ERIC DANIEL KURTZMAN v. ADRIAN PETTER

HCA 702/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 702 OF 2012

BETWEEN

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REASONS FOR DECISION

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The application

1.  The plaintiff has taken out this application for summary judgment under Order 14 of the RHC for the reliefs as follows:

a.  Principal sum of Loan of $2 million;

b.  Default interest on the Principal sum up to 2 May 2012 at HK$285,333.33 and thereafter at the daily rate of HK$1,333.33; and

c.  Costs on an indemnity basis.

2.  Counsel A. Wong acts for the plaintiff and Counsel J. Thomson acts for the defendant.

The claim

3.  The above claims are based upon a Loan Agreement signed between the plaintiff and the defendant whereby the plaintiff had advanced the Principal sum to the defendant for investment in certain property in Ap Lei Chau.  The plaintiff alleged that the defendant was in breach of the Loan Agreement, under which he was entitled, in accordance with the terms of the Loan Agreement, to the remedies against the defendant.

4.  It should be noted that in the statement of claim, the plaintiff has claimed, on top of those above, Profit Share Payments and Default Interest for both the Principal sum and the Profit Share Payments being HK$410,374.96 calculated up to 2 May 2012, with daily interest at HK$1917.64 continuing to accrue thereafter.

5.  The plaintiff has now changed his position that he does not intend to pursue his claim for Profit Share Payments or on the Default Interest arising from the Profit Share in this action.^[1]  He only intends to pursue judgment for the return of the Principal in the sum of HK$2 million and Default Interest arising from the Principal, the Default Interest being calculated in accordance with clause 2 of the Loan Agreement upon which the Principal sum was advanced to the defendant.^[2]

6.  Due notice of this change of position has been given to the defendant’s solicitors.^[3]

The defendant’s admission

7.  The defendant has, in his affidavit, admitted that he would not dispute the plaintiff’s claim for the Principal sum of HK$2 million.  Nor had he disputed the Default interest on the Principal sum in his affidavit.[4]

The defendant’s argument

8.  The defendant’s counsel has submitted his skeleton argument, in which it is submitted that the plaintiff has not applied for leave to amend his statement of claim; that the defendant should be allowed to withdraw his admission that he had made in his affidavit in opposition to the plaintiff’s application[5]; and that there are the following triable issues:

a.  How should the Loan Agreement be construed in the light of the plaintiff’s withdrawal of parts of his claim?

b.  Whether the loan is repayable before 1 December 2012?

c.  Whether default interest is payable?

d.  Whether the default interest claimed is a penalty and therefore unenforceable?

Discussion

9.  The defendant has made admission in the Acknowledgement of Service[6] and of the principal sum of $2 million together with interest thereon amount to $2,288,653.58 in Form 16[7] and finally in his own affidavit for this application[8].  Mr. Wong opposes his application for leave to withdraw his admission, relying upon the Reason for Ruling in Hua Tyan Development Limited v Zurich Insurance Company Limited & Another HCA480/2009 by Chung J. delivered on 20 July 2012, in which the learned Judge had in paragraphs 15 and 16 referred to other cases to say that the application must be supported by proper explanation, otherwise the court will refuse leave to withdraw.

10.  The defendant has not given any explanation in support of his application for leave to withdraw admission in his affidavit.  Mr. Thomson is unable to give me any explanation either today.  All he has says is that this case should be distinguished from the other cases because the plaintiff has changed his claim – he has withdrawn his claim for the Profit Share Payment and the interest thereon.

11.  I do not agree that because of the plaintiff’s change of position of reducing his claims today, it will give the defendant reason for not giving reason for withdrawing his admission.  In accordance with the authority, I refuse leave to the defendant to withdraw his admission.  It seems that judgment on the defendant’s admission, viz. the principal sum of 2 million dollars together with interest can be awarded to the plaintiff by judgment.  In the event that I am wrong in my decision of refusing leave for withdrawal of his admission, I now continue to consider the plaintiff’s application for summary judgment on the basis of no admission having been made by the defendant.

12.  Mr. Thomson has relied heavily on the fact that the plaintiff has changed his position by withdrawing his claim for the Profit Share Payment and the interest thereon under the Loan Agreement.  He submits that this will be tantamount to no such clause in the Loan Agreement.  However, he admits that the defendant had been in default in payment of the first Profit Share Payment and under Clause 4 of the Loan Agreement, the event of default had taken place whereby the defendant has to repay the 2 million dollars together with interest.

13.  I do not accept Mr. Thomson’s argument.  To withdraw or even to waive the right of claim by the innocent party is one thing; to say that such waiver amounts to a variation of the Loan Agreement or as if no default had been committed is quite another.  Mr. Thomson has not shown me any authority to support his submission, which I find to be against common or legal sense.

14.  Mr. Thomson also argues that the plaintiff should have applied for amendment to the statement of claim to withdraw the claim for Profit Share Payment and the interest thereon.  Otherwise, the existing statement of claim is defective.

15.  He is unable to tell me in what respect the statement of claim is defective.  I have no application for amendment today from the plaintiff.  Therefore, the parties can simply proceed on the basis of the statement of claim as it is.  If the statement of claim is defective, the plaintiff fails.  If the statement of claim and the evidence by affidavits can support the application, the court can consider and grant it.  I do not think Mr. Thomson’s argument assists his opposition to this application.

16.  Under Order 14 rule 3 RHC, the court may enter judgment on part of the plaintiff’s claim, having regard to the nature of the remedy or relief claimed.  The plaintiff has already agreed not to pursue the claim for Profit Share Payment and the interest thereon, which form part of the plaintiff’s claims.

17.  In relation to issue a, the fact that the plaintiff has withdrawn his claims on the Profit Share Payment and the interest thereon only affects the plaintiff’s pleadings, not the Loan Agreement itself.  As such, the Loan Agreement’s construction should not be affected by the plaintiff’s pleadings.

18.  In relation to issue b, the answer should be “No” since the defendant has been in breach of Clause 3 of the Loan Agreement Clause 4 shall be in operation.

19.  In relation to issue c, the answer is “Yes” although the plaintiff has agreed not to claim in the application for summary judgment.

20.  In relation to issue d, Mr. Wong refers to Real Maker Development Ltd. v Cobow Contracting & Engineering Company Ltd.  (unreported, DCCJ 6607/2004, HHDJ Marlene Ng delivered on 31 May 2005 at §§74-85) whereby it was held that the contractual rate of interest at 1.5% per month (18% pa) was NOT extravagant.  At §81 of the judgment, the learned District Judge held:

“… There is no evidence before me of the commercial rate of interest for the aforesaid theoretical borrowing cost. I cannot say the contractual rate of interest at the rate of 1.5% per month (18% pa) is extravagant or out of proportion to the range of loss which might likely be incurred. ”

21.  It seems clear from the authorities that the burden is on the defendant, who has raised the issue of penalty, to show that at the time of the contract, the commercial rate at the market was below the agreed rate and the agreed rate is therefore not a genuine pre-estimate of the loss.  Mr. Thomson agrees that he does not have evidence to show the commercial rate in the market.  As such, I do not accept his proposal that the rate of interest in the Loan Agreement, which is 2% per month is a penalty.

22.  Having considered the evidence and counsel’s arguments before me today, I find that the defendant fails to discharge the burden of showing triable issues for the trial.  Accordingly, I enter judgment as claimed by the plaintiff set out in paragraph 1 above.

23.  As to costs, the plaintiff claims for costs on indemnity basis, which the defendant opposes on the ground that it was not pleaded in the pleadings.  Mr. Wong refers me to the White Book 2012 at 18/15/3 at page 409, in which it says that the plaintiff does not have to expressly ask for costs.  The costs on indemnity basis are provided under Clause 8.2 of the Loan Agreement^[9].  As such, I hold that the plaintiff is entitled to claim for costs on an indemnity basis.  The judgment will include costs on indemnity as in paragraph 1 above.

24.  As to costs for today’s hearing, Mr. Thomson argues that the costs should be given to the defendant because a) the defendant has made admission in Form 16 and b) the plaintiff has changed his stance recently.  I accept Mr. Wong’s argument that if the defendant has kept his admission today without argument, the plaintiff is not entitled to the full costs.  However, this afternoon, the defendant is arguing on withdrawal of his admission and even disputes his liability on the principal sum.  Time for today has spent on these arguments, which the defendant has failed.  Therefore there is no reason that the costs for today should not follow the event, and I so order, with certificate for counsel.

Order

25.  I shall make an order in term as follows:

a.  Final judgment to the plaintiff as per paragraph 1 above;

b.  Costs of this application, including all costs reserved and the hearing today be to the plaintiff with certificate for counsel on an indemnity basis, to be taxed if not agreed.