Combined Rich Co. Ltd. v. Sim Kok Keng and Others

IN THE COURT OF APPEAL

1997, No. 159
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from an order of Findlay, J. made on 15 July 1997, dismissing the appeal of the 1st and 2nd defendants, in the action before him, from an order made by Master Woolley on 12 May 1997. The master's order was for judgment to be entered against the 1st and 2nd defendants for the sum of US$2.05m, together with interest and costs.

2. The application made to the master for judgment was an application for summary judgment under O.14 of the Rules of the High Court. The court will give summary judgment against a defendant only if the defendant has failed to show any defence to the plaintiff's action.

3. In the present case, the 1st and 2nd defendants claim that they have shown a defence to the plaintiff's action and that accordingly the action ought to proceed to trial. The judge disagreed, finding their story to be incredible. The 1st and 2nd defendants now appeal.

The plaintiff's case

4. The plaintiff is a Hong Kong company. The 1st defendant and the 2nd defendant are from Singapore. The 1st defendant and the 2nd defendant own and control the 3rd defendant, a Singaporean company called Tarng Chern Holdings Pte. Limited.

5. The plaintiff was interested in co-operating with the 1st and 2nd defendants in the formation and establishment of a number of joint ventures in the Peoples' Republic of China. These involved leather goods, electrical goods and plastic goods. For the purpose of these joint ventures, three separate PRC companies were to be incorporated. In the case of the leather goods and the electrical goods ventures, so they were. In the case of the plastic goods venture, it was aborted. The plastics company was never formed.

6. The dispute before the judge concerned the plastics joint venture. The case of the plaintiff is that, in or around July 1992, the plaintiff, the 1st and the 2nd defendants, "in the name of or through the 3rd defendant", and a PRC party, negotiated the formation of the plastics joint venture. It was agreed that the plaintiff would apply and pay for letters of credit necessary for the importation of the machinery and equipment which the 1st and 2nd defendants, or, alternatively, the 3rd defendant, were to import to the PRC for the use of the plastics company.

7. The plaintiff says that it accordingly caused to be opened three sets of letters of credit in a total sum of around US$2,050,000 but that despite repeated demands, the 1st and 2nd defendants failed to pay that sum.

8. What is relied on by the plaintiff against the 1st and 2nd defendants is an agreement in writing between them and the plaintiff dated 29 October 1994 (there is also another agreement of that date with which we are not concerned). The relevant agreement recited the history of the matter :

"Party A [the 1st and 2nd defendants] established Fuxin Plastics Limited in Fuxin Development Zone, Fuzhou in July 1992 and asked the Party B [the plaintiff] to apply and pay for documentary credits on Party A's behalf in order to import PVC knitting equipment. Twenty sets of such equipments arrived at Mawei Harbour, Fuzhou in December 1992. Subsequently, due to problems concerning the factory and capital, Party A notified the responsible person in Fuzhou Mr. Xia Chiang Ming to arrange for the train transportation of the said equipments to Yiantai Development Zone, Shandong and in January 1994 borrowed from our company one set of imported PVC knitting equipment together with the original invoice of documentary credit and related documents provided by Swiss supplier."

9. Pausing there, that seems to be an accurate summary of the background, save that the plastics company was not in fact "established". The agreement continues as follows :

"Party A hereby warrants and confirms that the said equipment is presently in Yientai Development Zone for loan application procedures and hereby promises and agrees that as soon as the loan is provided, Party A shall forthwith repay the aforesaid amount owed to [the plaintiff] in the sum of USD2,050,000.00. Repayment shall be made not later than 30th December 1995. In any event, Party A shall be liable to repay the loan regardless of whether the said loan can be obtained before 30th December 1995."

10. This agreement was signed by one Wang Rui on behalf of the plaintiff and by the 1st and 2nd defendants. The 2nd defendant signed it on 29 October 1994. The 1st defendant signed it on 20 December 1994.

11. This latter date was also the date of a meeting between the parties in Singapore, a summary of which was recorded in writing. This shows that agreement had been reached between the parties regarding repayment of the outstanding loan and investment sum to the plaintiff in relation to the parties' investments in these joint ventures, including the plastics venture. As to the latter, it recorded that :

"Regarding the 20 sets of PP Plastics Belt Equipments originally imported to Fuzhou, and later transferred to Yiantai, and the resulting indebtedness to [the plaintiff] in the sum of USD2,050,000, it is intended that the said equipments be sub-contracted to a South Korean merchant in the first quarter of 1995, or to transfer the shares to Mr. Tze for Rmb10,000,000 [equivalent to which is about USD1.1m]. The moneys so obtained will be applied to repay the said indebtedness to [the plaintiff] in priority to other indebtedness."

12. The only other document to which I need refer is a document headed "Supplementary Agreement" dated 5 June 1993. This attempted to quantify what was due to the plaintiff. In that "Supplementary Agreement", Party A was stated, in the original draft, to be, not the 1st and 2nd defendant, but the 3rd defendant. Subsequently, the name of the joint venture company which was never in fact incorporated was substituted instead. But nothing in my judgment turns on this; and that then is the plaintiff's case.

The defendants' case

13. The defence which the 1st and 2nd defendants advance is perhaps best expressed in their own words. I quote from the affirmation of the 2nd defendant made on 11 March 1996, in which, after referring to the difficulties in procuring the necessary loans from banks in the PRC to finance the purchase of the equipment to which the letters of credit related, and mentioning that Wang Rui faced tremendous pressure from his higher authorities to account for the moneys used to finance the import of the equipment, the 2nd defendant continued as follows :

"11. As a consequence, Mr. Wang Rui approached the 1st Defendant and me to help settle the problem by furnishing a comfort letter to the effect that the companies would take steps to repay the amount of the documentary credits. Basically, he needed to give an assurance to his superiors that the amounts would be repaid. As a gesture of goodwill, the 1st Defendant and I agreed to sign the undertakings [this is a reference to the agreements of 29 October 1994] as directors of the joint venture companies to repay the sum as contained in the two Agreements. We did so only on the understanding that they were not intended to be legally binding but merely as a temporary measure to assist Mr Wang Rui to account to his superiors. These 'comfort letters' were superceded [sic] by the full arrangement set up in the final meeting held on 20 December 1994 ..... in Singapore ....."

14. In a further affirmation made by the 2nd defendant on 27 June 1997, he says in relation to these matters :

"22. Subsequently, in September 1994, Wang Rui again approached me again saying that he was under tremendous pressure from his superior and requested for a similar letter of undertaking from me and the 1st Defendant. Eventually, I was persuaded by Mr Wang Rui to sign the 2nd Repayment Agreement (as pleaded and defined in paragraph 34 of the Consolidated Statement of Claim) dated 29 October 1994 on or about 28 October 1994 for the sole purpose of helping Mr Wang Rui to pacify his superiors. Before I signed the 2nd Repayment Agreement, I had consulted with the 1st Defendant who agreed that I could sign the 2nd Repayment Agreement on his behalf for this sole purpose. The 2nd Repayment Agreement was signed merely as a gesture of goodwill and on the understanding that it was not intended to be legally binding. This explained why the 1st Defendant and I agreed to sign the 2nd Repayment Agreement undertaking to pay the Plaintiff the full amount of US$2,050,000 notwithstanding the previous payments reducing the total indebtedness (to which the defendant had referred)."

Have the defendants shown a defence?

15. The task in front of the 1st and 2nd defendants, who were seeking to fend off a judgment on the written agreement into which they had entered, was not an easy one. They failed before the master, and the judge. That is not surprising. When parties sign a document appearing to be of a formal contractual nature, it will normally be impossible, or at least difficult, for them to deny its contractual character. In the absence of fraud, or no doubt misrepresentation, the law is that a party signing such a document is bound to its terms.

16. There is nothing in the instant case to suggest any fraud or misrepresentation on the part of the plaintiff inducing the 1st and 2nd defendants to enter into a contract with the plaintiff into which they would otherwise not have entered. Nor is there anything to suggest that the case is one in which a plea of non est factum might succeed. There is certainly some (albeit pretty sparse) evidence of an agreement between the 1st and 2nd defendants and Wang Rui that the 1st and 2nd defendants would enter into this contract so as to enable him to give comfort to his superiors. It is now sought by the 1st and 2nd defendants to take advantage of their own wrong in entering into this conspiracy to deceive Wang's superiors. They seek to do so by denying the binding effect of a contract into which they entered. That seems to me to afford the 1st and 2nd defendants no defence at all.

The judgment below

17. The judge was of the opinion that the story of the 1st and 2nd defendants (recited, in a very sketchy way, in the two paragraphs from the 2nd defendant's evidence which I have read) was incredible. I would not be prepared to go that far. It seems to me at least possible that the facts were as the defendants stated. What weighs with me is that I cannot see that, even if one accepts, for the purposes of the present application, what the 1st and 2nd defendants say as credible, it affords them any defence to the action. I think there is nothing here anywhere near sufficient to disclose a defence to the claim based by the plaintiff upon the written contract on which it sues.

Conclusion

18. For these reasons, I would affirm the judge's judgment and dismiss the appeal. I should add that certain points were taken before us as to quantum of the liability of the 1st and 2nd defendants to the plaintiff, but these points were taken late, only before the judge, and appeared to be contrary to the admissions made in the pleadings. For my part, I do not think this court ought to consider these points now. I would, therefore, as I have said, simply affirm the judge's order and dismiss this appeal.

Le Pichon, J.:

19. As to the enforceability of the Agreement of 29 October, I agree that there is no defence for the reasons given by my Lord, Godfrey, JA.

20. I will restrict my judgment to the question of part repayments that has been raised as a defence.

21. The learned judge dealt with three of the four repayments. The only one that was not specifically dealt with relates to an amount of HK$3.89 million or US$520,000. It is plain from the evidence that the first three sums were accounted for and these are set out in detail in Mr Wang Rui's affirmation. But Mr Wang does not deal with the payment of the US$520,000 for the reason that it was raised very late, the point being taken by the Defendants only two weeks before the hearing before the learned judge.

22. Nevertheless, in an Order 14 case, judgment can only be given when the amount is clearly established. I am not satisfied that there is no defence in relation to the amount of US$520,000. I do add, however, that the defence is probably shadowy and for my part, I would only grant leave to defend as to this amount on the basis that the sum remains in Court.

Mortimer, V.-P.:

23. I agree that this appeal should be dismissed and that the whole of the appeal should be dismissed. So far as the reasoning of the judge is concerned, I find myself in agreement with him. The judge came to the conclusion that the evidence was simply too vague and incredible to set up a defence fit for trial.

24. Earlier he had said:

"A court should pay no attention to a defence put forward in such deliberately vague terms."

Although in isolation I would not accept that last statement, in a case where the defendants are trying to obtain leave to defend on the basis that they do in this case - that they understood that the document that they were signing would not have legal effect - the burden upon them is very high. It was explained by Lord Moulton in Heilbut, Symons & Co v. Buckleton [1913] AC 30 at 47 dealing with the same situation, he said:

"Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law. They must be proved strictly."

The same applies in circumstances such as this. For my part, I would not accept that the relevant passages in the affidavits which have been referred to by my brother Godfrey, come anywhere near to establish a defence, even if taken at their face value. Of course, in these proceedings, this the judge was obliged to do. For my part, on that I am unable to say that the judge was wrong. In fact, I agree with his conclusion.

25. So far as the amount is concerned, the judge considered this matter, although not as fully as we have, and came to the conclusion that the judgment should be given for the full amount. In doing so, he took at face value the affidavits that had been sworn in the case, showing that the first sums had been credited. There is no dispute about those.

26. Turning to the $3.9 million which was paid under two cheques which we have in evidence before us. The evidence concerning those, I would agree, is not as full as it could be. But in these circumstances where the defence raised no question about the sums when the present point was raised late, and the affidavits are clear, I am not satisfied that the judge was wrong. I agree with my brother Godfrey that this appeal should be dismissed.

27. In those circumstances the order is that the appeal is dismissed. The costs will follow the event.