XCHRX SHUN KAI FINANCE CO. LTD. AND OTHERS v. JAPAN LEASING (HONG KONG) LTD.

HCA13826/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13826 OF 1998

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REASONS FOR DECISION

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1. This is an appeal against the Order of Master POON, dismissing the defendant application for leave to try certain preliminary issues, the particulars of which have been fully set out in the summons itself.

2. The background of this case can be briefly summarised as follows: The defendant financed the 1st plaintiff with loans and having obtained the loans from the defendant, the 1st plaintiff then lent money to various sub-borrowers. It is not disputed that on top of the loans from the defendant, the 1st plaintiff also made use of his own money. As security for such lending, there

were mortgages between the 1st plaintiff and the sub-borrowers, and there were also mortgages between the 1st plaintiff and the defendant.

3. In addition to the sub-mortgages there was also a Governing Agreement between the 1st plaintiff and the defendant whereby the 1st plaintiff was authorised to receive mortgage repayments from the sub-borrowers directly. The 1st plaintiff would then make payments to the defendant. The defendant alleged that the 1st plaintiff defaulted on his payment to the defendant and the defendant then sought to exercise his power under the Governing Agreement and the sub-mortgages to require the sub-borrowers to make payments or re-payments directly to the defendant.

4. It is the plaintiffs' case, on the other hand, that the defendant was in breach of the Governing Agreement by requiring the sub-borrowers to make direct payments to it and hence the present claim. In the original statement of claim the 1st plaintiff raised a number of matters. Firstly, when the defendant directed the sub-borrowers to make payments to it instead of the 1st plaintiff, the defendant was actually in breach of the Governing Agreement in particular, Clause 5 thereof which stipulates that the defendant can only revoke the authorisation granted to the 1st plaintiff to receive payments from the sub-borrowers upon seven working days prior notice, when the 1st plaintiff was in default of the repayments of the loan and interest thereon.

5. Secondly, the 1st plaintiff alleged that the defendant, in directing the sub-borrowers to make payment directly to it instead of the 1st plaintiff, the defendant conduct constituted tortious procurement of breaches of contract by the sub-borrowers towards the 1st plaintiff. And in so far as the plaintiffs are concerned, the defendant conduct destroyed and/or diminished the value of the 1st plaintiff, thereby causing loss and injury to the 2nd and the 3rd plaintiff who are the shareholders and directors of the 1st plaintiff.

6. The defendant contended that the authority granted to the 1st plaintiff to receive payments from sub-borrowers would cease or extinguish upon default and/or breach of the contract on the part of the 1st plaintiff. Alternatively, the defendant contended that there had been three notices of revocation; on 1 July, 23 July and 8 October 1998, which notices terminated the authority granted to the 1st plaintiff.

7. The matter had been made slightly more complicated by the plaintiffs' recent application to amend the statement of claim to include the suggestion that the defendant could not revoke the authorisation granted to the 1st plaintiff except with a seven days express prior notice and that the 1st plaintiff had failed to make good any default within such period of time.

8. I am given to understand that the 1st plaintiff application to amend the statement of claim was contested and had been adjourned for argument before the Master. In addition to the present action, there are also, I am given to understand, four related actions and one potential action between the defendant and the 1st and/or 2nd and/or 3rd plaintiff. In those actions or potential action, the defendant is seeking to recover money lent to the plaintiffs or companies controlled by them.

9. The defence raised by the plaintiffs in those actions is that they are not liable to pay because of the claim or counterclaim against the defendant in the present action. Mr NG, on behalf of the defendant suggested that the main issue is whether the defendant was entitled to give the notices to the sub-borrowers to make payments directly to the defendant instead of the 1st plaintiff. Or whether the 1st plaintiff authorisation to receive payments ceased automatically from the date of the default or, in any event, from the date of the said notices on 1 July, 23 July or 8 October 1998.

10. Mr NG, suggested that those issues are central to the present case as well as to the other actions or potential action between the parties. The resolution of those issues, so Mr NG suggests, will be highly expedient, not just for the present action but for the other actions and/or potential action. Speaking for myself, I do not consider the impact of a decision of the present proceedings on the other actions or potential action is of too much significance in the resolution of the issues before me. There has been no order for consolidation. The issues involving those other actions are not, in my view, matters I should attach too much significance.

11. Mr NG argued that before the plaintiffs raised the further issues as set out in the proposed amendment of the statement of claim, the issue involved in the case is almost purely a question of law. He suggests that the non-admission of the default on the repayment to the defendant by the 1st plaintiff can be sorted out quite easily as it would not be possible for the plaintiff to deny such a default on the repayment on affidavit or affirmation.

12. Mr NG, in his argument further suggested that the attempt to amend the statement of claim was made mala fide and was concocted for the sole purpose of defeating the defendant present application. Mr NG suggested that the court should completely ignore the matters raised in the proposed amendment to the statement of claim by the plaintiffs, as those allegations were made very late in time and it was not even made in other proceedings when the background giving rise to such matters are identical.

13. On this aspect I think it is right for me to point out that the plaintiffs' application to amend the statement of claim is still a matter that is pending. It is not my primary function in the present case to resolve such matters. Indeed, in my view it would be wrong for me to do so, as this matter is not before me and if I were to make any finding on such a matter, it will create a rather embarrassing situation for whoever has to resolve that particular matter. I shall be usurping the function of the Master before whom the matter has now been listed.

14. If I were to proceed with the matter on the basis that the proposed amendments are to be completely ignored, the court will also be put in a difficult position or situation if subsequently the proposed amendment were to be allowed in due course. The defendant chose to proceed with the present application before the application to amend the statement of claim by the plaintiff has been disposed of. It is in my view only right that so far as this case is concerned, it should be considered as if the proposed amendment is allowed.

15. In order to avoid the rather unsatisfactory situation that the court had earlier indicated, Mr NG suggests that even if the proposed amendment is allowed, the allegation of an oral agreement is not a bar to the trial of the preliminary issues as proposed by the defendant. He said the factual issue raised by the proposed amendment is a simple one and that all that is required is for two more witnesses to be called to give evidence and be cross-examined on the alleged oral agreement.

16. It is not my function at this Hearing to decide how the issues pertaining to the alleged oral agreement is to be resolved. Whether it involves just the two witnesses remains a matter to be seen. But to adopt the proposed suggestion by Mr NG, the matter is no longer a trial of a preliminary issue. It is in fact a full trial involving not just matters of law but matters of fact as well.

17. In any event, the suggestion put forward by Mr NG, would not dispose of the claim by the 2nd and the 3rd plaintiff. If the defendant is somehow saying that a claim by the 2nd and the 3rd plaintiff has absolutely no merit and cannot stand at all, perhaps proper steps ought to be taken to have those claims struck out but that is not an issue before me and apparently no attempt has been made to achieve such a purpose.

18. In my view it is not the purpose of Order 33 to cater for situations as demonstrated in the present application. In my view the suggestion or application by the defendant is neither just nor convenient and it certainly will not save any costs. I have not been persuaded that there is justification for departing from the normal procedure or rule by ordering the trial of the preliminary issues as sought by the defendant.

19. Whether the parties should consider to separate the question of liability and quantum is a matter for the parties to consider. As I have observed in the course of counsel argument that to accede to the request by the defendant is indeed to allow the defendant a speedy trial through the back door, when there is no justification, indeed no application in that regard.

20. Having considered counsel argument and the background of this matter, I am satisfied that the learned Master had in fact come to a correct decision and that his decisions are not to be interfered with. In the circumstances the appeal has to be dismissed.