READY SYSTEM ENGINEERING LTD v. SHU KIN WAI KENNY

CACV 352/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 352 OF 2003

(ON APPEAL FROM DCCJ NO. 4323 OF 2002)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from the judgment of HH Judge Wong given on 25 November 2002 whereby the judge gave summary judgment against the defendant in the sum of $600,000 with interest. At the conclusion of the hearing of this appeal this court allowed the appeal and set aside the judgment, giving unconditional leave to defend. The order as to costs in this court was in favour of the defendant and the costs below were varied to be costs in the cause.

Background

2. The plaintiff's case is based on two written agreements. The first is dated 8 November 2001 and the second is dated 8 February 2002. The first agreement was in respect of a loan of a total of $400,000 from the plaintiff to the defendant. The second agreement related to a loan of $200,000, again from the plaintiff to the defendant.

3. The plaintiff was the sub-sub-contractor for works at Kowloon Station. In respect of part of that work a company of which the defendant was a director and major shareholder, Kenfort Engineering Co. Ltd ("Kenfort"), was its sub-sub-sub-contractor.

4. It would seem that Kenfort was almost in immediate cash flow difficulties. In order to alleviate that, the defendant sought financial assistance from the plaintiff on behalf of Kenfort. The first agreement that was made in respect of a loan was undated but made on approximately 6 August 2001. That was said to be a loan for $300,000 and the recipient of the loan was said to be "Shu Kin Wai Kenny/Kenfort Engineering Co. Limited". The defendant avers that the loan was made on condition that the sums involved were used to pay workers and subcontractors of Kenfort. Whilst the plaintiff's evidence is silent as to that there does not appear to be any dispute in that respect.

5. The plaintiff avers that when it attempted to set off payments due to Kenfort, objection was made and, in consequence, the original agreement was substituted by the agreement of 8 November 2001, which only named the defendant as the borrowing party. Likewise the agreement of 8 February 2002 also named only the defendant as the borrowing party.

6. There is major dispute between the parties, which cannot be resolved at this stage, as to whether Kenfort was paid the sums due to it under the sub-sub-sub-contract. It is the defendant's case that Kenfort was due the sum of $4,585,610.94 whereas it was only paid $1,988,019.55. On the plaintiff's part it is said that the amounts which have been paid to Kenfort are the only amounts to which Kenfort is entitled because those are the amounts which have been properly certified in accordance with the sub-sub-sub-contract. As already indicated, this is a matter which this court is not in a position to resolve at this stage.

The defendant's case

7. It is the case on behalf of the defendant that the agreement between the parties was partly oral and partly in writing or alternatively there was a collateral contract to the effect that the amounts of the loans would be discharged by Kenfort allowing a set off on sums payable under the sub-sub-sub-contract. Furthermore, the defendant avers, on the basis of the figures quoted above, that the amounts of the loans had indeed been discharged by reason of the set off caused by the underpayment of the amounts due to Kenfort under the sub-sub-sub-contract.

8. In my view these defences are clearly arguable at this stage. I would add that they would have to be properly pleaded since the case of the contract being partly oral and partly in writing and, in the alternative, there being a collateral contract is one which emerges from the defendant's evidence but has yet to be pleaded. The case of discharge by payment could also be more clearly pleaded.

9. In answer to the defendant's case, Miss Cruden, who appeared on behalf of the plaintiff, argued that the case on collateral contract could not be sustained because it was in contradiction to the written contracts. In my view Mr Lui's answer to this is clearly arguable. His argument was that although under the written agreements there was personal liability on the defendant in respect of the loans that did not mean that should Kenfort be in a position to discharge the loans they could not do so on his behalf. On the other hand, the personal liability remained and if, for example, Kenfort carried out no further work under the sub-sub-sub-contract and was, as a result, not entitled to any further payment, the defendant would still remain liable.

10. In these circumstances, these matters remain to be resolved at trial.

Hon Le Pichon JA:

11. I agree.