XCHRX LIU SHU TIN v. CANTON YEAR INVESTMENT LTD.

HCA6901/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6901 OF 1998

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J U D G M E N T

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1. This is an appeal from a decision of a Master whereby he ordered that summary judgment be entered on behalf of the plaintiff in the sum of $366,955 together with interest. The claim is in respect of a sum due under a loan which it is said and conceded the plaintiff made to the defendant in about 1997.

2. The plaintiff was the general manager of the defendant company and, as I understand it, the beneficial owner of 30% of its shares. He contends that there were oral agreements between himself and two of the directors, Mr Wong and Mr Yip, between June and August 1997 for the advance of this sum and that the monies would be repaid upon demand. He asserts that in March 1998, a cheque was issued in the sum of $51,500 drawn upon his instructions by the defendant company in favour of the plaintiff's wife, but that the cheque was dishonoured. He has demanded repayment of the loan, but has not received it. He points also to a letter dated 17th April 1998 written by the defendant's solicitors in which those solicitors do not dispute that a loan was made to the defendant. They said in that letter, however, that the sum is not yet due because, so runs the contention, it was agreed that repayment would await the completion of audited accounts up to 31st March 1998 as well as the decision of an annual general meeting. The accounts have now been prepared, but the annual general meeting has not been held. In his affirmation in support of his application for summary judgment, he merely said that the allegation of such an agreement is totally untrue and unfounded.

3. The defendant's case is that the loan in question is a shareholder's loan, the advance of which was agreed at an extraordinary general meeting of the company in July 1997, where it was also agreed, according to the minutes of the meeting which are exhibited that :-

"Due to the company's cash flow is insufficient, therefore, all shareholders lend their loan to the company for its current movement. Until the cash flow problem of the company is solved and profit exceeds expenses, then the company will repay the loan to the shareholder by installment individually."

The minutes purport to evidence the attendance of the plaintiff at that meeting. It is denied that the cheque for $51,500 was in part repayment of the loan and it is said that the plaintiff signed a blank cheque when not authorised to do so, for which reason the cheque was subsequently dishonoured. So the defence is that the loan was not repayable on demand and that if the financial condition of the company allowed repayment, there would still have to be an annual general meeting at which priority of payment to all shareholders would have to be discussed. That is not an express part of the agreement, as I understand it, but I suppose that it is suggested that that is implicit.

4. Then the defendant says that it has a claim against the plaintiff which should operate as a set off. That is said to be in the form of a personal guarantee of the debts of a company called Recor Concord (HK) Limited, which is said to have owed the defendant company sums in respect of goods supplied, and the plaintiff who is a director and shareholder of that company is said to have agreed to guarantee its debts, but has failed to honour an obligation arising from that agreement in the sum of $459,421.

5. It seems to me that there should be unconditional leave to defend. The defendant's account, supported as it is, to some extent at least, by minutes of a meeting, can hardly be said to be unbelievable, and it contradicts the foundation of the claim that the debt was payable on demand. It, and the question of such implied terms as might arise from the suggested agreement of July 1997, cannot be tried on the affidavits and it is quite inappropriate, in my judgment, to do so.

6. It is said that the first affirmation filed by the defendant in this case gives rise to grave suspicion about the bona fides of the defence offered in that it does not set out a positive defence, but rather seeks merely to put the plaintiff to proof of the loan and its terms. It is true that the first affirmation is somewhat odd and nebulous in its presentation, and it is also odd that the allegation that the cheque was signed in unauthorised circumstances is not there made. There is even a statement in that affirmation that the defendant has no detailed knowledge of the loan. Nonetheless, elsewhere in the same affirmation, the nature of the loan is described, as is the suggestion that repayment is not yet due. Given that assertion and the contents of the letter of 17th April, it cannot be said that the defence is a recent invention appearing for the first time on the second affirmation filed on behalf of the defendant on 4th November 1998.

7. I am urged today by Mr Lee, on behalf of the plaintiff, to note the suggested inconsistencies in the details of the defence, and some oddities - for example, concerning the allegation that the cheque was signed in an unauthorised manner, and I am taken to a date inserted on that cheque which date has by it the signature of the deponent of the defendant's affirmations in this application. All that may be so, but these are, in the circumstances of this case, more appropriate for submissions and analysis at trial. They cannot, in my judgment, be said to render the defence not capable of belief.

8. Leave to defend should be given unless it is clear that there is no substantial question to be tried. That is certainly not clear. There is a substantial issue to be tried. "A defendant ought not to be shut out from defending unless it is very clear indeed that he has no case in the action under discussion", see Shepherds & Co. v. Wilkinson [1889] 6 TLR 13. In my judgment, there are far too many cases coming before these courts in which O.14 proceedings are taken, where this test is not applied with nearly enough forethought by those advising their clients.

9. In my judgment, there clearly is an issue to be tried and there should be unconditional leave to defend. In saying this, I pay no attention to the question of a suggested set off. That arises in relation to quite another matter and would not in itself have warranted leave to defend the claim launched by the plaintiff.

10. Accordingly, this appeal is allowed. The summary judgment dated 27th October 1998 is set aside. The defendant has unconditional leave to defend, and is directed to file its defence and counterclaim within 14 days from the date of this order. I shall hear counsel as to costs.