LEE TAT & CO v. JOLLY HOPE LTD

CACV 74 /2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 74 OF 2003

(ON APPEAL FROM DCCJ 3741 OF 2002)

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REASONS FOR DECISION

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Hon Yuen JA:

1. This was an appeal from first, a judgment and secondly, an order of Judge Muttrie in the District Court given on 29 January 2003. Leave to appeal had been refused by the judge but was given by Cheung JA on 17 March 2003. Cheung JA also ordered that execution of the judgment be stayed conditional upon payment into court of the judgment sum. That condition was fulfilled.

The judgement and order

2. The judge had given summary judgment to the Plaintiff in the sum of $283,592.50 for work done and services rendered to the Defendant.

3. He also made an order dismissing the Defendant's summons to join Garwin Enterprises Ltd and Koichiro Takahashi (both connected with the Defendant) as defendants in the action, and to file an Amended Defence and Counterclaim.

Orders made on appeal

4. At the end of the hearing of the appeal, we allowed the appeal, set aside the judgment and gave leave to the Defendant to defend the action conditional upon the sum claimed being retained in court.

5. As for the Defendant's summons, we gave leave to join Garwin and Mr Takahashi as defendants. We made no order on the Defendant's application for leave to file an Amended Defence and Counterclaim as Mr Benjamin Chain, counsel for the Defendant, indicated that he wished to have a final review of the draft which was before us.

6. We gave an order that the costs before the judge, the costs of the applications for leave and the costs of this appeal be costs in the cause. We indicated that we would reduce the reasons for our decision into writing to be handed down in due course. We do so now.

Background

7. By way of background, the undisputed facts are that:

(a) the Plaintiff is a trading name of Lam Pak Shing. Mr Lam is also the 95% shareholder and a director of a limited company called Hang Shing Metal Products Co. Ltd ("Hang Shing"). For convenience, I will refer to the Plaintiff and Hang Shing as "Mr Lam's companies";

(b) the Defendant is a limited company owned by Mr Takahashi and his wife. Mr Takahashi is also the 80% shareholder and a director of Garwin Enterprises Ltd ("Garwin"). For convenience, I will refer to the Defendant and Garwin as "Mr Takahashi's companies".

8. It is common ground that the Plaintiff had provided goods and services to the Defendant from 9 February 2001 to 14 May 2001 for the total sum claimed in the Statement of Claim.

The defence

9. The Defendant's defence as pleaded in the original Defence was that in January 2001,

(a) Mr Lam had requested Mr Takahashi to cause his companies to place orders with Hang Shing,

(b) Mr Takahashi and/or his companies lent $720,000 to Mr Lam by way of a cheque drawn by Garwin in favour of Hang Shing, and

(c) before or at the time the loan was made, Mr Takahashi (on behalf of himself and his companies) expressly agreed with Mr Lam (on behalf of himself and his companies) that Mr Takahashi's companies would deduct from the sum lent the price of goods they would order from Mr Lam's companies.

Defendant's summons for joinder

10. After the Defence was filed, the Defendant issued a summons to join Mr Takahashi and Garwin as defendants to the action. This was supported by an affirmation made by Mr Takahashi confirming the truth of the Defence.

Plaintiff's summons for summary judgment

11. Before that summons was heard however, the Plaintiff issued summary judgment proceedings. Further affirmations were filed by both parties, including Mr Lam's 3rd affirmation which was made only one day before the hearing and which was excluded by the judge.

12. The allegations made by the parties in their respective affirmations appear in detail in the judgment below and I will not repeat them here. Briefly, Mr Lam denied the express agreement alleged by Mr Takahashi. According to Mr Lam, Garwin was expecting to place some orders with Hang Shing for the manufacture of goods, and the loan was made by Garwin to Hang Shing to enable Hang Shing to purchase machines and materials for the goods. There was an agreement to deduct from the sum lent the price of goods to be ordered, but it was bi-partite only as between Garwin and Hang Shing, not as between Mr Takahashi's companies and Mr Lam's companies. Hang Shing treated the loan as a deposit for the goods ordered but that was not expressed in the receipt as no purchase orders had yet been issued.

13. These allegations were, in turn denied by Mr Takahashi who said that Hang Shing was a new company and only supplied to Garwin goods to the value of $21,000 odd. Other goods manufactured by Hang Shing were unmerchantable and were returned without objection. Accordingly, his companies did not have to pay for the goods they ordered from Mr Lam's other company the Plaintiff, and transactions between them had proceeded on that basis.

The judgment

14. In his judgment, the judge said "this whole situation seems to be a horrendous muddle", by which presumably he meant the allegations and counter-allegations concerning the alleged express agreement and the transactions that followed between Mr Lam's companies and Mr Takahashi's companies.

15. The judge first considered the issue of joinder and decided that the proper course was for Garwin and Mr Takahashi to issue separate proceedings instead of joining the present action. He said an order could then be made to join (or consolidate) the proceedings or have them heard one after the other by the same judge. Having said that, however, he considered that if the Plaintiff could obtain judgment against the Defendant, then the question of joinder would fall away.

16. The judge noted that the receipt for the loan which was printed on Garwin letter-paper did not name any company other than Hang Shing. The judge considered that that was inconsistent with Mr Takahashi's version of a loan to Mr Lam, as there was no reason not to record a four-cornered agreement between Mr Lam's companies and Mr Takahashi's companies if that was what had been agreed.

17. He found that the defence was therefore not believable and since he was refusing leave to Mr Takahashi and Garwin to join in the proceedings, there was no other reason for trial, and summary judgment was therefore entered against the Defendant.

On appeal

18. On appeal, Mr Chain submitted that the judge had placed too much weight on the receipt and had construed it as if it were a contract. This document, comprising only of a few words, was so cursory that there must have been a previous agreement. Mr Takahashi's version of the agreement was supported by the fact that Mr Lam had made no demands to the Defendant for payment for the goods and services for more than a year, whilst Garwin had made no demands for repayment from Hang Shing either. Summary judgment should not be ordered unless the court could conclude that the defence was "practically moonshine".

19. I must say that given the brevity of the receipt and the judge's view that the whole situation was a horrendous muddle, summary judgment appears to have been very hard. The receipt itself showed that there must have been a previous agreement and Mr Takahashi has gone on affirmation to say what that oral agreement was. The judge queried why the agreement was not expressed in the receipt, but in my view, with respect to the judge, that should have led to an order for conditional leave, rather than summary judgment.

20. That view is supported by correspondence which was placed before this court but not before the judge. On 2 May 2002, before these proceedings were initiated, solicitors acting for "Mr Takahashi, one of the shareholders and directors of [the Defendant] and Garwin" wrote to Mr Lam trading as the Plaintiff alleging that he had requested Mr Takahashi to lend him a sum of $720,000. Nearly 2 months later, there was a reply from solicitors acting for Mr Lam denying that he had asked for the loan.

21. However, the letter went on to say that the sum of $720,000 was paid by "your client" to Hang Shing as deposit for the ordering of goods and that the sum would be deducted from the purchase monies to be paid by "your client" to Hang Shing. The reference to the loan being made by Mr Takahashi, or Mr Takahashi in his capacity as shareholder and director of not only Garwin, but also the Defendant, was surprising if the loan was made between Hang Shing and Garwin only. In the circumstances, I took the view that the right order was for leave to be given conditional upon payment in of the sum claimed.

22. It follows that there is no impediment to the joinder of Garwin and Mr Takahashi in the same proceedings. Speaking practically, a joinder of parties would be less costly and more time-effective than separate proceedings.

23. As for the costs below, since the condition for payment in has been complied with, the usual order would be as if unconditional leave had been given, i.e. that the costs be in the cause (Hong Kong Civil Procedure 2002, paragraphs 14/7/12-13).

24. As for the costs of the appeal, since the decision on appeal was to an extent bolstered by the correspondence relied on by Mr Chain, which had not been placed before the judge, I took the view that the proper order would not be to give the appellant the costs of the appeal, but to order that those costs should also be in the cause.

25. As for the costs of the applications for leave, these were ancillary to the appeal and the same costs order applied.

Hon Burrell J:

26. I agree. The exchange of correspondence between solicitors by letters dated 2 May 2002 and 29 June 2002, which the learned judge did not see, taken together, summarizes the very dispute which the defence submits is plainly more than "moonshine"; with which this court agrees. Leave to defend should therefore be granted. The primary reason for granting leave conditionally is because of the terms of the receipt referred to in paragraph 16 et seq. above. Absent that document leave would have been unconditional.