or no direct relevance to the plaintiff’s claim herein”. However, it does not condescend to particulars as to the circumstances in which the defendant was knowingly culpable of the criminal offences on the one hand yet is able to defend, bona fide, the civil proceedings on the other hand.

12.  In short, the pleaded defence makes many denials or non-admissions of allegations which have been expressly admitted in the criminal proceedings. It also pleads that the defendant was acting on the instructions of, or as a result of representations made by one of his co-defendants, one Hon Ming Kong. In the light of the admissions this has no relevance in the civil proceedings.

13.  In all the circumstances, I am satisfied that the defendant’s admissions were clear and unambiguous and leave no room for any defence to the civil claim. It would be an abuse of process to permit the matter to be relitigated on any basis (whether as a result of his oral evidence in the criminal trial or the pleaded defence in the civil proceedings) which departed from the admissions and convictions. I am satisfied that by making an order in the plaintiff’s favour, no injustice will be done and time and costs will be saved.

Suitability of summary judgment under Order 14

14.  Mr Kenneth Chan, counsel for the plaintiff, recognizes a potential difficulty in seeking an Order 14 judgment.

15.  Order 14, rule 1(2)b excludes claims based on allegations of fraud.

16.  As this is plainly a fraud case Mr Chan, on the plaintiff’s behalf, informed the court that it would not pursue the Order 14 application or the strike out application if the court was satisfied that judgment under Order 27 could be made.

17.  This I propose to do. However, had I been asked to do so, I would have been favourably inclined to make an Order 14 judgment. The rationale behind excluding fraud cases from Order 14 applications is that it would be dangerous to make a final judgment on affidavits where allegations of fraud were involved.

18.  This is not such a case. This is a case of admitted fraud not disputed fraud. The RHC state “save in the clearest possible case, it is inappropriate for the court to decide in summary proceedings whether a defendant has been fraudulent or dishonest”. This court is not being asked to make such a decision, it could therefore be appropriate to enter Order 14 judgment if so requested.

Order

19.  In the circumstances, I make no order on the plaintiff’s Order 14 summons.

20.  I make an order in terms of paragraphs 1 and 4 of the plaintiff’s summons dated 26 August 2009.

21.  I make no order in respect of paragraphs 2, 3 and 5 of the same summons.

Costs and interest

22.  In view of Mr Chan’s concession on the Order 14, application Ms Cheung asked that costs be reserved pending further written submissions following this written judgment.

23.  I acceded to that request. I direct both parties to submit written submissions, limited to a maximum of three pages, on both costs and the rate and duration of interest, if not agreed, within 14 days of the handing down of this decision.