TAIBAO INVESTMENT AND MANAGEMENT (HONG KONG) CO LTD v. KARY ENTERPRISES (HOLDINGS) LTD AND ANOTHER

HCA 642/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 642 OF 2011

____________

BETWEEN
	TAIBAO INVESTMENT AND MANAGEMENT (HONG KONG) COMPANY LIMITED	Plaintiff
	and
	KARY ENTERPRISES (HOLDINGS) LIMITED (嘉勵實業(集團)有限公司)	1st Defendant
	LEUNG KAM HUNG(梁錦鴻)	2nd Defendant

____________

Before: Hon Chung J in Chambers

Date of Hearing: 28 November 2013

Date of Decision: 12 December 2013

_____________

D E C I S I O N

_____________

 

Introduction

1.  There are before me:

(a)   the plaintiff’s summon taken out on 11 June 2013 seeking leave to appeal against my order dated 28 May 2013 (with a draft notice of appeal attached) (“the May 2013 order”);

(b)   a summons taken out on 7 August 2013 by the 1^st defendant (“D1”) for (i) leave to amend its defence, and (ii) the statement of claim as against D1 to be struck out (“D1’s summons”);

(c)   a summons taken out on 26 November 2013 by the 2^nd defendant (“D2”) for the statement of claim as against D2 to be struck out (“D2’s summons”).

2.  In short, the May 2013 order allowed the defendants’ appeal against Master S Kwang’s order (where the master gave leave to amend the statement of claim).

3.  The main issues in the master’s appeal were, and the application for leave to appeal against the May 2013 order are, it being undisputed the plaintiff’s claim in debt has accrued more than 6 years before this action, whether:

(1)   the two documents (both dated 29 December 2010) (collectively “the Dec 2010 documents”) constituted written acknowledgements within the meaning of ss 23 and 24, Limitation Ordinance (Cap 347) (“sufficientacknowledgements” and its singular where appropriate);

(2)   the letter dated 24 June 2011 from D1’s solicitors, and para 23, joint defence filed herein by both defendants (collectively “the two post-writ documents”), can be used as sufficient acknowledgements for the purpose of this action;

(3)   leave to amend the statement of claim should nonetheless be given, even if the answers to sub-para (1) and (2) above are in the negative;

(4)   (in relation to sub-para (3) above) the absence of an express plea of limitation in the defence filed should result in the court’s discretion being exercised in favour of giving leave to amend.

4.  In a written decision handed down on 28 May 2013 (“the challenged decision”), the above were decided against the plaintiff, and in the defendants’ favour.  The proposed grounds of appeal set out in the draft notice of appeal (“proposed appeal grounds”) contend that I erred in so concluding.

5.  However, at the hearing, the plaintiff no longer pursued the part of the proposed appeal grounds relating to para 3(2) above in relation to D1 solicitors’ letter: para 20, plaintiff’s skeleton submissions.  But whether the part of the challenged decision relating to para 23, defence filed herein (also para 3(2) above) is unclear: para 21, plaintiff’s skeleton submissions (which appears to be a question than a statement)).  It would appear that little logical difference can be made between the two post-writ documents (both referred to in para 3(2) above).

6.  The plaintiff nonetheless appears to contend that (when deciding whether the Dec 2010 documents are sufficient acknowledgements) the two post-writ documents can be used as “connected” documents, as that phrase was used in New World Development Co Ltd and Others v Sun Hung Kai Securities Ltd and Another (2006) 9 HKCFAR 403 (the New World case was relied on at the earlier hearings, and referred to at para 12, the challenged decision): para 10 to 16, plaintiff’s skeleton submissions.

7.  In short, I find none of the proposed appeal grounds to have any reasonable prospect of success.

8.  Whatever “connected” documents and/or parties’ conduct are said to be relevant (para 12(2) and (3), 13 to 14, 15.1 and 16.2 to 16.3 plaintiff’s skeleton submissions), the ultimate issue remains this: whether the document(s) relied on as a written acknowledgement can in fact constitute a sufficient acknowledgement.  This is a question of construction: the New World case, para 91 (as the plaintiff so accepts: para 10.1(1), plaintiff’s skeleton submissions).

9.  As has been famously observed in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at 912H-913F (and in effect reiterated in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, at 296D-I):

“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”;

“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean … ” (emphasis supplied).

A similar summary has also been given in BCCI v Ali [2002] 1 AC 251:

“To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties … ” (emphasis supplied) (para 8 thereof, quoted in Marble Holding Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222).

10.  Thus, irrespective of whatever “extraneous” matters one can properly take into account, following the guidance given in the above authorities, the only crucial subject-matter for construction is the document(s) to be construed itself/themselves.  In the present context, they are the Dec 2010 documents: para 3(1) above.

11.  A summary has already been given in the challenged decision as to what the Dec 2010 documents were:

“they were about:

(1) the claims lodged with the Mainland court for wage arrears, construction expenses and tax payments;

(2) the Mainland judgment creditors’ application to enforce the judgment; and

(3) D1 asking for the Mainland court’s indulgence to allow time for it to call for a general meeting to deal with the judgment debts” (para 11 thereof).

12.  More specifically, the relevant parts of the letter addressed to the People’s Court state:

“為了解決俱樂部面臨的問題，包括欠付工資、工程款、稅金等問題，我方多次提議召開股東會 … 商討解決方案。 …如在2007年4月和6月，我方提出將我方持有的俱樂部90%的股份(投資額)分別轉讓50%給 [plaintiff] 和轉讓10%給台企 [name of enterprise] 等，… 但在2007年6月1日召開的會議上因種種原因，上述問題均未得到解決 …

直接導致貴院受理的柤關執行案件的產生。…

…

為解決俱樂部的債務及其他問題，我方擬提議召開俱樂部股東會 … 研究先由股東以現金的形式 …

… 提供足額擔保或由股東出資代償的問題。… 特懇請貴院暫緩 … 進行評估、拍賣。”.

13.  Thus, so far as it is relevant to this application (and to the May 2013 order), the said letter represented to the People’s Court that steps had earlier been taken by D1 to attempt to avoid the enforcement proceeding.  It can be inferred “steps” here should mean obtaining funds for payment.  Judged in such context, the reference to transfers of shares could only mean they were an attempt to obtain fresh funds for paying the judgment sum(s) (rather than a reference to transfers of shares to comply with the terms of an existing loan agreement).

14.  The other of the Dec 2010 documents (the shareholders’ letter (para 10(2), the challenged decision)) was written in the same context, for the same purpose, and, on a fair reading, should carry the same meaning.

15.  The plaintiff cannot point to any “connected” documents, or adduce evidence, to show that, at least arguably, the Dec 2010 documents can be construed as sufficient acknowledgements of an existing debt.

16.  Having concluded there is no reasonable prospect of success in an appeal based on para 3(1), I now consider the proposed appeal grounds summed up in para 3(3) and (4) above.

17.  As should be obvious from the challenged decision, I was aware that there was no positive plea raising the limitation defence (para 34 thereof), but nevertheless exercised my discretion to refuse giving leave to amend.  Reliance has been placed on Ronex Properties Ltd v John Laing Construction Ltd and Others [1983] 1 QB 398, 408 (para 35, the challenged decision).  Among other things, the Ronex case observed that the limitation defence can be raised by the defendant:

(a)   applying to strike out the plaintiff’s claim as frivolous and vexatious and an abuse of process of the court on the ground that it is statute-barred;

(b)   filing evidence to that effect.

This was what was done earlier in this action.

18.  I am thus not at all convinced that my discretion has been wrongly exercised.  Insofar as there may be any need, the post-Civil Justice Reform provisions of the Rules of the High Court (Cap 4A) in fact support such an approach: Ord 1A rr 1(a), 2(1)(a), 4(2)(h) and (i) and Ord 1B r 1(2)(l).

D1’s summons

19.  This has been referred to in para 1(b) above. There is a dispute as to whether D1’s summons falls within the doctrine of res judicata (as the plaintiff contends); it is undisputed D1 had taken out an earlier summons to strike out, and which the master dismissed on 31 October 2012 (“D1’s earlier striking out summons”).

20.  On D1’s part, it is contended the master dismissed D1’s earlier striking out summons, not on the merits, but based on grounds which have by now been overtaken.  First:

“[D1’s earlier striking out summons] was premised upon Order 18 rule 19(1)(a), that the plaintiff’s statement of claim disclosed no reasonable cause of action and that is the only ground relied upon by the 1^st defendant to strike out the plaintiff’s statement of claim” (transcript for master’s hearing on 31 October 2012).

On the contrary, D1’s summons is now premised on the other limbs of Ord 18 r 19(1).  Secondly, the master took into account the limitation defence (whether according to Hong Kong or Mainland law) had not been specifically raised.  However, D1’s summons now also seeks leave to raise that defence.

21.  It is apparent from the 31 October 2012 hearing transcript the master also determined D1’s earlier striking out summons on another ground:

“… it seems from what I have read from the defendants’ affirmation, they wish to argue that the limitation defence would be a matter of PRC law. For this particular purpose and for this hearing, I do not have admissible evidence on PRC law … ”.

He also said:

“I must say it is premature for the court to rule on this particular part [probably referring to the limitation defence, whether according to Mainland law or Hong Kong law] when the pleading is not clear … it is a matter for the parties to plead a proper case before the court can see on what basis the court will adjudicate on this limitation defence, if there was any … ”.

The subsequent remarks made by the master during the later part of the hearing will have to be understood in the light of what he said above.  They are therefore obiter dicta in nature.  This conclusion is reinforced by the following observations of the master:

(1)   one must see the contents of the Dec 2010 documents to decide if they amounted to sufficient acknowledgements;

(2)   whether the Dec 2010 documents were addressed to the plaintiff was an open question (he observed that they were copied to the plaintiff);

(3)   one of the Dec 2010 documents (the shareholders’ letter) was not included in the hearing bundles placed before him so he had no opportunity to consider it.

The master then concluded:

“… I would [be more inclined] to exercise my discretion to allow the plaintiff to plead this part of the case in a proper way, … and then let the defendants to raise whether they would eventually raise a limitation defence … ”.

22.  Taking into account the above, I disagree with the plaintiff’s argument that the matter is now res judicata.

23.  D1’s summons was taken out after the challenged decision was pronounced in May 2013.  The plaintiff has not argued that D1 had been guilty of delay, or that any real prejudice would be suffered as a result.  In these circumstances, I consider it appropriate to give leave for D1’s defence to be amended.

24.  The plaintiff argues that the “new” defence (limitation) is inconsistent with the existing defence (that the loan agreement was a sham), relying on Ord 20 r 13(1) (verification by statement of truth). The argument has no merit.  What D1 now seeks to introduce is a defence afforded to him by statute, that is, the Limitation Ordinance (Cap 347).  There is no valid reason why the statement of truth should be a hurdle for raising such a defence.

25.  Further, because I have in effect decided that the plaintiff’s claim has been time-barred, it is also appropriate to strike it out, as against D1, as an abuse of the court’s process.

26.  The position as regards D2’s summons is not as clear.  D2 has earlier taken out a striking out summons (“D2’s earlier striking out summons”), which was heard by the master on 30 November 2012. But the perfected order of 30 November 2012 made no reference to the disposal of D2’s earlier striking out summons except that there be no order as to its costs.

27.  The transcript of the 30 November 2012 hearing cannot help either.  The exchange between the master and counsel for D2 was as below.  The master said:

“I think that what, [name of D2’s counsel], you have indicated that you are content to just strike out the prayers [for relief], leaving out of the allegation of facts there.”

To which D2’s counsel replied:

“Master, if we are given a chance to sort [out with or] talk to the plaintiff, then I think it’s more convenient to me that we work out the contents … ”.

The master then turned to deal with costs after the above exchange.

28.  As should be obvious from the subsequent dispute between the plaintiff and D2 (which lasted up to the present hearing), the matter was not “sorted out” between them (as D2’s counsel (and probably also the master) had anticipated).

29.  Such being the case, there is a need for D2 to seek clarification from the master as to whether D2’s striking out summons has been disposed of after a consideration of its substantive merits.

Conclusion

30.  Accordingly:

(a)   there be leave to amend its defence in terms of D1’s summons;

(b)   the plaintiff’s claim against D1 be struck out;

(c)   D2’s summons is adjourned sine die with liberty to restore.

Other matters

31.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

32.  In relation to the plaintiff’s application for leave to appeal, and D1’s summons, the usual rule that costs should follow the event is accepted.  There will accordingly be a costs order that those costs should be paid:

(1)   in relation to the former, by the plaintiff to both defendants;

(2)   in relation to the latter, by the plaintiff to D1.

The costs of D2’s summons are reserved.

33.  I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(a)   the receiving parties be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b)   the paying party be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

(Andrew Chung) Judge of the Court of First Instance High Court

Mr Kenneth CL Chan and Ms Annie Lai, instructed by Jal N Karbhari & Co, for the plaintiff

Mr Norman Nip, instructed by Anthony Siu & Co, for the 1^st defendant

Mr Isaac Chan, instructed by David YY Fung & Co, for the 2^nd defendant

HCA 642/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 642 OF 2011

____________

BETWEEN
	TAIBAO INVESTMENT AND MANAGEMENT (HONG KONG) COMPANY LIMITED	Plaintiff
	and
	KARY ENTERPRISES (HOLDINGS) LIMITED (嘉勵實業(集團)有限公司)	1st Defendant
	LEUNG KAM HUNG (梁錦鴻)	2nd Defendant
____________

Before: Hon Chung J in Chambers

Date of Hearing: 21 May 2013

Date of Decision: 28 May 2013

_______________

D E C I S I O N

_______________

 

Introduction

1.  This decision is concerned with:

(1)   the appeal of the 1^st defendant (“D1”); and

(2)   the application to extend time to appeal of the 2^nd defendant (“D2”),

against the master’s order dated 30 November 2012.  In short, the master’s order gave leave to amend the statement of claim (albeit not as entirely proposed by the plaintiff).

2.  The original statement of claim was based on a simple contract (called the “Collateral Loan Agreement” and dated 4 March 2004).  It alleged that a debt was due from and payable by the defendants; it also sought an order for D2 (as the chargor under the Collateral Loan Agreement) to transfer (to the plaintiff) company shares allegedly provided by D2, pursuant to the Collateral Loan Agreement, as security for the said debt (“the security asset”).

3.  The amended statement of claim (amended pursuant to master’s order) is to the following effect:

(1)   despite the debt advanced pursuant to the Collateral Loan Agreement having fallen due on 3 March 2005, D1 has defaulted in repayment; and

(2)   D2 was obliged under the Collateral Loan Agreement to transfer the security asset to the plaintiff who, upon default in repayment by D1, was entitled to dispose of it.

4.  However, when giving leave to amend the statement of claim, the master disallowed the plaintiff’s proposed claims:

(1)   that D2 specifically performs the Collateral Loan Agreement by transferring the security asset to the plaintiff;

(2)   for fraudulent misrepresentation;

(3)   for conspiracy concerning the sale of the security asset; and

(4)   for the joinder of the purchaser of the security asset as the 3^rd defendant.

Consequently, the plaintiff’s present claim is for the sum of RMB 8 million against both D1 and D2. There is no appeal against this order.

5.  As will be explained below, that the plaintiff’s relief is limited to a monetary claim is important to the determination of D2’s application to appeal out of time.

The amendment relating to D1

6.  D1’s objection to the master’s order is premised almost entirely on the plaintiff’s claim having been time‑barred.  In this connection, reliance is placed on s 4(1)(a), Limitation Ordinance (Cap 347):

“The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say. . . actions founded on simple contract. . . ”

7.  As stated above, it is the plaintiff’s pleaded case the debt became due and payable on 3 March 2005 (para 7(iii) and 14, amended statement of claim).  This action was, however, only commenced on 12 April 2011 (about 6 years and 1 month after 3 March 2005).  It thus follows that this action was commenced after the expiration of the limitation period under Cap 347.  Any suggestion by the plaintiff that the action only accrued later (such as accrual since the date of demand for repayment) is unmeritorious.

8.  The defence in fact contends that the Collateral Loan Agreement should be governed by Mainland law (which prescribes a limitation period of 2 years).  However, for present purpose, the issue concerning limitation is whether the defendants have subsequently acknowledged the debt in writing (as the plaintiff contends they have).

9.  It is common ground written acknowledgement of a debt (or other liquidated sums) is recognized both under Hong Kong law (ss 23 and 24, Cap 347) and Mainland law as a good answer to a limitation defence.  That being the issue for present purpose, I shall approach the issue assuming the applicable limitation period is 6 years (for the sake of simplicity of discussion).

10.  The written acknowledge pleaded by the plaintiff are:

(1)   a letter dated 29 December 2010 from the defendants to the People’s Court, Sanshui District, Foshan City; and

(2)   a letter dated 29 December 2010 (pleaded as “notice of shareholders’ meeting”) of D1.

(para 36, 39 and 40, amended statement of claim)

11.  However, those documents do not meet with the legal requirements of what can constitute a “written acknowledgement” for the purpose of s 23(3), Cap 347; namely, an “[acknowledgement] of the claim”.  This is because a perusal of the documents set out in para 10(1) and (2) above shows that they were about:

(1)   the claims lodged with the Mainland court for wage arrears, construction expenses and tax payments;

(2)   the Mainland judgment creditors’ application to enforce the judgment; and

(3)   D1 asking for the Mainland court’s indulgence to allow time for it to call for a general meeting to deal with the judgment debts.

12.  The plaintiff, relying on the observation in New World Development Co Ltd and Others v Sun Hung Kai Securities Ltd and Another (2006) 9 HKCFAR 403, para 91 (to the effect the “connected” documents can be looked at to ascertain a document’s true meaning), argues that one can look at other documents together with the above documents.

13.  However, the plaintiff has not specified what the “connected” document(s) is/are, or how it/they can be said to be “connected” to the above documents.  “Connection” cannot be without limit.  Here, the only “connection” contended for seems to be that the parties involved were the same, and that the dispute in the Mainland proceeding arose out of a golf course which is also a matter related to the Collateral Loan Agreement.   But that kind of “connection” is insufficient.

14.  By reason of the above matters (especially para 11 and 13 above), the averments in the amended statement of claim concerning the defendants’ alleged written acknowledgement (para 36, 39 and 40 thereof) are bad pleas.

15.  The master’s order giving leave to amend to incorporate such pleas should be set aside for this reason.  Further, because the plaintiff’s claim is time‑barred, leave to amend the statement of claim which provides no valid answer to the limitation defence is useless.  Leave to do so should also be set aside on that ground.

16.  Having so concluded, I note that the plaintiff’s skeleton arguments have referred to a letter dated 24 June 2011 from D1’s solicitors to the plaintiff (albeit not expressly as a written acknowledgement for the purpose of s 23(3), Cap 347 (but an admission of liability to repay)) (“the said letter”).  But it should also be noted this was written:

(1)   after the commencement of this action (12 April 2011); and

(2)   subsequent to an order dated 17 June 2011 ordering the defendants to pay the debt with interest (“the June 2011 order”).

17.  The relevant part of the said letter reads:

“We are instructed that our client shall repay the Loan of RMB 8,000,000.00 within 60 days from the date hereof. . . ”

18.  D1 argues that:

(1)   the above wording merely follows the wording of the June 2011 order, and should not be given its natural and ordinary meaning;

(2)   the said letter was part of the “without prejudice” correspondence; and

(3)   in any event, the defendants’ former solicitors did not have authority to admit liability to repay,

and therefore cannot properly be regarded as an acknowledgement.  These arguments are disputed by the plaintiff.

19.  It is inappropriate in the context of this appeal/application to determine the correctness of the above argument.  In particular (and whenever it should become necessary to do so), the said letter may have to be considered together with the following averment of the defence filed herein:

“The 1^st and 2^nd Defendants were arranging to repay the RMB 8,000,000.00 principal to the Plaintiff with 10 % interest as per the Collateral Loan Agreement” (emphasis supplied) (para 23 thereof).

20.  Even assuming the said letter does constitute an acknowledgement within the meaning of s 23(3), Cap 347, it is trite law a cause of action must be complete at the time of commencement of action: see, for example, Banque Worms v The Owners of the Ship or Vessel “Maule” (Cyprus Flag) (formerly known as “Amer Deep”) CACV 187/1994 (24 February 1995), para 25 and 45.

21.  It follows that, because the said letter did not come into existence until after the commencement of this action, it cannot be relied upon herein as an acknowledgement for the purpose of s 23(3), Cap 347.

22.  It may well be that the said letter can be so relied upon in a fresh action, but that is not a matter for consideration in the context of this action.

23.  The same reasoning as that set out in para 17 and 20 above can apply to para 23 of the defence.

24.  In view of the above matters, this is not a proper case for fresh leave to be given to the plaintiff to amend the statement of claim.

The amendment relating to D2

25.  Similar consideration as that under the preceding heading is also applicable to D2.

26.  Further, because D2’s contractual obligation under the Collateral Loan Agreement was not to repay the debt, but to transfer the security asset to the plaintiff, the plaintiff’s claim for a monetary sum against him must be a claim for damages, rather than a claim for a debt or other liquidated pecuniary claims.

27.  The plaintiff relies on passages in:

(1)   Andrews & Millett: Law of Guarantees (2011) 6^th Ed; and

(2)   O’Donovan & Phillips: The Modern Contract of Guarantee (2010),

and contends that D2 has a “concurrent” obligation (with D1) to repay the debt.

28.  Those passages cannot assist the plaintiff because they are discussion of the general law and where the surety’s obligation is, similar to the principal debtor’s, to repay the debt.  Under the Collateral Loan Agreement, however, D2 was under no such obligation (see also para 3(2) above).

29.  Such being the case, s 23(3), Cap 347 cannot be invoked in aid of the plaintiff’s claim against D2.

30.  For the above reasons, leave to amend the statement of claim against D2 should also be set aside.

Conclusion

31.  D1’s appeal is allowed.

32.  It is trite law that (among other factors) merits are an important factor when the court decides how to exercise its discretion to extend time to appeal.

33.  In view of para 25 to 30 above, D2’s application for time extension to appeal is granted.  The hearing being also treated as the hearing of the appeal, D2’s appeal is also allowed.

Other matters

34.  The plaintiff also argues that, in the absence of a positive plea raising the limitation defence, the defendants are not entitled to put forth such an argument.

35.  The defendants rely on Ronex Properties Ltd v John Laing Construction Ltd and Others [1983] 1 QB 398:

“There are many cases in which the expiry of the limitation period makes it a waste of time and money to let a plaintiff go on with his action. But in those cases it may be impossible to say that he has no reasonable cause of action. The right course is therefore for a defendant to apply to strike out the plaintiffs’ claim as frivolous and vexatious and an abuse of the process of the court, on the ground that it is statute‑barred. Then the plaintiff and the court know that the Statute of Limitations will be pleaded; the defendant can, if necessary, file evidence to that effect. . . ” (p 408)

36.  I agree with the above‑quoted passage and find the plaintiff’s technical objection to have no substance.

37.  Because the appeal/application to extend time to appeal do not concern the master’s order to strike out, the question of whether this action should be dismissed is not presently a matter for consideration.

38.  The parties’ closing submissions also mentioned various other points.  These have not been expressly set out or dealt with in the above headings and sub‑headings.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

39.  The parties agree to adopt the usual rule that costs should follow the event.  There will accordingly be a costs order that the costs of D1’s appeal and D2’s application for time extension to appeal (including the costs of the applications before the master, and any related reserved costs) be paid by the plaintiff to the respective defendant to be taxed if not agreed.

(Andrew Chung) Judge of the Court of First Instance High Court

Ms Annie Lai, instructed by Jal N Karbhari & Co, for the plaintiff

Mr Norman Nip, instructed by Anthony Siu & Co, for the 1^st defendant

Mr Isaac Chan, instructed by David Y Y Fung & Co, for the 2^nd defendant

HCA 642/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 642 OF 2011

_____________

BETWEEN
	TAIBAO INVESTMENT AND MANAGEMENT	Plaintiff
	(HONG KONG) COMPANY LIMITED
and
	KARY ENTERPRISES (HOLDINGS) LIMITED	1st Defendant
	(嘉勵實業(集團) 有限公司)
	LEUNG KAM HUNG (梁錦鴻)	2nd Defendant
____________

 

Before: Deputy High Court Judge Lok in Chambers

Date of Hearing: 8 March 2012

Date of Decision: 16 April 2012

 

___________________

DECISION

___________________

 

1. This is an application by the defendants for leave to appeal against the order “by consent” of Master Yu on 17 June 2011 (“the June Order”) and to appeal against the June Order out of time, and further an appeal by the defendants against the order made by Master Yu on 4 January 2012 (“the January Order”) whereby the learned Master refused to set aside the June Order or to give leave to appeal against the June Order.

Background

2. The 1^st defendant is a limited company incorporated in Hong Kong.  It has and at all material times had a 90% interest in a Mainland joint venture known as Sanshui Spring Golf Club (三水溫泉高爾夫球俱樂部) (“the Golf Club”).  The Golf Club owned a golf course in Sanshui in the Mainland.

3. The 2^nd defendant became a director and 80% shareholder of the 1^st defendant in June 2007.  One Ms Lee Chun Hing (“Lee”) also became a director and 20% shareholder of the 1^st defendant in June 2007.

4. On 12 April 2011, the plaintiff commenced the present proceedings against the defendants.  In the Statement of Claim, the plaintiff alleges, inter alia, as follows:

(i)  on or about 4 March 2004, a collateral loan agreement was signed and executed by one Mr. Li Zhong (李忠) (“Li”) as lender, the 1^st defendant as borrower, the 2^nd defendant as chargor and one 東莞市四達紙品有限公司as payee (“the Loan Agreement”);

(ii)  under the Loan Agreement, Li advanced and the 1^st defendant authorised the said payee to accept RMB 8 million as loan from Li to the 1^st defendant;

(iii)  the loan was due on 3 March 2005, and the 1^st defendant undertook to repay it with interest on 3 March 2005;

(iv)  the 1^st defendant agreed to pledge its investment in the Golf Club as a charge to the loan, and if the 1^st defendant was unable to repay the loan and interest on time, Li had the right to dispose of the charge and its right in the Golf Club;

(v)  the 2^nd defendant agreed to charge 95% of his shareholding in the 1^st defendant against the loan and interest, and in the case of default, Li had the right to dispose of the 2^nd defendant’s shareholdings in the 1^st defendant;

(vi)  the 2^nd defendant guaranteed that he was the legal and beneficial owner of 95% shareholding in the 1^st defendant;

(vii)  two subsequent loan transfer agreements were signed whereby Li’s rights under the Loan Agreement were eventually transferred to the plaintiff, and notice of such assignment was duly given to the defendants;

(viii)  by a letter dated 29 May 2009, the plaintiff demanded the 2^nd defendant to repay the outstanding amount due under the Loan Agreement but it remained unpaid; and

(ix)  the 2^nd defendant did not in fact own 95% of the shareholding in the 1^st defendant as at the date of the Loan Agreement, and he held not more than 80% of the shares in the 1^st defendant from 25 June 2007 up to the date of the writ.

5. Despite the aforesaid allegations, the plaintiff makes no claim against the 1^st defendant in the prayer for relief in the Statement of Claim.  In the prayer, the plaintiff only claims against the 2^nd defendant for:

(i)  an order that the 8,000 shares held by the 2^nd defendant be transferred to the plaintiff; and

(ii)  an order that the 2^nd defendant do pay to the plaintiff an amount calculated with reference to 15% of the sum of RMB 8 million plus interest.

6. On 21 April 2011, the 2^nd defendant and Lee sold their 100% shareholding in the 1^st defendant to one Victory Profit International Ltd.  At that time, the 2^nd defendant and Lee were the only directors of the 1^st defendant.  The transfer of shares was effected on 28 April 2011.

7. On 25 April 2011, Lee resigned as director while one Mr Yu De Cai (“Yu”) was appointed director of the 1^st defendant. According to Yu in his affirmation, the 2^nd defendant stayed on as director to assist in managing the golf course.

8. On 23 May 2011, both defendants, at that time represented by Huen & Partners, filed a Defence.  It was pleaded in the Defence, inter alia, that:

(i)  all of the plaintiff’s claims are denied; and

(ii)  “[the] 1^st and 2^nd defendants were arranging to repay RMB8,000,000.00 principal to the plaintiff with 10% interest as per [the Loan Agreement]” (as contained in §23 of the Defence).

9. On 8 June 2011, the plaintiff issued a summons under O 27 r 3 of the RHC for an order that, since the defendants have jointly and severally in §23 of the Defence admitted liability, they do make repayment to the plaintiff in the sum of RMB 8 million and interest.

10. On 17 June 2011, the said summons was heard by Master Yu.  The Master ordered “by consent” that the 1^st and 2^nd defendants do jointly and severally make repayment to the plaintiff in the sum of RMB 8 million plus interest.

11. On 21 July 2011, the 2^nd defendant was replaced by one Mr Guo Bing Sheng as director of the 1^st defendant.  After that, both defendants changed their solicitors from Huen & Partners to their current respective solicitors.

12. On 27 July 2011, the plaintiff took out a summons for summary judgment against both defendants claiming for the relief stated in the prayer for relief in the Statement of Claim.

13. By a summons dated 12 August 2011, the 2^nd defendant applied to set aside the June Order.

14. By another summons dated 12 August 2011 as amended on 12 September 2011, the 1^st defendant also sought to set aside the June Order, or alternatively, to appeal against the June Order.

15. As explained in the 1^st affirmation of Yu:

(i)  in or about mid to late July 2011, the 2^nd defendant through his agent in the Mainland orally informed Yu for the first time:

(a)  of the existence of this suit;

(b)  that the 2^nd defendant had instructed Huen & Partners to act for both defendants in defending this suit; and

(c)  this court had on 17 June 2011 granted the June Order;

(ii)  prior to that, Yu did not know that the 1^st defendant was being sued by the plaintiff; and

(iii)  the 2^nd defendant had no authority to instruct Huen & Partners to act on behalf of the 1^st defendant, and so the said solicitors had no authority to file the Defence or enter into the June Order on behalf of the 1^st defendant.

16. Both summonses dated 12 August 2011 were heard by Master Yu on 15 & 19 December 2011.  By the January Order, the Master dismissed the defendants’ application to set aside or for leave to appeal against the June Order.

17. On 16 January 2012, the 1^st defendant issued two Notices of Appeal.  According to the first Notice as amended subsequently, the 1^st defendant applies to set aside the June Order.  Alternatively, the 1^st defendant applies for the time to appeal against the June Order be enlarged and for leave to appeal against the June Order, and if leave is so granted, the court would proceed to hear the appeal itself.  According to the second Notice, the 1^st defendant applies to set aside the January Order.

18. On 17 January 2012, the 2^nd defendant issued two similar Notices of Appeal.

19. Both defendants now seek to appeal against the June Order and the January Order.  Their main argument is that the June Order is not a consent order in the true sense, and so the defendants, in seeking to set aside the June Order, are not subject to the same limitation in setting aside a consent agreement.  Further, the learned Master had no jurisdiction under O 27 r 3 to make the June Order because there was no claim for relief against the 1^st defendant and no claim for the outstanding loan against the 2^nd defendant in the Statement of Claim.  Finally, the 1^st defendant also claims that, irrespective of whether Huen & Partners had authority to act in this action, they certainly had no authority to make an admission or enter into the June Order on behalf of the 1^st defendant.

20. I would deal with these arguments in turn.

Nature of the June Order

21. The June Order was stated to be made “by consent”. However, there are two types of consent order with the difference explained by Lord Denning MR in Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1 WLR 185:

“We have had a discussion about ‘consent orders.’ It should be clearly understood by the profession that, when an order is expressed to be made ‘by consent’, it is ambiguous. There are two meanings to the words ‘by consent’. … … … One meaning is this: the words ‘by consent’ may evidence a real contract between the parties. In such a case the court will only interfere with such an order on the same grounds as it would with any other contract. The other meaning is this: the words ‘by consent’ may mean ‘the parties hereto not objecting.’ In such a case there is no real contract between the parties. The order can be altered or varied by the court in the same circumstances as any other order that is made by the court without the consent of the parties. In every case it is necessary to discover which meaning is used. Does the order evidence a real contract between the parties? Or does it only evidence an order made without objection?” (at p 189E-G)

22. Templeman LJ also said the following in the judgment:

“The service of this summons was not an offer and was not intended to create or result in a contractual relationship. The summons constituted a demand and a threat. ... ... ... If the plaintiffs had written back to the defendants announcing that they would consent to the order sought by the defendants, the announcement would not and could not have constituted acceptance of a non-existent offer or be capable of creating a contractual relationship. The announcement would have been no more than the intimation of an intention on the part of the plaintiffs not to argue against the grant of the relief sought by the defendants but to submit to an order in the terms of the summons.” (at p 192F-H)

23. I do have the opportunity of perusing the transcript of the hearing before Master Yu on 17 June 2011.  To me, the exchanges between Master Yu and the then solicitor acting for the defendants clearly show that the latter was only conceding to the plaintiff’s application.  There is simply no evidence of any offer or acceptance or passing of considerations between the parties in entering into the judgment under the June Order. Further, the plaintiff is still pursuing it main claim, and indeed the only claim according to its pleading, relating to the provision of security against the defendants through an O 14 application, which was only adjourned sine die on 15 December 2011 before Master Yu.  To me, the O 14 application removes all possible arguments by the plaintiff that the judgment under the June Order was a contractual compromise, as the plaintiff had clearly compromised nothing in the June hearing.  Hence, I agree with the defendants’ counsel that the June Order falls squarely within the “no objection” category of consent order as defined by Lord Denning in Siebe Gorman, and this court can intervene the June Order like any other orders which are not made by consent.

Whether the June Order was properly made under O 27 r 3?

24. Both Mr Ng SC and Mr Chan, counsel for the 1^st and 2^nd defendants respectively, argue that it was not proper for the Master to enter judgment for the outstanding loan in the amount of RMB 8 million against the defendants, as the plaintiff made no claim against the 1^st defendant and no claim for the outstanding loan against the 2^nd defendant in the prayer for relief in the Statement of Claim.  Further, the defendants made no clear admission of the liability for the outstanding loan in the pleading and so it was not appropriate for judgment to be entered under such circumstances.  I agree.

25. O 27 r 3 reads as follows:

“Where admissions of fact or of part of a case are made by a party to a cause or matter either by his pleadings or otherwise, any other party to the cause or matter may apply to the Court for such judgment or order as upon those admissions he may be entitled to, without waiting for the determination of any other question between the parties, and the Court may give such judgment, or make such order, on the application as it thinks just. … … … ”

26. O. 27 r 3 refers to “admissions of fact” or “admissions of part of a case”.  Admission to pay the sum due under the Loan Agreement is certainly not an admission of fact but an admission of legal liability.

27. Ms Lai, counsel for the plaintiff, seeks to argue, by reference to the actual terms in the Loan Agreement, that the defendants are liable for the outstanding loan.  However, as the plaintiff makes no claim against the 1^st defendant in the prayer for relief, it is certainly not part of the plaintiff’s case as pleaded that the 1^st defendant is liable to repay RMB 8 million under the Loan Agreement.

28. For the claim against the 2^nd defendant, it is averred in the Statement of Claim that the 2^nd defendant was a pledgor of 95% shareholding in the 1^st defendant as a security for the RMB 8 million loan.  The cause of action against the 2^nd defendant is the alleged failure by the 2^nd defendant to provide the said security at the material times, and it is not the plaintiff’s case that the 2^nd defendant is jointly and severally liable to repay the RMB 8 million loan either as principal debtor or guarantor.

29. From the transcript, it is clear that the Master, in the hearing on 17 June 2011, was under the false impression that the plaintiff had made two separate claims against the defendants: one relating to the failure to provide security for the loan and the other one for the sum of RMB 8 million allegedly due under the Loan Agreement.  However, the reality is that the plaintiff has made no claim against the 1^st defendant and only one claim relating to the provision of security against the 2^nd defendant.  As the alleged admission is not related to “part of the plaintiff’s case”, it was not appropriate for the Master to enter judgment for the RMB 8 million loan against the defendants under O 27 r 3 of the RHC.

30. Further, the alleged admission in §23 of the Defence is far from clear.  It only states that “[the] 1^st and 2^nd defendants were arranging to repay RMB8,000,000.00 principal to the plaintiff with 10% interest as per [the Loan Agreement].”  I agree with the defendants’ counsel that it was a mere statement of the actions being taken by the defendants with no admission that the defendants took those actions on the basis of any legal liability.

31. In fact, the defence advanced by the defendants is, in essence, that the parties were not intended to be bound by the terms of the Loan Agreement, as the actual arrangement between the parties was that the defendants would purchase on Li’s behalf certain shares in the joint venture held by a third party with the RMB 8 million provided by Li.  With the said defence being repeated throughout in the pleading, it is stated in §22 of the Defence that they deny the liability under the plaintiff’s claim.  In such context, I agree that the alleged admission is neither clear nor unambiguous to the extent that justifies the granting of the judgment under the June Order.

32. Ms Lai also seeks to rely on an alleged admission contained in a letter from Huen & Partners dated 24 June 2011. However, that letter was issued after the making of the June Order, and so in my judgment, the court should ignore that letter in considering the propriety of the June Order.

33. Based on the reasons mentioned above, the June Order should be set aside.  In such circumstances, it is quite unnecessary for me to consider the 1^st defendant’s argument as to whether Huen & Partners had authority to make an admission or enter into the June Order on behalf of the 1^st defendant.

Other procedural matters

34. Since the June Order is an order determining in a summary way the substantive rights of a party to an action, under O 59 r 21 of the RHC, no leave is required to appeal against the June Order.  However, since both defendants filed the Notices of Appeal after the expiration of the appeal period, the defendants need to obtain the leave of the court to extend the time for the filing of the Notices of Appeal.

35. In deciding whether or not to grant such extension of time, the court would normally take into account the following factors:

(i)  the length of the delay;

(ii)  the reason for the delay;

(iii)  the chances of the appeal succeeding if time for appealing is extended; and

(iv)  the degree of prejudice to the potential respondent if the application is granted.

Lastly, the court must consider all the circumstances and decide whether the overall justice of the case requires the exercise of the discretion to extend the time.

36. After considering the overall justice of the case, I decide to exercise such discretion in favour of the defendants.

37. Firstly, as demonstrated above, the defendants have strong grounds to set aside the June Order.  If extension of time is not granted, the defendants will suffer grave injustice.  In particular, apart from the other defences of the defendants mentioned above, the defence of limitation is prima facie available to the defendants as the plaintiff commenced the present action against the defendants after a long period of time.

38. Secondly, although the two relevant Notices to Appeal were taken out in January 2012 after the making of the January Order, the defendants had taken steps to challenge the June Order as early as in August 2011.  As the June Order falls within “no objection” category of consent order, the procedure then adopted by the defendants to challenge June Order might not be correct.  Despite that, the plaintiff knew about the defendants’ challenge to the June Order as early as in August 2011, which was not a long period of time after the making of the June Order, and so the plaintiff should not suffer any real prejudice if the court extends the time for the defendants to appeal against the June Order.  I therefore extend the time for such appeal.

39. In the case that extension of time is given, Ms Lai has no objection for the court to treat this hearing as the substantive hearing of the appeal.  I therefore did so, and based on the reasons mentioned above, I allow the appeal and set aside the June Order.

40. As mentioned above, since the June Order falls within “no objection” category of consent order, it was wrong for the defendants to make an application before Master Yu to set aside the June Order in a way like setting aside a consent agreement.  The proper procedure would be for the defendants to appeal directly against the June Order.  It therefore follows that the hearing in January 2012 before Master Yu was completely unnecessary, and the court should take that into account in dealing with the issue of costs in due course.  For the purpose of this appeal, I should also allow the appeal and set aside the January Order as well.

41. My preliminary view is that the defendants, or at least their solicitors in the hearing on 17 June 2011, should bear considerable responsibility for the unfortunate and protracted development of this case. Hence, I make an order nisi that there be no order as to costs of the following:

(i)  the plaintiff’s summons dated 8 June 2011 (the O 27 r 3 summons) including the hearing on 17 June 2011;

(ii)  the 1^st defendant’s summons dated 12 August 2011 as amended on 12 September 2011 including the hearings on 15 & 19 December 2011;

(iii)  the 2^nd defendant’s summons dated 12 August 2011 including the hearings on 15 & 19 December 2011; and

(iv)  the various appeals of the defendants including the hearing on 8 March 2011.

The costs order nisi shall be made absolute 14 days after the date of the handing down of this decision.

	(David Lok)
	Deputy High Court Judge

Ms Annie Lai, instructed by Jal N Karbhari & Company, for the plaintiff

Mr Peter Ng SC and Mr Norman Nip, instructed by Anthony Siu & Co, for the 1^st defendant

Mr Issac Chan, instructed by David Y Y Fung & Co, for the 2^nd defendant