Case Detail

HCA 1633/2021

[2024] HKCFI 1099

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1633 OF 2021

____________________

BETWEEN
	MTR CORPORATION LIMITED	Plaintiff
	and
	CHINA LUCK ENTERPRISES LIMITED	1^st Defendant
	CHEUNG SAU YAN CARINA	2^nd Defendant
	WILLIAM CHAN	3^rd Defendant

____________________

Before:

Deputy High Court Judge Reyes SC in Court

Date of Hearing:	17 April 2024
Date of Judgment:	17 April 2024

________________

JUDGMENT

________________

I. INTRODUCTION

1. I refer to my Judgment of 13 March 2024 in these proceedings. The speedy trial to which I referred in that Judgment took place before me today. The background facts were set out in sections I and II of my previous Judgment and will not be repeated here. I will use the same abbreviations in this Judgment that I used previously. The key issue that I must determine is whether Chan signed the Surety Deed. Chan was represented by solicitors and counsel at the hearing before me on 13 March 2024. In today’s trial, he appears in person.

II. DISCUSSION

2. Having heard Chan’s cross-examination by Mr. Tom Ng (appearing for the MTR) and Chan’s responses to my questions from the bench, I have concluded that the signature on the Surety Deed is not his. In all probability, Leung and Cheung forged his signature on that document. In other words, I accept Chan’s evidence to be true.

3. As mentioned in my previous Judgment, Chan’s case is that he was unaware of the Surety Deed purportedly signed by him until after the summary judgment hearing on 21 November 2022 before Master Lai. Under cross-examination before me, Chan clarified that, until he saw the Surety Deed, he thought that he was being pursued by the MTR because he had been a director of China Luck when the Tenancy Agreement was executed on 1 June 2018. He equated being a director with being a guarantor for the payment of a company’s debts. In 2019, Chan ceased to be a director of China Luck, but remained a shareholder. Nonetheless, Chan believed that, having been a director when the Tenancy Agreement was signed, he remained liable as a guarantor of China Luck’s debts to the MTR under the Tenancy Agreement, including for unpaid rent and fees. For this reason, on several occasions, Chan referred to himself as “本案的擔保人”. Chan’s erroneous view as to a director being ipso facto a guarantor was reinforced by what had been briefly explained to him of his liability by WHS (then acting as solicitors for China Luck, the Leungs and Chan at the early stage of these proceedings). WHS never showed Chan (or asked him about) the Surety Deed. Instead, WHS simply referred in Chan’s presence to Chan being sued as a guarantor.

4. Prior to and immediately after the summary judgment hearing before Master Lai, Chan (by then acting in person) was unaware that he was entitled to see the documents in this case as a party to these proceedings. Chan could not obtain case documents from WHS, as the firm had not been paid by China Luck or the Leungs and was exercising a lien over the case papers in their possession. Chan was likewise unable to obtain company documents from banks and other institutions because he was no longer a China Luck director in 2022. Chan only saw the Surety Deed after the summary judgment hearing, when the MTR was pressing him for payment of what was due pursuant to Master Lai’s judgment. At the time, Chan decided to conduct further investigation into the case and, with the advice and assistance of a solicitor friend, finally obtained copies of the court documents relating to this case. It was then that he realised that he was being sued not as a former director, but as an alleged signatory of the Surety Deed.

5. Before the substantive summary judgment hearing in front of Master Lai, there had been a directions hearing in front of Master Matthew Leung. In his Order dated 8 August 2022 at the end of the directions hearing, Master Leung recited that he had seen the Affirmation of Au Yin Tin filed on 13 July 2023 in these proceedings. That affirmation referred to the Surety Deed, stating that it had been executed by Cheung and Chan. The affirmation exhibited the Surety Deed. But, despite having appeared before Master Leung on his own behalf, Chan never saw (much less read) the Affirmation of Au Yin Tin. Chan did not realise that he was entitled to a copy of the same and did not ask for a copy.

6. On 21 November 2022, Chan appeared in person before Master Lai. The Surety Deed was specifically mentioned by Master Lai at the time. But that was in the context of monies (in particular, interest) due under the Tenancy Agreement and Chan mistakenly thought that Master Lai was referring to the Tenancy Agreement and Chan’s liability as a guarantor thereunder because he had been a director of China Luck when the Tenancy Agreement was signed.

7. Mr. Ng in closing submitted that Chan’s account was implausible, given that Chan has an MBA from HKUST and must be taken to understand what a Surety Deed is. But Chan is not claiming ignorance about the nature of a Surety Deed. Instead, the difficulty arises because Chan has a confused idea of the scope of a director’s legal liability. Chan is not a lawyer, and this case demonstrates that often a little legal knowledge may be worse than no legal knowledge. In response to questions from Mr. Ng and myself, it became apparent that Chan has been (and might still be) labouring under a misapprehension that, merely by being a director, one becomes legally liable to make good a company’s debts as some sort of quasi-guarantor. This misconception led Chan mistakenly to regard the proceedings against him up to the summary judgment hearing as the consequence of his having been a director of China Luck. As a result, he never questioned why he was being sued as a surety. Never having signed and having no knowledge of the Surety Deed, he never considered that there was some other basis for the proceedings against him, until he finally obtained the documents in this case. In my view, seen in context, Chan’s conduct is entirely plausible.

8. Mr. Ng stressed the Statement of Truth at the end of the Defence in this action. Paragraph 9 of the MTR’s Statement of Claim pleaded the Surety Deed and alleged that the same had been executed by Cheung and Chan. The Defence responded in its paragraph 5: “The Defendants admit the Surety Deed and the terms of the Surety Deed as pleaded in Paragraph 9.” The Defence as filed on behalf of all the defendants was verified by Statements of Truth by Cheung on behalf of China Luck, Cheung on behalf of herself, and Chan on behalf of himself. Chan agreed that he signed the Statement of Truth. He accepted that, when signing the Statement of Truth, he believed that the facts pleaded in the Defence were true. But he stated that, when he went to WHS’ office, the pleading had been laid out and the place where he had to sign had been flagged by WHS. There was only a short explanation of what he had to sign by WHS. Following the explanation, he signed and left. He was only in WHS’ office for about 20 minutes in all. He neither read the Statement of Claim nor the Defence, much less attempt to match paragraphs in the Statement of Claim with corresponding paragraphs in the Defence.

9. I accept Chan’s evidence as to what happened in WHS’ office. Simply taking it for granted that the solicitors had carefully vetted and accurately stated the facts, Chan signed. Mr. Ng suggests that, if this was truly what happened, Chan must be treated as having acted in contempt of court. But it seems to me that, based on what he had been told by WHS, Chan genuinely thought that everything pleaded in the Defence was correct and he signed the Statement of Truth accordingly. While Chan’s signature of the Statement of Truth without reading and fully understanding the underlying Statement of Claim and Defence may have been unfortunate and foolhardy, I am unable to conclude that he acted with any contumelious intent towards the court. No longer a director of China Luck at the time, Chan left the drafting of the Defence to WHS under the instructions of China Luck and the Leungs. Chan throughout was misled into thinking, as the Leungs falsely told him, that the Defence was merely part of a negotiating strategy with the MTR to bring about the early settlement of the proceedings.

10. It follows from the foregoing that the MTR’s claim against Chan fails. It is unnecessary in consequence of my conclusion to consider the damages to which the MTR would be entitled if I had found Chan to be liable. Therefore, on damages, I will confine myself to two short observations.

11. The first observation is to note that, with one exception, I accept the evidence of Yu Kang Chung and Ng Siu Ling in support of the MTR’s case on damages. In their Statement of Claim, the MTR sought (1) arrears in rent and other fees in the amount of HK$460,190.55; (2) HK$3,164,654.69 in consequential damages; and (3) compound interest on the foregoing amounts. The exception is in relation to Yu’s evidence. At trial, Yu twice affirmed that he had seen a calculation of the amounts due from China Luck to MTR and that to his knowledge such calculation took account of the deposit of HK$681,684 that China Luck had paid at the start of its tenancy. In closing, Mr. Ng frankly acknowledged that the deposit of HK$681,684 had not in fact been set off against the amounts claimed by the MTR. I accept on this matter that Yu had simply been mistaken. In all likelihood, Yu truly believed that he had seen a calculation setting off the deposit and did not intend any disrespect for the court. Given Mr. Ng’s concession, I would have deducted HK$681,684 from the principal amounts claimed by the MTR.

12. The second observation relates to interest. Based on the Surety Deed, the MTR asks for compound interest at 3% per annum above HSBC’s best lending rate “calculated on a daily basis and compounded at monthly intervals”. I am not sure what the words “on a daily basis” add to the interest sought. I also question why interest should be 3% over HSBC’s best lending rate and compounded on a monthly as opposed to (say) a quarterly or even annual basis. A contractually agreed rate of interest is certainly a factor that a court can take account of when deciding how much interest to award. But I do not think that the court’s discretion is fettered by what has been contractually stipulated. The court still must consider the overall fairness and reasonableness of the agreed interest rate. On this, there has been scant evidence. To my mind, simple interest of 1% per annum over the HSBC’s best lending rate as typically awarded in Hong Kong commercial cases would have been more appropriate here.

13. For the avoidance of doubt, neither of my two observations affect the summary judgment which the MTR obtained from Master Lai against China Luck and Cheung. Neither China Luck nor Cheung have appealed against the summary judgment. The amounts adjudged due by Master Lai therefore stand, as far as China Luck and Cheung are concerned.

III. CONCLUSION

14. The MTR’s action against Chan is dismissed. I shall now hear the parties on costs and consequential orders.

	(Anselmo Reyes SC)
	Deputy High Court Judge

Mr Tom Ng, instructed by Deacons, for the plaintiff

The 3^rd defendant appeared in person

HCA 1633/2021

[2024] HKCFI 790

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1633 OF 2021

____________________

BETWEEN

	MTR CORPORATION LIMITED	Plaintiff
	and
	CHINA LUCK ENTERPRISES LIMITED	1^st Defendant
	CHEUNG SAU YAN CARINA	2^nd Defendant
	WILLIAM CHAN	3^rd Defendant

________________

Before:

Deputy High Court Judge Reyes SC in Chambers

Date of Hearing:	13 March 2024
Date of Judgment:	13 March 2024

_______________________________

JUDGMENT

_______________________________

I. INTRODUCTION

1. The plaintiff MTR leased Premises in Sha Tin to China Luck (the 1^st defendant), a subsidiary of Asia Catering (Holding) Limited. Carina Cheung (the 2^nd defendant) and William Chan (the 3^rd defendant) each have 18% shareholdings in Asia Catering. In addition to being a shareholder, Cheung is a director of Asia Catering. Her husband Leo Leung is Asia Catering’s Chief Executive Officer. Between them, Cheung and Leung control the group of companies (the Group) to which China Luck and Asia Catering belong. In this judgment, I will refer to Cheung and Leung collectively as “the Leungs”.

2. In November 2022, on the MTR’s application for summary judgment, Master Lai found that Chan was liable for monies owed by China Luck to the MTR under a Tenancy Agreement. Master Lai held that Chan’s liability stemmed from a Surety Deed whereby Chan apparently guaranteed the performance of China Luck’s obligations under the Tenancy Agreement. I say “apparently” because Chan says that he only saw the Surety Deed after the summary judgment hearing. It was only then (Chan claims) that he realised that the signature on the Security Deed was not his and that he had never signed the Surety Deed. According to Chan, the Leungs had systematically been defrauding him over some time, including by forging Chan’s signature on the Surety Deed and the signatures of others on similar security documents. The forged instruments were then used (Chan says) to obtain benefits from entities such as the MTR and loan monies from banks. Chan complains that the Leungs have now absconded from Hong Kong, leaving Chan exposed to claims based on the forged instruments.

3. Chan now appeals against Master Lai’s summary judgment. He says that, at the very least, the question whether the Surety Deed was in fact signed by him must be a triable issue. It is (Chan argues) not a matter that can be determined summarily.

II. BACKGROUND

4. In this section, I set out Chan’s version of events. It is not accepted by the MTR.

5. On 1 June 2018, the MTR and China Luck executed the Tenancy Agreement for the Premises. On its face, the Surety Deed was signed by Cheung and Chan on the same day. According to the Surety Deed, Chan’s signature on that instrument was witnessed by Leung.

6. On 28 October 2021, the MTR brought the present action. The Statement of Claim pleads that, between 1 October and 3 December 2019, China Luck failed to perform its obligations under the Tenancy Agreement, resulting in HK$466,190.55 remaining outstanding. The MTR further claims that China Luck repudiated the Tenancy Agreement, leading to a loss of HK$3,164,654.69. The Statement of Claim seeks those amounts against the defendants jointly and severally, with further damages to be assessed.

7. The Leungs engaged Wong Heung Sum & Lawyers (WHS) to represent the three defendants. The Leungs told Chan that they would handle the proceedings and pay Chan’s costs. Trusting the Leungs, Chan agreed. In April or May 2022, the Leungs falsely represented to Chan that the proceedings had been settled.

8. In late June 2022, while in Toronto, Chan learned that the Leungs had been using the Group to defraud Chan and others. On 29 June 2022, Lai Yuk Keung (a 12.6% shareholder in Asia Catering) informed Chan that from 2018 the Leungs had caused the Group to borrow large sums from banks through fraudulent means. The Leungs (Lai said) had siphoned off the loan monies for their personal benefit, leaving the Group insolvent. That afternoon, Leung’s cousin Brian texted Chan on WhatsApp that credit companies were continuously phoning Brian, looking for the Leungs. Brian told Chan that the Leungs had fled to Vancouver. Chan tried to contact the Leungs himself, but to no avail. On 5 July 2022, it was reported in the news that Asia Catering had shut down all Group restaurants, owing employees over HK$5 million in wages.

9. Chan returned to Hong Kong from Canada in July 2022. He started reviewing the Group’s documents and affairs. He discovered that the Group had obtained large loans from banks by forging Chan’s signatures on several guarantees between November 2017 and November 2021. For instance, Asia Catering obtained a HK$1,000,000 loan from Bank of East Asia (BEA) with the support of a guarantee dated 18 August 2021 apparently signed by Chan. BEA granted another loan of HK$2,102,758 to Asia Catering on the security of a guarantee dated 8 November 2021 ostensibly also signed by Chan. These matters have been reported to the police and were the subject of an online complaint by Chan to the Hong Kong Monetary Authority.

10. Chan further found out that the Leungs had forged the signatures of others on guarantees to obtain finance for the Group. For example, the Leungs had forged Brian’s signature on a guarantee to obtain a loan for China Will Enterprises Limited. The Leungs had, by misrepresentation or other illegitimate means, apparently induced Lai (who cannot read) to sign a guarantee dated 14 August 2017 and a facility letter dated 16 September 2020, in support of China Will.

11. On 13 July 2022, the MTR applied for summary judgment against the defendants. WHS then telephoned Chan to say that WHS had been unable to obtain instructions from the Leungs since 29 June 2022. Moreover, as the Leungs had not paid WHS’ fees, WHS could not continue to provide legal services to Chan. WHS consequently ceased to act, and Chan filed a notice to act in person in these proceedings.

12. Chan asked WHS for the documents in the proceedings to enable himself to oppose the summary judgment application. But WHS exercised its lien over the documents and refused to provide them to Chan until WHS was paid its outstanding fees. Chan therefore opposed the MTR’s summary judgment application without having sight of the documents filed in these proceedings. As a result, Chan did not actually see the Surety Deed prior to Master Lai hearing the summary judgment application.

13. Chan defended himself in person before Master Lai. Neither China Luck nor Cheung appeared at the summary judgment hearing. Master Lai gave summary judgment for HK$466,190.55 and HK$3,164,654.69, with compound interest thereon and with further damages to be assessed.

14. It was not until July 2023 that, with the help of his present solicitors, Chan obtained a full set of the documents filed for the summary judgment application. It was then that Chan realised that the MTR’s case against him was premised on a Surety Deed that he never signed. He started to collect evidence to show that he never signed the Surety Deed. He also instructed his solicitors to appeal against Master Lai’s summary judgment.

15. On 23 August 2023, Chan filed his Notice of Appeal against Master Lai’s judgment.

III. DISCUSSION

16. Mr Tom Ng (appearing for the MTR) submits that I should dismiss the appeal for the following reasons:

(1) Chan’s appeal is out of time. No good explanation for the delay has been put forward, so that the time for lodging an appeal should not be extended.
(2) Chan’s defence that his signature on the Surety Deed is a forgery, is not credible. Chan knew all along that the case against him was based on the Surety Deed. Despite such knowledge, it is only now that he denies his signature on the Surety Deed.
(3) The new evidence which Chan adduces in support of his defence of forgery is of no probative value. The evidence could have been produced at the summary judgment application before Master Lai. But that was not done.
(4) In any event, Lai has admitted his signature on the Surety Deed. No application has been made to withdraw his admission. No explanation has been given as to how Chan came to make the admission in the first place and why he should be allowed to resile from it.

17. I am not persuaded that this is an appropriate case for summary judgment. In my view, I should allow the appeal, set aside the summary judgment, and grant Chan unconditional leave to defend.

18. First, I accept that Chan’s appeal is out of time. But this case is far from over. There remain damages to be assessed. That part of the action has yet to progress. It seems to me that if, for instance, I now give directions for the speedy trial of this matter, including in relation to the further damages, the whole action can be disposed of one way or the other quickly, with any lost time rapidly being made up. The critical issue, whether the Surety Deed was or was not signed by Chan, is a compact one that can readily be investigated at a trial. On the other hand, there would be injustice to Chan, if he is correct that his signature on the Surety Deed is forged but nonetheless shut out from running such defence. When weighed against lateness (about 9 months), the balance plainly favours the grant of an extension of time to appeal.

19. Second, Mr Ng submits that I should dismiss, as entirely devoid of credibility, Chan’s present contention that he only belatedly realised that this dispute was about the Surety Deed. Mr Ng relies on matters such as the following in support of his case that Chan along knew that the summary judgment application concerned his liability under the Surety Deed:

(1) The Statement of Claim pleaded the Surety Deed. The Defence filed by WHS on behalf of all the defendants (including Chan) was verified by Statements of Truth signed by Cheung on behalf of China Luck, Cheung on behalf of herself, and Chan on behalf of himself. Chan does not deny his signature on the Statement of Truth. The Defence pleads in its paragraph 5: “The Defendants admit the Surety Deed and the terms of the Surety Deed as pleaded in Paragraph 9.”
(2) Chan has referred to himself as “是本案的擔保人” (“the guarantor in this case”) in a letter to the court dated 2 September 2022 and in affirmations filed with the court in September and October 2022 for the summary judgment hearing.
(3) In an exchange with Chan, Master Lai referred to Chan’s liability for the payment of interest as a guarantor and pursuant to the terms of the Surety Deed.

20. The foregoing matters are certainly points that can be put to Chan in cross-examination at trial. They do not justify a conclusion at this stage that, on the balance of probability, Chan is lying when he avers that the Surety Deed was not signed by him.

21. On (1), given what Chan has deposed to, it is conceivable that Chan left the Leungs and WHS to draft the Defence, and merely signed the Statement of Truth because the Leungs (whom he trusted) and WHS advised him to do so. That may have been foolhardy. But that is not a reason for summary judgment. The precise circumstances of the signing of the Statement of Truth need to be investigated at trial. On (2), Chan may simply have meant that he was the person in the case described as “the guarantor”. I do not take the words as necessarily denoting that Chan fully understood why he was being sued as “the guarantor”. On (3), Master Lai referred to the Surety Deed and Chan as guarantor in the context of liability for interest. As a layperson, Chan may have assumed that his liability for interest as guarantor under a Surety Deed arose from his involvement with Asia Catering, without any precise (as opposed to vague) idea of how his liability as surety apparently came about in the first place.

22. Third, I do not agree that the evidence adduced for the purposes of this appeal is of such low probative value that I can dismiss the same wholesale. An application for summary judgment is not an occasion to weigh evidence and engage on a trial by affidavit. Chan has deposed that the signature on the Surety Deed is not his. He can be imprisoned for perjury and contempt of court in making a false affirmation. His current solicitors would have made that clear to him. In that context, I have to accord some weight to what he has stated, at least until tested through cross-examination at trial. The evidence which Chan has exhibited of the Leungs’ propensity to forge the signatures of Chan and others, or to procure others through misrepresentation to sign security documents, is supportive of Chan’s account of events, albeit not conclusively.

23. Fourth, I have already dealt above with Mr Ng’s argument based on Chan’s Statement of Truth. I do not believe that the lack of an application to withdraw Chan’s Statement of Truth makes a substantive difference. Chan has explained his position in his affirmations for this appeal. In short, what he is now maintaining is that the Surety Deed is authentic and binding as far as China Luck and Cheung are concerned, but not on him because he never signed the instrument. Whether Chan is right or wrong on that is plainly a matter for trial.

24. Mr Ng suggested that I should consider granting conditional leave. But I likewise do not believe that conditional leave is appropriate. There is nothing shadowy about Chan’s defence. He is either telling the truth or he is not. That is something that simply needs to be determined at trial.

IV. CONCLUSION

25. Leave to appeal out of time is granted. The appeal is allowed. The summary judgment is set aside as against Chan. Chan is to have unconditional leave to defend. The summary judgment remains in effect as against China Luck and Cheung.

26. I shall now hear the parties on costs and consequential orders. As indicated above, I am minded to direct a speedy trial. I also invite the parties to suggest appropriate directions for such.

	(Anselmo Reyes SC)
	Deputy High Court Judge

Mr Tom Ng, instructed by Deacons, for the plaintiff

Mr Cristian Tsang, instructed by K B Chau & Co, for the 3^rd defendant

MTR CORPORATION LTD v. CHINA LUCK ENTERPRISES LTD AND OTHERS

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