LARK INTERNATIONAL FINANCE LTD. v. LAM KIM MARISA t/a KAM SANG CO. AND ANOTHER

HCA14104/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.14104 OF 1997

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J U D G M E N T

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1. This is a retrial ordered by the Court of Appeal in respect of the plaintiff's claim arising under paragraphs 4 and 6 of the Amended Statement of Claim alone. It concerns only the 2nd defendant.

2. Under those two paragraphs, the plaintiffs claim against the 2nd defendant is based on an alleged agreement entered into between them at a meeting held on 3 March 1997 in which plaintiff alleges that the 2nd defendant agreed with the plaintiff to be personally liable for a debt owed to the plaintiff by the 1st defendant (being the wife of the 2nd defendant) in the sum of $3.1 million. That agreement, says the plaintiff, is evidenced by a memorandum signed by the 2nd defendant.

3. The defence of the 2nd defendant is that he went to the meeting on 3 March 1997 as an agent or representative of the 1st defendant and at that meeting he had discussed with the two representatives of the plaintiff a repayment schedule by which the 1st defendant would repay the debt by instalment over a period of time and in the course of doing so he had signed a memorandum on which was written out the repayment schedule by instalment, not as any agreement but only as an acknowledgment of what was discussed by them at that meeting. In so doing, he was merely acting as the agent of the 1st defendant. He denies ever agreeing to become personally liable to the plaintiff for the debts of the 1st defendant.

4. This therefore is the issue in dispute between the parties.

The Background Facts

5. The plaintiff is a foreign exchange company and also discounts cheques in the course of its business. The 1st defendant, being the wife of the 2nd defendant, trades under the name of Kam Sang Company ("Kam Sang"). She took over that business from the 2nd defendant's father in 1988 and since that time was the sole proprietor of Kam Sang.

6. Kam Sang had been trading with Deaks, the predecessor of the plaintiff as early as 1983. When the plaintiff took over the business of Deaks in 1992, Kam Sang started to trade with the plaintiff in the place of Deaks. In the course of that business, Kam Sang discounted cheques with the plaintiff.

7. Before commencing to do business with Kam Sang in 1992 after it took over the business of Deaks, the plaintiff had obtained a mandate signed by the 1st defendant as well as her personal guarantee in respect of all debts which Kam Sang may become liable to the plaintiff. From these documents, it must have been well known at all times to the plaintiff that the 1st defendant was the sole proprietor of Kam Sang.

8. In about mid-November 1996, for reasons that need not be gone into, a number of US dollar cheques drawn by third parties, endorsed to the plaintiff by the 1st defendant and which the plaintiff had discounted for the 1st defendant were dishonoured.

9. Under the mandate upon which the 1st defendant had given to the plaintiff, the plaintiff was entitled to look to the 1st defendant for repayment in respect of those dishonoured US dollar cheques which had been discounted by the plaintiff in favour of Kam Sang. As a result the 1st defendant became indebted to the plaintiff in an amount equivalent to over HK$10 million.

10. Because of this very large debt, various of the plaintiff's staff which included Mr Chan Shui Lun (PW1), his superiors Mr David Mok and Mr Au Yeung did constantly either by phone or by attending at the office of Kam Sang, press for repayment of the debt. On occasions they spoke to the 2nd defendant on the phone or at Kam Sang's office for that purpose.

11. Between the time this debt arose in mid-November 1996 until early March 1997 various attempts had been made by the 1st defendant, the 2nd defendant as well as other people to assist the 1st defendant to pay off and/or to reduce the debt owed by her to the plaintiff.

12. Firstly, in October 1996 (prior to the time when the debt arose) the 2nd defendant had entered into a Sale and Purchase Agreement to sell House No.40, Manderly Gardens in Deep Water Bay Road, a property wholly owned by him. After the debt had been incurred by the 1st defendant, the 2nd defendant had indicated or offered to the plaintiff that he may be able to reduce some of the debt of his wife from the proceeds of sale. However, as it turned out, this sale did not result in any balance of proceeds of sale left over (after repayment of the mortgage on the house) therefore nothing came from this sale to reduce the debt owed to the plaintiff.

13. Secondly, the 2nd defendant had a 70% beneficial ownership of a company, Bally Ltd which owned two properties in Wanchai situated on the 2nd and 3rd floors respectively of No.580 Jaffe Road. A second charge was created in favour of the plaintiff in respect of these two properties and the plaintiff did manage to obtain HK$2 million in exchange for the release of the charge of one of these two properties at end of January or early February 1997.

14. Thirdly, other US dollar cheques and some HK dollar cheques drawn by Kam Sang were also given to the plaintiff to reduce the debt owed by the 1st defendant to the plaintiff.

15. By early March 1997, the debt owed by the 1st defendant, initially in excess of HK$10 million in mid-November 1996, had been reduced to HK$3.1 million.

16. I also accept the plaintiff's evidence that during this time up to March 1997, the 2nd defendant, as the husband of the 1st defendant, has had numerous discussions with the representatives of the plaintiff promising to do all he could to raise funds to settle or reduce the 1st defendant's indebtedness to the plaintiff. However, that is not to say that by so promising the 2nd defendant had assumed personal liability in a legal sense for the debt of his wife. In my view in so promising the 2nd defendant was saying to the plaintiff no more than "Give me some time and I will see what I can do to pay off or reduce my wife's debt which she owes you". There is nothing strange or unusual about a husband promising or offering to pay off his wife's debt. That is usually undertaken by the husband gratuitously in which case he is not legally bound to do so. However, it is quite a different thing to suggest, as the plaintiff does here, that the husband is legally obligated to pay off the debt of his wife and that they have the right to enforce that against the husband in law.

17. Indeed, in his opening, counsel for the plaintiff conceded as much when he made it quite clear that all the discussions which took place between the plaintiff and the 2nd defendant prior to the 3 March 1997 meeting was adduced into evidence as background only and that the plaintiff's case against the 2nd defendant is based solely on the agreement reached between them at that meeting on 3 March 1997.

18. In order to succeed in its claim, the onus is upon the plaintiff to show, at least on balance, that there exist a binding agreement between plaintiff and the 2nd defendant whereby the 2nd defendant had agreed to become personally liable legally to the plaintiff for the debt which is owed by the 1st defendant such that the plaintiff can enforce that binding agreement by taking legal proceedings against the 2nd defendant should he be in breach thereof.

Meeting of 3 March 1997

19. There is no dispute that on 3 March 1997 a meeting took place at the office of the plaintiff which was attended by Donald Charles Meyer, a director of Lark International Holdings Ltd, the parent company of the plaintiff. Mr Meyer is also the in-house legal adviser of the plaintiff. Also present at the meeting was a Mr David Mok, a director of the plaintiff. Present also was the 2nd defendant himself.

20. There is also no dispute that at that meeting, a handwritten document, written out by Mr Meyer as a result of the discussions of the three of them was signed by both Mr Mok and also by the 2nd defendant. On that document it was expressly stated that Mr Mok signed on behalf of the plaintiff. Underneath the 2nd defendant's signature only the name of the 2nd defendant appears and that name of the 2nd defendant was written by the 2nd defendant himself. No other words appear to indicate that the 2nd defendant was signing on behalf of another.

21. The full document reads as follows :

"3 MARCH 1997
MARCH '97	2 x 5000 EACH
APRIL '97	$150,000
MAY '97	$200,000
JUNE '97	$200,000
JULY '97 & after	$250,000	EACH MONTH

Each payment due 1st of each month, except one March '97 payment due 17th MARCH '97.

FULL BALANCE, if any, due on April 1,1998.

INTEREST on unpaid balance at HK Bank prime rate + 1 1/2%.

Prepayments allowed without penalty.

For and on behalf of
Lark Finance
Sd.		Sd.
_________		__________
		Peter Lam"

22. Looking at the document signed by the 2nd defendant per se, it is impossible to say that it contains any such agreement by the 2nd defendant to assume personal liability for the debt owed by the 1st defendant to the plaintiff. Indeed it would be correct to go as far as to say that that document, per se, cannot be construed to contain any kind of agreement pertaining to the person of the 2nd defendant.

23. The most that can be said of this document signed by the 2nd defendant is that it may support and in that sense be some evidence of an oral agreement reached at that meeting between the parties when the entire background circumstances are taken into consideration as well. In order to decide whether or not such an oral agreement as alleged by the plaintiff exists, one will have to look at the other evidence adduced by the plaintiff to see what was orally agreed between the plaintiff and the 2nd defendant at the 3 March meeting.

Evidence of Mr Meyer

24. The only evidence adduced by the plaintiff in relation to the meeting of 3 March 1997 came from Mr Meyer, their in-house legal adviser. Mr Mok was not called to give evidence because he has already retired from the plaintiff and is no longer in Hong Kong having emigrated.

25. Mr Meyer's evidence in so far as the 3 March 1997 meeting was concerned is that that was the first time he had met the 2nd defendant although all along he had been kept informed of the progress of the plaintiff chasing for repayment of this debt owed by the 1st defendant.

26. Mr Meyer was also unable to recall many of the minor details of the discussion that went on at this meeting as for instance who suggested the amounts of the installments and the rate of interests which was written on the document signed by the 2nd defendant.

27. Mr Meyer gave evidence that he came to this meeting with the idea that since the plaintiff already have a written mandate and personal guarantee from the 1st defendant, they did not need another document to that effect. What the plaintiff did not have was something in writing from the 2nd defendant to the effect that the 2nd defendant agreed to pay the amount of the debt still outstanding.

28. He said that the document signed by the 2nd defendant "memorializes" what was orally agreed between the 2nd defendant and the plaintiff at that meeting and was then signed by both parties. When it was signed by the 2nd defendant, he (Mr Meyer) took that to be the personal agreement of the 2nd defendant to repay by the amounts of the installments stated therein. Mr Meyer agreed that in retrospect perhaps he should have drawn up a more comprehensive agreement.

29. When Mr Meyer was asked by counsel for the plaintiff, how was the message conveyed to the 2nd defendant at that meeting that the 2nd defendant was to be personally liable for the amounts of the installments stated in the repayment schedule, Mr Meyer's answer was that as far as he was concerned the dialogue with the 2nd defendant arose because of the outstanding amount Kam Sang owed to the plaintiff. It also arose because of the previous undertaking made by the 2nd defendant. The plaintiff already had an agreement with Kam Sang. The 2nd defendant did not say anything to the effect that he was only at the meeting on behalf of the 1st defendant, nor was there any representation, oral or written, to that effect.

30. Mr Meyer was also asked in chief by the plaintiff's counsel whether the 2nd defendant had said anything (before signing the document) to the effect that he came to the plaintiff's office only for the purpose of discussion and had no intention of making a concrete deal. To that question his answer was as follows :

"I had my expectation that he was there in order (unfinished) ... I don't know what his expectations were but my expectations were either we need payment or we need an agreement to satisfy us in lieu of immediate payment; an agreement from him - we already have an agreement from Kam Sang."

31. There is no other evidence from Mr Meyer which shows how an oral agreement was arrived at between the plaintiff and the 2nd defendant by which the 2nd defendant agreed to become personally liable for the debt owed by the 1st defendant to the plaintiff at the 3 March 1997 meeting.

32. From all the evidence given by Mr Meyer as to what transpired at the 3 March meeting, I am unable to come to the conclusion that there was any agreement reached between the parties at that meeting whereby the 2nd defendant would assume personal liability for the $3.1 million owed by the 1st defendant to the plaintiff. At best it was no more than an expectation on the part of Mr Meyer which was never sufficiently conveyed to the 2nd defendant at the meeting.

33. Moreover, there is no evidence of any consideration moving from the 2nd defendant even if he did promise to pay off that debt. In the absence of consideration, even if there was such a promise by the 2nd defendant, that cannot be binding on him.

Subsequent Conduct

34. That however, is not the end of the matter. The plaintiff also relies upon the subsequent conduct of the 2nd defendant to show that such an agreement existed. The conduct relied on is the fact that several days after the 3 March 1997 meeting, the plaintiff collected from Kam Sang's office 15 post-dated cheques bearing out the amounts and the dates as appearing on the repayment schedule contained in the document signed by the 2nd defendant at the meeting on 3 March 1997.

35. However, these cheques were drawn by Kam Sang upon its account with the Wing Hang Bank Ltd. They were signed by the 2nd defendant but in his capacity as an authorised signatory for and on behalf of Kam Sang. No objections were raised by the plaintiff upon being given these post-dated cheques. Indeed the first four of these post-dated cheques were honoured upon presentation but not the remainder.

36. On those facts, I cannot see how this subsequent conduct can assist the plaintiff's case. If anything, I would have thought that these 15 post-dated cheques, drawn by Kam Sang and given to the plaintiff shortly after the 3 March meeting and not objected to by the plaintiff, supported the defence case instead in the sense that what was discussed at the 3 March meeting related to the 1st defendant paying off its debt by installments.

Finding of Facts

37. My finding of facts from all the evidence in the case are as follows :

(1) Before attending the 3 March meeting, certainly Mr Meyer and most likely also Mr Mok well knew that the debt of $3.1 million owed to the plaintiff at that time was a debt owed legally by the 1st defendant alone as the sole proprietor of Kam Sang;

(2) The discussion at that meeting was aimed at working out an acceptable compromise as to how the 1st defendant could pay off this debt by instalments given enough time to do so;

(3) The 2nd defendant attended this meeting as an agent for his wife, a matter which must have been well known to both Mr Meyer and Mr Mok;

(4) The repayment schedule was agreed between them, written out by Mr Meyer on the memorandum and signed by the parties; in so agreeing, most likely the 2nd defendant had already been given the authority to do so by the 1st defendant without the need to consult her further;

(5) This resulted in the handing over of the 15 post-dated cheques by Kam Sang several days later; and

(6) At no time was there an agreement whereby the 2nd defendant agreed to assume personal liability for the debt of the 1st defendant.

38. There is no need for me to reiterate fully the evidence of the 2nd defendant suffice it to say that in so far as the above findings differ from the evidence given by the 2nd defendant, then and to that extent I do not accept the evidence of the 2nd defendant.

Decision

39. The conclusions that I have reached in this case is simply that the plaintiff has failed to prove its case on the evidence presented by it irrespective of what the evidence of the 2nd defendant would have been. That would still have been the case even if the 2nd defendant had adduced no evidence at all.

40. Accordingly, the plaintiff's claim is dismissed with costs. The cost order being an order nisi.