IP KAM WAH WILSON v. CHAN SIO IENG

DCCJ 3927/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3927 OF 2014

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DECISION

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Introduction

1.  This is the plaintiff’s application taken out on 6 April 2016 to enter summary judgment against the defendant in respect of a loan of RMB500,000 (“the subject loan”) lent to the defendant together with interest and costs (“the Order 14 Summons”).

2.  Apart from opposing the Order 14 Summons, the defendant issued a separate summons on 31 May 2016 to apply for the transfer of this action to the High Court to be heard together with a winding up petition of a Hong Kong company called Redbud Education Holdings Ltd (“the Company”) on just and equitable ground under HCCW 354 of 2015 (“the Transfer Summons”).

Background

3.  In about late 2010, at the defendant’s invitation, the plaintiff and his son (“Leon”) entered into a joint venture with the defendant to operate a kindergarten (“the Kindergarten”) in a residential development project in Beijiao Town of Shunde District called “海琴水岸” in the PRC (“the Development”).

4.  Under the joint venture, the plaintiff holds 50% shareholding of the Company through his corporate vehicle, Pleasure Ltd, whereas the defendant holds the remaining 50% shareholding.  The Company was used to acquire and hold certain land and premises situated in the Development (“the land and premises”) for operating the Kindergarten.

5.  It is also common ground that the necessary funding totaling about HK$6.8 million for acquiring the land and premises was provided by the plaintiff, who had in turn borrowed such funds from Orix Finance Services Limited (“Orix”). 

6.  The plaintiff also lent another series of loans to the Company to the tune of RMB9.3 million during the period between July 2012 and November 2012 in relation to the renovation of the Kindergarten^[1].

The defendant’s contention

7.  At the hearing, Mr Benny Lo, counsel representing the defendant, made it clear to the court that the defendant did borrow the subject loan from the plaintiff on 2 May 2013.  It is also not in dispute that the defendant borrowed such loan to finance the operation of the Kindergarten.  At the same time, Leon likewise borrowed a loan of equal amount from the plaintiff for the same purpose. 

8.  In both the loan agreement signed by the defendant as well as that signed by Leon[2], it is expressly provided that the term of loan is one year commencing from 2 May 2013 up to 1 May 2014.  The original Chinese version of such term is “借款日期由2013年5月2日起至2014年5月1日止。”

9.  Mr Lo nonetheless submitted that the subject loan is subject to a collateral agreement between the plaintiff and the defendant that it is only repayable when the Kindergarten starts to make profit, and since the Kindergarten has not yet made any profit (which is common ground).^[3] So, the subject loan is not yet repayable.  On the other hand, the defendant does not dispute that she has not paid for any of the interest as specified in the subject loan agreement.

Relevant principles on Order 14 applications

10.  To succeed in opposing an Order 14 application, the defendant has to show there is triable issue with respect to the plaintiff’s claim or there ought to be some other reason for trial. (Order 14 rule 3(1) of the Rules of District Court (Cap 336H Sub Leg) (“the RDC”)).

11.  In the context of Order 14, if the defendant makes an allegation, it must show that such allegation is credible or believable in the light of the affidavit evidence placed before the court.  On the other hand, the court must not embark on a mini trial on affidavits. (Hong Kong Civil Procedure 2017, vol 1, para 14/4/9)

12.  In Paul Y Management Ltd v Eternal Unity Development Ltd (CACV 16 of 2008, 12 August 2008), Cheung JA at para 19 lucidly expounded the test of summary judgment:-

“19. In deciding whether a plaintiff is entitled to summary judgment the relevant test is whether the defendant has raised credible triable issues. If there are, the matter should go to trial. If not, judgment should be entered against the defendant. In considering whether there are triable issues the Court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. But what the Court should not do is to conduct a mini-trial on complicated factual issues.”

13.  When a defendant seeks to rely on a collateral agreement to defend an Order 14 application, the aforesaid threshold onus is compounded by the onus of the defendant to strictly prove such agreement. (see Bank of India v Surtani Murlidhar Parmanand [1994] 1 HKC 7, per Nazareth JA (as His Lordship then was) at pp 11I-12C; Universal Dockyards Ltd v Trinity General Insurance Co Ltd [1989] 2 HKLR 160, at p 164; Bank of China (Hong Kong) Ltd v Fung Chin Kan & Anor (2002) 5 HKCFAR 515, per Bokhary PJ at para 1; China Everbright Holdings Co Ltd v Synergy Finance Ltd (HCA 933-935 of 2002, 18 December 2002) per DHCJ Poon (as His Lordship then was) at para 18)

The defendant’s case and evidence in support of its contention

14.  According to the defendant’s own pleaded case as supported by her three affirmations filed for the purpose of this hearing, she, the plaintiff and Leon had reached certain agreement and/or mutual understanding in the PRC around early February 2011 in relation to the joint venture.  One of the terms being that the loans for acquiring the land and premises and the renovation of the Kindergarten shall carry interest as agreed by both parties but such loans shall only be repayable after the Kindergarten starts to make profit (“the Repayment Agreement”).^[4]

15.  Around March to April 2012, the plaintiff verbally assured the defendant that he would continue to honour the Repayment Agreement, that is, he would first repay the loan from Orix for the Company himself, and would only start to claim repayment from the Company in respect of the loan when the Kindergarten starts to make profit.^[5]

16.  By September 2012, the Kindergarten had commenced its first school term.  It began to charge school fees in December 2012.  In around February 2013, realizing the Kindergarten had been operating for half a year, and had opened its own bank account, the defendant suggested to cease using a trust account of the company opened in the personal name of Leon (“the Trust Account”), and that the Kindergarten should directly deal with the Company on the financial matters.  The defendant also requested to review the transaction records of the Trust Account, but the plaintiff and Leon failed to entertain her request without offering her any explanation.

17.  On the other hand, the plaintiff requested the defendant to execute a personal guarantee for the Company’s repayment of the previous loans lent by the plaintiff to the Company.

18.  After the defendant had turned down such request, the plaintiff then suggested the defendant to agree for new shares of the Company be issued and allotted to the plaintiff or the defendant might sell her shareholding or part thereof to the plaintiff.  The defendant likewise rejected these latter proposals.

19.  Eventually, with a view to avoid the breakdown of the parties’ relationship and co-operation, the defendant signed the loan agreement for the subject loan for financing the operation of the Company and the Kindergarten (“the subject loan agreement”).

20.  In two of her supporting affirmations[6], the defendant alleged that before she signed the subject loan agreement, the plaintiff expressly assured her by saying that the Repayment Agreement[7] would be applicable to the subject loan as the purpose of such sum is to finance the Kindergarten. (see also: The defendant’s skeleton submission, para 31.2)

21.  On the plaintiff’s part, he denied the Repayment Agreement, let alone ever making any alleged assurance to the defendant that the Repayment Agreement would be applicable to the subject loan agreement.  The plaintiff however admitted that he did ask the defendant to sign a personal guarantee out of the concern that the Company may not eventually be able to repay in full the prior loans when they fell due[8].  And according to the plaintiff’s pleaded case, the subject loan was lent to the defendant as a consequence of the parties’ agreement to each lend RMB500,000 to the Kindergarten as its operating funds[9].

Whether the alleged express oral assurance is believable?

22.  The defendant’s key allegation to support the defence of collateral agreement would be the alleged express assurance (as referred to in paragraph 20 above) made by the plaintiff to the defendant that the Repayment Agreement would be applicable to the subject loan (“the alleged express assurance”).

23.  But as said, this court would not simply take the alleged express assurance at its face value.  By testing it against the undisputed evidence as disclosed in the parties’ affirmations, this court comes to the clear view that it is not believable as it was so seriously contradicted by or inconsistent with the material contemporaneous documents produced by the defendant herself.

24.  First of all, it is not even the defendant’s own pleaded case that the plaintiff had ever made such alleged express assurance to the defendant with respect to the subject loan. The alleged express oral assurance being such an essential allegation, upon which the defence of collateral agreement was premised, was not mentioned in the Defence or its Amended Winding Up Petition.  Paras 54 and 55 of the Defence only pleaded thus:-

“54. It was well understood by the Defendant and the Plaintiff, as directors of the Company, that such sum would be treated as a loan advanced to the Company similar to the Loans and the Purported Loan[10], to which the Repayment Agreement shall apply.

55. To assure the Defendant, the Plaintiff also caused Leon to sign an identical loan agreement for another personal loan of RMB500,000, which was also agreed to be used for the same purpose…”[11] (emphasis added)

25.  To start with, it is doubtful whether paragraph 54 of the Defence has properly pleaded any ‘agreement’ between the parties that the Repayment Agreement shall apply to the subject loan given the deliberately vague language used.  The Defence was carefully drafted by counsel, who had made a conscious distinction in the use of the terminology of ‘agreement’ as opposed to ‘understanding’ in the pleadings.  The plea in paragraph 18 of the Defence is one example.  However, even giving the benefit of doubt to the defendant in the Order 14 context, paragraph 54 would at most only suggest there had been an ‘unspoken agreement’ between the parties that the Repayment Agreement would also apply to the subject loan.  But if it was an unspoken agreement, it could not be referring to an express oral assurance as alleged[12].  The two are mutually exclusive to each other.

26.  Not only that, the assurance from the plaintiff as perceived by the defendant as pleaded under paragraph 55 of the Defence is not the alleged express assurance but something else, viz “the plaintiff caused Leon to sign an identical loan agreement borrowing the same amount of personal loan”.

27.  The other contemporaneous documents also point to the alleged express assurance being a recent concoction.  In the pre-action letter issued by the defendant’s solicitors on 16 September 2014[13], the defendant categorically denied that the subject loan had been advanced by the plaintiff to the defendant.  In her soliciors’ subsequent letter dated 14 October 2014[14], the defendant further alleged that the plaintiff’s advancement of RMB1 million (ie RMB500,000 to the defendant, and another RMB500,000 to Leon) was in fact made to the Kindergarten with the defendant and Leon holding the same as custodians or trustees for the Kindergarten. 

28.  It is unimaginable in this case that nothing was mentioned about the alleged express assurance of the plaintiff in these pre-litigation correspondences if what the defendant said about the alleged express assurance is true.

29.  Had the alleged express assurance been made by the plaintiff, it could have been very easy and natural for the defendant to say so to her solicitors at the time.  Yet not a single word of explanation was offered in her supporting affirmations to account for the omission or as to why there is such a material shift of her case from what was stated in her solicitors’ pre-action letters to the one now put forward in her affirmations to oppose the Order 14 application.

30.  The truth is that it was only after the plaintiff had commented in his affirmation[15] that the defendant’s plea[16] was nonsensical by querying why the defendant would feel any assurance or comfort in the fact of the plaintiff advancing the RMB500,000 loan to Leon, then the defendant mentioned the alleged express assurance for the first time in her 1^st affirmation filed on 31 May 2016 and repeated it again in her 3^rd affirmation filed on 17 August 2016.[17]

31.  Although Mr Lo seeks to argue it is incredible that the defendant would accept the personal financial exposure without at least reassurance that the Repayment Agreement would apply to the subject loan, such argument would not hold water when it is not even her client’s own pleaded case that her defence is basing on any express collateral agreement as explained above.  On the other hand, Mr Cheung submits and I agree that even assuming the Repayment Agreement did exist for the purpose of this Order 14 application, it could also make perfect sense for the plaintiff to loan the money to the defendant personally without the Repayment Agreement being applicable here as the plaintiff would no longer be concerned about the condition precedent requiring profitability of the Company and can demand repayment from the defendant directly and unconditionally at the end of the agreed loan period.

Whether the collateral agreement can be implied, etc?

32.  With the alleged express assurance gone, the mere existence of the Repayment Agreement (even assuming there is a triable issue with such defendant’s averment for the present purpose) would not be sufficient to constitute a collateral agreement to the subject loan agreement.  For, the Repayment Agreement in such a circumstance was made between the parties with reference to the previous loans lent by the plaintiff to the Company, as opposed to the subject loan, which was lent by him to the defendant personally instead.

33.  If the defendant desires to argue for any collateral agreement of the effect she contends for by way of implication, she had the duty to properly plead and formulate such case accordingly.  Nonetheless, it is not conceivable as to how the defendant can properly meet this requirement, as her pleadings now stand.  Neither can she overcome the burden to prove any such alleged collateral agreement strictly even taking further into account Mr Lo’s submission advanced on her client’s behalf.

34.  If we revisit paragraph 54 of the Defence, the sole alleged factual basis for the plea that it is well understood by the parties that the Repayment Agreement shall apply to the subject loan is that ‘such sum would be treated as a loan advanced to the Company similar to the previous loans to which the Repayment Agreement applies’. However, the very fact of the plaintiff requiring the defendant (rather than the Company as in the past) to enter into the subject loan agreement prima facie does not well sit with such alleged factual base.  And it is trite that making a bare assertion without condescending into particulars per se would not be sufficient to enable a defendant to discharge his or her burden as required under Order 14.

35.  Not only it is observed that the defendant can produce no or no credible evidence that the plaintiff had treated or would treat the subject loan as a loan to the Company, I also agree with Mr Cheung’s submission that the plaintiff had advanced very substantial sums by way of a series of loans to the joint venture in the past, if the subject loan were to be treated by the plaintiff as a loan to the Company, there is no reason why the subject loan could not have been made in a similar fashion as before, but had to be made this time by way of a separate loan agreement with the defendant personally instead.  

36.  Speaking common business sense, the fact that the plaintiff requested the defendant to sign a personal guarantee in respect of the past loans though refused by the defendant (which is again common ground) and require the defendant to enter into the subject loan agreement would prima facie suggest the plaintiff no longer wanted to follow the previous modus operandi to advance loans solely from his side to the Company.  The new arrangement prima facie suggested (and again I see no or no credible evidence to the contrary) that the plaintiff now desired the defendant to take up the responsibility to contribute to the Kindergarten’s operating funds by herself direct.

37.  Even taking further into account paragraph 55 of the Defence, it is likewise a non sequitur from the fact of the plaintiff lending loan of equal amount to Leon at the same time to imply any collateral agreement that the Repayment Agreement would apply to the subject loan.

38.  Fundamentally speaking, putting the defendant’s pleaded case to its highest, it may only in effect plead for an alleged implied term of the subject loan agreement that the repayment date for the subject loan is just like that under the Repayment Agreement for the earlier loans, viz when the business starts to make profit. But any defence basing on such implied term (if it has really been so pleaded) is likewise bound to fail.  This is because such alleged repayment term would hinge on a contingency which nobody knows when it would be materialized (and to say the least, there is no evidence in this respect), and this would be contrary to the definite repayment date expressly provided in the subject loan agreement. 

39.  Mr Lo made zealous effort to submit that the subject loan agreement does not stipulate the repayment date for the subject loan.  With respect, I disagree.  Notwithstanding Mr. Lo’s able submission, it is evident that the subject loan is a term loan and according to the loan period[18] expressly and unequivocally provided in the written loan agreement, the subject loan is repayable in full on 1 May 2014[19] (ie at the end of the specified loan period) (see Chitty on Contracts (32^nd ed). Vol II, para 39-268).  I can see no ambiguity arisen in construing the repayment date set out in the subject loan agreement having due regard to the factual matrix of this case, including the repayment terms of the prior loan agreements entered into between the Company and the plaintiff[20], and of the loan agreement entered into between the defendant/Leon and the Company on 17 May 2013[21] which Mr Lo has drawn my attention to.  In my view, there is plainly no arguable point of construction of the subject loan agreement to suggest the repayment date of the subject loan to be any other day than that as expressly provided therein.

40.  It is a cardinal rule that no term can be implied into a contract if it contradicts an express term. (see Kensland Realty Ltd v Whale View Investment Ltd & Anor (2001) 4 HKCFAR 381, per Bokhary PJ at para 59; Marks & Spencer plc v BNP Paribas Securities Services [2016] AC 742, per Lord Neuberger at p 757A) Here, I see no sound reason at all why such rule should be departed from (even assuming the Repayment Agreement for the prior loans lent to the Company did exist for the purpose of determining this Order 14 application) when the parties have expressly provided in clear term the repayment date in the subject loan agreement. 

41.  The learned author in The Interpretation of Contracts (6^th ed), Lewison, at para 6.11 cited Persimmon Homes (South Coast) Ltd v Hall Aggregates (South Coast) Ltd [2008] EWHC 2379 where Coulson J said:-

“An express term in a contract excludes the possibility of implying any term dealing with the same subject-matter as the express term.”

42.  For the above reasons, it is plain to this court that the purported defence to the plaintiff’s claim as put forward is just a sham defence.  There is in truth no collateral agreement as contended for, express or by way of implication.  Implying any repayment term into the subject loan agreement as similar to that under the Repayment Agreement for the prior loans lent to the Company is also out of the question.

The Transfer Summons

43.  Should there be any triable issue in the plaintiff’s claim, I would agree with Mr Lo’s submission that it would be appropriate to transfer this action to be heard together with the winding up petition due to the overlapping of issues or matters in dispute in both cases arisen out of the same factual background.  At the hearing Mr Cheung also agreed to such arrangement in that event notwithstanding his prior contrary written submission.  However, since it is clear and obvious that there is no such triable issue in light of the above analysis, it would make no sense for this court to order the transfer just to burden the Companies Court with an additional task to try the plaintiff’s claim which in fact have no triable issue.

Conclusion and order

44.  In the premises, this court hold that the defendant failed to show any triable issue, or that there ought to be some other reason for trial of the plaintiff’s claim. 

45.  I therefore order that summary judgment be entered in favour of the plaintiff. And, it is adjudged that the defendant do pay the plaintiff the sum of RMB500,000 (or the Hong Kong dollar equivalent at the time of payment) together with interest accrued thereon at the contractual rate, viz the prevailing HSBC’s best lending rate,[22] from 2 May 2013 until the date of judgment, and thereafter at the judgment rate until full payment. As for the Transfer Summons, it is dismissed accordingly for reasons given above.

46.  There is no reason why costs should not follow the event here.  I heard no contrary costs submission from Mr Lo either.  I therefore order the defendant to pay the costs of this action, including the costs of this Order 14 application and the Transfer Summons, to the plaintiff to be taxed if not agreed with certificate for counsel.

47.  Lastly, it remains for me to thank counsel on both sides for their helpful assistance.