GREEN GIANT INVESTMENTS LTD v. CHINA 3D DIGITAL ENTERTAINMENT LTD

HCA 327/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 327 of 2015

__________________

________________________

J U D G M E N T

________________________

1. By an order made by Registrar Lung on 21 January 2016, the Registrar gave summary judgment under O.14 of the Rules of the High Court to the plaintiff against the defendant for the sum of HK$14,160,000 with interest thereon and the sum of HK$15,000 in respect of the expenses of noting pursuant to s.57(a) of the Bills of Exchange Ordinance (Cap 19) (“the Ordinance”). The Registrar also made an order that the costs of the action including the plaintiff’s costs of the O.14 summons filed on 6 July 2015 be paid by the defendant to the plaintiff, such costs to be taxed if not agreed.

2. The Registrar also ordered that the execution of the final judgment be stayed on the condition that the defendant should within 14 days pay into court the said sum of HK$14,160,000.  The said sum was duly paid into court by the defendant on 4 February 2016.

3. By a notice of appeal dated 4 February 2016, the defendant gave notice of its appeal against the order of the Registrar.  The defendant seeks an order that the Registrar’s order and judgment be set aside with costs.  The defendant also seeks an order that the said sum of HK$14,160,000 paid into court be released to the defendant.

4. This is the hearing of the defendant’s appeal.

5. The plaintiff is a limited company incorporated in the British Virgin Islands.

6. The defendant is a limited company incorporated in Bermuda with its registered office in Bermuda and principal place of business in Hong Kong at 7/F, Zung Fu Industrial Building, 1067 King’s Road, Quarry Bay, Hong Kong.  The defendant was formerly known as Emperor Entertainment Group Ltd.

7. The defendant is listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong.

8. A promissory note (“the note”) dated 18 January 2010 was issued by the defendant in its former name to Dragonlott Holdings Ltd (“Dragonlott”) whereby the defendant agreed and promised to pay to Dragonlott the sum of HK$14,160,000 on the maturity date on the terms contained therein.

9. The maturity date was 5 years from the date of issue of the Note namely, on 19 January 2015.

10. By a deed of assignment dated 9 May 2011 (“the assignment”), Dragonlott as the holder of the note and as assignor transferred and assigned to the plaintiff as assignee all the rights attached to the note on the terms contained in the assignment.

11. The plaintiff’s case is that pursuant to the terms of the note, the plaintiff wrote to the defendant on 16 May 2011 enclosing the original executed form of transfer and requested the defendant to register such transfer and assignment and to issue a new note to the plaintiff as the payee and holder of the same.

12. The defendant failed to proceed with the transfer of the note and did not register the transfer of the note in the defendant’s register.

13. On 13 June 2011 the plaintiff instituted HCA 987 of 2011 against the defendant claiming, inter alia:

(a) a declaration that the note has been validly assigned and transferred to the plaintiff;

(b) an order that the defendant do enter in and register on its register the assignment and transfer;

(c) an order that the defendant do issue a new promissory note in favour of the plaintiff for the same principal amount; and

(d) damages.

14. Despite having instituted HCA 987 of 2011 on 13 June 2011 the plaintiff failed to file and serve a statement of claim at any time in that action.

15. As a result of the plaintiff’s failure to file a statement of claim, by a summons dated 23 May 2012, the defendant’s then solicitors applied to strike out the plaintiff’s writ of summons in HCA 987 of 2011.

16. On 30 May 2012, Master Levy made an order dismissing the plaintiff’s action in HCA 987 of 2011 for the plaintiff’s default in the service of a statement of claim.  There was no finding on the merits of the plaintiff’s claim.

17. The note fell due on 19 January 2015.  The note was presented for payment on the same day by the plaintiff’s solicitors at the defendant’s principal place of business in Hong Kong.

18. The plaintiff’s solicitors also produced to the defendant for its inspection the original letter of indemnity dated 13 January 2015 signed by Mr Stephen Gold for and on behalf of the plaintiff as its director.

19. The defendant failed or refused to make payment upon maturity of the note despite the plaintiff’s offer of indemnity pursuant to s.70 of the Ordinance.

20. Non‑payment of the note upon presentment was duly noted and protested by the plaintiff’s notary on 20 and 21 January 2015.

21. The plaintiff’s claim against the defendant in this action is as assignee of the note issued by the defendant in favour of Dragonlott.

22. By its statement of claim the plaintiff claims:

(a) the principal amount of the note of HK$14,160,000;

(b) interest thereon from the time of presentment for payment until payment in full at the rate of 10% per annum pursuant to the terms of the note;

(c) the expenses of noting and protest pursuant to s 57(a) of the Ordinance;

(d) further/alternatively, a declaration that the plaintiff is the new holder/owner of the note and an order to compel the defendant to register the transfer of the note and enter the name of the plaintiff onto the register; and

(e) costs.

23. The defendant filed and served its defence on 21 April 2015.

24. By its summons for summary judgment under O.14, r.1 RHC filed on 6 July 2015, the plaintiff sought final judgment against the defendant for the relief in (a), (b), (c) and (e) as set out in para 22 above. The plaintiff did not seek summary judgment for relief (d).

25. As I have said, by the order made by the Registrar on 21 January 2016, he made the order set out at para 1 above.

26. There is no dispute that leave to defend should be given where the defendant raises any substantial question of fact which ought to be tried or where there is a fair dispute to be tried as to the meaning of the document on which the claim is based (para 14/4/11 Hong Kong Civil Procedure 2016).

27. The onus is on the defendant to show a triable issue entitling it to leave to defend.

28. In his oral submissions, Mr Kat SC, with Mr Chan, for the defendant, submitted that there were essentially two triable issues:

(1) Whether the plaintiff can, without the defendant being in receipt of the note, be entered on the register as a noteholder;

(2) Whether the defendant is in fact in receipt of the note which would entitle the plaintiff to payment.

29. As to issue (1), it is necessary to set out the relevant terms of the note.

30. As recorded in the note, by a subscription agreement dated 21 December 2009 entered into between, among other persons, Glow Plus Ltd as subscriber, a wholly owned subsidiary of the defendant, and Dragonlott as the issuer, Dragonlott agreed to allot and issue to Glow Plus Ltd 10,000,000 newly issued shares in Dragonlott.  It was a condition in the subscription agreement that Glow Plus Ltd should procure the defendant delivering to Dragonlott the note upon completion of the subscription agreement.

31. It was also provided in the note that:

“Subject as hereinafter provided, the [defendant] shall repay the principal sum of HK$14,160,000 (the ‘Principal Sum’) and all interest accrued thereon under this Note, to the holder of this Note (‘the Noteholder’) on the date falling five(5) years from the date of issue of this Note (‘the Maturity Date’) …”

32. The note also provided that:

“The [defendant] shall maintain a register of this Note (‘Register’) at the principal place of business of the Company in Hong Kong or such other location as the directors of the Company may decide. All references in this Note to holder of this Note or Noteholder shall refer to the person appearing as Noteholder on the Register, who shall be treated as the absolute owner of this Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it).”

33. As regards assignment or transfer of the note, it was provided in the note that:

“This Note and/or any of the rights attached hereto may be assigned or transferred in whole or in part … to any assignee or transferee. A transfer of this Note shall be effected by completing and signing by both the transferor and the transferee of the Transfer Form in the form attached in the annexure ‘I’. The [defendant] shall within 3 Business Days on receipt of this Note together with the Transfer Form register the transfer on the Register and (a) in the case where the whole outstanding Principal Sum is assigned or transferred, cancel this Note and issue a new Note in respect thereof, in favour of the transferee or assignee as applicable, …”

34. There was also a provision in the note that time was to be of the essence.

35. It was also provided that the note should be governed by and construed in accordance with the laws of Hong Kong.

36. The defendant’s case is that Dragonlott was at all material times registered as the noteholder in the register maintained by the defendant pursuant to the terms of the note.

37. There is no dispute that pursuant to the assignment the plaintiff did write on 16 May 2011 to the defendant enclosing a completed transfer form and requested the defendant to register the transfer and assignment of the note and to issue a new note to the plaintiff as the payee and holder of the same.  There is also no dispute that the note was not submitted to the defendant together with the transfer form.

38. Mr Kat relied on the terms of the note which provided that the defendant shall within 3 business days “on receipt of this Note together with the Transfer Form” register the transfer on the register.  Mr Kat accepted that on a proper construction of the document the note did not have to be received at the same time as the transfer form.  However, it was submitted that the note had to be received by the defendant for the transfer to be completed.

39. It seems to me that it is arguable that the note had to be received by the defendant so that the plaintiff could be registered in the register and so that the defendant could cancel the note and issue a new note to the plaintiff.

40. There is a dispute of fact as to whether the defendant ever received the note.

41. There was in evidence the correspondence and email communications between the plaintiff’s former solicitors Lam, Lee and Lai (“LLL”) and the defendant before the plaintiff instituted the earlier HCA 987 of 2011 on 13 June 2011.

42. It appears from the letter dated 26 May 2011 from LLL to the defendant that before and at the time of the assignment of 9 May 2011 the directors of Dragonlott reassured the directors of the plaintiff that the original note was with the defendant and under the defendant’s control.  This was based on the belief that the original note was with one Ms Pearl Chan (“Pearl”), an in‑house counsel of “Emperor Capital”.  It appears that Emperor Capital was a related company of the defendant.

43. The said letter of 26 May 2011 also stated that Pearl had confirmed that the original note was being kept in her files.

44. By their letter dated 31 May 2011 to the defendant, LLL, on behalf of the plaintiff, referred to their earlier letter of 26 May 2011 and stated:

“…we are instructed to reiterate that your company had never sent or delivered the original Note to [Dragonlott].”

45. By an email sent by the defendant to LLL on 1 June 2011 at 9:43 am it was stated by the defendant that:

“First of all, we must again reiterate that we do not have the old (the original) Promissory Note on our hand. If the old Promissory Note has been issued out, it is not under our control. It is upon you [sic] responsibility to provide the old Promissory Note or to provide evidence to support your saying that we are having the old Promissory Note under our control.”

46. The defendant was there reiterating its position which they had set out in their earlier email to LLL sent on 30 May 2011 at 4:09 pm.

47. However, shortly after the 1 June 2011 email sent at 9:43 am, the defendant sent another email to LLL at 11:35 on the same day which stated:

“As the previous person‑in‑charge, Pearl has found the original Promissory Note (Attached a Scan copy for reference), the transfer of Promissory Note will proceed as instructed”

48. The said email shows that as at 1 June 2011 the defendant was prepared to proceed with the transfer of the note to the plaintiff.

49. Mr Kat, however, referred me to another email in evidence sent by the defendant to LLL a few days later on 10 June 2011 at 14:35 which stated:

“According to our record, we have already delivered the old Promissory Note to [Dragonlott]. It is up to [Dragonlott’s] responsibility to deliver their own original Promissory Note so that we can consider proceeding the transfer. …”

50. It seems to me that by the email sent on 10 June 2011 the defendant was in effect saying that it did not have possession of the original note as according to their records it had been delivered to Dragonlott.

51. The plaintiff pleads at para 26 of the statement of claim that the terms of the note do not expressly require the original note to be presented, for either registration and/or payment.  It goes on to plead that if, which is denied, that there was a requirement to return the original note, the plaintiff is entitled to and does rely on s.70 of the Ordinance.

52. It seems to me that it is arguable that on a proper construction of the note there was a requirement to send the note with the transfer form.  It was accepted by Mr Kat that the defendant did not have to receive the note at the same time as the transfer form was sent.  However, it seems to me that it is arguable that the defendant did have to receive the note to proceed with the transfer.

53. There is a dispute of fact as to the whereabouts of the note and whether it was in the possession or control of the defendant.  If, as the 1 June 2011 email sent at 11:35 stated, it had been found in Pearl’s files, does that necessarily mean that it was in the possession or under the control of the defendant?  Pearl was an in‑house counsel, not of the defendant, but of a related company of the defendant.  Further, if the note had already been delivered to Dragonlott as stated in the email sent by the defendant on 10 June 2011, the note would not have been in the possession of the defendant.

54. It seems to me that the dispute of fact is a matter that ought to be resolved at trial.

55. The plaintiff also relies on s.70 of the Ordinance which provides that:

“In any action or proceeding upon a bill, the court or a judge may order that the loss of the instrument shall not be set up, provided an indemnity be given, to the satisfaction of the court or judge, against the claims of any other person upon the instrument in question.”

There is no dispute that s.70 applies to promissory notes (s.95(1) of the Ordinance).

56. As pleaded at para 30 of the statement of claim, the plaintiff’s solicitors in a letter to the defendant dated 14 January 2015 reiterated the plaintiff’s right to demand payment on the note upon maturity on the due date.  The plaintiff’s solicitors also indicated that as the whereabouts of the note was uncertain, the original note should be considered lost, and indicated that the plaintiff would be prepared to indemnity the defendant pursuant to s.70 of the Ordinance.

57. As pleaded at para 31 of the statement of claim, the plaintiff’s solicitors presented the note for payment when it fell due for payment on 19 January 2015.  The plaintiff’s solicitors also produced to the defendant for its inspection the original letter of indemnity dated 13 January 2015 signed by Mr Stephen Gold for and on behalf of the plaintiff as its director.

58. S.70 of the Ordinance requires that the indemnity that is given is to the satisfaction of the court or judge.  The indemnity that was offered by the plaintiff was simply an undertaking to indemnify the defendant against the claims of any person on the note.  Whether the undertaking that was offered by the plaintiff, a foreign company with no known assets in Hong Kong, was sufficient is also a matter to be determined at trial.

59. Mr Sussex SC, for the plaintiff, submitted that the defendant had the note through Pearl and the defendant was obliged to register the plaintiff within 3 business days as the new noteholder and to issue a new note to the plaintiff according to the terms of the note.  By failing to do so, it was submitted that the defendant was in breach of contract.  Mr Sussex submitted that the breach was failing to do what the defendant was obliged to do once in possession of the original note and the form of transfer namely, to register the plaintiff as the new noteholder and to issue a new note to the plaintiff.

60. Mr Sussex further submitted that the defendant is prevented by law from relying on its own breach of contract in failing to register the plaintiff as the new noteholder.  He relied on Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381.

61. In Kensland Realty it was held that it was a principle of law that a person was not permitted to take advantage of his own wrong.  In the contractual context, the “prevention principle” operated to prevent a party who was in breach of an obligation owed to the other party, from asserting rights or claiming benefits which arose as a consequence of the breach.

62. It was also held that in deciding how the principle was to be given effect in a case, it was necessary to identify with some precision, the relevant breach, the factual consequences flowing from such breach and what, if any, advantage the contract‑breaker sought to take on the basis of such consequences.

63. Mr Sussex submitted that the “prevention principle” applies on the facts of this case so as to prevent the defendant from relying on the failure of the plaintiff to submit the note with the transfer form.  The breach relied on by the plaintiff is the breach on the part of the defendant in failing to register the plaintiff as the new noteholder.

64. It seems to me that whether or not the defendant was in breach depends on whether the defendant received or was in possession or control of the original note with the transfer form so that it could cancel the old note and issue a new one to the plaintiff according to the terms of the note.  As I have said, there is a dispute of fact as to whether the note was received by or was in the possession or control of the defendant.  If it was not, then it is arguable that the defendant was not in breach in failing to register the plaintiff as the new noteholder and to issue a new note to the plaintiff.  It seems to me that whether or not the “prevention principle” applies is also a matter to be resolved at trial.

65. I am satisfied that the defendant has raised the triable issues (1) and (2) relied on.  I am satisfied that the defendant should be granted unconditional leave to defend the action.

66. As the matter will have to be resolved at trial, it is neither appropriate nor necessary for me to express a view on the strength or weakness of the parties’ further submissions.

67. I allow the appeal and set aside the Registrar’s order and the judgment that was entered.  I give unconditional leave to the defendant to defend this action.

68. I also order that the said sum of HK$14,160,000 paid into court be paid out to the defendant.

69. I also make an order nisi that the costs of the hearing before the Registrar be costs in the cause and that the costs of the appeal be costs to the defendant.

HCA 327/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 327 OF 2015

_________________________

_________________________

_____________

D E C I S I O N

_____________

THE APPLICATION

1.  This is the plaintiff’s summons for final judgment under Order 14 rule 1 RHC.

2.  The defendant opposes this application and the parties are legally represented.[1]

3.  The facts of this action can be briefly stated below.

THE FACTUAL BACKGROUND

4.  The plaintiff sues on a Promissory Note (“the Note”) issued by the defendant in favour of Dragonlott Holdings Limited (“Dragonlott”)

5.  The Note contains an unconditional promise in writing and was issued by the defendant (in its former corporate name - Emperor Entertainment Group Limited) in favour of Dragonlott, and it was executed as a deed by the defendant.

6.  It contains an engagement to pay a sum certain, namely HK$14,160,000 at a fixed or determinable future time, namely “on the date falling five (5) years from the date of issue of the Note, viz. 18 May 2010.

7.  The Note in the present case had annexed to it a “Form of Transfer” (see 1/p.84), and in the body of the Note it was expressly provided:-

“A transfer of this Note shall be effected by completing and signing by both the transferor and the transferee of the Transfer Form in the form attached in the annexture “I””.

8.  The Note then goes on to provide that upon receipt of the Transfer Form (“the Form of Transfer”) the Issuer will register the Transfer.  However, the Note also provides that the applicant has to produce the original Note to the Issuer for the issuance of a new Note.

9.  By an Assignment executed under seal and dated 9^th May 2011, Dragonlott assigned to the plaintiff all its interest in the Note, and on 16^th May 2011 the “Form of Transfer” was signed by both Dragonlott (the transferor) and the plaintiff (the transferee).

10.  The transfer of the Note occurred before its maturity, and attempts were made by the plaintiff to obtain registration by the defendant of the transfer and the issuance of a new Note in the plaintiff’s favour.  The defendant raised a number of reasons for failing or refusing to comply with the plaintiff’s request, namely:-

a. On 16^th May 2011 the plaintiff wrote to the defendant informing it that Dragonlott had assigned and transferred the Note, and enclosed the original Form of Transfer dated 16^th May 2011. The plaintiff asked the defendant to register the transfer and to issue a fresh promissory note in favour of the plaintiff.

b. This was followed by a letter from the plaintiff’s solicitor dated 26^th May 2011, in which it was recorded that a representative of the plaintiff had phoned the defendant and been told that “as the authorized signatory of the transferor (i.e. Dragonlott) could not be recognized and the original Note did not accompany the letter, the registration and reissuance of a new Promissory Note could not be proceeded at the moment” .

c. On 30^th May 2011 the defendant stated “We reiterate that we do not have the old Promissory Note on our hand … If either Dragonlott Holdings Limited or you provide the old Promissory Note, we will issue a new one, which is a condition” .

d. On 1^st June 2011 the defendant stated by email “we must again reiterate that we do not have the old (the original) Promissory Note on our hand.  If the old Promissory Note has been issued out, it is not under our control”.

e. Then, later on 1^st June 2011, the defendant sent an email in these terms: “As the previous person-in-charge, Pearl, has found the original Promissory Note (Attached a Scan copy for reference), the transfer of the Promissory Note will proceed as instructed” (2/p.278) (a copy of that email with the attached scanned copy of the original Promissory Note is at 2/pp.327-332)

f. But thereafter the defendant came up with a number of reasons for failing to register the transfer, relying at one time on Anti-Money Laundering and Counter-Terrorist Finance Issues.

11.  The Promissory Note fell due for payment on 19^th January 2015, and was duly presented for payment, as recorded in the Protest dated 20^th January 2015. 

12.  The plaintiff has offered security in the form of a personal undertaking.  This was not accepted by the defendant.

THE RELEVANT LEGAL PRINCIPLES

13.  By the above factual background, which the defendant has not disputed, the plaintiff has established its prima facie case against the defendant and it is trite that the burden then falls upon the defendant to show to this court that there is triable issue.  Yue Tai Plywood & Timber Company Limited v Far East (Wagner) Engineering Limited [2001] 2 HKLRD 446 at §7; see also Billion Silver Development Ltd. v All Wide Investments Ltd. [2000] 2 HKC 262 C.A. Mayo JA and Ribeiro J. (as he then was) at page 8.

14.  To show triable issue or for other reason the issue ought to be tried and the credibility of the defendant’s evidence in affidavit are tested by:

a. the conduct of the defendant and any contemporary documents; and

b. the plaintiff’s documentary evidence and the defendant’s documents.

Therefore, the mere assertion of facts in an affidavit does not necessarily give leave to defend.  O.14, r.3 puts an onus upon the defendant.  It must be described as a threshold onus to show that there is a triable issue in the case. That onus can only be satisfied on the balance of probabilities.  See Paul Y Management Ltd v Eternal Unity Development and Others, (unrep, CACV 16/2008, 12 August 2008 per Cheung JA at §19)

15.  In an O.14 application, triable issues must be shown and the court must be satisfied that there is a real or bona fide defence.  The test for an O.14 application was not whether the assertions were to be believed, but whether those assertions were believable in the light of the evidence placed before the court.  Mass International Ltd. v Hillis Industries Ltd & Another C.A. [1996]1 HKC 434

16.  The defendant will rely upon that leave to defend should be granted where the defendant raises any substantial question of fact which ought to be tried, or there is a fair dispute to be tried as to the meaning of the document on which the claim is based: Pacific Harbor Advisors Pte Ltd & Others v Winson Federal Ltd & others, (unreported, HCA 1257/2013, 19 November 2015) at §12; Hong Kong Civil Procedure 2016, §14/4/11, p. 272.

THE DEFENDANT’S ISSUES – DISCUSSION

17.  The defendant has raised the issues below for the Court’s consideration.

Delay

18.  The defendant submits that the plaintiff has delayed in making the application, the delay being 3 months after service of the Defence and that the plaintiff has not given any explanation for the delay.  It relies upon Resona Bank Ltd v Lam Sie & Others [2004] 4 HKC 601 at §19 per Tang J (as he then was).  Here it must be stressed that the Court of Appeal was saying that “in a suitable case, delay of itself would entitle the court to refuse to entertain the application.” 612F.  However, the Court of Appeal further said that delay would not preclude the plaintiff from succeeding.  It said “To order a trial when there was no bona fide defence would only waste valuable court time. ”  See 615E

19.  For a brief period of 3 months, I do not consider it a long delay.  What the Court of Appeal referred to as “suitable case” must mean whether the defendant has a bona fide defence.

20.  This point does not assist the defendant.

Interpretation of the Note

21.  The defendant relies upon the interpretation of the Note, in particular the following paragraphs:

3rd paragraph:

“Subject as hereinafter provided, [D] shall repay the principal sum of HK$14,160,000 (the “Principal Sum”) and all interest accrued thereon under this Note, to the holder of this Note (the “Noteholder”) on the date falling five (5) years from the date of issue of this Note (the “Maturity Date”).”

5th paragraph:

“… [D] shall maintain a register of this Note (“Register”) at the principal place of business of [D] in Hong Kong or such other location as the directors of [D] may decide. All references in this Note to holder of this Note or Noteholder shall refer to the person appearing as Noteholder on the Register, who shall be treated as the absolute owner of this Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it).”

6th paragraph:

“… A transfer of this Note shall be effected by completing and signing by both the transferor and the transferee of the Transfer Form in the form attached in the annexure “I”. [D] shall within 3 Business Days upon receipt of this Note together with the Transfer Form register the transfer on the Register and(a) in the case where the whole outstanding Principal Sum is assigned or transferred, cancel this Note and issue a new Note…”

(emphasis added)

22.  The defendant says that the meaning and effect of the above provisions of the Note are clear upon any reasonable reading. “D is not contractually obliged to register a transfer unless the original Note is tendered together with the Transfer Form. Unless and until a transfer is properly effected, D must treat the person appearing on the Register (i.e. Dragonlott) as the Noteholder entitled to payment “regardless of any notice of ownership, trust or any interest in it”.[2]

23.  The plaintiff’s answer to the above argument is that the plaintiff’s ability to recover the principal amount of the Note does not depend upon having achieved registration with the defendant.  In any event, by its own wrongful acts the defendant has prevented that from occurring.[3]  It appears that the plaintiff relies upon section 89 of the Bills of Exchange Ordinance (Cap.19) (“the Ordinance”), a promissory note is defined:-

“A promissory note is an unconditional promise in writing made by one person to another signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money to, or to the order of, a specified person or to bearer”.[4]

24.  The law does not require registration of the Note.  The contractual provisions raised by the defendant only define the identity of the Note-holder, which cannot affect the legal effect of legal assignment of the chose in action of the Note by Dragonlott to the plaintiff.  This may be the reason why the defendant has not applied to strike out the plaintiff’s action.  The question is whether the plaintiff can claim to be “a specified person or to bearer” under s.89 of the said Ordinance.  The defendant says that since the plaintiff is not the registered owner of the Note, the plaintiff is neither the specified person nor the bearer.  The plaintiff does not possess the original Note.

The prevention principle on the construction of contract

25.  The plaintiff then says that the defendant is prevented by law from relying on its own breach of contract in failing to register the plaintiff as Note-holder (Kensland Realty Ltd. v Whale View Investment Ltd and others (2001) 4 HKCFAR 381 at p.410).

26.  The defendant argues that “the prevention principle that a person is not permitted to take advantage of his own wrong”[5] has no application in this matter because “it is necessary to show that the relevant party’s “wrong” involves his breach of contract in respect of an obligation owed to the other party to the contract (as opposed to a duty owed to a third party, contractual or otherwise).”[6]

27.  The defendant further submits that the defendant has not acted in breach of its contractual obligations to the plaintiff [defendant](sic) under the Note and the plaintiff  has no entitlement thereunder.[7]  So the defendant further argues that even if the assignment were validly executed, it will not assist the plaintiff as “there is a distinction between assignment and negotiation (which ordinarily involves delivery) of a bill.”[8]

28.  The defendant does not dispute that notice of the assignment of the Note had been given by Dragonlott to the defendant.  However, it argues that “Notice to a debtor (i.e. D) who has given a negotiable instrument for his debt that the debt has been assigned by the creditor can be disregarded by the debtor if the creditor who has assigned the debt is still the holder of the instrument: see Bence v Shearman [1898] 2 Ch 582 at 585-586 per Lindley MR, cited in footnote 22 of Chalmers & Guest at [5-067].”[9]  However, it can be noted at once that this authority does not apply to this matter because in the authority cited by the defendant, the cheque issuer, a vendor of a property, who had issued a cheque to the property agent as commission, had no notice of the assignment of the debt from the property agent to the purchaser when payment was made by a cheque.  The cheque had been cleared by the property agent and the purchaser then claimed the assigned debt from the vendor by showing to the vendor the memorandum of assignment.  The facts of this case are different from the case under our discussion. This authority does not assist the defendant.

29.  As to the application of the prevention principle, the defendant may be right to say that the plaintiff is a third party.  But this party is the assignee of the chose in action of the Note, notice of which had been given by the assignee to the defendant, which the defendant had not denied.  In fact, the assignor had given a letter to the defendant to confirm the assignment. Throughout the process, the defendant had raised no objection on the issue of authenticity of the relevant documents for assignment of the Note to the plaintiff.  In the circumstances, the plaintiff, being the assignee of the Note, becomes the party to the Note.

30.  The defendant may also be right to say that literally, it had not breached the terms of the Note to register the plaintiff as the Note-holder as the plaintiff was unable to deliver the original Note to the defendant.  The Note provides that the defendant will only issue a new Note to the applicant upon receipt of the original Note from the applicant.

The prevention principle on substantive principle of law

31.  However, when the plaintiff agreed to provide indemnity to the defendant pursuant to s.70 of the Ordinance, which the defendant refused to accept, the prevention principle will operate as the Court of Final Appeal in Kensland said at §96: “…where this “prevention principle” applies, it may be given effect in different ways.” At paragraph 97, the Court of Final Appeal said:

“In many cases, it will be appropriate to implement it as a substantive principle of law that precludes the wrongdoer from taking advantage of his own wrong, whatever the contract may say and however clearly the contract may appear to confer on the wrongdoer an unqualified right to enjoy such advantages. Cases like Rede v. Farr[10] and the New Zealand Shipping case[11], may be considered examples.”

32.  Although the Note provides that the defendant is obligated to register the new Note-holder upon receipt of the original Note, it simply cannot refuse to issue a new Note to the Note-holder or its assignee, the assignment of which the defendant had raised no objection, despite the applicant having agreed to give the indemnity under s.70 of the Ordinance for the lost Note.  By refusing to register the applicant, the defendant takes the advantage of not honouring its obligations under the Note.

33.  The application of the prevention principle will bar the defendant from relying upon the requirement of tendering the original Note for registration of the plaintiff.  See paragraphs 100 & 102 of Kensland.  As the defendant cannot rely upon registration for its recognition of the Note-holder on its register to meet its liability, the defendant has no valid reason not to meet its obligations under the Note notwithstanding that it was not registered as a Note-holder in the defendant’s register.

34.  This will dispose of the defendant’s defences.

35.  However, the defendant also says in paragraph 20 of the written submissions:

“It should be clarified that D’s plea of section 90 BEO (on the Note being inchoate and incomplete for want of delivery) only arises as an alternative defence in the event that P contends (and the Court finds) at trial that the Note was still in D’s hands and had not been delivered to Dragonlott in the first place. This issue does not arise for determination for the purpose of this O 14 application unless P maintains such an allegation.”

36.  Since the defendant has raised this defence in its Defence, it is incumbent upon this Court to take that into consideration in order to determine whether there is any issue for the trial.  The plaintiff should not obtain a final judgment if there is any triable issue.

37.  The plaintiff has raised two issues on this pleaded defence.  First, the plaintiff has in the written submissions paragraph 14(5) said that in the defendant’s email dated 1 June 2011, the defendant had admitted that the previous officer-in-charge, Pearl, had found the original Note and the  transfer of the Note would proceed accordingly.  Second, the plaintiff says that from the defendant’s annual reports open to the public, the defendant had clearly admitted its liability under the Note.  The defendant had answered this issue by saying that the administration did not admit as such, but just to say that such a dispute did exist, subject to adjudication through legal process.

38.  As to the first issue, in the 3^rd affirmation of Mr. Shiu Stephen Junior at paragraph 12, Mr. Shiu simply said that the defendant did not presently have possession of the original Note.

39.  In Order 14 application, the court is not obliged to accept any evidence adduced by the parties.  See Paul Y Management Ltd.  In the affirmation, Mr. Shiu’s did not deny the existence of the email.  Nor did he explain why such email was issued to the plaintiff.  The contents of the email clearly contradict the fact that the defendant had never had possession of the original Note.  Mr. Shiu only affirmed that the defendant did not “presently” have possession of it.  What about on 1 June 2011 when the email was issued? Without clear explanation, this Court can simply refuse to accept that the defendant had never had possession of the original Note.  On the contrary, this Court is entitled to take the evidence in the email as an admission that as on 1 June 2011, the defendant did have the original Note.  I note that on page 305 of bundle 2, there was an email letter saying that the original Note had been delivered.  However, comparing this letter with the other one I mentioned, with the scanned copy of the Note, this letter is fragile in its evidential value.  In the circumstances, it is an implied term of the Note that the defendant should have delivered the original Note to Dragonlott in the first place, there being no dispute that consideration of the Note had been paid.  Having in its possession of the original Note and refused to process the plaintiff’s application on 1 June 2011, the defendant is clearly in breach of the implied term to the plaintiff, the assignee of the Note.  Again the prevention principle will operate to bar the defendant from taking the advantage of refusing to register the plaintiff as the Note-holder or relying upon the non-registration of the Note to deny its liability to the plaintiff.

40.  As to the possibility of having another claimant on the Note as raised by the defendant, I consider that it is too remote for my consideration because Dragonlott had already confirmed that it had assigned the Note to the plaintiff.  The Note has already matured, there is no evidence that someone had presented the original Note for payment.  As the defendant has admitted that it had the original Note, absent any evidence that Dragonlott had assigned it to another party, it is simply fanciful to take this possibility into consideration.

41.  I therefore hold that the defendant has no defence to the plaintiff’s claim for final judgment to the plaintiff as per its summons.

COSTS AND ORDER

42.  As to costs, there is no dispute that the costs should follow the event.  Since this application gives the plaintiff a final judgment, the costs of the action should be awarded to the plaintiff.  The plaintiff asks the costs to be taxed.  The parties cannot agree on the costs of the action and they submit that the total costs, including the costs for this application be left for taxation.  In the circumstances, this Court accedes to the parties’ request and the costs of the action, including the hearing today, be taxed, if not agreed.  There should be a certificate for senior counsel for this hearing.

43.  The defendant applies for a stay of execution pending appeal because the plaintiff is a BVI company.  The plaintiff submits that if the Court grants the application, the money should be paid into court.  The defendant submits that the defendant is a public company, which should have the means to pay the money.  This may be true on the face of it.  However, on principle, I do not consider that the defendant has shown any real prospect of success in its appeal.  As the plaintiff has no strong objection, I grant the stay pending appeal on condition that the defendant shall, within 14 days from the date hereof, pay into court the principal amount claimed.

44.  This Court shall now make an order in terms as follows:

a. The plaintiff’s application is granted and final judgment is granted to the plaintiff as per its summons;

b. The defendant’s application to stay is allowed on terms as per paragraph 43;

c. The costs of this action are to be taxed as per paragraph 42.