ACT RESOURCES INTERNATIONAL LTD v. HONG KONG ENERGY RESOURCES LTD AND ANOTHER

HCA 411/2019

[2023] HKCFI 85

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 411 OF 2019

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  The Plaintiff claims the sum of US$410,956.19 against the 1st Defendant for failure to repay a debt due under a written contract dated 14th September 2017 (“the 4th Supplemental Contract”), being a contract to supplement and modify the main contract between the parties of 2nd November 2016, the 1st supplemental contract of 11th December 2016, the 2nd supplemental contract of 25th February 2017, and the 3rd supplemental contract of 14th March 2017.

2.  The Plaintiff claims damages of US$322,000.00 against the 2nd Defendant for breach of a contract of guarantee and indemnity made orally on or around 14th July 2017; alternatively, for fraudulent or negligent misrepresentation inducing the Plaintiff to enter into the same.

3.  The Defendants counterclaim for the return of US$346,734 shipping fees which were paid by the 1st Defendant to an account designated by the Plaintiff on 3rd March 2017, US$40,000 paid by the 1st Defendant to the Plaintiff on 14th March 2017, and US$10,000 paid by the 1st Defendant to the Plaintiff on 16th March 2017.

B. THE DEFENDANTS’ STATUS

4.  The 2nd Defendant was declared bankrupt on 1st November 2022. By an order of 11th November 2022, the Plaintiff was given leave to proceed against the 2nd Defendant in these proceedings, subject to certain conditions.

5.  By a letter of 10th November 2022, the Official Receiver (“the OR”), as provisional trustee of the estate of the 2nd Defendant, indicated that (1) no consent was being given to the 2nd Defendant to defend the Plaintiff’s claim, (2) the OR would not participate in the trial, and (3) the OR would not assign the right of action to the 2nd Defendant to continue with his counterclaim, which right vested in the OR pursuant to s.58 of the Bankruptcy Ordinance, Cap. 6.

6.  Both Defendants were absent from the trial. No evidence has been given on their behalf.

C. THE PLAINTIFF’S EVIDENCE

7.  The Plaintiff called its Executive Consultant and authorised representative Cheong How Kei Paul (“Mr Cheong”) to give evidence at the trial. The Defendants being absent, Mr Cheong’s evidence was not challenged at trial and I accept it as being truthful.

8.  The Plaintiff also issued a subpoena duces tecum dated 22nd July 2022 to Cheng Suk Ching (“Ms Cheng”) of the Bank of China (Hong Kong) Limited (“BOC”). Ms Cheng attended the trial and testified that a remittance document dated 4th Aril 2017 in respect of a remittance from Bond Street Capital Limited to Er Zhou Energy Limited, marked for the attention of Ms Cheng and claiming on its face that the remittance was received by BOC (“the Remittance Document”), had not been seen by Ms Cheng prior to the receipt of the subpoena, and had not been received by BOC on 4th April 2017.

D. THE BACKGROUND

9.  The following facts appear from the documentary evidence placed before the court and I find them as facts.

10.  The Plaintiff is a company incorporated in Macau. It is in the business of, inter alia, arranging shipments of fuel oil products from overseas to the PRC.

11.  The 1st Defendant is a limited company incorporated in Hong Kong. The 2nd Defendant was at all material times the sole director and 50% shareholder in the 1st Defendant.

12.  In substance, by a main contract and four supplemental contracts (collectively, “the Contracts”), the Plaintiff[1] and the 1st Defendant agreed to facilitate the sale of fuel oil from Russia to a purchaser in the PRC.

13.  On or around 2nd November 2016, the Plaintiff entered into a written agreement with Hong Kong Energy International Limited (“the Main Contract”). The Main Contract provided that the Plaintiff and Hong Kong Energy International Limited would facilitate the sale and purchase of 50,000 metric tons of fuel oil, with Hong Kong Energy International Limited paying for the shipping expenses of US$449,476 and gaining the right to share the commission fees to be paid by the purchaser.

14.  On 11th December 2016, the Plaintiff and the 1st Defendant entered into a supplemental contract, supplementing and amending the Main Contract (“the 1st Supplemental Contract”). The 1st Defendant was substituted for Hong Kong Energy International Limited. The 1st Defendant was to pay for the shipping fees of US$449,476 and earn the right to share the commission fees to be paid by the purchaser. The US$449,476 was to be deposited into the Plaintiff’s bank account.

15.  On 25th February 2017, the Plaintiff and the 1st Defendant entered into a supplemental contract, supplementing the Main Contract and the 1st Supplemental Contract (“the 2nd Supplemental Contract”). The 2nd Supplemental Contract concerned additional storage fees and shipping fees to be paid, and made provision as to how this was to be done. Amongst other things, the 1st Defendant agreed to repay US$238,744 to the Plaintiff, which represented the 1st Defendant’s 50% share of the fees paid by the Plaintiff.

16.  On 14th March 2017, the Plaintiff and the 1st Defendant entered into a supplemental contract, supplementing the Main Contract, 1st Supplemental Contract and the 2nd Supplemental Contract (“the 3rd Supplemental Contract”). The 3rd Supplemental Contract concerned additional shipping fees to be paid, and made provision as to how this was to be done. The Plaintiff was to pay the additional fees of US$180,156 to the supplier, and the 1st Defendant was to repay half of this (US$90,078) to the Plaintiff.

17.  On 14th September 2017, the Plaintiff and the 1st Defendant entered into a supplemental contract, supplementing the Main Contract, 1st Supplemental Contract, 2nd Supplemental Contract and the 3rd Supplemental Contract (this is the 4th Supplemental Contract). The 4th Supplemental Contract recited the dealings between the parties, the parties’ agreement to share the expenses and profits of their business endeavour, and the expenses paid by each party up to the date of the 4th Supplemental Contract. The 1st Defendant expressly acknowledged that the Plaintiff had paid a total of US$1,480,817, that it owed US$517,042 to the Plaintiff, and it undertook to repay the US$517,042 to the Plaintiff as soon as possible.[2]

E. THE ISSUES

18.  Miss Athena Wong, counsel for the Plaintiff, set out a list of the issues which arise for my consideration.

E1. Whether the Defendants intended to deal with the Plaintiff

19.  The Plaintiff says that by reason of an oversight, the Plaintiff’s name was incorrectly written in the Contracts as “ACT International Resources Ltd” rather than “ACT Resources International Ltd”. The Defendants put the Plaintiff to proof of its identity. I accept the Plaintiff’s unchallenged evidence as to how the Plaintiff’s name came to be mistakenly stated in the Contracts.

20.  There can be no serious dispute that the Defendants intended to deal with the Plaintiff, and I so find.

20.1 There is no company in Hong Kong or Macau with the name ACT International Resources Ltd.

20.2 The name of the Plaintiff’s representative Mr Paul Cheong was printed on all the Contracts, and he signed all of the Contracts.

20.3 The Plaintiff’s address was printed on all of the Contracts.

E2. Whether the 1st Defendant owes a debt of US$410,956.19 to the Plaintiff under the Contracts

21.  Under the 4th Supplemental Contract, the 2nd Defendant acknowledged that it owed US$517,042 to the Plaintiff.

22.  Of the shipping expenses paid out by the Plaintiff to shipping companies, the evidence is that the Plaintiff has been able to recover US$212,171.62 in HCA 2161/2017. Giving credit for 50% of this amount to the 2nd Defendant (ie. US$106,085.81), the 2nd Defendant owes US$410,956.19 to the Plaintiff.

D3. Whether the 2nd Defendant was in breach of contract to guarantee repayment of the loan of US$322,000 made by the Plaintiff to the 1st Defendant

23.  Mr Cheong’s evidence (in his witness statement and as supplemented by his oral evidence at trial) is that after the making of the 3rd Supplemental Contract, and after the Plaintiff paid a shipping fee, the intended shipping company claimed that it did not receive the fee. The supplier therefore suggested using a different shipping company, which asked for a fee of US$322,000. The Plaintiff did not want to make the payment and Mr Cheong told the 2nd Defendant that if he wanted to proceed with the new shipping company, he would need to pay the whole of the US$322,000, bearing in mind that the 1st Defendant had so far not paid all of its share of the shipping expenses. In a conversation on about 17th April 2017, the 2nd Defendant agreed that the 1st Defendant would pay the whole amount, but said that the 1st Defendant did not have the liquidity to make the payment, and requested a loan to the 1st Defendant of the amount. The Plaintiff was reluctant to do so, but the 2nd Defendant told the Plaintiff that he would guarantee repayment of the loan within three weeks, as he would be receiving a large sum of approximately US$20m, in two to three weeks’ time, as evidenced by the Remittance Document. When questioned about the conversation in his oral evidence, Mr Cheong said that was sure that the 2nd Defendant said that he promised and guaranteed that the 1st Defendant’s debt would be repaid, using the words “我保證”. On the strength of the 2nd Defendant’s guarantee, Mr Cheong agreed on behalf of the Plaintiff to make the loan, on the basis that the 1st and/or 2nd Defendants would repay it within three weeks. The loan was advanced on 17th April 2017, so that repayment ought to have been made by 8th May 2017. The parties recorded the fact of the contract of guarantee and indemnity in the 4th Supplemental Contract.

24.  For completeness, I also note that the letters before action of 28th December 2018 from the Plaintiff’s solicitors to each of the 1st and 2nd Defendants set out the date and contents of the 2nd Defendant’s guarantee as part of the basis for the demand for payment against the 1st and 2nd Defendants. Neither Defendant ever responded to the letters to deny the making of the guarantee.

25.  I accept Mr Cheong’s evidence and find that the 2nd Defendant guaranteed the repayment of the requested loan of US$322,000 to the 1st Defendant, with repayment to be made by 8th May 2017. On the evidence, I find that the 2nd Defendant agreed to assume both a primary liability and a secondary liability to make repayment.

26.  The 1st Defendant did not make any repayment of the loan. Nor has the 2nd Defendant paid pursuant to the guarantee given.

27.  Accordingly, I find that the 2nd Defendant is in breach of the guarantee given to the Plaintiff.

D4. Whether the 2nd Defendant negligently or fraudulently misrepresented that he would receive a large sum as evidenced by the Remittance Document

28.  In the light of my findings regarding the 2nd Defendant and as confirmed by Miss Wong, it is not necessary to consider the issue of whether the 2nd Defendant made a misrepresentation to Mr Cheong that the 2nd Defendant would receive a large sum of approximately US$20m.

D5. Whether any of the Contracts are void by virtue of fraud, misrepresentation, economic duress, undue influence or unconscionable pressure

29.  There are various allegations in the Defence and Counterclaim that one or more of the Contracts was affected by a vitiating factor. As the Defendants have not given any evidence at trial in support of these allegations, I do not find them to be established.

D6. Whether the Plaintiff is liable to return US$396,734

30.  The Defence and Counterclaim claims that the 1st Defendant is entitled to restitution of various amounts paid by the 1st Defendant to the Plaintiff or at the Plaintiff’s direction. The basis for the claim turns on the same complaints of fraud, misrepresentation, economic duress, undue influence and unconscionable pressure, and therefore is not established.

E. DISPOSITION

31.  I give judgment in favour of the Plaintiff:

31.1 against the 1st Defendant in the sum of US$410,956.19, together with pre-judgment interest from 14th September 2017 up to the date of judgment at prime rate (as quoted by HSBC) plus 1% per annum, and post-judgment interest from the date of judgment up to the date of full payment;

31.2 against the 2nd Defendant for damages in the sum of US$322,000, together with pre-judgment interest from 8th May 2017 up to the date of judgment at prime rate (as quoted by HSBC) plus 1% per annum, and post-judgment interest from the date of judgment up to the date of full payment;

32.  I dismiss the Defendants’ counterclaim.

33.  I further make a costs order nisi that the costs of the action be paid by the Defendants to the Plaintiff, to be taxed if not agreed.