LEE TAT & CO v. JOLLY HOPE LTD

DCCJ3741/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3741 OF 2002

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JUDGMENT

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1. The plaintiff applies for summary judgment in the sum of $283,592.50 for work done and service of words-imprinted art works rendered. The defendant applies for the joinder of a company, Garwin Enterprises Ltd. ("Garwin") and a Mr. Koichiro Takahashi ("Mr. Takahashi"), as defendants.

2. There is no dispute that the plaintiff supplied the art works to the defendant. However the defendant has filed a Defence in which it pleads that the plaintiff was the trade name of Mr. Lam Pat Shing ("Mr. Lam"). The defendant, which sells watch parts, was owned and controlled by Mr. Takahashi, who also, along with another person, owned and controlled Garwin, which manufactures watch bracelets for the defendant. Mr. Lam is the substantial owner of one Hang Shing Metal Products Ltd. ("Hang Shing") which makes watch cases. In January 2001 Mr. Lam requested Mr. Takahashi to cause the defendant and/or Garwin to place orders with Hang Shing. The defence goes on:

10. At about the same time, Mr. Takahashi and/or the Defendant and/or Garwin lent a sum of $720,000 to Mr. Lam.

PARTICULARS

The loan was made by the Defendant and/or Garwin and/or Mr. Takahashi by Garwin Enterprises Ltd. issuing a cheque no. 31.8000 dated 15th January 2001 in favour of Hang Shing as directed by Mr. Lam.

11. Before or at the time the loan was made, it was expressly agreed between Mr. Takahashi acting both for himself and on behalf of the Defendant and/or Garwin and Mr. Lam acting both for himself and on behalf of Hang Shing that the Defendant and/or Garwin shall be entitled to set off the prices of future orders placed by the Defendant and/or Garwin with the Plaintiff and/or Hang Shing from the loan.

12. In the premises, the Defendant avers that it has settled all the Plaintiff's claims herein and denies that it is liable to the Plaintiff as alleged or at all. Paragraphs 2 and 3 of the Statement of Claim are therefore denied.

3. The defendant on 21 October 2002 filed the summons to join Garwin and Mr. Takahashi as defendants. In his supporting affirmation Mr. Takahashi produced a document dated 15 January 2001 on Garwin's headed paper, addressed to Hang Shing, and bearing to be a promissory note for $720,000.00. There is a note on it which says "This sum will be deducted from price of goods". He also produced a cheque drawn by Garwin in favour of Hang Shing on the same date. He said that in order for all the issues and disputes among the parties to be adjudicated, it was just and convenient for Garwin and himself to be joined as defendants, so that they could counterclaim against the defendant and, if necessary, Hang Shing.

4. The plaintiff then applied for summary judgment, and in his supporting affirmation Mr. Lam says that he is indeed the sole proprietor of the plaintiff and a director and shareholder of Hang Shing, but their businesses are different and independent. The loan of $720,000.00 was lent by Garwin to Hang Shing; it had nothing to do with the plaintiff or himself in his personal capacity. It was done because Garwin intended to place orders with Hang Shing to manufacture watch cases for its customers. Hang Shing needed funds to buy machinery and materials for the manufacture. So it was agreed that Garwin would lend Hang Shing the money, and the price of the products would be set off against the loan. In his affirmation in opposition to the defendant's application for joinder he also affirmed that the loan was unrelated to the present action.

5. Mr. Takahashi filed an affirmation in reply in the Order 14 proceedings. He said that Mr. Lam had asked him to give him business by placing orders with his new company, Hang Shing. There was no reason for him to agree that the defendant or Garwin would make an advance against products to be produced by Hang Shing whose quality were as yet unknown. After the loan was made, he caused the defendant and/or Garwin to place some test orders with Hang Shing, but apart from one very small order worth $21,831 referred to in his solicitors' letter of 26 July 2002, for which credit was to be given, all other goods from Hang Shing were of unmerchantable quality and were returned. He continues:

"Since then the parties (at least the Defendant, Garwin and I) proceeded on the basis that the sum of $720,000.00 would be repaid by deducting the amount from invoices for goods sold and delivered by the plaintiff, and no objection was raised by Mr. Lam until shortly before the commencement of these proceedings".

6. Mr. Takahashi produces the letter from his solicitors dated 26 July 2002 which sets out the alleged agreement on which he relies and further states that the defendant had given the plaintiff credit of $456,437.70 by way of setting off order prices as follows:

1. HK$283,592.50 as between Jolly Hope and Lee Tat & Co.;

2. HK$151,014.20 as between Garwin and Lee Tat & Co; and

3. HK$21,381.00 as between Garwin and Hang Shing

but unfortunately no credit notes or other documents in support have been produced.

7. This whole situation seems to be a horrendous muddle. I excluded a 3rd affirmation of Mr. Lam which was filed late, but I do not think that this prevents me from alluding to the fact that there could be another claim pending by Hang Shing against Garwin for the price of watch cases sold and delivered for an amount which would be beyond the jurisidiction of this court.

8. The defendant seeks to have Garwin and Mr. Takahashi joined so that they may counterclaim. Leaving aside for the moment any questions of law, there is a practical difficulty in that the defendant has not specified what the counterclaims of Garwin and Mr. Takahashi will be. It pleads that Mr. Takahashi and/or the Defendant and/or Garwin lent a sum of $720,000 to Mr. Lam. But it will need to specify who did the lending, if one or more than one of them lent, and if more than one, how much each one lent. Also we have the averment of the agreement that the defendant and/or Garwin shall be entitled to set off the prices of future orders placed by the defendant and/or Garwin with the plaintiff and/or Hang Shing. While it is no doubt desirable that all the issues between parties should be dealt with at the same time, we have here four different legal persons only two of which are actually parties to this case, and no proper specification of the exact issues between them. The whole joinder exercise smacks of an attempt to increase rather than reduce complications and therefore to increase rather than save time and costs.

9. At the very least, it seems to me that before any joinder could be undertaken the defendant or defendants should decide exactly what their case is. It is argued that the other parties should be joined at this stage, because if the matter went to trial without joinder and the judge found that the money had been lent for instance by Garwin or Mr. Takahashi to Mr. Lam, he could not make the appropriate order in favour of the lender. However, the plaintiff's claim is not in dispute. The defence is that the defendant owes nothing because the plaintiff was lent money which he agreed to set off against the price of goods and services supplied to the defendant. The defendant would have, at trial, to establish the truth of this assertion on the balance of probabilities. If it could do so, that would be an end of the matter, wherever the money came from. The defendant is not counterclaiming for any balance; and if it be found that the money came from another person there would be nothing to stop that other person suing for separately for any balance owed to him.

10. In any event I think the proper course is for Garwin and Mr. Takahashi, if they want to claim, to decide exactly what is the basis of their claim, and plead it properly in separate proceedings. After all, if Mr. Lam has been owing them money for a year now, they have had ample time to pursue him for it; something which they do not seem to have been doing before this action was raised. If it then seems appropriate, an order can then be made to join the proceedings or have them heard one after the other by the same judge. Any other course, in view of the muddled nature of the defence, will only produce further complication and delay.

11. If, of course the plaintiff can obtain judgment under Order 14 the whole question of joinder will fall away. So far as Order 14 is concerned the defendant has to show a defence which is believable. The Order places the threshold onus on the defendant to show that there is a triable issue. The Court will test the credibility of an affidavit asserting a triable issue against the conduct of the defendant and contemporary documents. See Murjani v. Bank of India [1990] 1 HKLR 586.

12. In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 Godfrey J.A. said:

"...I would sound a note of caution about Murjani which has come to be cited in almost every case under O 14 or O 86 to justify the plaintiff in asking the court to embark on a mini trial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question: 'Is what the defendant says credible?'. If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed, it is whether those assertions are believable."

13. This does not, however, mean that the court should not have regard to the conduct of the defendant and contemporary documents. As Bokhary JA put it in Re Safe Rich Industries Limited, Civil Appeal No.81 of 1994, unreported, 3rd November 1994 :-

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

14. Here we have, produced by the defendant itself, a document which bears to show quite clearly that a sum of money was lent by Garwin, and no one else, to Hang Shing and no one else. It says that his sum will be deducted from the price of goods. The normal assumption must be that that means, goods supplied by Hang Shing to Garwin, for it does not name anyone else. We have Mr. Takahashi's affirmation of the truth of the pleaded defence that the money was lent to Mr. Lam, and then in his second affirmation he says there was no reason for him to lend money to Hang Shing, a new company; but this is inconsistent with the face of the document which shows that Garwin did that very thing. His later assertion of how "the parties, (at least the defendant, Garwin and I)" proceeded sounds more like a unilateral assumption than an agreement.

15. I considered whether this story might be believable, on the basis that businessmen, desirous of having a corporate veil or two behind which to hide when necessary, may deal with each other man-to-man but put the actual transaction through the company or companies of which each is the alter ego. This is a tempting explanation but I do not think it sufficient. The contemporaneous document is quite clear. It records a loan to Hang Shing against which the price of goods is to be set off. If it was to Mr. Lam personally there was no reason not to record it as such particularly if Mr. Takahashi did not want to lend to Mr. Lam's new and unknown company. If there was to be some kind of four-cornered deal involving Mr. Lam, Hang Shing, Garwin and Mr. Takahashi there was no reason for them not to record it as such.

16. Looking at the defence against this background, I find that it is not believable. There I no question of finding some other reason for giving leave to defend, since I am refusing the application for joinder. It follows that the plaintiff must have summary judgment.

17. The defendant's summons dated 21 October is dismissed. The plaintiff will have judgment for $283,592.50 with interest thereon from the date of the writ to the date of judgment at the best lending rate plus 1%, and thereafter at the judgment rate until payment, plus the costs (nisi) of the action, including the costs of the application for summary judgment and the application for joinder of parties, to be taxed if not agreed, with certificate for counsel.

Remarks: